Sunday, March 30, 2014

The Conglomerate on Hobby Lobby

Our friends at The Conglomerate recently conducted an excellent online symposium on the Hobby Lobby case.

All of the posts have been collected here.

It was refreshing to read such a thoughtful and balanced set of posts.

March 30, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Haskell Murray | Permalink | Comments (0)

How would former Chief Justice Rehnquist have ruled on Hobby Lobby?

In my article, “The Silent Role of Corporate Theory in the Supreme Court’s Campaign Finance Cases,” 15 U. Pa. J. Const. L. 831, I criticized the Supreme Court justices for failing to acknowledge the role of competing conceptualizations of the corporation in their corporate political speech cases.  I noted, however, that former Chief Justice Rehnquist was arguably the lone modern justice to deserve at least some praise in this area.

Justice Rehnquist's stand-alone dissent in Bellotti provides arguably the sole example in these opinions of a Justice affirmatively adopting a theory of the corporation for purposes of determining the constitutional rights of corporations--though not via the express adoption of one of the traditionally recognized theories. Specifically, Justice Rehnquist relied on Justice Marshall's Dartmouth College opinion to conclude that: “Since it cannot be disputed that the mere creation of a corporation does not invest it with all the liberties enjoyed by natural persons . . . our inquiry must seek to determine which constitutional protections are ‘incidental to its very existence.”’ Thus, while it may be true that “a corporation's right of commercial speech . . . might be considered necessarily incidental to the business of a commercial corporation[, i]t cannot be so readily concluded that the right of political expression is equally necessary to carry out the functions of a corporation organized for commercial purposes.” I would argue that this is a formulation most aligned with concession theory because not only does Justice Rehnquist rely on Dartmouth College, but he also goes on to say: “I would think that any particular form of organization upon which the State confers special privileges or immunities different from those of natural persons would be subject to like regulation, whether the organization is a labor union, a partnership, a trade association, or a corporation.”  Stefan J. Padfield, The Silent Role of Corporate Theory in the Supreme Court's Campaign Finance Cases, 15 U. Pa. J. Const. L. 831, 853 (2013) (quoting First Nat'l Bank of Bos. v. Bellotti, 435 U.S. 765 (1978)).

While this is only one data point, I think it suggests the former Chief Justice would have been hesitant to grant corporations any form of free exercise rights, since it is difficult to see how free exercise rights are more incidental to a corporation’s existence than political speech rights.  Cf. Kent Greenawalt, Religion and the Rehnquist Court, 99 Nw. U. L. Rev. 145, 146 (2004) (“With limited qualifications, the Rehnquist Court has abandoned the possibility of constitutionally-required free exercise exemptions.”).

For more on concession theory, I shamelessly suggest my more recent article, “Rehabilitating Concession Theory,” 66 Okla. L. Rev. 327 (2014) (“the reports of concession theory's demise have been greatly exaggerated”).  And if you find that of interest, you can check out my latest SSRN posting, “Corporate Social Responsibility & Concession Theory.”

March 30, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Religion, Stefan J. Padfield | Permalink | Comments (0)

Sunday, March 23, 2014

The Weekly BLT for March 23, 2014

I'm trying out a new weekly blog post theme, "The Weekly BLT," wherein I highlight a few interesting business law tweets that I've come across in the past week that have not yet made it to the BLPB.



March 23, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Financial Markets, LLCs, Stefan J. Padfield | Permalink | Comments (0)

Sunday, March 9, 2014

“Corporate Social Responsibility & Concession Theory”

I have posted the first rough draft of my latest project, “Corporate Social Responsibility & Concession Theory,” on SSRN.  Here is the abstract:

This Essay examines three related propositions: (1) Voluntary corporate social responsibility (CSR) fails to effectively advance the agenda of a meaningful segment of CSR proponents; (2) None of the three dominant corporate governance theories – director primacy, shareholder primacy, or team production theory – support mandatory CSR as a normative matter; and, (3) Corporate personality theory, specifically concession theory, can be a meaningful source of leverage in advancing mandatory CSR in the face of opposition from the three primary corporate governance theories. In examining these propositions, this Essay makes the additional claims that Citizens United: (A) supports the proposition that corporate personality theory matters; (B) undermines one of the key supports of the shareholder wealth maximization norm; and (C) highlights the political nature of this debate.

March 9, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Stefan J. Padfield | Permalink | Comments (0)

Wednesday, February 26, 2014

More or Less?

As previously noted on this blog, 44 law professors filed an amicus brief in Sebelius v. Hobby Lobby Stores, Inc., outlining several corporate law issues in the arts-and-craft store chain’s request for a religious exemption from complying with contraceptive requirements in the Affordable Care Act.  That brief prompted several responses and sparked a corporate law debate, which is being recapped and weighed in on at Business Law Prof Blog (see earlier thoughtful posts: here, here, and here by Stefan Padfield and Haskell Murray).   

