Monthly Archives: July 2012

On Friday we talked about legal ethics in The Dark Knight. Now we’re going to take a look at an issue with consequences beyond the movie’s version of Batman. Specifically: does being the CEO or majority shareholder of a corporation give you the right to use corporate assets for personal projects? In the movie, Bruce Wayne (majority shareholder) goes to Lucius Fox (CEO) whenever he needs another cool toy, and Coleman Reese’s discoveries suggest that he’s not just buying them from the company but is actually using corporate resources to develop and manufacture his stuff. Is this okay?

I. Wayne Enterprises in The Dark Knight

In the Christopher Nolan movies, Wayne Enterprises is portrayed as a publicly traded company. It’s got a board of directors. It’s got institutional and private shareholders. Bruce Wayne has a controlling interest and therefore gets to call a lot of the shots, but the corporation is not, in fact, his personal plaything.

Though you wouldn’t know it from the way he treats it. Turns out that Fox has probably committed what amounts to embezzlement, i.e., the fraudulent conversion of the property of another over which one had lawful possession. It’s also often a felony, particularly when it involves large amounts of money.

Here’s the deal. Fox, as the CEO of Wayne Enterprises, has lawful possession of all of Wayne Enterprises’ assets by dint of the fact that he has lawful control over those assets.  Note that possession is separate from ownership; Fox controls the assets but he does not own them.  Generally speaking, the CEO of any given company is just that: the chief executive officer.  He or she has complete and inherent authority to commit corporate assets to any lawful purpose for the benefit of the corporation, except as limited by the corporate charter. For example, if Lucius decides one day that Wayne Enterprises isn’t going to sell X-type widgets anymore, he can sell off or shut down that division of the company overnight, unless the Wayne Enterprises charter requires a more complex procedure, such as a vote by the board of directors.

But if he’s acting against the orders of the board or without the board’s permission, he exposes himself to a charge of embezzlement. CEOs of major corporations have disputes about business strategy with their respective boards of directors all the time, and while it frequently leads to people getting fired (either the CEO or the board, depending on who does better with the shareholders), it isn’t generally criminal. But using corporate assets for personal purposes is something else entirely. Coleman Reese discovers that the R&D department is “burning through cash” on a project purported to be “cell phones for the Army.” If such a contract had actually existed, Fox could commit the company to it. But it doesn’t. It’s a pretext for fitting out Bruce Wayne with a really cool if ethically and legally problematic surveillance system. Fox doesn’t have the authority to divert corporate assets for those sorts of personal projects. So he is fraudulently converting the property of the company over which he has lawful possession to his own use, namely, giving it to Wayne.

Why? Because the fact that Bruce Wayne is the majority shareholder doesn’t actually give him an ownership interest in any corporate assets in particular. He can’t walk up and say “Hey, I own half of the company, so I get to use the corporate jet half the time.” That’s not how that works. The business owns its assets, and an interest in the company does not transfer to an interest in the company’s assets as such. The distinction gets a bit blurrier in closely-held corporations, particularly when there is only one owner—as is frequently the case in small businesses—but the mingling of corporate and personal assets is a pretty big no-no in the area of corporate law, and one of the things that courts look to when they consider piercing the corporate veil. We actually talked about that here.

Wayne himself wouldn’t be guilty of embezzlement, as he never had lawful possession of the property, but he would be guilty of conspiracy to commit embezzlement—as would Fox—which is almost as bad. Conspiracy is distinct from the underlying crime, and one can be guilty of conspiracy even if one does not or could not commit the underlying crime. Even if Fox turned him down, Wayne would still be guilty of solicitation for even asking. Also, being in possession of the goods probably counts as receiving stolen property. This is just bad all around.

II. Billionaire industrialists generally

Note that things would be different if Bruce Wayne were using his own assets to fund his projects. Wayne is independently wealthy, and much of this income is presumably in the form of dividends on his Wayne Enterprises stock. This is money he can use for absolutely anything he wants (within the ordinary bounds of the law, of course). Compare this to the way Tony Stark is portrayed in Iron Man. Stark, too, is the CEO of a company he mostly owns, in this case Stark Industries. But Stark develops the Iron Man technology entirely on his own and doesn’t use corporate assets to develop or manufacture it. He has a lab and fabrication equipment in his mansion. He may then have Stark Industries use some of this technology for other purposes, e.g., developing the Arc reactor for commercial and industrial power generation, but as far as the movie goes, no corporate assets are devoted to his activities as Iron Man.

This is entirely okay, at least as far as corporate law is concerned. Stark is free to use his own fortune in any way he wants. So is Bruce Wayne. So in a sense, the way the comic books portray Batman is actually a bit more realistic than the way the movies do. In the comic books, Wayne has a situation far closer to Stark’s position in the movies, i.e., the billionaire industrialist who has a superhero alter ego but who mostly uses his own inventions, manufactured by himself, financed by his personal fortune. Ironically, in the comic books, Stark is generally portrayed as mixing his corporate and Iron Man activities in much the same way as Bruce Wayne does in the movies. Quite the reversal.

III. Alternatives

Still, Wayne is a very rich man. Why couldn’t Wayne simply buy anything he needed from Wayne Enterprises? Fox is certainly capable of authorizing such a transaction. Wayne could even enter into a contract with Wayne Enterprises wherein the latter could be paid by Wayne personally to develop and manufacture Batman gear for Wayne’s use. That would be okay. If done right it could even result in a profit for the company. The problem is that for such a setup to be legally okay, some bits would need to be public, or at least known to the board of directors and its accountants and auditors.  It would be very hard to keep something like that secret.

Similarly, why couldn’t Fox arrange things such that Wayne simply received his Batman gear as part of some kind of compensation package? Two reasons. For one thing, Wayne isn’t portrayed as an employee of the company in The Dark Knight. He’s a shareholder, but not an employee or officer. So there isn’t really any obvious way he could get any compensation apart from regular dividends. And setting up some kind of cushy straw position wouldn’t necessarily work either. The Batman gear is presumably ludicrously expensive. Receiving that as compensation would almost certainly make Wayne one of the most highly-compensated people in the company. Not only would the board of directors need to approve that, but it would probably need to be filed with the SEC. So the choice would either be completely blowing the secrecy angle or violating a lot of laws about corporate filings, executive compensation, and taxes. Again, no good.

And obfuscating things to try to disguise Wayne’s Batman activities is also no good, as it would involve falsifying all sorts of official corporate documents. Part of the Sarbanes-Oxley Act, a corporate reform law passed in 2002, imposes personal, individual responsibility for corporate filings upon both executives and directors, so as soon as anyone figures out that there’s funny business going on—and if there’s one thing about the movie that is accurate, it’s that a halfway-decent auditor will figure things out eventually—Fox and Wayne are going to be in huge trouble.

IV. Conclusion

So really, as far as corporate law goes, the version of Batman/Bruce Wayne depicted in The Dark Knight trilogy is actually quite problematic. Fox is likely guilty of embezzlement, and Wayne would be guilty of conspiracy and receiving stolen property. Further, the most obvious ways of “fixing” the problem are themselves problematic, mostly because they’d make Wayne’s identity as Batman that much closer to public knowledge. Tony Stark has a much better way of going about this: use one’s personal fortune, founded upon but distinct from the corporation, to finance his toys (though he also has the benefit of not worrying about a secret identity). Considering that this is generally how it’s depicted in the comic books, and that in those stories Batman frequently invents most of his own gear, the way things are written in The Dark Night trilogy is surprisingly bad, if unintentional, or puts Wayne in a very grey area, if it’s intentional.