Sunday, February 23, 2014

The Separation of Church and For-Profit Corporations

My co-blogger Haskell Murray recently posted “Religion, Corporate Social Responsibility, and Hobby Lobby” and asked me to respond, which I am happy to do. I will admit that I am still developing my thoughts on the issues raised by Haskell’s post, so what follows is a bit jumbled but still gives a sense of why I currently oppose for-profit corporations being permitted to evade regulation by pleading religious freedom (if you have not read Haskell’s post, please do so before proceeding):

1. Corporate power threatens democracy. Corporations and other limited liability entities have been controversial since their creation because, among other things, the combination of limited liability, immortality, asset partitioning, etc., makes them incredible wealth and power accumulation devices. Of course, on the one hand, this is precisely why we have them – so that investors are willing to contribute capital they would never contribute if they risked being personally liable as partners, and thus unique economic growth is spurred, a rising tide then lifts all ships, and so on. On the other hand, because of their unique ability to consolidate power, corporations are aptly considered by many to be one of Madison’s feared factions that threaten to undermine the very democracy that supports their creation and growth:

Besides the danger of a direct mixture of religion and civil government, there is an evil which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical corporations. The establishment of the chaplainship in Congress is a palpable violation of equal rights as well as of Constitutional principles. The danger of silent accumulations and encroachments by ecclesiastical bodies has not sufficiently engaged attention in the U.S.

[More after the break.]

I note that I am well aware that many brilliant people view corporations as precisely the opposite. That is, they see corporations as standing as a bulwark against tyrannical government over-reaching. I assume the pendulum of power can swing either way far enough to prove each side correct (not to mention the oft-cited concern that “state vs. corporation” is actually a sham conflict perpetrated by the corporatocracy to divert the rest of us from the task of creating a third way forward – remember, just because you’re paranoid doesn’t mean they’re not watching you). As for where we currently stand, I assume we are basically placing bets on whether a particular regulation improves or reduces the long-term viability of our treasured democracy. There are just too many bright minds on either side of the debate to assume one side has exclusive access to the one best way forward. More likely each path has some meaningful probability of success and failure.

 

2. Corporate power is derived from state action. One of the great dividing lines in this area involves the degree to which people view corporations as public or private. As Stephen Bainbridge has written:

Proponents of shareholder wealth maximization typically treat corporate governance as a species of private law, such that the separation of ownership and control does not in and of itself justify state intervention in corporate governance. In contrast, stakeholderists commonly treat corporate governance as a species of public law, such that the separation of ownership and control becomes principally a justification for regulating corporate governance so as to achieve social goals unrelated to corporate profitability.  Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U. L. Rev. 547, 549 (2003).

As an advocate of concession theory, I view corporations as standing more on the public side of the line than do my colleagues who favor the aggregate or real entity theories of corporate personality. (For more on these theories, go here.) Thus, I distinguish religion from other corporate social responsibility (CSR) issues because religion – unlike, say, climate change – may implicate the Establishment Clause:

If RFRA exemptions from the mandate violate the Establishment Clause, then that is the end of RFRA exemptions, regardless of whether for-profit corporations are persons exercising religion, the mandate is a substantial burden on employers’ anti- contraception beliefs, or the mandate is not the least restrictive means of protecting a compelling government interest.

3. The pursuit of profit increases the likelihood of corruption. Go here, here and here for some random background on this view. This is the point I am least clear on (which is not to suggest I’ve reached a tremendous amount of clarity on the preceding two points), but I am willing to accept that the government may effectively subsidize corporate religion when it takes a not-for-profit form. Again, I need to think more about the substance of this distinction, but at this point it would lead me to conclude that I disagree with Haskell’s and the relevant legislatures’ conclusions regarding the role of religion in benefit corporations and the like. I am also sensitive to a flip side of the argument in favor of carving out space for religion via benefit corporations, which is that opponents of CSR may thus become able to create CSR “ghettos” limited to benefit corporations.

Having said all that, it would not surprise me at all to find some inherent contradictions lurking in the foregoing, or between the foregoing and some related positions I’ve taken elsewhere, and I welcome any comments enlightening me on that point or any other related shortcomings.

UPDATE (Feb. 24, 2014):  Please see Prof. Haskell Murray's comment below, wherein he correctly notes that he did not take a normative position on the inclusion of religious purpose in benefit corporation legislation in his related post, and thus we may actually not disagree on that point.

http://lawprofessors.typepad.com/business_law/2014/02/the-separation-of-church-and-for-profit-corporations.html

Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Financial Markets, Food and Drink, Haskell Murray, Religion, Social Enterprise, Stefan J. Padfield | Permalink

Comments

Thanks for the thoughtful post, Stefan.

I'm not sure we disagree, or at least I can't pinpoint our disagreement. (Mostly because I don't yet have a clear stance on most of the issues you address).

My post was intended to be primarily descriptive. The Delaware Public Benefit Corporation ("PBCs") statute allows religious purposes. I haven't taken a position on whether those religious purposes "should" be allowed (much less whether they should be allowed to trump legal obligations). I just haven't given the above enough thought yet (and my ConLaw knowledge is limited).

My main intended point was that given the existence of the PBC, if Hobby Lobby were a PBC with a religious purpose, it seems that it would have a better argument -- especially against the first half of the law professor brief. Again, I am not sure whether Hobby Lobby would or should win, but I think it would improve their argument and largely take out the first 15-20 pages of the brief.

Thanks again for the post.

Posted by: Haskell Murray | Feb 24, 2014 4:29:00 AM

It looks like Harvard is having a conference around some of these same issues: Harvard Hosts Conference on Religious Accommodation in the Age of Civil Rights http://taxprof.typepad.com/taxprof_blog/2014/02/harvard-hosts.html Wish I could attend.

Posted by: Haskell Murray | Feb 24, 2014 5:50:03 AM

In the absence of corporations, government tyranny is an eventuality.
In the presence of corporations (shareholder wealth maximization), corporate tyranny is an eventuality.
Religion presents an (opposing/complementary) power, keeping these in check.
You make a great point that religion should be distinguished from other CSR's.
I in fact believe that inclusion of religious power in benefit corporation legistation marginalizes the purpose and standing of religion.

Posted by: Handal Morofsky | Feb 28, 2014 11:11:12 AM

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