Climate Change

Following the Law Isn't Exxon's Only Obligation

Companies can harm shareholders by misleading the public, even if it's not illegal.

Clouds rolling in.

Photographer: Luke Sharrett/Bloomberg

The attorney general of New York, Eric T. Schneiderman, is investigating Exxon Mobil for possible legal violations in connection with its public statements about climate change. (Disclosure: In the late 1990s and early 2000s, I did academic research on punitive damages awards, which was funded in part by Exxon.) While the legal issues are likely to be technical and complex, the investigation also raises fundamental questions about the ethical responsibilities of corporate officials, both to their investors and to the public as a whole.

QuickTake Climate Change

In light of mounting national attention to climate change, a lot of people are going to be pressing those questions. There are strong signs that the United States has finally reached a tipping point on global warming -- not so different from where the country was, with respect to same-sex marriage, in 2013.

Of course significant partisan differences remain. But President Barack Obama's rejection on Friday of the Keystone Pipeline is just the latest step in the U.S.'s shift toward accepting that climate change is real -- and toward insisting that the world needs to do something about it.

 That shift casts a bright light on the Exxon controversy. No one doubts that those who manage corporations have strong obligations to their shareholders. They are entitled, and even obligated, to take steps to maximize shareholder value. To do that, corporate officials may sharply oppose costly regulations, cast their activities in a favorable light, oppose what they see as unjustified scientific conclusions and in general act as vigorous advocates to promote their company’s interests.

At the same time, the obligation to maximize shareholder value imposes a duty of honesty and fairness. Shareholders will ultimately be hurt if a drug company falsely says that it is developing a product that will cure cancer, or if an energy company knowingly misstates the economic and environmental benefits of some untried new technology.

The same principle requires companies to stay within the bounds of probity in discussing external factors that bear on the company’s prospects, such as coming regulatory requirements and relevant technological shifts -- and climate change. If a company is perceived to have misled the public, its economic prospects will suffer, and it will struggle mightily to show that it has served its shareholders.

Finally, large corporations have social and political influence, and for that reason they have ethical obligations to the public as a whole. Of course those obligations usually allow corporations to protect their own interests. Companies that use genetically modified organisms, for example, are entitled to argue that their products carry no health or environmental risk. Many experts believe that on purely scientific grounds, that argument is right.

But as the Volkswagen scandal suggests, it would not be legitimate for truck manufacturers to misstate the greenhouse gas emissions from their vehicles, or even to say that greenhouse gas emissions just aren’t a problem -- at least if that position is inconsistent with the clear views of their own researchers about the science. Good-faith disagreement is fine; knowingly conveying falsehoods is not.

Which brings us to Exxon.

It’s perfectly fair for companies to argue that some regulations aren’t worth the cost, or that the Environmental Protection Agency has exceeded the requirements of the Clean Air Act, or that the U.S. should act only if China (and the rest of the developing world) does so as well, or that economic growth and cost-effectiveness need to be central considerations in any and all climate change initiatives. 

But there is a big difference between these arguments and making false statements, to investors and the public, about what corporate officials actually know. If corporate officials really have been lying, there’s going to be hell to pay -- if not in courts of law, at least in the court of public opinion.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Cass R Sunstein at

    To contact the editor responsible for this story:
    Christopher Flavelle at

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