So what is at stake in this case? Religious exemptions for corporations. The role of benefit corporations and other hybrid, triple bottom line entities.  The classic entity theory vs. aggregate theory debate of how do we treat the legal fiction of individuals acting through businesses and businesses acting, in part, on behalf of people.  The role and future of Corporate Social Responsibility generally. Corporate personhood.  Corporate constitutional rights. And existential questions like can corporations pray? You know, easy stuff. 

CSR. Our laws set the floor; they establish the minimum that social actors must do and that other members in our society can expect to receive.  Corporate social responsibility asks companies to do more than their minimum legal obligations and to do so for a host of reasons, some of which may be religious.  The owners of Hobby Lobby can elect a corporate board that will authorize the company to donate to religious charities, to reimburse employees for religious expenses, to provide paid leave for a mission trip, or to not operate on Sundays. (Who here hasn’t craved a chicken biscuit on a road trip only to realize that Chick-Fil-A is closed on Sunday? Just us in the south?). Under what I will call the standard state corporate law regime, corporations can take actions like increasing their use of renewable energy sources, implementing diversity programs for women and minorities, refusing to support tobacco products and other actions that are in line with CSR.  Whether for religious or environmental or other conscience-driven reasons, a corporation may take these actions and the directors of the corporation (under whose governance the acts took place) are protected by the business judgment rule in the event that any shareholder challenges the program or expenditure as a form of waste or conflict of interest. 

Benefit Corporations & Hybrid Entities.  For companies incorporated in states with benefit corporate statutes or laws that recognize hybrid entities interested in seeking (but not always maximizing) profits and other goals, there is even greater protection.  These entities contain provisions in their charters identifying their “other” purpose, the shareholders are on notice of the dual pursuit and the corporate actions are protected by statutes recognizing this charter-based exception to profit maximization.  In the event a shareholder sues for waste or conflicts of interest, not only is the business judgment rule available to protect the corporate actors, but the validity of the corporate action is strengthened by the special legislation. [This in no way captures the full scope of benefit corporation and hybrid entity legislation, but this post is about religious exemptions for corporations, so please excuse the over simplification here.]

Hobby Lobby.  The owners of Hobby Lobby are not asking to do more, rather they are asking to do less.  Hobby Lobby want to provide less than the standards established in the Affordable Care Act, and less than their competitors will be required to provide.  Who would complain if Hobby Lobby failed to comply with the ACA?  The employees without access to contraceptive medicine, and the federal government.  This isn’t about the business judgment rule and whether owners, acting through boards of directors, can run companies in line with their view of religious or social or environmental consciousness.  This case asks can the religious beliefs of owners of a corporation entitle that corporation to do less under the law and as compared to their competitors.  On these grounds, deciding against a religious based exemption for Hobby Lobby does no harm to CSR or benefit corporations. 

The Hypothetical.  If the privately held religious belief of owners can change legal obligations for corporate actors, this could pose a threat to the stability, reliability and uniformity of the floor that the law sets. Poking a hole in the floor for religious exemptions based upon the owners’ religious beliefs may seem like a small concession in the Hobby Lobby case.  If religion is a means to opt-out of regulations and requirements, and if doing so could lower costs, shortcut compliance obligations and otherwise provide a competitive edge there will be robust incentives for businesses to claim such an exception in a likely wide array of issues. 

The Horrible.  The sacred ground of religion has long been an unhappy refuge for arguments in support of racial, gender, religious and sexual-orientation discrimination.  Every major social movement that I can think of has met resistance shrouded in religious beliefs.  The right for women to vote (and the continuing progress towards equality), desegregating schools, the Civil Rights Acts, and our most modern example:  gay rights.  Consider the law that the Arizona Legislature passed last week that would exempt businesses refusing to serve same-sex couples from civil liability on the grounds of a religious exemption.  Substantially similar legislation is pending in Georgia.

Religion, if we have it, should call us to do more and to be better.  As individuals, we may disagree about what “more” and “better” means.  I have no doubt that the owners of Hobby Lobby believe that their stance on birth control is consistent with their view of “more” and “better”.  As individuals, they can express that value in many ways.  As owners of a corporation they can express those values by electing directors that will govern the company and possibly pursue corporate donations to abstinence charities, promote natural family planning among employees via posters in the break room, and other avenues.  The individual values of the owners should not be used to excuse the corporation from compliance with the legal standard.  Individual religious views should not lower the minimum standards for corporate actions in this context, or others.


 -Anne Tucker

February 26, 2014 in Business Associations, Constitutional Law, Corporate Governance, Current Affairs, Religion | Permalink | Comments (3)

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.]

