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Is Atlas shrugging? BB&T won't support eminent domain

BB&T, the nation's ninth largest financial holdings company with $109.2 billion in assets, announced today that it "will not lend to commercial developers that plan to build condominiums, shopping malls and other private projects on land taken from private citizens by government entities using eminent domain."

In a press release issued today by the bank, BB&T Chairman and Chief Executive Officer John Allison, said, "The idea that a citizen's property can be taken by the government solely for private use is extremely misguided, in fact it's just plain wrong. One of the most basic rights of every citizen is to keep what they own. As an institution dedicated to helping our clients achieve economic success and financial security, we won't help any entity or company that would undermine that mission and threaten the hard-earned American dream of property ownership."

Here is more information.

Jacob T. Levy (mail):
BB&T is publicly held, I think. I wonder whether this stance would be found compatible with management's fiduciary duties to shareholders, if it meant that potentially profitable loans were being ruled out because their objects, while legal, were "just plain wrong." I think management is righty, of course, but there's no general privilege for management to be right with other people's money.
1.25.2006 12:02pm
Public_Defender:
Mr. Levy makes a good point. But if the decision sticks and others follow, it will mean that Kelo made it more difficult to use eminent domain for private purposes. Before Kelo, the same thing went on, but few protested. Now, local governments and, perhaps, private industry are putting on the brakes (or at least tapping the brakes).
1.25.2006 12:14pm
Al Maviva (mail):
BB&T has an interesting corporate values page, here. Money shot:


In evaluating other people, it is critical that we judge based on essentials. At BB&T we do not discriminate based on nonessentials such as race, sex, nationality, etc. We do discriminate based on competency, performance and character. We consciously reject egalitarianism and collectivism. Individuals must be judged individually based on their personal merits, not their membership in any group.
1.25.2006 12:18pm
AE:
Professor Levy makes an important point, but this decision by management is not necessarily incompatible with the fiduciary obligation to shareholders. Management could argue that this stance will increase the ability of the firm to target a certain segment of the investment market and that the gains from this "good will" will outweigh any foregone profits related to the loans in question.
1.25.2006 12:22pm
Bob Leibowitz (mail) (www):
Wow! A courageous leader. I need to buy some of their stock.
1.25.2006 12:24pm
Just another guest:
Makes you stop and wonder what world we're living in doesn't it when someone argues that corporate officers may have a fiduciary duty to help a business take from the poor to give to the rich what the poor have and the rich want.

Give me a break. There's no violation of a fiduciary duty there. Indeed, putting aside morals, the officer might be helping his company. I'm seriously thinking of switching my banking to BB&T.

Corporations aren't faceless entities with no moral obligations. Corporations are made of people, and those people, just like all people, have an obligation to act uprightly—even in business. Sometimes lawyers (or any highly educated professional) need to take a vacation to visit the real world.

And, in anticipation of responses, the response that "but the law may require this action (or inaction)" is no response. Assuming the law requires such action, lawyers (and judges) are the ones responsible for the requirement. Lawyers need to get a sense of moral obligation and stop making any argument that will bring victory for their client.

Take a break. Go back to your childhood. And remember the day when your parents told you "Do right--no matter the cost."
1.25.2006 12:25pm
Michael Patrick Gibson (mail):
Does anyone know of a de facto takings? Or eminent domain? I ask this because a controversy has arisen in a small but affluent town in CT where the town government has changed its method of re-evaluating property for taxes. On the new method, a piece of property, roughly put, is evaluated on the basis of what that property could be worth if someone bought it, tore down the old house, and built a newer, more expensive house in its place. Residents living in older and cheaper than average homes are upset because they have seen a jump in their property taxes. Some have considered moving. Some have. My question: isn't this merely a round about way of taking the property of those with older and cheaper homes?

Just a thought and obviously a digression.
1.25.2006 12:30pm
Thales (mail) (www):
"Corporations aren't faceless entities with no moral obligations. Corporations are made of people, and those people, just like all people, have an obligation to act uprightly—even in business. Sometimes lawyers (or any highly educated professional) need to take a vacation to visit the real world."

