Two momentous judicial decisions last week holed the Davos-flagged Ship of Lies that is ESG (along with its scurrilous parallels and progeny) below the waterline. A series of resounding broadsides will clear the decks for well-manned and fully prepared boarding parties to, if speedy, either take the once-mighty Man of War entire or send her to the bottom.
The important point, to round out this already overweighted metaphor, is that this plague ship be permitted neither escape nor repair.
The first of these decisions issued from the U.S. Fifth Circuit (en banc). The majority opinion of the Circuit held that the SEC’s approval of Nasdaq’s bigoted director-selection rule (the Rule) is the sort of action that, if done, had better have been authorized by Congress; it had not been so authorized, making it an ultra vires action beyond the SEC's statutory remit; and the SEC’s error was not mitigated by the Rule’s forcing potentially dangerous speech as an alternative to being thrown off the exchange for observing American civil-rights law.
The majority then reviewed what is central to the SEC's statutory remit. In sum, that review is bad news not just for DEI but for ESG generally, including the carbon-emission regulations; pretty much anything else the SEC has been up to in recent years (and in some instances, such as proposal-review, up to for decades); or any part of the “whole of government” initiatives of this dying administration.
It is extremely unlikely that the U.S. Supreme Court will take up this decision except perhaps for the purpose of rendering it the unquestioned law of the land.
Vital to the challenge were the New Civil Liberties Alliance (NCLA) – the good people who corrected the error of Chevron, and therefore, potentially, the stranglehold of a hateful and malevolent bureaucracy on the life of the Republic; Boyden Gray & Associates (BGA), which always and ever does yeoman and galvanizing work in behalf of American liberty; the Free Enterprise Project (FEP) – which was by its corporate designation the plaintiff that joined with NCLA to craft and pursue the arguments upon which the Circuit’s decision reposed; and the Alliance for Fair Board Recruitment. (I directed FEP at the time, so take that reference in this paragraph accordingly – and without any shadow on the encomia to NCLA and BGA, each vital and undoubtable captains in the (by this column’s conceit necessarily naval) battle to rescue the Republic. I have likely excluded here other directly creditable actors whose roles are unknown to me, for which my apologies.)
The second decision arose in a challenge by America First Legal/BGA against Target Corp. and its directors and executives (D&Os) on grounds that the D&Os had violated securities laws by making false and misleading claims (or omissions) to shareholders rather than honestly explaining the objective risks arising from the D&Os privileging of their own personal policy preferences over their fiduciary duties.
Those duties require Target’s D&Os to act with proper competence, honesty and industry in the neutral interests of the legal abstraction that is the Target Corporation, rather than 1. not bothering to do that work at all (breach of care/competence in the first instance); and/or 2. in direct contradiction of duty, ranking their personal preferences and private interests above their objective duties to a neutrally conceived Target Corp. (Recall that self-dealing breach of loyalty can result in recovery of punitive as well as general damages, with recovery collected from the personal fortunes of the breaching D&Os). This past week the challenge survived a motion to dismiss in federal district court.
This is another huge (though interstitial for now) win that may well, if sustained, prove the decisive decision in the challenge, as it goes to whether a legal claim has been stated. The decision moves a long step toward establishing – as the warp and woof of fiduciary law demands – that D&Os commit self-dealing breach even if no narrowly pecuniary nexus has been established. When that legal fact has been confirmed, the roads of the law (and perhaps more properly, the good old, non-Kendi-style paths “in equity”) seem clearly to lead through the courthouses and into the personal bank accounts (and no doubt vaults) of Messrs. Fink, Moynihan, Iger, et al. and, not forgetting the ladies, certainly Anne Finucane and her many, many persistent admirers and mentees (in spirit, anyway). And as fiduciary law (as all law in a republic) applies in the first person as well as the third, far less lofty self-dealers can anticipate similarly condign results.
The recent tide – these two decisions; Chevron’s end; a rising administration fully apprised that the whole-of-government initiatives of the Biden Administration matched exactly the chief goals forced upon American business and life in the name of “ESG,” &c; and the import of that, um, “coincidence” – makes the next few months the time for ESG’s opponents to engage per (and thus offer a merciful end to) this column’s metaphor.
The first half of this decade, we were told – amongst other materially misinforming cover – played out a vital racial reckoning. It seems each day much more likely that the second half will see a true-spoken fiduciary reckoning, as that law, with all its power and might, steps forth to the rescue and the liberation of the decade – and of the Republic.
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