After baseball, litigation is America’s national sport. A Harvard Law School paper, “Comparative Litigation Rates,” by Professors J. Mark Ramseyer & Eric B. Rasmusen notes that the U.S. has 5,806 lawsuits per 100,000 people. The U.K. is a poor runner-up with a paltry 3,681.  Please pardon my patriotic pride, but when it comes to litigation Team USA is at the top of the Premier League.

America is also famous for being the Land of Milton Friedman, well known for his argument that the only purpose of a company is to make money for its shareholders. Professors Colin Mayer, Leo Strine, and Jaap Winter have brilliantly argued that the time for this doctrine has passed. But it is far from dead as noted by how many companies behaved during the peak of the COVID-19 crisis and the lack of substantive steps following the Business Roundtable’s self-congratulatory “Statement of the Purpose of a Corporation” several years ago.

So what happens when the unstoppable force of litigation meets the unmovable object of shareholder primacy? While I cannot answer this ultimately metaphysical question, I’m thinking that the question  could become more substantial than metaphysical in the U.S. I explore this idea in some detail in a recent piece, “What the Shell Judgment Means for US Directors,” posted on the Harvard Law School Forum on Corporate Governance which I co-authored with four eminent legal scholars Sarah Barker, Alex Cooper, Ellie Mulholland, and Cynthia Williams.

The board of oil group Royal Dutch Shell is pictured during a shareholders meeting in The Hague, with (from L) CFO Peter Voser, CEO Jeroen van der Veer and Chairman of the Board Jorma Ollilla, on May 19, 2009. AFP PHOTO / ANP – OLAF KRAAK == Netherlands out – Belgium out (Photo credit should read OLAF KRAAK/AFP via Getty Images)

The reason this metaphysical question could be answered in the physical world is the recent ruling by the Hague District Court on May 26, 2021 which ruled that the iconic oil and gas company Royal Dutch Shell (RDS) must reduce its carbon emissions (Scopes 1, 2, and 3) by 45 percent by 2030 compared to 2019 levels. While Shell has appealed the ruling, it must abide by it while the case wends its way through the Dutch legal system. There is a certain irony in  that the ruling was the result of a lawsuit filed by a group of seven environmental and social NGOs (jointly referred to as Milieudefensie) in a country not nearly as well known for its litigious prowess as is the U.S.

It is also nicely symbolic that this ruling came the same day as the ExxonMobil annual shareholder meeting which resulted in Engine No. 1 placing three new directors on the company’s board of directors. I have written that this successful proxy battle by Engine No. 1 was a great victory for shareholders given the decades of miserable financial performance by a company doing everything it can to ignore the fact that the energy transition being forced by climate change requires fundamental changes to the company’s strategy and capital expenditures.

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