After a Rough Year for Intuit, Its Investors Can Save the Company and Help Millions
TurboTax company’s investors must not fall prey to a libertarian gadfly’s extremist forced arbitration scheme for shareholders
On January 23, shareholders with a voting stake in the software company Intuit will vote on whether the beleaguered firm will hit a new low by becoming the first public corporation to include a forced arbitration clause in its agreement with shareholders. If the ploy works, and this strategy takes off and other corporations adopt such by-laws, it will harm anyone with an IRA or 401(k). Public employees including police officers and firefighters who depend upon large pension funds will be especially vulnerable if corporations can remove legal claims that losses resulted from a company’s fraud from court.
But even if Intuit’s shareholders are primarily concerned with their own finances, they should “vote” no on this proposal if they want to preserve the value of their investment in Intuit. Because the proposal essentially amounts to this: “Intuit would now have the ability to lie to and deceive investors, and few if any of them would have any ability to recover if they were cheated.” And Intuit investors — if you take that step, many new potential investors will not want to buy shares in a company that reserves the right to defraud them. You’ll be adopting a poison pill slamming the value of your own shares.
Forced arbitration clauses are designed to — and have been wildly successful in — keeping consumers and workers from holding corporations accountable for the likes of sexual harassment, racial discrimination, wage theft, and widespread fraud. This language is hidden in the fine print of everything from cell phone contracts to train ticket purchases to popular apps to employment contracts. Forced arbitration removes potentially change-making lawsuits away from real courtrooms, where claims are heard by an impartial jury, to arbitration, a secret forum in which the arbitrator is paid by the defendant and proceedings can take place in a location specified by the corporation being sued. An exhaustive 2015 Consumer Financial Protection Bureau study found that individuals with claims against financial services companies almost never won just compensation in arbitration, research which led to the agency’s attempt to ban forced arbitration by lenders.
This month’s vote is the latest ploy by Harvard Law School Professor Hal Scott, who has made advocating for shareholders to have their claims forced out of court and into arbitration his life’s work, a passion project supposedly in line with his libertarian principles. His funding sources for this venture are opaque, and he is represented by an attorney who has made frequent bigoted statements about Black, Latinx, and transgender people on social media, as The Intercept reported last year.
Scott’s strategy has been to selectively buy a voting share’s worth of stock in a company, then introduce proposals to amend shareholder agreements to include language that would force all investor disputes with the company into arbitration, out of the blue and often against the will of a company’s leadership. Intuit leadership itself has recommended a “no” vote in this instance, but advocates who oppose forced arbitration have no idea how the vote is likely to shake out.
The Securities & Exchange Commission has consistently acknowledged that the civil justice system plays a critical role in helping to enforce securities laws and deter fraud. After financial scandals involving Enron, Tyco, WorldCom, Bank of America and Global Crossing, over $19.4 billion was returned to investors though court actions brought by investors. The SEC’s enforcement actions against those same companies? They netted only $1.75 billion in penalties. Federal securities class actions have returned over $100 billion to defrauded investors in the past 20 years alone. We know enough about forced arbitration to know that if it had been the norm in investor contracts in those decades, business wrongdoing on the largest scale would have gone substantially unchecked.
Intuit has had a rough year in terms of its public image. In May, ProPublica reported that it had promoted “special deals” to members of the military, which resulted in some service members paying for tax preparation services they were entitled to free of charge by law. This report came amid mounting scrutiny that tax preparation services generally are propped up by an intense and expensive lobbying campaign, as the IRS currently has the information and capacity to file returns on behalf of individual Americans. Unless, the company’s voting investors squash Hal Scott’s proposal on January 23, the first big headline of 2020 may well be: Intuit Opens New Front for Forced Arbitration; Millions Could Lose Savings.
Public Justice is proud to be among the Secure our Savings groups who have signed a letter to Intuit shareholders, letting them know they have the opportunity to make a heroic stand at their next shareholder meeting. A “no” vote could be the beginning of a turnaround for Intuit, and should come as a relief to investors — big and small — everywhere.