Continue reading

February 23, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Financial Markets, Food and Drink, Haskell Murray, Religion, Social Enterprise, Stefan J. Padfield | Permalink | Comments (3)

Sunday, February 2, 2014

Gedicks & Van Tassell on “RFRA Exemptions from the Contraception Mandate: An Unconstitutional Accommodation of Religion"

Frederick Mark Gedicks & Rebecca G. Van Tassell recently posted “RFRA Exemptions from the Contraception Mandate: An Unconstitutional Accommodation of Religion” on SSRN (HT: Robert Esposito).  Here is excerpt of the abstract:

Litigation surrounding use of the Religious Freedom Restoration Act to exempt employers from the Affordable Care Act’s “contraception mandate” is moving steadily towards resolution in the U.S. Supreme Court. Both opponents and supporters of the mandate, however, have overlooked the Establishment Clause limits on such exemptions.

The heated religious-liberty rhetoric aimed at the mandate has obscured that RFRA is a “permissive” rather than “mandatory” accommodation of religion — a government concession to religious belief and practice that is not required by the Free Exercise Clause. Permissive accommodations must satisfy Establishment Clause constraints, notably the requirement that the accommodation not impose material burdens on third parties who do not believe or participate in the accommodated practice.

While it is likely that RFRA facially complies with the Establishment Clause, it violates the Clause’s limits on permissive accommodation as applied to the mandate. RFRA exemptions from the mandate would deny the employees of an exempted employer their ACA entitlement to contraceptives without cost-sharing, forcing employees to purchase with their own money contraceptives and related services that would otherwise be available to them at no cost beyond their share of the healthcare insurance premium.

Neither courts nor commentators seem aware that a line of permissive accommodation decisions prohibits shifting of material costs of accommodating anti-contraception beliefs from the employers who hold them to employees who do not. Many of the Court's decisions under the Free Exercise Clause and Title VII also exhibit this concern with cost-shifting accommodations. Yet, one federal appellate court has already mistakenly dismissed this cost-shifting as irrelevant to the permissibility of RFRA exemptions from the mandate.

The impermissibility of cost-shifting under the Establishment Clause is a threshold doctrine whose application is logically prior to all of the RFRA issues on which the courts are now focused: 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.

February 2, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Stefan J. Padfield | Permalink | Comments (0)

Saturday, February 1, 2014

“To be, or not to be,” is an important question, but so is, “What to be?”

A lot of chatter this week surrounding the submission of an amicus brief filed in the Hobby Lobby case by corporate and criminal law professors in support of petitioners.  In particular, Stephen Bainbridge has written a series of posts critical of the brief:



I was one of the 44 law professors that signed on to the amicus brief, and I also have a tremendous amount of respect for Prof. Bainbridge, so I’ve been very interested in what he’s had to say.  However, I’m also currently trying to advance my latest writing project (relatedly, on the intersection of corporate governance theories, theories of corporate personality, and corporate social responsibility) to some semblance of completeness that I can submit to journals with a straight face in the next few weeks.  Thus, I am going to pass on addressing Bainbridge’s critiques for now – except for briefly responding to his claim that there is some inconsistency between arguing that the Supreme Court should respect corporate personhood in Hobby Lobby (the brief states: “this legal separateness—sometimes called legal ‘personhood’—has been the very basis of corporate law at least since the 18th Century”) while at the same time bemoaning the application of that corporate personhood in Citizens United (while I won’t speak for my co-signers, I think it is fair to assume many are critics of Citizens United and I personally have expressed my disagreement with the opinion in various places, including here).

By way of background, the three primary theories of corporate personality are aggregate theory, real entity theory, and concession theory (AKA artificial entity theory).  At the risk of over-simplifying, aggregate theory and real entity theory essentially presume corporations stand in the shoes of natural persons (e.g., shareholders in the former case, and the board of directors in the latter), and thus have available to them all the rights of natural persons in resisting government regulation.  Concession theory, on the other hand, views the corporation as fundamentally a state creation, and presumes the state has the right to regulate its creation as it sees fit.  Importantly, concession theory does not preclude granting particular rights of natural persons to corporate entities, and it certainly doesn’t preclude doing so by including “corporation” in the definition of “person” for purposes of a particular rule, regulation, or statute.  It just doesn’t presume that all the rights of natural persons are automatically transferred to corporations upon their creation.