In the real world, which includes real legal concepts like fiduciary duty and constitutional rights (or non-rights, after Kelo), Anglo-American corporations are indeed faceless entities with no moral obligations. They have legal obligations, but taking all prudent and legal action (post-Kelo in this case, the actions we're concerned with are legal) to maximize shareholder value is the preeminent one. Of course, given the public outcry against Kelo, good PR may well do this better than unseemly private eminent domain seizures. But let's not pretend that if that were not the case, the management of this company could not be forced to change tune or step down.
1.25.2006 12:36pm
David Sucher (mail) (www):
Mr. Gibson,
The town changed from what other method?
What you are describing sounds like what I thought was the very standard "highest-and-best-use" method for assessing properties for taxation.
1.25.2006 12:37pm
Singers (mail):
Mr. Levy raises a valid point. Should fiduciary obligations restrict executives from making ethically-guided business decisions at the expense of corporate revenue? It's an interesting question, one that will likely receive more attention as the market starts placing a higher premium on companies with conscience.
1.25.2006 12:38pm
Vorn (mail):
The real question now is whether BB&T will survive in a harsh market place given its irrational inefficiency or be ground under competition like it should be.

Whatever happened to the traditional economic view that business cannot do anything inefficient or they will be put out of business? I think this is a good test case of that implausible theory. If BB&T survives despite this irrational policy, maybe we should rethink the traditional assumption that businesses make optimal decisions due to competition.

A related point sometimes made is that businesses will not engage in racial discriminate if their competitors don't. Why? Because racial discrimination is inefficient and thus those business who engage in it risk suffering in the market place. This case is analogous. Here, BB&T is "discriminating" (you might think the discrimination is a good thing) against certain projects that might be the most profitable.

If BB&T survives, I think it is grounds for skepticism concerning the general point that businesses that do not maximize efficiency will be ground under by competition.
1.25.2006 12:38pm
Joel B. (mail):
Jacob is certainly right in the sense that corporations hardly have the right to play morals cop with other peoples money.

At the same time however, I have little doubt, that the board and/or management would have little trouble showing that it is sound business practice to take up this policy, as some others point out for the benefit in probably goodwill and public publicity alone. Of course, one other question is...how much business is BB&T really losing out on? Probably not all that much.
1.25.2006 12:40pm
billb:
DavidS: In Travis County, Texas (where Austin is), real property value is assessed for the land separate from any improvements to that land (i.e. a house or other dwelling). The land value may be quite high for a crappy house in a desirable neighborhood. I've seen listings for houses at $300k where $250k was the value of the land. And I've seen properties where such an undervalued house was sold and torn down to build a $200k house on $250k worth of property to be sold for $450k+. So, in Austin at least, highest-and-best-use may hold for the land, but not necessarily for the improvements.
1.25.2006 12:45pm
Gil Milbauer (mail) (www):
There was an interesting "debate" on this topic (corporate fiduciary responsibility vs. social responsibility) among Milton Friedman, John Mackey (Whole Foods), and T.J. Rogers (Cypress Semiconductor) in the October 2005 issue of Reason magazine.

Here's the link.
1.25.2006 12:48pm
Chris S.:
Why is the policy necessarily irrational? You assume that the number of loans this type of takings that BB&T would reject outweighs the publicity and good will this might generate. The truly rational bank might do its best to quantify the benefit of the loans of this nature it is currently funding (quite few, I would imagine) and accord it no more relative weight than other benefits that might accrue to it through alternative action.

While perhaps more difficult to quantify, they certainly exist.
1.25.2006 12:51pm
Bob Flynn (mail):
Wow! I'm impressed. Most corporate weasels would sell their mothers to make a buck.

Mebbe, I'll buy some stock in BB&T, that "but for" this announcement, I would otherwise not.
1.25.2006 12:53pm
dweeb:
Regarding fiduciary duty, there's more than one way to maximize shareholder value. Corporations selling organic foods, cruelty-free cosmetics, etc., rule out what is arguably the most immediately profitable business methods, and thus prosper by reaching consumers of conscience. It could also be said that defense of property rights is ALWAYS serving the fiduciary interests of shareholders, since the corporation, i.e. the shares they hold, are private property, as are all the corporation's holdings, and any private property has value only insofar as the owner can retain his rights to it. There isn't a fiduciary duty to think short term.
Also, if the shareholders don't believe this is a good course of action, they're free to remove the officers who chose it.
1.25.2006 12:57pm
Swimmy:
Vorn: "Whatever happened to the traditional economic view that business cannot do anything inefficient or they will be put out of business?"

