Do BP Shareholders Have Rights?

By Terence Jeffrey (Archive) · Wednesday, June 23, 2010

When eight British soldiers were indicted in Boston for murder in 1770 after five people were shot to death in a rioting crowd that was pelting the soldiers with projectiles, a young lawyer named John Adams took up the soldiers' case because he had a point to prove: Americans believed in -- and lived by -- the rule of law.

"The law, in all vicissitudes of government, fluctuations of the passions or flights of enthusiasm, will preserve a steady undeviating course; it will not bend to the uncertain wishes, imaginations and wanton tempers of men," Adams said in his summation to the jury in the trial of the soldiers.

America did not disappoint Adams. Six of the eight soldiers he defended were acquitted, and two were convicted of manslaughter, not murder. The jury listened to the evidence and returned a fair verdict based on the facts. (For a good summary of the case, see the "Famous Trials" website maintained by professor Douglas O. Linder at the University of Missouri-Kansas City Law School.)

When President Barack Obama was coming under increasing political heat for his response to the oil spill in the Gulf of Mexico, he decided to give his first-ever nationally televised speech from the Oval Office. But Obama is no John Adams, and preserving due process of law was not on his mind.

Many Americans were understandably angry at both BP and Obama, and Obama wanted to deflect the anger from himself by capitalizing on the resentment of BP. He would show, once again, he was the bully in chief.

"Tomorrow," said Obama, "I will meet with the chairman of BP and inform him that he is to set aside whatever resources are required to compensate the workers and business owners who have been harmed as a result of his company's recklessness. And this fund will not be controlled by BP. In order to ensure that all legitimate claims are paid out in a fair and timely manner, the account must and will be administered by an independent third party."

Now, the key words in this statement were "inform him." This was not a request. Indeed, the day before, The Washington Post said Obama would "demand" that BP turn over the money he wanted set up in this fund.

When considering Obama's action, it worth remembering that BP was not trying to disclaim responsibility for damage done by the oil spill, nor was it refusing to pay legitimate claims. As of this past Saturday, The New York Times reported, BP had already distributed 25,000 checks worth $63 million to people claiming damage from the spill. Company official had repeatedly insisted they would pay all legitimate claims.

But at his meeting with BP executives, with criminal and civil federal investigations looking into the gulf spill, Obama convinced the BP executives to surrender to an "escrow account" $20 billion of BP shareholders' money.

This "escrow account" will be managed by a Washington lawyer, who will oversee the distribution of funds to claimants. But Obama personally guaranteed that claims will be paid. "The people of the gulf have my commitment that BP will meet its obligations to them," Obama said. His political goal was to position himself as a champion of the little guy against big oil.

The owners of BP are ordinary people. You might be one yourself. According to The Washington Post, 40 percent of BP's stock is held in the United States. In Great Britain, according to the Post, one of every seven pounds -- or 14 percent -- paid in dividends to pension funds is paid by BP.

After the company's executives met with Obama, BP said it would suspend its dividend payments for three quarters -- meaning $7.8 billion would not be paid to pension funds, to retirees who invested in BP and to other shareholders.

The Fifth Amendment of our Constitution says: "No person shall be ... deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation."

In this case, BP's executives caved to Obama, preferring to cut their own political and public-relations losses rather than insist that due process of law be observed through the normal channels of American justice as they moved forward with their stated commitment to make restitution to those injured by the oil spill. But this sets a bad precedent for people who value property rights.

America will soon face a great financial crisis. The unprecedented federal deficits coming as a result of the welfare state that liberals have build up over the past 75 years will require the government to either dramatically diminish the entitlement benefits they have promised or dramatically increase government revenues. When that crisis comes, liberal politicians just might see the modest wealth accumulated by those middle-class Americans who actually saved -- by investing in such things as, say, BP stock -- as an attractive source of revenue to keep the dole flowing.

A president who has established a pattern of using executive power to unilaterally bully and intimidate corporate executives into surrendering their stockholders' property will be a happy precedent for them -- and a dangerous one for private property rights and the rule of law.

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