Saturday, July 12, 2014
Since I suspect there is something of an obligation for all corporate law bloggers to weigh in on Hobby Lobby, I offer my thoughts. I admit to some trepidation posting them because (and I blush to confess it) I haven’t been as immersed in the case as most other corporate professors have, so I feel like a bit of an outsider to the debate. So, take these thoughts as coming from someone whose knowledge of the case comes chiefly from, well, the Supreme Court’s opinion.
[More under the cut]
Friday, July 11, 2014
I've updated our business law professors on Twitter list here.
Below are tweets from some of the new additions to the list.
Bankruptcy bedtime stories and what's amazing about law school: http://t.co/VFvzHW2Naw— Stephanie Ben-Ishai (@SBIprof) October 17, 2013
Warren Buffett: The Babe Ruth of Good Business Today http://t.co/1g2UYLc81E— Lawrence Cunningham (@CunninghamProf) July 7, 2014
Oman & Meese offer an "epic take down" http://t.co/ndr8ptb5M1— Nathan B. Oman (@nate_oman) June 3, 2014
A New Business Model (and they make a fine deli sandwich too!) "At Zingerman’s, Pastrami and Partnership to Go" http://t.co/WgRiIXshk8— Len Rotman (@ProfessorRotman) July 7, 2014
Troy University (in Troy, AL) has posted notice of a legal studies professor opening. (Confusingly, the heading of the posts says "assistant/associate professor" and the body of the post says "full-time, tenure-track," but the body of the post also says that the position is for a "lecturer.")
More information at the link above or after the break.
Thursday, July 10, 2014
In last week’s post about the business of the World Cup, I indicated that I would review Christine Bader’s book, The Evolution of a Corporate Idealist: When Girl Meets Oil. I have changed my mind, largely because I don’t have much to add to the great reviews the book has already received. Instead I would like to talk about how lawyers, professors and students can use the advice, even if they have no desire to do corporate social responsibility work as Bader did, or worse, they think CSR and signing on to voluntary UN initiatives is really a form of "bluewashing."
Bader earned an MBA and worked around the world on BP’s behalf on human rights initiatives. This role required her to work with indigenous peoples, government officials and her peers within BP convincing them of the merits of considering the human rights, social, and environmental impacts. She then worked with the UN and John Ruggie helping to develop the UN Guiding Principles on Business and Human Rights, a set of guidelines which outline the state duty to protect human rights, the corporate duty to respect human rights, and both the state and corporations' duty to provide judicial and non-judicial remedies to aggrieved parties. She now works as a lecturer at Columbia University, where she teaches human rights and business and she also advises BSR, which focuses on making businesses more sustainable. Her book tells her story but also quotes a number of other CSR professionals and how they have navigated through some of the world’s largest multinationals.
Bader’s book has some important takeaways for all of us.
1) In order to have influence, we have to learn to speak the language that our audience understands and appreciates- I tell my students that when they write exams for me, it’s all about me. Other professors want their exams written with certain catchphrases using the IRAC method, and I may want something different. One size does not fit all. Attorneys learn (or get replaced) that some clients want long memos, others want executive summaries and bullet points and all want plain English. Talking to a venture capitalist is different than talking to a circuit court judge. Similarly, many law professors are behind the curve. If we only talk to each other in the jargon of the academy and insulate ourselves, the rest of the world won’t have the benefit of our research because they won’t understand or want to read it. Academics have a lot to contribute, but we need to adapt to our audience whether it’s policymakers, judges, our peers or law students.
2) Sometimes we have to be less passionate in making our arguments and appeal to what’s important to our audience- This point relates to Point 1. Bader regularly met with a number of constituencies and was understandably zealous in trying to convince others, internally and externally, about her positions. She and other “corporate idealists” from other firms often learned the importance of language- making a business case to certain internal stakeholders meant talking in terms of the bottom line rather than using the maxim “it’s the right thing to do” or “doing well by doing good.” Good attorneys know how to represent their clients without taking things personally because sometimes the passion can actually dilute effectiveness. As law professors, we need to teach our students to be more effective so that they know how and when to modulate their tone, and how to pivot and change the way they frame their arguments when they can’t convince the recipient of their message.
