A Major U.S. Corporation is Trying to Do the Right Thing. The Government Shouldn’t Try to Stop It.
As a long-time consumer advocate, I don’t often have an opportunity to praise a Fortune 500 company for doing the right thing. But in December, Johnson & Johnson — the corporate giant behind numerous household and personal care products — sent a little-noticed letter to the Securities & Exchange Commission (SEC) outlining its opposition to a dangerous proposal from one of the company’s own shareholders.
The SEC’s response could determine whether pension funds, retirees and Americans saving for a college education for their kids can rely on the courts to protect their investments … or whether they’ll be forced to settle disputes in closed-door (and, often, pro-business) arbitration proceedings.
For decades, every member of the SEC to talk about the issue, Republican or Democrat, has rightly insisted that if a group of shareholders have been lied to or deceived, that they have a legal right to hold companies accountable for fraud, deception and other misdeeds in a court of law. That’s because the SEC has long understood that giving shareholders the right to band together and protect the integrity of the companies they invest in makes our country’s stock market more attractive to investors from both here in the United States and around the world. Stripping away that right has the potential to turn the stock market into the wild west and take the most effective cop (the courts) off the beat when it comes to corporate shenanigans.
Johnson & Johnson no doubt understands this risk as well, and wants to reassure investors that it is still a safe, reliable and responsible company to invest in. It would not only be illegal for Johnson & Johnson to adopt a new bylaw that blocks cheated shareholders from bringing a class action, it’s also very bad for the company: it amounts to telling investors, “by the way, if we cheat you, there’s nothing that you can do.” Accordingly, in its December letter, the company asked to SEC to affirm Johnson & Johnson’s right to turn away that request by one shareholder’s attempt to re-write the company’s bylaws — and, in doing so, also rewrite longtime SEC policy — stop the adoption of an arbitration clause that would bar its shareholders from seeking justice and restitution in court.
As Johnson & Johnson pointed out in its letter to the SEC, forcing the company’s shareholders into arbitration wouldn’t just be ethically troubling. It would likely be illegal, too.
The SEC’s response to Johnson & Johnson — which is expected any day now — could have huge consequences for anyone with a 401(k) or college savings account that is invested in the stock market. If the agency opens the door for companies to move disputes into arbitration, it will become much harder for shareholders to recover money they lose when a company’s stock plummets because of corporate and executive hijinks.
The man trying to force Johnson & Johnson to gut the rights of its investors has a long history of arguing that no investors need to go to court when they are deceived, because the free market will supposedly prevent any fraud. (For a guy who’s been making this argument for many years, he sure has missed a lot of history along the way, when dishonest people did, in fact, steal billions of dollars from investors notwithstanding the supposed magic of the invisible hand of the free market.) This zealous libertarian frames stripping investors of their right to go to court as “pro-business.” But as Johnson & Johnson clearly understands, it’s not pro-business to try and pull the rug out from under a company’s investors, who are counting on sound financial management to help grow and protect their retirement funds and savings accounts.
Johnson & Johnson’s corporate credo, written by Robert Wood Johnson in 1943, and still enforced by the company today, states that “We must provide highly capable leaders and their actions must be just and ethical.”
“When we operate according to these principles,” the credo goes on to say, “the stockholders should realize a fair return.”
The SEC should not interfere with Johnson & Johnson’s determination to live up to the values of that credo. And it should not put the retirement and college saving of countless Americans on the line in pursuit of a legally questionable — and highly risky — strategy being pushed on them by one shareholder with an ideological agenda and an axe to grind.
