Recently Florida Gov. Ron DeSantis called on the Sunshine State’s pension fund manager to consider action against Bud Light’s parent company, Anheuser-Busch InBev. In a letter sent last week, DeSantis suggests AB InBev “breached legal duties owed to its shareholders” when it decided to associate itself with “radical social ideologies.”
Sales of Bud Light have, of course, declined significantly in the months since it engaged in a controversial marketing collaboration with transgender influencer Dylan Mulvaney. Backlash to the Mulvaney video, posted in April, has precipitated a consumer boycott that has continued to hurt the brand’s sales.
DeSantis also recently appeared on a Fox News segment in which the host suggested that Florida’s pension fund should sell all of its holdings in AB InBev in retaliation, and to avoid any future losses. But more controversial is the governor’s suggestion that the state of Florida actually sue the board of directors of the company. I have a couple of thoughts on those proposals.
First, selling the Florida pension fund’s InBev stock immediately could actually make things worse for state retirees – there’s no reason to think the stock won’t rally in the future and make back current losses. While the stock price did go down after the Dylan Mulvaney collab went live, from $66 a share to about $58 a share now, it’s still significantly above its 52-week low of around $44 a share. And the stock has seen much bigger ups and downs than that in the recent past – it dropped from over $100 in June 2019 all the way to around $40 in March 2020, for example.
AB InBev is also an extremely large company with dozens of brands, and even a significant decline in Bud Light sales isn’t going to tank the company. Selling now could lock in losses for Florida teachers and firefighters permanently.
Second, the suggestion that the state pursue a so-called “derivative lawsuit” against InBev is unlikely to go anywhere. CEOs and board members of public companies are generally protected in U.S. courts by what’s known as the “business judgement rule” when it comes to such challenges. Even if InBev management made a terrible decision and it ended up harming shareholder value, courts basically never second-guess management decisions in such situations.
It’s only when there is some demonstrable conflict of interest between directors and shareholders that a challenge would be allowed, like when insiders personally benefit financially from a management decision that short-changes shareholders. Thinking that a trans influencer marketing campaign would be popular, and then it not being popular, is not a breach of fiduciary duty.
If any shareholder could sue a company’s directors and managers anytime the managers made a mistake or the company’s share value declined, we would need to build a lot more courthouses because the volume of lawsuits would wash over existing judges like a tidal wave.
This was the major flaw in a legislative proposal by Sen. Marco Rubio (R-FL) in 2021, the “Mind Your Own Business Act” (reintroduced in the current Congress as S. 189). In an op-ed for Fox Business in September 2021, Rubio wrote that his legislation would allow shareholders to punish corporations for “stupid corporate decision-making” via lawsuits, but the obvious problem is that stupidity is in the eye of the beholder.
Rubio mentions Nike pulling its “Betsy Ross” sneakers, featuring an American flag, in July 2019. Was that a stupid decision? Some people, like Rubio, were clearly upset about it, but it doesn’t seem to have hurt the company. Nike’s share price on July 5, 2019 was $86.82 a share, but had more than doubled to an all-time high by November 5, 2021. It’s declined again since then, but is still well above its July 2019 value at $107.55 per share as of today.
Rubio himself acknowledges that some of the companies he dislikes haven’t yet experienced the “get woke, go broke” results of their supposedly stupid decisions. But if we’re not measuring sound corporate management by profit and loss, how are courts supposed to adjudicate shareholder lawsuits against supposedly woke companies? Would Rubio have a judge hold a corporate director personally liable for damaging shareholder value because of an unpleasant cultural association even when the firm’s share price actually increased?
For those interested in the background of this issue, I recommend the perspective of Prof. Stephen Bainbridge of UCLA, who is one of the top experts in the country on corporate law. He recently wrote a blog post about why anti-woke shareholder lawsuits, like the one suggested by Gov. DeSantis, are unlikely ever to be successful: “Stuff and Nonsense about Suing Woke Corporate Directors.”
Bainbridge doesn’t take sides in the cultural fight over decisions made by firms like Disney and AB InBev, but he does dive deeply into the background of director liability and the rights of shareholders, writing “…this not about politics. It is about law. And the law is that suits claiming woke directors breached their fiduciary duties by their decisions about how the corporation behaves in the political arena are non-starters.”
None of this means that you have to like Dylan Mulvaney as a brand ambassador or how AB InBev – or Nike or Gillette or Disney – have handled their corporate marketing up until now. You can absolutely boycott, divest from, or publicly criticize the firms involved and their management teams.
But it does mean that a shareholder lawsuit against InBev board members for adopting a controversial advertising strategy will likely end up being an unsuccessful media stunt rather than a serious attempt at protecting the retirement security of Florida state employees.