3) Almost everything comes down to risk management- Bader often had to focus on risk management and mitigation when her moral arguments fell on deaf ears. Those who teach business should make sure that students have a basic understanding of the pressure points that business people face. For some it may be tax liability. For others it may be the appropriate exit strategy. In essence, it all comes down to understanding the client’s risk profile and being able to advise accordingly. Litigators should also understand risk profiles so that they can develop an appropriate settlement strategy and help their client’s work their way through some of the unexpected pitfalls that may arise over the course of the case.
4) Building relationships is a critical skill- Bader learned that social interactions with her peers at BP and the external stakeholders after hours greatly increased her effectiveness in dealing with thorny issues that arose during business hours. Lawyers often believe that if they have the substantive knowledge, they are the smartest people in the room. Law firms don’t teach young associates about the importance of emotional intelligence and building relationships with peers, opposing counsel, and clients. In fact, many law students and lawyers believe that having the reputation as a “shark” is the best way to represent clients. We need to teach our students that it’s better to be respected than feared or hated, and that they can disagree without being disagreeable. Those of us in the academy should model that behavior more often.
5) We must learn to compromise and recognize that incremental changes are important too- Bader and other corporate idealists often want to change the world but quickly learn that internal and external stakeholders aren’t ready to move that fast. She discussed “nudging” her client toward the right direction. Law school and law-related television shows lead students to believe that the end game is to win and to win big. In the business world, sometimes there are no big wins. Lawyers and business advisors often take two steps forward and one step back, and that’s ok. Students and attorneys who take classes in alternative dispute resolution learn this valuable skill. Bader and other corporate idealists also realized that you have to work with people on the opposite side who feel just as strongly that their position is on the side of the angels. Lawyers who know how to build relationships and refocus their messaging can influence those on the other side if they are willing to listen, and when necessary compromise and accept small victories.
6) We can compromise but shouldn’t compromise our values- When Bader felt that her work was no longer fulfilling, she looked for other positions that aligned with her world view. With rising student debt and many lawyers living beyond their means, it’s difficult for lawyers to walk away from a job or client that they don’t like. That’s understandable. It’s more problematic to stay in a situation where there is criminal or ethical misconduct without speaking up or leaving because of the financial handcuffs. It’s also unacceptable to remain in a culture that stifles a lawyer’s ability to raise issues. In some cases, as alleged with some of the GM lawyers, failure to speak up could literally be a matter of life and death.
I enjoyed this quick read because it reminded me so much of my years in corporate life. Bader’s story can teach all of us, even the non corporate-idealists, valuable lessons about coping and thriving in the business world.
Earlier this week, I did an interview for the Corporate Social Responsibility podcast with David Yosifon on the Hobby Lobby case. We walk through the elements of the ruling and discuss the potential implications. It may be a little long if you are deeply familiar with the opinion, but it may also be a good overview of the ruling if you are looking to catch up on the issues while giving your eyes a rest.
Wednesday, July 9, 2014
If copying is the highest form of flattery then re-posting is the blogger's equivalent. I got caught up reading this morning and it has left little time for writing. Here's what I spent my morning reading. The first two are very powerful and the remainder are practical.
- On Democracy and Capitalism from my colleague Tim Kuhner at Salon.com
- On Balance in an Academic's life
- On Mortgage Securities DOJ Settlements at the DealBook
- On the deference given to arms length (i.e., not insider) merger agreements in Delaware
- On changes to Delaware Law regarding ratification
- On LLC's members' fiduciary duties owed to other members (hint: it depends if there is a manager or not)
- On Hobby Lobby from a corporate law perspective on SCOTUS blog by Kent Greenfield
Tuesday, July 8, 2014
A recent article discussing the American Society of Civil Engineers' Report Card on U.S. infrastructure explains:
Without adequate investment on infrastructure the US could face a $2.4 trillion drop in consumer spending by 2020, a $1.1 trillion loss in total trade and experience the loss of 3.5 million jobs in 2020 alone.
This is just a sliver of the doom and gloom the American Society of Civil Engineers predicted this week with the release of their final report in the “Failure to Act” series that focuses on the impacts associated with continued infrastructure deterioration. The latest installment of the ASCE reports focuses on specifically on economic impacts.
Under current investment trends, only 60% of the investment funding required by 2020 will be secured and this underinvestment in infrastructure will have a “cascading impact on the nation’s economy” and culminate in a “gradual worsening of reliability over time,” Gregory E. DiLoreto, ASCE President told the participants on a conference call.