I focus on presumptions, and the concomitant allocation of burdens of proof, because I believe these issues were critical in Citizens United.  The majority presumed that corporations were entitled to the same political free speech rights as natural persons, and placed the burden of proving that this right was subject to limitation on the basis of corporate status alone on the state.  Meanwhile, the dissent argued that the burden was on those claiming free political speech rights for corporations and presumed the legislative determinations regarding the corrupting influence of corporate spending on politics were sufficient to uphold the relevant regulation.  Accordingly, while many commentators disagree as to whether aggregate or real entity theory animated the Citizens United majority, most of those to have considered the issue agree it was one of two (I believe the key line in the opinion is: “[T]he Government cannot restrict political speech based on the speaker's corporate identity.”).  On the other hand, I believe most – though certainly not all -- of the commentators that have considered the issue appear to agree that concession theory animated the dissent’s position (despite the dissent’s express protestations to the contrary). 

Thus, I believe the better characterization of the relevant issue is not whether corporations are persons (we can all likely agree that corporations are entitled to personhood rights at the very least for a variety of relatively non-controversial purposes), but rather which rights of personhood corporations should be entitled to.  In Hobby Lobby, the issue is not whether corporations should ever be deemed persons under the law, but rather whether corporations should be deemed legal persons that are entitled to rights of religious freedom identical to natural persons and, if so, in what situations and to what extent.  I see no inconsistency in arguing that corporate personhood should not include religious freedom rights co-extensive with natural persons while at the same time arguing that corporate personhood should also not include political free speech rights co-extensive with natural persons.

February 1, 2014 in Business Associations, Constitutional Law, Corporations, Current Affairs, Stefan J. Padfield | Permalink | Comments (0)

Thursday, January 30, 2014

What does a for-profit corporation believe and should it receive a religious exemption?

Professor Caroline Mala Corbin from University of Miami has written an interesting article on the Hobby Lobby and Conestoga Wood Specialites Corp. cases before the Supreme Court. Her abstract is below:

Do for-profit corporations have a right to religious liberty? This question is front and center in two cases before the Supreme Court challenging the Affordable Care Act’s “contraception mandate.” Whether for-profit corporations are entitled to religious exemptions is a question of first impression. Most scholars writing on this issue argue that for-profit corporations do have the right to religious liberty, especially after the Supreme Court recognized that for-profit corporations have the right to free speech in Citizens United. 

This essay argues that for-profit corporations should not – and do not – have religious liberty rights. First, there is no principled basis for granting religious liberty exemptions to for-profit corporations. For-profit corporations do not possess the inherently human characteristics that justify religious exemptions for individuals. For-profit corporations also lack the unique qualities that justify exemptions for churches. Citizens United fails to provide a justification as its protection for corporate speech is based on the rights of audiences and not the rights of corporate speakers. Second, as a matter of current law, neither the Free Exercise Clause nor the Religious Freedom Restoration Act recognizes the religious rights of for-profit corporations. Finally, corporate religious liberty risks trampling on the employment rights and religious liberty of individual employees.



January 30, 2014 in Business Associations, Constitutional Law, Corporations, Current Affairs, Ethics, Marcia L. Narine, Religion | Permalink | Comments (0)

Wednesday, January 22, 2014


Today marks the 4 year anniversary of the Citizens United decision and tomorrow marks the 41st anniversary of Roe v. Wade.  Corporations, the First Amendment, and Reproductive choice/freedom may have seemed like odd bed-fellows, but all three issues come together in the upcoming Hobby Lobby case challenging the application of access to birth control required under the health care law to a corporation whose owners oppose the extension on the grounds of religious freedom. 

Consider this a teaser on the issues offered up in the Hobby Lobby case.    Law professors are filing amicus briefs on this case coming down on either side of the issue.  One group arguing that religious views of the owners should not protect the corporation from complying and another arguing that the religious views of the owners can be imputed to the corporation and thus exempt it from compliance.  This is set to be a fantastically interesting issue, and hopefully one that will generate some healthy debate on this blog.  There will be more to come from me on this issue, but for now...consider this a teaser (or a place holder).

And if you crave more substance and internet sleuthing this afternoon, let me refer you to a list of 7 charts that is making its rounds in the blogosphere today. These charts detail the consequences of Citizens United in the last four years.  The results are not surprising and include:increased outside spending, conservative spending outpacing liberal spending 2:1, more political ads and occurring earlier, and decreased disclosures.  You can see the version posted by the Washington Post here.