Leibowitz: "Wow! A courageous leader. I need to buy some of their stock."

Future BB&T PR: "We are a bank you can trust. Love us."

It may be a risk, but risks aren't irrational.
1.25.2006 12:59pm
DK:
There is a legal point here -- if BB&T can do this, then Congress can require the federal banking regulators to force every FDIC-insured bank to adopt the same policy against eminent domain.
1.25.2006 1:18pm
JosephSlater (mail):
Holy shoes on the other foot! I recall many debates on whether corporate strategies, e.g., pension investment strategies, designed to promote liberal-ish causes (no investment in corporate South Africa, "socially responsible investing," etc.) had much of the right in a tizzy about fiduciary duties.
1.25.2006 1:19pm
Mikeyes (mail):
Vorn: "Whatever happened to the traditional economic view that business cannot do anything inefficient or they will be put out of business?"

Inefficiency is in the eye of the beholder. I think Harley-Davidson managed to put that narrow view to rest when they started marketing nostalgia instead of engineering and reliability. This change in approach caused a turnaround in a company that was selling an outdated non-competitive product without having to change much in the engineering because they appealed to the "buy American" and the "Outlaw" image Harley had always projected.

BB&T is right on track in this time of political corruption and "faceless industry" whose only goals are to make the stockholders rich in the short term. Any good business (person) will tell you that customer service and a longterm view is what makes a company great and that short term greed will often destroy a company. From any perspective what they are doing, as "inefficient" as it seems, will be a moneymaker in the long run.
1.25.2006 1:24pm
gab (mail):
I wonder then if BB&T has pullled their credit lines and any other lending facilities they had to Pfizer, if they even had any. Have they sold off any Pfizer corporate bonds they hold in their bank portfolio? Has BB&T sold off any PFE equity they hold in trust accounts or mutual funds they manage? What about loan participations they own or participate in to Pfizer or other corporations that might have involved redevelopment activities that might have used eminent domain proceedings? What about ownership of municipal bonds in their own accounts or fiduciary accounts that were issued in connection with redevelopment activities?

I'm betting Mr. Allison hasn't gone through all the bank's portfolios to determine these issues. And that leads me to think perhaps this is just a PR move.
1.25.2006 1:42pm
Dimitri (mail):
The flip side of Mr. Levy's fudiciarily responsible corporation would be Yahoo, Microsoft and Google - all three forego the principles of freedom by kowtowing to Chinese dictums of censorship, but they sure are maximizing their shareholders' profits.

If I were a BBT shareholder today, I'd be proud - and speaking for myself, it would be worth a two penny dillution to my EPS.
1.25.2006 1:44pm
David M. Nieporent (www):
BB&T has an interesting corporate values page, here. Money shot:
Wow. Who knew Ayn Rand was a web designer?
1.25.2006 1:50pm
AF:
Given the outcry against Kelo, I assume you could justify the decision not to lend to these projects on the grounds that they are at risk of being disrupted by legal changes (eg, anti-Kelo statutes).
1.25.2006 1:52pm
Michael B (mail):
Bravo and bravissimo for the CEO. Yet Mr. Levy is correct. Still too though, this announcement itself is predicated upon future legal outlooks and scenarios. Current share holders would conceivably have valid complaints and standing, but any future share holders have now been advised of the policy, hence would not, or would at least have their prospects for any standing greatly mitigated.
1.25.2006 1:58pm
cathyf:
Another aspect is that eminent-domain political hot potatoes probably carry significant excess credit risk. Acme Corp. gets the city to take some land and give it to Acme. Then Acme turns around and sinks multi-millions in, while the citizenry rise up in the next election and throw out the bastards and install a new mayor &city council. Which whips around and says, "Hey, we ran the numbers again, and it would be better to take the property from Acme and give it to somebody else." Leaving Acme on the hook for their multi-millions in sunk costs, and after they go bankrupt, their lender has no collateral.

