It is often said that crisis reveals character. In adversity, an individual’s values and integrity are tested and brought into the light – to shrink or steel in the crucible of calamity and conflict. Perhaps the same can be said of corporations and corporate governance in crisis.
In a forthcoming article, Silencing Litigation Through Bankruptcy, Professors Pamela Foohey and Christopher Odinet offer an insightful, critical view of how some corporations have responded to crisis by using bankruptcy law to silence survivors, exacerbate injuries, and hurt the public in the face of significant litigation. Through a thoughtful examination of businesses and other organizations using the bankruptcy code as a sword to cruelly suppress rather than a shield to carefully reorganize, the article makes a persuasive case for rethinking and reforming legal and business practices during crisis. In doing so, the article informs, expands, and challenges the ways one thinks about corporate governance.
To start, the article contextualizes the space of its argument and analysis by focusing on the use of bankruptcy in circumstances involving potentially calamitous and socially significant litigation that it terms “onslaught litigation.” The term “refers to alleged wrongful conduct that produces claims from multiple plaintiffs against the same defendant or group of defendants. When collected, the magnitude of claims and lawsuits presents the possible financial or operational crippling of the defendants over the long-term, or else will require the defendant to devote tremendous operational resources and time to the litigation because of its public saliency.” (P. 2.) Recent examples of onslaught litigation includes cases relating to opioids, gun violence, asbestos, and sexual abuse involving major corporations and organizations like Purdue Pharma, Johnson & Johnson, 3M, Boy Scouts of America, and various Catholic dioceses.
Next, the article explains how Chapter 11 of the bankruptcy code has been (mis)used by some corporations to “to bypass procedural justice and to shut down discussion of their purported wrongdoings.” (P. 3.) To be sure, the article does not claim that all corporate uses of bankruptcy in the presence of litigation are problematic. Rather, in response to onslaught litigation, some companies have deleteriously used bankruptcy as a means to stay a plethora of pending actions, suppress vital information, release third parties, and harm the greater public good. Often in these scenarios, the voices of victims are silenced, responsible parties are not fully held liable, and society is deprived of meaningful opportunities to heal and repair serious damages.
The article concludes by offering a variety of reforms and proposals to help curb the misuses of Chapter 11 bankruptcy and their detrimental effects in situations involving onslaught litigation. It does so mindful of the complicated governance and tactical considerations involving onslaught litigation, but also hopeful of a better path forward.
During a time when there is much discussion about the appropriate roles and purposes of corporations and about what it means to be a “good corporation,” this article by Professors Foohey and Odinet presents a valuable new perspective for thinking and rethinking the terms of ongoing corporate governance debates. Too often debates about corporate objectives, responsibilities, and stakeholders are framed in the context of core corporate operations during periods of relative calm and good fortune. Less so are such debates framed to include periods of crises and distress, like during reorganization and bankruptcy in response to onslaught litigation. Ironically, the concerns of shareholders, stakeholders, and society often matter a lot more when a business is fighting to survive than while it is thriving. Too frequently contemporary corporate governance debates fail to account for the full, topsy turvy life cycle of a business. It would be akin to measuring a person’s character based solely on their deeds when healthy and happy, while not considering their choices when distressed and debilitated.
In the end, timely and timeless debates about good corporate governance need to better capture the entire life cycle and varying volatility of businesses, covering periods of decline and distress as well as periods of growth and success. Corporate law and corporate governance should not end where bankruptcy law and reorganization begin. Many bankruptcy decisions are not just purely financial, and devoid of social impact. Rather, they are also decisions about corporate governance and corporate social responsibility, or perhaps more precisely termed, decisions about corporate social bankruptcy. As such, Professors Foohey and Odinet’s recent article offers us a valuable lens to see differently, act differently, and perhaps to do better in corporate governance – during times of calm and crisis, during times of boom and bankruptcy.
