Cubs Cursed by the "Business Judgment Rule"?
Pinch me - the Chicago Cubs REALLY are in the post-season and .... let's all hold our breath.... might even manage to make it to the World Series for the first time since 1945 and after precisely 100 years, could, just maybe, break the billy goat/black cat curse and win the World Series! .
Of course, most or all of these games will be played at night. And it was twenty years ago today,,, well almost (August 8, 1988 to be precise)... that lights came to Wrigley Field. So I thought it might be a good time to revsit the part of the story about events along the way to Wrigley Field FINALLY getting lights, years after every other Major League baseball team. Especially since the part I want to explore involves an unsuccessful effort to get night baseball at Wrigley and illustrates one way to apply the "business judgment rule" I've just been teaching to my Capital University students. And the irony of talking about getting electric lights just after power has finally been restored to me after doing without for five days due to the incredible windstorm from Ike's remnants which whipped through Central Ohio last Sunday also seems oddly appropriate.
Young Lawyer Takes on Mr. Wrigley. I am of course talking about the celebrated case of Shlensky v. Wrigley et al., 95 Ill. App. 2d 173, 237 N.E.2d 776 (1968). In this case, William Shlensky was a minority shareholder of Chicago National League Baseball Cub (inc.) ("Cubs Corporation"), the corporation which owned the Chicago Cubs and operated Wrigley Field. After several years of disappointing financial results, Shlensky became convinced that this trend would continue unless the Cubs "got with the program" and installed lights to play night baseball - just like every single other Major League team had been doing for years. For the short version of the essence of the case, check out this limerick from ContractsProf Blog:
As Wrigley explained to the court,
Pro-ball is a daytime sport,
Night ball you can see
Down at Comiskey
Where the teams out for profit cavort.
So Shlensky, being a red-blooded American sued majority controlling shareholder Phillip K. Wrigley (who held 80% of the shares and was also President) in his capacity as a director of the Cubs Corporation,as well as other directors and the Cubs Corporation itself. The suit was a shareholder derivative action against the directors for negligence and mismanagement. and sought an order requiring the installation of lights at Wrigley Field. Shlensky argued:
- While the weekend attendance of the White Sox and the Cubs was about the same, weekday attendance at night games played by the White Sox was much higher than that of the Cubs.
- Installation of lights is readily able to get financing and will quickly pay for itself through anticipated greater attendance.
- Wrigley was refusing to install lights not because of any concern for the welfare of the Cubs Corporation, but rather because he believed that baseball is inherently a "daytime sport."
- The other directors allowed Wrigley to dominate the board and acquiesed in the refusal to install lights even though they knew he wasn't acting in a good faith concern for the best interests of Cubs Corporation, but rather out of an entrenched personal opinion.
Business Judgment Rule in Action. Shlensky contended that these facts demonstrated arbitrary and capricious acts on the part of the directors constituting negligence on their part in failing to exercise reasonable care and prudence in the mangement of corporate affairs of Cubs Corporation. The trial court was not impressed and dismissed the amended Complaint apparently rather summarily without permitting any testiimony.
On appeal, the Illinois Court of Appeals affirmed, concluding that it had no business second-guessing the Cubs Corporation's board of directors. After discussing the essence of the "business judgment rule", including another well known "business judgment rule" case involving Henry Ford and his fight with the Dodge brothers (Dodge v. Ford Motor Co., 214 Mich. 459, 170 N.W. 608 (1909), the Court concluded that in the absence of fraud, illegality, or a conflict of interest, a decision by a board of directors should not be disturbed as long as it had some ratinal basis, evenif in hindsight, the decision was wrong.
In applying the rule to the facts, the Court said:
we are not satisfied that the motives assigned to Phillip K. Wrigley, and through him to the other directors, are contrary to the best interests of the corporation and the stockholders. For eample, it appears to us that the effect on the neighborhood might well be considered by a director who was considering the patrons who would or would not attend the games if the park were in a poor neighorhood. Furthermore, the long run interest of the corporation in its property value at Wrigley Field might demand all efforts to keep the neighborhood from deterioprating. By these thoughts we do not mean to say that the decision of the directors was a correct one. That is beyond our jurisdiction and ability. We are merely saying that the decision is one properly before directors and the motives alleged in the amended complaint showed no fraud, illegality or conflict of interest in their making of that decision.
Then the Court proceeded to dissect Shlensky's other arguments, finding fault with his failure to demonstrate a causal link between night ganes and increased profits or to consider the additional expenses installation of lights and playing of night games might involve.
The Just One Bad Century website "dedicated to the long suffering fans of Chicago's favorite baseball team" (which may become one of my favorite websites) argues that the relative greater success of the Cubs making the post season since lights were installed shows that the Cubs real problem has been so many day games. If so, then perhaps the real curse on the Cubs was the deference given to the baseball purists on the Cubs Corporation who refused to allow lights at Wrigley Field forty years ago.
What If? Of course now less deference is given to directors so the case might come out differently today. But suppose Shlensky had commissioned an authoritative consulatant's report demonstrating quantitatively the substantially greater profitability of night baseball. And that the directors simply ignored this. Would the Court have given Shlensky more of a hearing and been less of an apologist for the directors? In some parallel universe, the Cubs have already won the World Series repeatedly.
The Rest of the Story.... And for those who want to know the rest of the story, check out this timeline of the road to lights at Wrigley Field which has such gems as....
- Shlensky was a 27 year old lawyer (somehow that figures) who had owned two shares of Cubs Corporation since he was 14.
- In 1941,P.K. Wrigley actually bought lights to be installed at Wrigley Field for 6 PM twilight starts. However, Pearl Harbor intervened and the steel for the light poles was donated to the war effort.
- In1982, the public was told the choice was lights or the Cubs would move. A Wrigleyville citizens group named Citizens United for Baseball in the Sunshine (CUBS) was formed to oppose installation of lights.
- The first Wrigley Field game under the lights began on August 8, 1988 against the Phillies, but it was rained out after 3 1/2 innings.
- Restrictions on the number of night games played still exist.
And finally...
Got my power back on Thursday night and while I realize that's nothing compared to what folks in Texas are dealing with, I will tell you that reading by flashlight does not work nearly as well now as when I was a kid. Also that I apparently spend an awfully lot of time on my laptop in the evenings and need to buy a new battery since the one I have only gives me an houor of juice. On the plus side, I definitely caught up on my sleep and found out how great it can feel not to be sleep- deprived. So I suppose the whole experience was useful.
I will be going to Oregon in a few days for a golf trip with friends so I may or may not get a chance to post before i leave.