cathy :-)
1.25.2006 2:01pm
Scott Scheule (mail) (www):
I'm not entirely sure Atlas shrugging is the best metaphor. As I recall, Atlas (representing the industrial leaders of the world) shrugged because he was being constantly stolen from. Here we have Atlas not shrugging at all (BB&T is not going out of business) but rather simply adopting a particular ethical code. The better analogy would be something dealing with the resistance of temptation.
1.25.2006 2:04pm
Truman:
Couldn't there be an antitrust problem here in the form of market division. BB&T won't lend in a certain market segment, thereby reducing competitition and driving up profits in the "Kelo" lending department, and thereby also leaving their competitors with fewer funds to lend in the non-Kelo market?
1.25.2006 2:10pm
VC Reader:

if BB&T can do this, then Congress can require the federal banking regulators to force every FDIC-insured bank to adopt the same policy against eminent domain.

I am not sure that is true. Your hypo brings up some troubling unconstitutional conditions problems.
1.25.2006 2:15pm
Jam (mail):
Maybe BB&T sees the danger and is acting in self-defense? Emminent Domain may, one day, be used against assets held by BB&T (or clients, or stockholders) too.
1.25.2006 2:19pm
Houston Lawyer:
Regarding a corporation's duty to maximize value for shareholders, I would support a policy of prohibiting corporations from giving money to charity. It's easy to give away somebody else's money. I also believe that much charitable giving by corporations is done to support pet projects of management.
1.25.2006 2:22pm
jallgor (mail):
Mr. Gibson,
There is a whole area of law on de facto takings. The case i recall studying involved an idividual who owned beach front property that was subsequently declared protected. He was not allowed to develop it and he argued that the government needed to pay him for it as if they had condemned it. I think he lost if memory serves. I don't recall this area of law well at all but I don't think the law is very favorable to land owners and I think governments are free to take many actions that can almost completely devalue property without compensation to the owners.
1.25.2006 2:30pm
PG:
If Allison's new pronouncement is in violation of his fiduciary duties, would it matter if he said "Rather than not lending to these projects, we are going to take all the profit that we make on these loans and donate it to the Insitute for Justice for a campaign to pass anti-Kelo legislation in state and federal governments." Or what if he said that BB&T was going to use the profits to retain lobbyists for its own anti-Kelo campaign? Both of these options seem to be legal under current law.
1.25.2006 2:31pm
Jeek:
Nowadays they can take your property and give it to the fairies!
1.25.2006 2:45pm
VC Reader:

There is a whole area of law on de facto takings. The case i recall studying involved an idividual who owned beach front property that was subsequently declared protected. He was not allowed to develop it and he argued that the government needed to pay him for it as if they had condemned it. I think he lost if memory serves.

Are you referring to Lucas v. South Carolina Coastal Commission? That case involved a guy who bought two residential beachfront lots with the idea of developing them and selling them at a profit. After he purchased the property the state passed a law which essentially forbade Lucas from developing his parcels. The Supreme Court (Scalia) held that because he was entirely prevented from developing the land in accordance with his reasonable, investement backed expectations, that a de facto taking had occurred for which Lucas was entitled to compensation.
1.25.2006 2:49pm
guest (mail):
The "de facto" takings being referred to are commonly called "regulatory takings". If you're interested in reading up on the topic, that's the phrase you should google. Prof. Eagle at GMU also has a great treatise on the subject.
1.25.2006 2:59pm
KevinM:
I'm confused. What's all this got to do with guns ... or my kitchen?
1.25.2006 3:15pm
jallgor (mail):
VC Reader - not sure if that's the case I was thinking of but it sounds like it. I guess it's either the same case and I didn't remember the holding correctly or the case I was thinking of is no longer good law. I am leaning toward the former. Thanks.
1.25.2006 3:19pm
Hattio (mail):
I want to support what AF said. Even laying aside the good will which my offset any potential profits from "Kelo loans" it's possible this is still within fiduciary duties. It seems that if the company is relying on this surviving legal challenges and possible changes in local government to actually build the facility and then re-pay the loan, these loans might be bad bets. I think I read somewhere that the Kelo homeowners are still in their homes....
1.25.2006 4:11pm
Dennis (mail) (www):
I don't know when this happened, but the article is not that old.
The development arm of Edens &Avant again got in good with the city and forced Mrs. Lowman from her property on Assembly Street, right behind the C&S tower. Using the threat of eminent domain, the city and Edens &Avant fought it out with Mrs. Lowman, pushing her off her property and out of the way of the new BB&T bank building.
1.25.2006 4:24pm
VC Reader:

The "de facto" takings being referred to are commonly called "regulatory takings". If you're interested in reading up on the topic, that's the phrase you should google. Prof. Eagle at GMU also has a great treatise on the subject.

