Gregory Graham

In recent weeks, controversy over corporate concessions to China on content and employee speech has gripped public discourse. On October 4th of this year, Houston Rockets’ General Manager Daryl Morey kicked off a public relations crisis for the NBA by tweeting his support for ongoing pro-democracy protests in Hong Kong.[1] Morey’s tweet triggered an immediate backlash from the Chinese government and public against the NBA, driving both the Rockets and the league to apologize and distance themselves from Morey.[2] Prominent coaches and players echoed these comments, including superstar LeBron James, who criticized Morey for tweeting while “misinformed” on Hong Kong.[3] In spite of these remedial efforts, the NBA suffered retaliation in the Chinese market including the cancellation of broadcasts and the pulling of team merchandise.[4]

In turn, the NBA’s deference to China regarding Morey’s tweet has drawn the ire of many in the United States. Perhaps most notably, the controversy has caused significant backlash from Washington. For example, a bipartisan group in Congress including prominent figures like Senator Ted Cruz, Senator Tom Cotton, and Representative Alexandria Ocasio-Cortez wrote to the NBA to criticize the league’s acquiescence to China and call for affirmative action against China’s Morey-inspired boycott.[5] President Trump also criticized NBA coaches and players for their statements.[6]

Additionally, the NBA controversy has heightened focus on the relationships between other American companies and the Chinese government. For example, Apple and Google have come under scrutiny for removing applications used by Hong Kong protestors at Beijing’s request.[7] Video game company Blizzard has also drawn backlash for suspending a Hong Kong based e-sports player for his comments on the protests.[8] More broadly, the controversy has heightened consideration of the manner in which corporate ties to the Chinese market have influenced American free expression.[9]

In addition to their significant cultural and political impact, these controversies also shed light on an important discussion in American corporate law—the debate over the fundamental duties of the corporation. In the dominant conception, as articulated famously by economist Milton Friedman, the overriding duty of the corporation is to maximize the profits of its shareholders.[10] In line with this doctrine, corporate law holds that directors and officers are exclusively the fiduciaries of shareholders.[11] This “shareholder primacy” approach has received criticism from proponents of a “stakeholder” model in which corporations consider a range of interests and focus on long-term value creation. In recent years, groups like the Business Roundtable and the law firm Wachtell, Lipton, Rosen & Katz have advocated for the adoption of the stakeholder approach.[12] Meanwhile, political figures such as Senator Elizabeth Warren have called for reforms like labor representation on boards of directors to align corporate leadership with a wider range of stakeholders.[13]

Corporate controversies related to China illustrate the drawbacks of an exclusive focus on shareholder returns for those concerned with broader social objectives. As the experiences of the NBA and others indicate, China’s ability to control access to its large and expanding consumer base is a major lever to influence corporate behavior. Recognizing this, the Chinese government has been quick to use formal tools and pressure from state media to discipline American companies, as seen in the government’s rapid retaliation against the NBA’s Chinese broadcasts and merchandise sales.[14]

In cases such as Daryl Morey’s, corporations have placated China by policing employee speech. In some circumstances, such as the Blizzard suspension noted above, employees have received significant financial penalties for their speech on Chinese issues. These incidents illustrate a broader phenomenon of social externalities created by the corporation’s orientation towards shareholder returns. These externalities are seen in other areas as well. For example, both Senator Warren and Wachtell Lipton’s New Paradigm recognize that existing corporate incentives for short-term profits promote inequality and concomitant political instability.[15] Other advocates for reform, such as BlackRock CEO Larry Fink, have also identified the environmental impacts of shareholder primacy.[16] Former Delaware Chief Justice Leo Strine has also faulted existing corporate governance structures for undermining corporate citizenship, resulting in the underinvestment of American corporations in the U.S.[17]

In response, a number of policy proposals have been put forward to reform corporate governance. To start, recent years have seen nascent efforts to change corporate law to better reflect a range of stakeholder interests. For example, over half of the states have created some form of “benefit corporation” that allows companies to pursue social benefits in addition to profits and creates governance requirements to that end.[18] At the moment, given the novelty of these forms their impact is unclear. However, given the reluctance of courts to rigorously scrutinize most corporate decisions under the business judgement rule, the impacts of formal changes in duty are likely to be limited. Meanwhile, more radical changes, such as Senator Warren’s Accountable Capitalism Act, have yet to gain legislative traction.