-Anne Tucker

January 22, 2014 in Business Associations, Anne Tucker, Constitutional Law, Religion | Permalink | Comments (0)

Saturday, January 18, 2014

Huhn on the Implications of Daimler AG for Hobby Lobby

My Akron colleague Will Huhn just posted “2013-2014 Supreme Court Term: Court's Decision in Daimler AG v. Bauman, No. 11-965: Implications for the Birth Control Mandate Cases?” over at his blog  Here is a brief excerpt, but you should go read the entire post:

On January 14, 2014, the Supreme Court issued its decision in favor of Daimler AG (the maker of Mercedes-Benz), ruling that the federal courts in California lacked personal jurisdiction over Daimler to adjudicate claims for human rights violations arising in Argentina. The ruling of the Court may have implications for the birth control mandate cases pending before the Court in Hobby Lobby Stores and Conestoga Wood Specialties…. In those cases the owners of two private, for-profit business corporations contend that their individual rights to freedom of religion "pass through" to the corporation -- that the corporations are in effect the "agents" of the principal shareholders, and that this is why the corporations have the right to deny their employees health insurance coverage for birth control. In Daimler the Ninth Circuit Court of Appeals had held that MBUSA was the "agent" of Daimler AG, and that the substantial business presence of MBUSA in California could be imputed to Daimler AG. The Supreme Court was not persuaded by this agency analysis…. It would be anomalous for the Court to adhere to corporate identity for purposes of personal jurisdiction and liability for tort, and yet to ignore corporate identity to give effect to the personal religious choices of stockholders.

January 18, 2014 in Business Associations, Agency, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Religion, Stefan J. Padfield | Permalink | Comments (0)

Thursday, January 16, 2014

1 Report, 4 Issues

(1) Corporate Disclosures, (2) Indirect Advocacy, (3) Climate Change, and (4) Institutional Investors 

The Union of Concerned Scientists, an alliance of more than 400,000 citizens and scientists, released a report today: Tricks of the Trade: How Companies Influence Climate Policy Through Business and Trade Associations.  The report is based on data collected by CDP, an international not-for-profit that “works with investors, companies and governments to drive environmental disclosure”.  CDP administers an annual climate reporting questionnaire to more than 5,000 companies worldwide with the support of various institutional investors (722 institutional investors with over $87 trillion in capital). The 2013 questionnaire asked companies about climate policy influence, including board membership in trade associations, lobbying, and donations to research organizations.

Tricks of the Trade highlights outsourced political influence through the use of trade associations and interest groups that lobby on behalf of their members rather than the members engaging in these activities in their own name.  The report highlights 3 main issues:  (1) lack of transparency, (2) incongruence with the outsourced message among responding companies, and (3) the continued role that the Citizens United decision has on corporate spending and political discourse.


  • Of the 5,557 companies that received the climate change questionnaire (through either CDP’s request or their voluntary participation), 2,323 responded, and only 1,824 (33 percent) of them replied publicly.
  • Ninety-seven Global 500 companies—the top 500 companies in the world by revenue—including Apple, Amazon, and Facebook, did not participate.  
  • In the Standard & Poor’s (S&P) 500—a market value index of large U.S. companies—166 companies, including Comcast and the Southern Company, did not participate.

The report highlights that proposed rules before the SEC for corporate political spending disclosures would address some transparency concerns and notes that the SEC has no plans to address this issue in 2014.  This is no small issue considering the number of institutional investors and amount of invested capital ($87 trillion, with a "T"!!) behind this initiatve.  CDP sends its survey to corporations on behalf of the signatory institutional investors who are shareholders.

These shareholder requests for information encourage companies to account for and be transparent about environmental risk. Transparency of this data throughout the global market place ensures the financial community has access to the best available corporate climate change information to help drive investment flows towards a low carbon and more sustainable economy


  • Ninety-five companies noted that at least one of their trade groups had a climate policy position that was partially or wholly inconsistent with their own, for a total of 172 such responses across all trade groups.

The 2013 questionnaire, while focused on climate change issues, is relevant to broader questions of corporate political influence and spending, the SEC’s agenda for 2014, and the role of corporate disclosures.   If you are teaching corporations/BA this semester, this 12 page report raises several issues that, in my opinion, would elicit a great classroom discussion when you get to the role and purpose of corporations,  sections on the disclosure regime of our securities markets, and even on shareholder rights to information.

-Anne Tucker

January 16, 2014 in Business Associations, Anne Tucker, Constitutional Law, Corporate Governance, Corporations, Financial Markets, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, January 9, 2014

Aaron Rodgers, Intel and the “Scarlet Letter” of Dodd-Frank- Part 2

On Tuesday, I attended the oral argument for the National Association of Manufacturers v. SEC—the Dodd-Frank conflict minerals case. Trying to predict what a court will do based on body language and the tone of questioning at oral argument, especially in writing, is foolish and crazy, but I will do so anyway.

I am cautiously optimistic that the appellate court will send the conflict mineral rule back to the SEC to retool based on the three arguments generated the most discussion. First, the judges appeared divided on whether the SEC  had abused its discretion by changing the statutory language requiring issuers to report if minerals “did” originate from the DRC or surrounding companies rather than the current SEC language of “may have” originated. This language would sweep in products in which there is a mere possibility rather than a probability of originating in covered countries. One judge grilled the SEC like I grill my law students about the actual statutory language and legislative intent, while another appeared satisfied with SEC’s explanation that issuers did not have to file if the lack of certainty was due to a small number of responses from suppliers or for lack of information. My prediction- if the SEC loses, they will have to rewrite this section to comport with Congressional intent.