That's not exactly correct. De Facto takings are one type of regulatory takings, but there are other types of regulatory takings as well, such as development exactions or traditional Penn Central regulatory takings. So all de facto takings are regulatory takings but not all regulatory takings are de facto takings. Thus the terms aren't interchangeable. Professor Epstein also has a treatise of sorts on takings which would probably appeal to many VC readers.

jallgor--I think Lucas was the first de facto/total taking case the Supreme Court heard, if I am remembering correctly it was decided in the mid 1990s (I want to say either 1994 or 1996?). Perhaps you were remembering a lower level case or a state supreme court case?
1.25.2006 4:31pm
jallgor (mail):
I was probably thinking of Lucas but just remembered the holding wrong. I guess "memory didn't serve" in this case.
1.25.2006 4:41pm
VC Reader:

I guess "memory didn't serve" in this case.

I hate when that happens...
1.25.2006 4:50pm
Kyle Haight (mail) (www):

Wow. Who knew Ayn Rand was a web designer?

Who knew Ayn Rand was a CEO? (John Allison is an out-and-out Objectivist, a major supporter of the Ayn Rand Institute and the Anthem Foundation for Objectivist Scholarship. The BB&T Charitable Foundation has endowed programs for the study of the moral foundations of capitalism at a number of southeastern universities.)
1.25.2006 4:57pm
Anonymous Jim (mail):
This is such a publicity stunt it is ridiculous. As Dennis pointed out, doing a quick google search (I used "eminent domain and bb&t") will demonstrate how BB&T has participated in taking private property for their own use.

Plus there are so many ways around this it is a joke. Is "underwriting" "lending" because many of these projects are financed through bonds? If they were serious, they would say "we will not do business with anyone who receives or benefits from private property which was acquired by eminent domain or the threat of eminent domain". But they aren't serious, they just want publicity.
1.25.2006 4:59pm
Jacob T. Levy (mail):
By the way, my guess that there's a potential fiduciary breach here doesn't mean that anything will come of it; derivative lawsuits are hard to win. But they're easier to win when management gets caught describing what it's doing as moral rather than as "goodwill-building" or some such.

I do find this an entertaining test case. I wonder how many people who espouse the Friedman position on corporate social responsibility got excited by Tyler's post and didn't think about the fiduciary claim...? [I'm agnostic on the moral argument about corp. social responsibility; I was making the more mundane legal point.]
1.25.2006 5:42pm
byomtov (mail):
This is quite a dilemma for libertarians, isn't it? If you think that corporations have a strict obligation to maximize shareholder value, regardless of ethical considerations (not my view), then you have to criticize BB&T for this, no matter how much you like it. All the rationalizations about how the decision will actually benefit the company sound like major stretches to me.

Maybe the right thing for Allison to do is to take any benefit he himself realizes from Kelo-type takings and give it to those whose property was taken.
1.25.2006 6:55pm
HLSbertarian:
I doubt I know enough business law to get a full grasp of the issue, but I'm not seeing a problem here. Why is the obligation "to maximize profit" as opposed to "to maximize profit within the bounds of the company's corporate charter."

Suppose a hygiene product retail chain starts up that is expressly committed to never using animal-tested prodects (see The Body Shop). Are they betraying their stockholders if it turns out that the goodwill gained from this commitment doesn't actually exceed the competitive advantage lost? For that matter, are they betraying their stockholders if they don't switch to a more lucrative line of business altogether (who knows? men's shoes maybe)?

In BB&T's case, the company has a clear, extensive, express commitment to objectivist values. Is validly expressing these values in the business world a betrayal of investors who knew them going in just because it may not be the highest-yield strategy?