Back in 2007, I published an article titled, Misguided Energy: Why Recent Legislative, Regulatory, and Market Initiatives are Insufficient to Improve the U.S. Energy Infrastructure (here). In that article, I argued:
Soaring energy prices, natural gas supply shortages, and blackouts in major areas of the United States have led to a flurry of legislative and regulatory activity. Through this activity, lawmakers and regulators purport to resolve problems regarding natural gas and electricity supplies and service reliability. A major goal of these actions has been to address the overall energy crisis by increasing investment in the U.S. energy infrastructure. However, as is often the case with political remedies for difficult problems, what is being done and what legislators and policymakers claim is being done are two entirely different things. Recent legislative and regulatory policies are simply ill-equipped to have any substantial impact on the nation’s energy infrastructure in the foreseeable future. Although some of the policies provide long-term hope for increasing the amount and sources of capital available for investment, they are not adequate solutions to a current, and progressing, energy crisis.
Little has changed, but Congress's lack of focus remains. So here's the suggestion, for both energy infrastructure and business regulation: If we're going to add new rules or policies, let's make them clear, transparent, and focused. No 700-page laws or convoluted regulations. If we want to reduce fossil fuel consumption, add a carbon tax. If we want to get transmission infrastructure sited, give federal eminent domain authority for siting.
For now, from the SEC to FERC, let's just give it a try. Otherwise, we don't tend to facilitate markets, we tend to create carve outs that entrench existing powers. And we know how well that works.
Monday, July 7, 2014
For those interested, the Delaware secretary of state's office informs me that there were 145 Delaware public benefit corporations (PBCs) as of 6/30/14.
I just posted my latest crowdfunding article, Shooting the Messenger: The Liability of Crowdfunding Intermediaries for the Fraud of Others, on SSRN. Here’s the abstract:
The new federal crowdfunding exemption in section 4(a)(6) of the Securities Act requires that securities be sold only through regulated intermediaries—brokers and funding portals. Much of the information appearing on those crowdfunding intermediaries’ platforms will be provided by someone other than the intermediary. Crowdfunding intermediaries must post extensive disclosure provided by issuers of the securities being sold. Under the SEC’s proposed rules, they must also provide communication channels where prospective investors and others may post comments.
Neither the statute nor the proposed rules say much about the intermediary’s obligation to verify the information posted by others or its liability if that information is false or misleading. The result under the securities antifraud rules is unclear. Unless the law is clarified, crowdfunding intermediaries face a significant risk of liability that could make crowdfunded securities offerings unfeasible.
I argue that crowdfunding intermediaries should be liable for information provided by others in only three circumstances: (1) if they knew the posted information was false; (2) if they were aware of red flags that should have alerted them to the fraud; or (3) if they recommend a particular security or offering without an adequate investigation.
The article includes an extensive discussion of the case law under various liability provisions—Rule 10b-5; sections 4A(c), 12(a)(2), and 17(a) of the Securities Act; and section 9 of the Exchange Act.
This article was prepared for a symposium at which I and Business Law Prof co-blogger Joan Heminway both spoke. The article is available for download here. I’m looking forward to seeing Joan’s article as well.
If you want to see my other two articles on crowdfunding, my SSRN author page is here.
The Court's Hobby Lobby decision, as noted in post-decision commentary (see, e.g., Sarah Hahn's guest post earlier this week), apparently relies in part on the fact that shareholders (and, potentially, employees and other relevant constituents of the firm) know that the firm has sincerely held religious beliefs and what those beliefs mean for business operations and legal compliance. The Court does not directly address this in its opinion. Rather, the opinion includes various references to owner engagement that imply buisness owner awareness. The Court states:
- For-profit corporations, with ownership approval, support a wide variety of charitable causes . . . . (Op. 23, emphasis added)
"So long as its owners agree, a for-profit corporation may take costly pollution-control and energy conservation measures that go beyond what the law requires." (Op. 23, emphasis added)
In making these statements and reasoning through this part of the opinion, the Court relies on state corporate law principles and allusions.