The second main issue concerned the SEC’s failure to apply a de minimis exception to the rule. NAM’s lawyer provided a real-life example of a catalyst used in producing automobiles that sometimes washed away during production but at other times could leave just one part per million of tin in the finished product. Judge Srinivasan pointed out that if the mineral could wash away but the product could still function, then perhaps it wasn’t “necessary” as the law required for reporting. Judge Sentelle raised a concern about “breaking new ground” by requiring the SEC to enact a de minimis exception. The SEC bolstered its argument by indicating that no commentator that had proposed such an exception during the rulemaking process  had provided a workable threshold. My prediction- this is a toss up. This was the SEC’s most successful argument of the day.

Many commenters believed that the third argument—the First Amendment claim-- was spurious and/or a Hail Mary plea when NAM first raised it last year. Yet this argument provided the most interesting discussion of the day, especially since Judge Randolph specifically reminded NAM’s counsel to discuss it and not save it for rebuttal as NAM had planned. NAM argued that by requiring companies to declare on their websites that their products were not “DRC-Conflict Free,” thereby denouncing their own products, this amounted to a “scarlet letter.” NAM conceded that the government could ask for the information and could post it, but maintained that requiring companies to “shame” themselves was unconstitutional. This argument gained traction with both judges Randolph and Sentelle, who called it “compelled speech.” The judges also questioned the SEC on: whether the SEC had ever or should focus its efforts on communications to consumers; how the SEC would enforce the rule, asking whether a group of scientists would do product inspections; how this rule would achieve Congress’ intent of securing the safety of the Congolese people; whether the government could require companies to indicate whether they had used child labor overseas; and whether the intent of the shaming provision was to cause a boycott- bingo! My prediction- the SEC loses on this provision.

If the SEC does have to go back to the drawing board, it will be interesting to see how current Chair Mary Jo White influences the rule given her public statements about the rule being out of the SEC’s purview. I hope that the European Commission, which has done an impact analysis, will pay close attention as they roll out their own conflict minerals legislation to the EU.

Many have asked what I think the government should have done to help the people of Congo. Put simply, the government could and should fund and enforce the DRC Relief, Security, and Democracy Promotion Act of 2006, which has over a dozen provisions addressing security sector reform, minerals, infrastructure and other matters that could provide a more holistic solution. Next week, I will blog about other ways that the government could incentivize business to address human rights issues around the world.

January 9, 2014 in Constitutional Law, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Marcia L. Narine, Securities Regulation | Permalink | Comments (1)

Tuesday, January 7, 2014

Citizens United 4 Year Anniversary Symposium: February 28, 2014

The following information was shared with me by my friend, Professor Ciara Torres-Spelliscy at Stetson Law.  On February 28, 2014, Stetson Law in Gulfport, FLorida, will host: 

Taking Stock of Citizens United: How the Law Has (and Has Not) Changed Four Years Later.

Panel One: Quantifying the Problem of Money in Politics
Citizens United opened a new avenue for corporations and unions to spend in politics by purchasing political ads. This ability to spend was added to older avenues of political activity such as corporate and union segregated funds (SSFs or PACs), lobbying and direct contributions in certain states. The question of what political spenders get in return for this largess remains an open one.
Panel Two: The Risk of Corruption Collides with Free Speech
From a Constitutional law perspective, the courts have long wrestled with the placing political spending into a single paradigm. On one hand, courts have recognized that running for political office is costly and fundraising implicates First Amendment concerns such as the freedom of speech and association. On the other hand, campaign spending can be a corrupting force in the democratic process. Layered on top of this is an impulse by the courts to treat different political spenders in distinct ways: state contractors, corporations, unions, nonprofits, political parties, PACs and individuals may find themselves subject to distinct legal rules in the same election.

Panel Three: Making New Rules that Help Taxpayers, Voters, Investors, Employees and Members
While Citizens United limited the scope of solutions that are available for campaign finance legislation, the decision leaves ample room for a wide range of reforms in the realm of tax law, employment law, corporate law and securities law. And the barriers to reform that Citizens United has constructed has inspired several legal and grassroots groups to work on a Constitutional Amendment to overturn the decision.

Registration is available online.

Before joining the academy, Professor Torres-Spelliscy worked as counsel in the Democracy Program of the Brennan Center for Justice at NYU School of Law.  The symposium line up contains a who's who of corporate political spending and first amendment scholars (include John Coates & Lawrence Lessig from Harvard) and industry experts.  The panels will provide balanced and in-depth discussions of the impact of Citizens United 4 years later.