In comparison, Wachtell Lipton, in line with the efforts of BlackRock’s Fink, the Business Roundtable, and others, proposes voluntary changes in corporate structure and governance.[19] Wachtell Lipton’s New Paradigm urges corporations and asset managers to discretionarily refocus on long-term value for stakeholders and reform compensation structures and methods of board election.[20] While this approach has some promise, particularly given the influence of asset managers in shareholder actions, there is reason to be skeptical of its impact on issues such as China.[21] For example, Business Roundtable member Apple’s cooperation with the Chinese government regarding mobile applications in Hong Kong came only months after the Roundtable’s endorsement of a stakeholder model.[22] Significant advocacy by asset managers on China related issues may be particularly unlikely given the emphasis that BlackRock and others have placed on growing Chinese market share through arrangements negotiated with regulators in Beijing.[23]

Lastly, government decision makers could pursue policies designed to alter the incentives of corporations in particular issue areas while leaving the corporate form intact. On certain issues such as the employee speech concerns raised by the Morey incident, direct regulation could be advanced to protect employees’ free expression. In other areas, the U.S. government could pursue efforts to increase the cost of cooperation with the Chinese government. For example, the government could use a number of practical levers to influence corporate decisions regarding cooperation with the Chinese government, including the granting of government contracts, Congressional pressure, and regulatory scrutiny. In this regard, the U.S.’s campaign to limit the cooperation of domestic companies with Chinese telecom giant Huawei may prove to be both a model for policymakers and a warning for corporate leaders.[24] While such an approach would be relatively intermittent compared to a formal legal change, it could significantly increase the risk of cooperation with China or other foreign governments in sensitive areas.

As U.S. companies seek to expand business ventures in China, the tension between access to Chinese consumers and adherence to American values will continue to grow. These changes will continue to interact with the ongoing debate about the role of the corporation and the impact that corporate incentives have on a range of social issues. As my summary shows, there is no single, clear solution to these problems. All that is certain is that the corporate tight rope act on China will remain treacherous.



[1] James T. Arredy & Ben Cohen, The Houston Rockets Were China’s Team. Then a Hong Kong Tweet Happened, Wall St. J. (Oct. 11, 2019),

[2] Jason Gay, The NBA’s Timid Brick in China, Wall St. J. (Oct. 7, 2019),

[3] Jessie Yeung & Eric Levinson, LeBron James says NBA exec was 'misinformed' in his tweet supporting Hong Kong protests, (Oct. 15, 2019),

[4] Arredy & Cohen, supra note 1.

[5] Open Letter to Commissioner Adam Silver,  Congress of the U.S. (Oct. 9, 2019), available at:

[6] Ben Church, Trump Criticizes Top NBA Coaches Amid China Controversy,, (Oct. 10, 2019),

[7] Tripp Mickle et al., Apple, Google Pull Hong Kong Protest Apps Amid China Uproar, Wall St. J. (Oct. 10, 2019),

[8] Sarah E. Needleman, Activision Blizzard Suspends Esports Player Who Backed Hong Kong Protesters, Wall St. J. (Oct. 8, 2019),

[9] See, e.g., Tatiana Siegel, Quentin Tarantino Won’t Recut ‘Once Upon a Time in Hollywood’ for China, Hollywood Reporter (Oct. 18, 2019), (discussing the controversy over changes made to film content to satisfy Chinese standards).

[10] See Milton Friedman, Opinion, The Social Responsibility of Business is to Increase its Profits, N.Y. Times, Sept. 13, 1970, § SM, at 12, available at:

[11] See, e.g., N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 99 (Del. 2007) (noting that “it is well established that the directors owe their fiduciary obligations to the corporation and its shareholders” and denying a fiduciary duty to creditors); Dodge v. Ford Motor Co., 204 Mich. 459 (1919).

[12] See Martin Lipton et al., Wachtell Lipton Discusses Stakeholder Governance and the Fiduciary Duties of Directors, Colum. L. Sch. Blue Sky Blog (Sept. 3, 2019),

[13] Empowering Workers Through Accountable Capitalism,, (last visited Oct. 20, 2019).

[14] See Arredy & Cohen, supra note 1.

[15] Elizabeth Warren, Companies Shouldn’t be Accountable Only to Shareholders, Wall St. J. (Aug. 14, 2018),; Martin Lipton et al., It’s Time to Adopt the New Paradigm, Harv. L. School F. on Corp. Governance & Fin Reg. (Feb. 11, 2019),

[16] See Larry Fink, A Sense of Purpose,, (last visited Oct. 22, 2019).

[17] Leo F. Strine, Who Bleeds When the Wolves Bite: A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System, 126 Yale L. J. 1870,  1932–33 (2017), available at:

[18] J. Haskell Murray, Social Enterprise Innovation: Delaware’s Public Benefit Corporation Law, 4 Harv. Bus. L. Rev. 345, 347–49 (2014), available at:

[19] See Lipton et al., supra note 12.

[20] Lipton et. al., supra note 15.

[21] See Strine, supra note 17, at 1912–22 (discussing the role of mutual and pension fund voting power in promoting corporate governance changes that have contributed to short-termism by managers and directors).

[22] Mickle et. al., supra note 7.

[23] See Peter Smith, Larry Fink says BlackRock Aims to Control a Chinese Asset Manager, Fin. Times (Apr. 8, 2019), (discussing BlackRock’s efforts to grow its Chinese business and the steady expansion of the Chinese asset management market). 

[24] See Kiran Stacey, Huawei Admits that US Sanctions are Hurting, Fin. Times (Apr. 8, 2019),