Importantly, the Court also indicates its views on how the policy underlying the RFRA favors an interpretation that includes corporations as persons:
An established body of law specifies the rights and obligations of the people (including shareholders, officers, and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people. For example, extending Fourth Amendment protection to corporations protects the privacy interests of employees and others associated with the company. Protecting corporations from government seizure of their property without just compensation protects all those who have a stake in the corporations’ financial well-being. And protecting the free-exercise rights of corporations like Hobby Lobby, Conestoga, and Mardel protects the religious liberty of the humans who own and control those companies.
(Op. 18, emphasis in original) Note how the last sentence reduces the protected category of persons under the RFRA to those who "own and control" the firm at issue. This represents an interesting narrowing of constituency groups from the more inclusive treatment in the first sentence of the paragraph. The reason for this narrowing may be (likely is) a practical one, evidencing judicial restraint. The plaintiffs in the Hobby Lobby actions were those who owned or controlled the corporation, and the decision likely will be limited in its application accordingly.
Given these breadcrumbs from the Court's opinion, should disclosure to shareholders or other constituencies be required, and if so, where would those disclosure rules reside as a matter of positive law? A blog post may be the wrong place to begin to address this issue (which is admittedly complex and involves, potentially, areas of law somewhat unfamiliar to me). But indulge me in a thought experiment here for a minute.
Sunday, July 6, 2014
Let me start by publicly announcing a forthcoming panel discussion at this year’s AALS Annual Meeting, tentatively titled “The Role of Corporate Personality Theory in Corporate Regulation.” As the organizer of this panel, I am extremely grateful to Stephen Bainbridge, Margaret Blair, Lisa Fairfax, and Elizabeth Pollman for agreeing to participate in what promises to be a thoroughly enjoyable discussion. For those of you who like to plan ahead, the panel is scheduled for Monday, Jan. 5, from 2:10 to 3:10 (part of the Section on Socio-Economics Annual Meeting program).
Given Stephen Bainbridge’s pending participation, I was interested to read a couple of his posts from a few weeks ago wherein he asked (here), “When was the last time anybody said anything new about corporate personhood?” and concluded (here), “I struggle to come up with anything new to say about the issue, when people have been correctly disposing of the legal fiction of corporate personality for at least 126 years!”
While I understand that asserting there is nothing new to say on a topic is not necessarily the same thing as saying it is not worth talking about, I still find myself motivated to explain why I think talking about corporate personality theory continues to constitute valuable scholarly activity (and, yes, I will connect all this to Hobby Lobby).
First of all, some qualifiers: (1) I distinguish corporate personality theory from corporate personhood because a thumbs up on corporate personhood (i.e., acknowledging that corporations can sue and be sued, etc.) still leaves a number of important questions regarding the nature of this “person,” which I believe theories of corporate personality (typically: artificial entity theory, real-entity theory, or aggregate theory) are well-positioned to answer. (2) While theories of corporate governance (typically: shareholder primacy, director primacy, or team-production theory) are distinct from theories of corporate personality, I believe there are at least some legal issues that are profitably analyzed by viewing both sets of theories as constituting a pool from which to choose an answer. With those introductory propositions in place, here are three reasons why I believe corporate personality theory still matters:
Saturday, July 5, 2014
The blogosphere has been a-twitter with commentary on Jamie Dimon's revelation earlier this week that he has throat cancer and will be undergoing treatments in the hope of eradicating it. From the public news, his prognosis sounds good. For that, I am sure all are grateful.
As some of you may know, my interest in issues relating to disclosures of facts from executives' private lives stems from my fascination, starting about 12 years ago, with the Martha Stewart disclosure cases (about which I wrote in law journals and in several chapters of a book that I edited). After co-writing the book about the basic concerns in Stewart's insider trading, misstatements/omissions securities fraud, and derivative fiduciary duty actions, I focused in additional articles on some finer points relating to her case. Two of these works covered the disclosure of private facts. Among the types of private facts covered are those relating to executive health concerns.
Friday, July 4, 2014
The title of this post refers to the thought-provoking book by former BP executive, Christine Bader, The Evolution of a Corporate Idealist: When Girl Meets Oil. I will save a review for next week in Part 2 of this post. Briefly, Bader discusses the internal and external struggles that she and other “corporate idealists” face when trying to provide practical, culturally appropriate, innovative ways to implement corporate social responsibility and human rights programs around the world. Much of what she said resonated with me based upon my years as a compliance and ethics officer for a multinational corporation and as a current consultant on these issues.