 -Anne Tucker

January 7, 2014 in Business Associations, Anne Tucker, Constitutional Law, Current Affairs | Permalink | Comments (0)

Friday, January 3, 2014

Blasi, Freeman & Kruse on “The Citizen's Share”

Yesterday, I attended the Annual Meeting of the Society of Socio-Economists.  Unfortunately, I was only able to participate in the second half of the program due to flight delays, but the discussions I did participate in were fantastic and I hope to publish a number of posts passing on some key points.  Today, I’d like to start by highlighting the book “The Citizen's Share: Putting Ownership Back into Democracy” by Joseph R. Blasi, Richard B. Freeman, and Douglas L. Kruse (I understand Joseph Blasi was one of the presenters at the meeting--though I was chairing a concurrent plenary session at the time).  Here is a description from the Yale University Press:

The idea of workers owning the businesses where they work is not new.  In America’s early years, Washington, Adams, Jefferson, and Madison believed that the best economic plan for the Republic was for citizens to have some ownership stake in the land, which was the main form of productive capital. This book traces the development of that share idea in American history and brings its message to today's economy, where business capital has replaced land as the source of wealth creation.   Based on a ten-year study of profit sharing and employee ownership at small and large corporations, this important and insightful work makes the case that the Founders’ original vision of sharing ownership and profits offers a viable path toward restoring the middle class. Blasi, Freeman, and Kruse show that an ownership stake in a corporation inspires and increases worker loyalty, productivity, and innovation. Their book offers history-, economics-, and evidence-based policy ideas at their best.

January 3, 2014 in Business Associations, Books, Constitutional Law, Corporate Governance, Corporations, Financial Markets, Stefan J. Padfield | Permalink | Comments (1)

Wednesday, December 18, 2013

Year End Wrap up of Corporate/Campaign Finance Issues

In 13 Things We Learned about Money in Politics in 2013, written by Stetson Professor Ciara Torres-Spelliscy, numbers 9 and 10 highlight the intersection of corporate and campaign finance laws.

10. Disappointing nearly 700,000 members of the public who had asked for more transparency from public companies, the Securities and Exchange Commission (SEC) refused to require transparency for corporate political spending — for now.

9. Shareholder suits over corporate political spending bookended the year. In January, the Comptroller of New York sued Qualcomm, as a shareholder under Delaware law, to get their books and records of political spending. In December, the insurance giant Aetna was suedby a shareholder represented by Citizens for Responsibility and Ethics in Washington (CREW) for hiding its political spending.

To access the rest of the list and other campaign finance information provided by the Brennan Center for Justice, click here.

-Anne Tucker

December 18, 2013 in Anne Tucker, Constitutional Law, Corporate Governance, Corporations, Current Affairs | Permalink | Comments (0)

Sunday, December 8, 2013

Schragger & Schwartzman argue that “debates about the ontological status of group or corporate entities are largely irrelevant.”

Richard Schragger & Micah Schwartzman have posted “Some Realism about Corporate Rights” on SSRN.  Here is the abstract:

Can we meaningfully speak of a church’s right to conscience or a corporation’s right to religious liberty? One way to approach this question is by inquiring into the nature of churches and corporations, asking whether these are the kinds of entities that can or should have rights. We have recently seen this kind of reasoning in public debates over whether corporations have free speech rights, and, relatedly, in arguments about the religious free exercise rights of churches, non-profits, and for-profit corporations. Those in favor of such rights sometimes argue that corporations and churches are moral agents, capable of exercising rights separate and apart from the rights and interests of their members; whereas, those opposed tend to argue that churches, corporations or groups are mere aggregations of individuals, or else artificial persons created or recognized by the state to advance the interests of those who compose them.

In this paper, we argue that this form of argument is mistaken and that debates about the ontological status of group or corporate entities are largely irrelevant. One does not need a particular theory of a corporation, organization, or group’s metaphysical status in order to determine its legal rights. To defend this claim, we first consider and reject H.L.A. Hart's semantic critique of corporate personality theories. Instead we follow John Dewey's realist argument against corporate metaphysics. We develop that argument and apply it to current litigation over whether for-profit corporations can assert rights of religious free exercise against the requirement that they provide health insurance coverage for contraception.

December 8, 2013 in Business Associations, Constitutional Law, Corporations, Current Affairs, Religion, Stefan J. Padfield | Permalink | Comments (0)

Sunday, December 1, 2013

BLPB Links 12/1/13

The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.

Originally, the anti-takeover law passed its court challenges because the judges accepted faulty data that showed investors could acquire at least 85 percent of the target corporation and satisfy the Williams Act, Subramanian said. But none of the cases used to support the anti-takeover law actually allowed hostile suitors to acquire a controlling 85 percent of a target company, he said, and plaintiffs using research from new studies would be able to convince a judge that the statute is unconstitutionally restrictive.

