Personality and corporate ownership

By Taylor Smurthwaite | Published Wednesday, May 14, 2014

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Business ownership has recently come under scrutiny in regard to an owner’s autonomy and the business he or she controls.

The notion of free-flowing ideas, views and beliefs is fundamental to a democratic political system and a free-market economy. Owning a business should not limit one’s capacity to think freely.

Yet, in the business context, an owner’s personal views may not be favorable to the company as a whole.

Taylor Smurthwaite

Depending on the type of corporation, the owner’s opinions may impact the business. The NBA’s action against Donald Sterling highlights the tension between an owner’s ability to express personal beliefs and still effectively manage the business.

Given the NBA commissioner’s actions, corporate owners across the board should be watching closely to see how much of their individual personality is allowed in the corporate world.

On April 29 Adam Silver, commissioner of the NBA, publicly admonished Los Angeles Clippers owner Donald Sterling after the release of an audio file in which Sterling voiced offensive racist opinions. Silver issued a lifetime ban forbidding Sterling from any association with the NBA or Clippers franchise. He may not attend NBA games, practices, NBA board of governors meetings or any other league activity.

He even went so far as to state that Sterling may not participate in any business or player personnel issues within the Clippers franchise. Last Friday, he named Richard Parsons, former CEO of Time-Warner and Citigroup, as interim chief executive of the Clippers, replacing Andy Roeser, the team president who defended Sterling after the release of the recording.

While those actions may be grounded in a legitimate business interest, they present an interesting dilemma: to what extent do corporate owners maintain personal autonomy?

The NBA is a membership organization in which a team vests certain rights upon entry. Governing the association is the constitution and by-laws of the NBA. These documents provide Silver the authority and responsibility to represent the NBA’s interest, and grant him the power to suspend players, coaches, members and even owners.

What the NBA constitution does not do is explicitly grant the commissioner the power to divest Sterling of his ownership of the Clippers franchise. The issue of whether an umbrella association may intrude into a corporation’s affairs – or to what degree they may infiltrate a private organization – may depend upon the contractual agreement with the organization.

When business owners enter into a contract and agree to be bound by the association’s constitution, they waive certain rights. But they do retain the right to make their own business decisions. The NBA does not control ownership of a private company – but it does maintain power to oversee the franchise in relation to other franchises and the association.

This case and others reflect the fundamental tension between a company’s owners and the corporate entity they control.

The views expressed in the Sterling audio recordings are laden with prejudice and personal bias, but they are views held by one individual. Outlandish as his views may be, he is entitled to prejudicial thoughts.

The NBA intruding into a private corporation in an effort to protect its interest and image is problematic. The association’s attempt to ban Sterling from Clippers’ ownership seems to be an improper remedy for personal prejudice, given that the Fourteenth Amendment to the United States Constitution provides citizens equal protection under the laws.

The Supreme Court has repeatedly held that the Fourteenth Amendment is limited to public discrimination – yet the Civil Rights Act allows individuals to seek damages for intentional discrimination in some private settings. Accordingly, a remedy already exists where private biases affect individuals within a corporation.

A person may readily internalize hatred, but a system currently exists to protect individuals and interests from external prejudice and discriminatory action. In fact, public outcry caused former Mozilla CEO Brendan Eich to step down for supporting California’s Proposition 8 legislation.

The NBA need not overstep its authority, because the voice of the American citizen is strong.

Owners of corporations may of course continue to express their individual beliefs. But in a free market, they should proceed with caution.

Taylor Smurthwaite, a Decatur High School graduate, is a rising third-year law student at the University of Utah S.J. Quinney College of Law.

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