I don't see why a company following it's well-stated operating values should send libertarian investors soul searching. But I await the smarter folk to tell me otehrwise.
1.25.2006 7:29pm
Michael B (mail):
Considering Anonymous Jim's and Dennis's posts, they're not unreasonable in their more reserved view of the situation, but I'm not sure why BB&T needs to be either dismissed, in something of a cynical vein, or overly applauded as some paragon of virtue as a result of this. The over-reach reflected in Kelo, it would seem to many, is sufficient enough that beginning to redress it, via a variety of fora and motives and interests, including business interests, is a sufficient good that merits some reasonable amount of applause, even if the motives may be mixed.

Certainly, if a subsequent report finds truly cynical or machiavellian motives, then that discovery would warrant foreclosing any recommendation of BB&T for this announcement. But lacking that, there's no need to elevate BB&T to some position of secular sainthood, still it seems reasonable to appreciate it for what it is, neither over-valuing nor devaluing it. It seems to be a modest announcement and as a public/business policy seems worthy of a reasonable degree of respect without getting all misty-eyed over BB&T. It is what it is, no more but no less either.
1.25.2006 8:06pm
Dr. T (mail):

Vorn: The real question now is whether BB&T will survive in a harsh market place given its irrational inefficiency or be ground under competition like it should be.


I see nothing irrational or inefficient about BB&T's policy. What Vorn fails to consider is that it now may be considered risky to loan money to a private company that expects to acquire needed properties through emminent domain. Even if such a taking is locally legal, there may be legal or even physical attempts to block the transfer. Bad publicity may hurt the viability of the project. The project could be cancelled or delayed due to protests or changes in the law. Even if I was unconcerned about business ethics, I would avoid making loans in these circumstances.
1.25.2006 8:07pm
minnie:
Wow. What a great company! I intend to transfer my banking there tomorrow, and buy their stock, if possible.

The comments on this thread are so ridiculous that they defy the imagination and do not warrant response. E.g., Singer suggests that maybe we should require executives to make UNETHICAL decisions to pump up the bottom line. Unbelievable!

As pointed out, this thread should be called "Is Atlas Refusing to Shrug, not "Is Atlas Shrugging?". Guess Tyler never read Ayn Rand. Never too late to start!

And no byomtov, there is no dilemma for libertarians, obviously. Only for people with compromised I.Q.'s.
1.25.2006 8:13pm
BruceB (mail):
The detractors seem to assume that taking this position is bad for BB&T's bottom line. That may not be so.

How many potential clients are really on the list of those that profit from eminent domain takings? Is it really a significant portion of the market?

Is BB&T wanting for customers? Do they have more money to lend that they can't find a home for? My point is that they can probably stay fully invested (fully loaned-out?) without lending to such companies, meaning the impact on the bottom line is zero.

In essense, they have gotten good publicity and good will with both clients and the public, at what is very likely a minimal or even zero cost.

It's nice to see good ethics rewarded, but even ignoring the good ethic, this may be a good bottom-line move, not a bad one. How many free news articles did they get just today?
1.25.2006 8:57pm
byomtov (mail):
I don't see why a company following it's well-stated operating values should send libertarian investors soul searching. But I await the smarter folk to tell me otehrwise.

If BB&T were a post-Kelo startup you would be correct. But it's not and you aren't.
1.25.2006 9:19pm
byomtov (mail):
By the way, Mr. Allison is not exactly doing a marvelous job for his shareholders as it is. $5.4 million a year in compensation for a 4% annual return.

Look here.
1.25.2006 9:32pm
HLSbertarian:
I don't see why a company following it's well-stated operating values should send libertarian investors soul searching. But I await the smarter folk to tell me otehrwise.

If BB&T were a post-Kelo startup you would be correct. But it's not and you aren't.