Like comedian/TV commentator John Oliver, I am torn about the World Cup and the significant power that soccer/futbol’s international governing body FIFA has over both Brazil and its residents. His hilarious but educational rant is worth a close watch, and I experienced the conflict he describes firsthand during my two recent trips to Salvador, Brazil. I went to watch what the rest of the world calls “the beautiful game” in a country where soccer is a religion. That's not an exaggeration by the way-- I bought a statuette of a monk holding a soccer ball in a local cathedral. The monk had a place of honor in the display case right next to the rosaries. The Cup has political consequences as well -- if Brazil doesn’t win the Cup at home, politicians will feel it in Fall’s election.
Trip one to Brazil was purely for pleasure with sixteen aficionados to experience one of the world's most diverse and beautiful cultures while catching two matches. Because I have spent the last couple of year’s researching and writing on business and human rights, when the US team advanced to the quarter finals, I took advantage of my frequent flyer miles, hastily organized some meetings with human rights activists that I had never met, snagged a ticket to the US v. Belgium match, and spent three days mixing business with pleasure.
I had done my homework of course (see e.g. this on the money aspect, this petition to vote for the worst sponsor, this on police response to protestors, and this from David Zirin on Brazil's actions with the World Cup and Olympics). I also knew that FIFA, the nonprofit with a one billion dollar reserve, pays no taxes to the host country. Indeed, while FIFA will earn several billions in profit from the 2014 Cup, Brazil will have spent over ten billion to host. Luckily Brazil loves soccer, but as you may have seen on the news, protests have erupted in the major cities about the perceived broken promises from the government to the people. The infrastructure, schools, hospitals and other projects have not materialized as promised. And while FIFA only requires eight stadiums for a World Cup, Brazil inexplicably built twelve. The Manaus Stadium in the middle of the Amazon cost $250 million and there is no soccer team there. At least the Salvador stadium, which cost $350 million to tear down and rebuild, can host its two teams as well as some of the soccer for the 2016 Olympics. The favelas where the poorest residents live are in clear view of the luxurious new facility in Salvador because they are within walking distance.
For the privilege of hosting the Cup, Brazil agreed to suspend its 2003 law banning alcohol in stadiums so that Budweiser could sell beer; institute World Cup courts to fast track convictions; exempt sponsor companies from some taxes; and establish exclusion zones 2 kilometers around FIFA-designated areas so that no local vendors can sell their wares—this in a country that is at the bottom 10% on the world for income inequality.
A few hours after I landed, I met with an organizer of the some of the protests in Salvador, Brazil’s third largest city. The next day I met with an activist for the homeless in the office of the Public Defender for Human Rights. Despite government funding, the Public Defender and activist communities in Salvador work closely together to address human rights abuses. I learned the following, among other things. Over 250,000 people throughout Brazil were displaced for the games, many with no compensation. Salvador, a city with over 4,000 homeless, only developed housing for 200 families despite knowing about the games for seven years. Homeless people who did not move when told were harassed by the police. If the harassment didn’t work, police confiscated their documentation and/or clothing and destroyed them. If that didn’t work, street cleaning trucks bombarded them with soap and water as though they were trash. Through the joint efforts of the Public Defender and activists, this activity, which started last September, largely stopped.
I also learned that religious groups can protest against abortion and drug use in exclusion zones but those protesting against FIFA must secretly hand out pamphlets in groups smaller than three people to avoid detection, arrest and jail time (sometimes charged as “terrorists.”). FIFA established almost a dozen agencies to ensure that the Cup went smoothly but most locals have experienced nothing but serious disruption. Hundreds of vendors who had eagerly staked out spaces to sell to tourists were banned and the government gave them no place else to go. People have died and suffered serious injury as FIFA has pressured the Brazilian government to complete projects on time. Although protestors have not focused on them, others have raised questions about the environmental impact of the Cup.
Sony, Johnson & Johnson, Budweiser, Coca-Cola, and McDonald's -- all key sponsors paying upwards of a minimum of $10 million-- tout their corporate social responsibility programs so I have the following ten questions about the business of the World Cup.
1) Is FIFA, the nonprofit corporation, really acting as a quasi-government and if so, what are its responsibilities to protect and respect local communities?
2) Does FIFA have more power than the host country and will it use that power when it requires voters to consider a bidding country’s human rights record when awarding the 2026 Cup as it has suggested?