For me, the financial crisis was an eye-opening moment. I’ve long believed in free market economics and believed that the Church would do a lot of good in the world if it embraced it. And I still believe those things. But what the financial crisis has laid bare is that the most conventional version of free market economics was actually dead wrong.

In many respects, the relentless drive to adopt corporate governance mandates seems to have reached a plateau: essentially all of the prescribed “best practices”—including say-on-pay, the dismantling of takeover defenses, majority voting in the election of directors and the declassification of board structures—have been codified in rules and regulations or voluntarily adopted by a majority of S&P 500 companies…. In other respects, however, the corporate governance landscape continues to evolve in meaningful ways.

December 1, 2013 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Financial Markets, Merger & Acquisitions, Religion, Stefan J. Padfield | Permalink | Comments (0)

Friday, November 15, 2013

“Rehabilitating Concession Theory” (Third Updated Draft w/ Minor Changes)

I have posted an updated draft of my latest paper Rehabilitating Concession Theory, which is forthcoming in the Oklahoma Law Review, on SSRN.  I have made only minor changes to the the prior draft, but I thought I’d post the abstract and link to the paper here in case any blog readers haven’t seen the paper before and might be interested in the content.

In Citizens United v. FEC, a 5-4 majority of the Supreme Court ruled that, “the Government cannot restrict political speech based on the speaker's corporate identity.” The decision remains controversial, with many arguing that the Court effectively overturned over 100 years of precedent. I have previously argued that this decision turned on competing conceptions of the corporation, with the majority adopting a contractarian view while the dissent advanced a state concession view. However, the majority was silent on the issue of corporate theory, and the dissent went so far as to expressly disavow any role for corporate theory at all. At least as far as the dissent is concerned, this avoidance of corporate theory may have been motivated at least in part by the fact that concession theory has been marginalized to the point where anyone advancing it as a serious theory risks mockery at the hands of some of the most esteemed experts in corporate law. For example, one highly-regarded commentator criticized the dissent by saying: “It has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously.” In this Essay I consider whether this marginalization of concession theory is justified. I conclude that the reports of concession theory’s demise have been greatly exaggerated, and that there remains a serious role for the theory in discussions concerning the place of corporations in society. This is important because without a vibrant concession theory we are primarily left with aggregate theory and real entity theory, two theories of the corporation that both defer to private ordering over government regulation.

November 15, 2013 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Stefan J. Padfield | Permalink | Comments (0)

Saturday, November 9, 2013

The Religious Freedom Rights of Corporations

As Marc O. DeGirolami notes here: "In an extensive decision, a divided panel of the U.S. Court of Appeals for the Seventh Circuit has enjoined the enforcement of the HHS contraception mandate against several for-profit corporations as well as the individual owners of those corporations.”  I have not had a chance to read the entire decision (which you can find here), but I did do a quick search for “corporation” and pass on the following excerpts I found interesting.

The plaintiffs are two Catholic families and their closely held corporations—one a construction company in Illinois and the other a manufacturing firm in Indiana. The businesses are secular and for profit, but they operate in conformity with the faith commitments of the families that own and manage them…. These cases—two among many currently pending in courts around the country—raise important questions about whether business owners and their closely held corporations may assert a religious objection to the contraception mandate and whether forcing them to provide this coverage substantially burdens their religious-exercise rights. We hold that the plaintiffs—the business owners and their companies—may challenge the mandate. We further hold that compelling them to cover these services substantially burdens their religious exercise rights…. Nothing in RFRA [the Religious Freedom Restoration Act] suggests that the Dictionary Act’s definition of “person” is a “poor fit” with the statutory scheme. To use the Supreme Court’s colloquialism, including corporations in the universe of “persons” with rights under RFRA is not like “forcing a square peg into a round hole.” [Rowland, 506 US 194, 200 (1993).] A corporation is just a special form of organizational association. No one doubts that organizational associations can engage in religious practice…. It’s common ground that nonprofit religious corporations exercise religion in the sense that their activities are religiously motivated. So unless there is something disabling about mixing profit-seeking and religious practice, it follows that a faith-based, for-profit corporation can claim free-exercise protection to the extent that an aspect of its conduct is religiously motivated.

The quote I focus on above is: “A corporation is just a special form of organizational association.”  I have argued previously that when courts render decisions like the Seventh Circuit did here, they seem to be giving mere lip service to the word “special” in that sentence.  For more on that, you can go here.

UPDATE: Josh Blackman notes how many religion-clause scholars are cited in the opinion here.  Here is my Twitter follow-up:


November 9, 2013 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Stefan J. Padfield | Permalink | Comments (0)