Byomtov, I'm not sure what you're getting at here. The right way to apply set philosophical operating principles can change over time. (In fact, perhaps only in the current Kelo backlash could they make this move and justify it with the gain in goodwill.) Can you elaborate?
1.25.2006 9:59pm
Brian G (mail) (www):
This is the free market at its apex.
1.25.2006 10:44pm
minnie:
John A Allison IV's Compensation Vs. Banking Medians

Salary ($thou) 900 920
Bonus ($thou) 911 1,200
Other ($thou) 1,352 387
Stock Gains ($thou) 2,221 920

Total Compensation ($thou) 5,384 5,540

Seems like the reason Mr. Allison is on a par with other banking executives is mostly because of his stock gains.
So how bad could the stock be doing?
1.26.2006 12:27am
The Franchise (mail):
1978:
Warren Beatty, Buck Henry, Dyan Cannon..."Heaven Can Wait".
1.26.2006 12:32am
byomtov (mail):
Byomtov, I'm not sure what you're getting at here. The right way to apply set philosophical operating principles can change over time. (In fact, perhaps only in the current Kelo backlash could they make this move and justify it with the gain in goodwill.) Can you elaborate?

What I'm getting at is this:

If I start a firm, and seek investors, I am perfectly within my rights to declare any operating philosophy I want. If I decide I want to donate 10% of profits to various charities, for example, it is perfectly legitimate for me to do so, provided I make potential investors aware of this plan before they invest. But it seems to met that, from a libertarian perspective (which I interpret as shareholder returns above all, with behavior restricted only by laws), adopting such a policy after people have invested money is unacceptable. The same applies to Kelo.

I assume here that the policy in question - whether charitable contributions or avoiding Kelo-based projects - reduces shareholder returns. Of course my argument dos not apply in general to changes in philosophy that are motivated by the desire to increase returns (though even here some questions may arise if such this involves major changes in the types of activities the firm undertakes, the risk characteristics of its projects, and so on. I assume that we are not talking about essentially incremental changes).

So if you believe that BB&T will benefit economically from this policy change then you face no dilemma. I find that a dubious proposition.
1.26.2006 1:00pm
dweeb:
Houston Lawyer said:
"Regarding a corporation's duty to maximize value for shareholders, I would support a policy of prohibiting corporations from giving money to charity. It's easy to give away somebody else's money. I also believe that much charitable giving by corporations is done to support pet projects of management"

That's exactly Peter B. Lewis' stated position - profits belong to the shareholders; distribute the profits to the shareholders and let THEM decide what charities, if any, to which they wish to apply THEIR profits
1.26.2006 1:10pm
byomtov (mail):
Byomtov, I'm not sure what you're getting at here. The right way to apply set philosophical operating principles can change over time. (In fact, perhaps only in the current Kelo backlash could they make this move and justify it with the gain in goodwill.) Can you elaborate?

What I'm getting at is this:

If I start a firm, and seek investors, I am perfectly within my rights to declare any operating philosophy I want. If I decide I want to donate 50% of profits to various charities, for example, it is perfectly legitimate for me to do so, provided I make potential investors aware of this plan before they invest. But it seems to me that adopting such a policy after people have invested money is unacceptable. The same applies to Kelo.

(Note that I personally do not universally object to companies adopting, for ethical reasons, policies that do not maximize returns, but I take it libertarians do so object. I actually don't object to BB&T's policy per se, though I would to the 50% contribution example).

I assume here that the policy in question - whether charitable contributions or avoiding Kelo-based projects - reduces shareholder returns. Of course my argument does not apply in general to changes in philosophy that are motivated by the desire to increase returns (though even here some questions may arise if such this involves major changes in the types of activities the firm undertakes, the risk characteristics of its projects, and so on. I assume that we are not talking about essentially incremental changes).

So if you believe that BB&T will benefit economically from this policy change then you face no dilemma. I find that a dubious proposition.
1.26.2006 1:10pm
byomtov (mail):
Sorry for the double post. The first is clearly a draft of the second, final, version.
1.26.2006 1:13pm
dweeb:
byomtov, what your missing is that they may have a pre-existing founding corporate philosophy of which this decision is a logical result in the face of Kelo - some have posted here that BB&T has a longstanding history of supporting objectivist philosophy, and that this decision is a manifestation of that philosophy.
1.26.2006 1:16pm
dweeb:
gab, with regard to existing loans, there are likely contractual obligations that prevent applying this policy to them. Are you familiar with the term "day forward?"
1.26.2006 1:17pm
HLSbertarian:
Damn, got here late today. Byomtov, my answer was going to be essentially what Dweeb already said. Kelo, at least in some jurisdictions that weren't already doing the same thing as New London attempted, opened the door to transfers that were before considered legally murky. Assuming the the very extensive statement of BB&T objectivist governing principles isn't new, this move is a legitimate application of preexisting principles to a new legal situation.
1.26.2006 2:20pm
byomtov (mail):
byomtov, what your missing is that they may have a pre-existing founding corporate philosophy of which this decision is a logical result in the face of Kelo - some have posted here that BB&T has a longstanding history of supporting objectivist philosophy, and that this decision is a manifestation of that philosophy.

If they have such a policy and it meets the following conditions then you are correct:

1. It is clearly and emphatically stated in corporate publications such as annual reports, etc.

2. Such statements have explained the practical implications of the philosophy - not "we are objectivists."

3. There have been specific instances in the past where the company has sacrificed gains to maintain philosophical consistency.

4. The company has not deviated from this philosophy when convenient. (For example, has the company ever lobbied for legislation that would provide it with special benefits - has it engaged in rent-seeking behavior? Does it take advantage of special tax breaks? Either of these, it seems to me, would suggest that BB&T is entirely willing to violate its objectivist ethic when it is profitable to do so.)

5. And has Mr. Allison's performance in office been evaluated on a strict meritocratic basis? (I'm not sure if this would be part of objectivism or not, but their statements about "discrimination" surely suggest that to be consistent in their philosophies this should be done).

So I agree that if they have longstanding policies of this sort, well-publicized and consistently followed through the years, there is no problem. I'm dubious that the conditions hold, but I'm open to evidence.
1.26.2006 2:32pm
HLSbertarian:
OK, but I think you're still being too stringent. It may not always be feasible to follow this sort of governing philosophy. For example, a banking corporation in the United States could hardly survive if it refused to ever deal with recipients of special tax breaks, gov't contracts violating objectivist principles (most of them), etc. Why is total compliance a prerequisite to any compliance at all?

You could say that investors won't expect any sacrifice of profit to principles in the absence of across-the-board compliance. But I think that's unconvincing. I do agree, though, that it takes a holistic view of the circumstances surrounding the investment. From what I've gleaned so far of BB&T, I wouldn't find this stand as an unexpected move, providing that it doesn't endanger the businees.

PS: I think this entire thread of the argument (while interesting) is moot. I don't have their balance sheet in front of me, but I'm willing to bet that the gains in goodwill and publicity are at the very least comparable enough to the business loss to fall within the CEO's discretion.
1.26.2006 3:29pm
Nobody (mail):
Assuming BB&T is a Delaware corporation, this policy would pretty clearly be protected by the business judgment rule, and would not give rise to a cause of action on the part of shareholders. Get a grip, people.
1.26.2006 5:42pm
gab (mail):
Yeah dweeb, I'm familiar with the term, although I don't see it anywhere in the post... And the reality is that almost all loans can be sold. And bonds and equities can certainly be sold as well.

The whole thing still strikes me as a PR stunt.
1.26.2006 6:27pm
byomtov (mail):
I am not suggesting that BB&T incurs any sort of legal problems as a result of this policy. I am sufficiently familiar with the business judgment rule to know that it protects far worse than this.

Am I being overly stringent? Well, I'm being stringent. People are not perfect, and it is unfair to probe into every detail of the life of someone who generally tries to behave ethically. But I think a different standard applies to those who stand up and lecture others about their righteousness when they donate a dollar to charity. So, since I agree with gab that this is primarily a PR stunt, I think it is reasonable to hold BB&T to a strict standard.
1.26.2006 9:26pm
dweeb:
byomtov, the thrust of your list of conditions is clear, but their relevance depends on one other precondition - that this move can be shown to have a causal and detrimental relationship to shareholder value, which hasn't been demonstrated. Even if it does have a short term impact, defense of property rights is always, in the long term, better for the value of private property, which is what their shares, and the company's assets, are.
Upshot, even if your conditions weren't met, there are issues of fact, that wouldn't be easy to prove, that stand in the way of any shareholder action.
1.27.2006 4:26pm