3) If Qatar remains the site of the 2022 Cup after the various bribery and human rights abuse investigations, will FIFA force that country to make concessions about alcohol and gender roles to appease corporate sponsors?
4) Will/should corporate sponsors feel comfortable supporting the Cup in Russia in 2018 and Qatar in 2022 given those countries’ records and the sponsors’ own CSR priorities?
5) Does FIFA’s antidiscrimination campaign extend beyond racism to human rights or are its own actions antithetical to these rights?
6) Are the sponsors commenting publicly on the protests and human right violations? Should they and what could they say that has an impact? Should they have asked for or conducted a social impact analysis or is their involvement as sponsors too attenuated for that?
7) Should socially responsible investors ask questions about whether companies could have done more for local communities by donating to relevant causes as part of their CSR programs?
8) Are corporations acting as "bystanders", a term coined by Professor Jena Martin?
9) Is the International Olympic Committee, a nonprofit, nongovernmental organization, taking notes?
10) Do consumers, the beneficiaries of creative corporate commercials and viral YouTube videos, care about any of this?
I have thoughts but no answers to my questions and will spend my summer on these corporate responsibility issues. I definitely don’t envy the corporate idealists working for any of these sponsors.
Thanks to all for the interesting posts. I am sure there will be more to come, followed by a flurry of articles in the fall and spring cycles. Looking forward to reading more.
Thursday, July 3, 2014
The following comes to us from guest blogger Tamara Belinfanti, with commentary to follow:
[Due to copyright concerns, I've replaced the image with a link at least for the time being.]
Wednesday, July 2, 2014
Earlier this week I asked Professor Lyman Johnson if he would care to share his thoughts on the Hobby Lobby case with us because I had so enjoyed his thoughtful posts on the Conglomerate before the decision was issued (see here and here). Professor Johnson's contribution is below.
I thank the good folks here at the Business Law Prof Blog for inviting me to share some thoughts about the Supreme Court’s decision in the high-profile Hobby Lobby cases. The Court held that a closely-held business corporation was a “person” under the Religious Freedom Restoration Act (RFRA), that such a for-profit corporation could indeed “exercise religion” under that Act, and that as applied to closely-held corporations the contraceptive mandate promulgated under the Affordable Care Act violated RFRA. Two days after the controversial decision, the sky has not fallen, although dire forecasts to that effect still abound. My post today makes a simple but basic point: quite apart from the decision’s implications for religious liberty in the corporate realm - no small thing, to be sure - and notwithstanding the still unfolding legal and political fallout, Hobby Lobby immediately became a landmark decision in which the Supreme Court spoke in unprecedented fashion to an issue going to the very foundation of corporate law, the question of corporate purpose.
Let’s begin with the notion of freedom, or liberty. The Court ruled that RFRA protected the free exercise rights of close corporations and of those humans who own stock in and control those companies. [Note: human beings are routinely described in their “corporate” capacity in the majority opinion; the “corporation” is emphasized throughout] In this way, the Court protected the “negative liberty” of those “corporate” persons, freeing them from the constraint of the federal contraceptive mandate. But where exactly, from a legal vantage point, did the corporations’ “positive liberty” to “exercise religion” even come from? Not from RFRA, which protects only against substantial governmental burdens on the exercise of religion. Even though RFRA includes (via the Dictionary Act) a “corporation” within its definition of “person,” it does not itself affirmatively empower corporations. The answer is that, as with all corporate attributes, this capacity to exercise religion is endowed by state corporate law.
The federal government did not - it could not - dispute the legal origins of corporateness as being rooted in state law. And the U.S. failed to convince the Court that corporations as such cannot exercise religion because, let’s face it, our nation is full of churches and other religious bodies where religion quite obviously is being exercised in and through the corporate form. But the Court also rejected the government’s attempted distinction of for-profit corporations from their non-profit counterparts because the Court rebuffed the government’s underlying view that “the purpose of such [for-profit] corporations is simply to make money,” stating that this position “flies in the face of modern corporate law.” This is where the Hobby Lobby opinion pries open the very heart of corporate law.
Justice Alito, for the Court, rejected the view that business corporations must (and do) singularly act to make money, even as he acknowledged making profits to be “a” (not “the” or “sole”) objective and one that is “central.” A few gems here: “[M]odern corporate law does not require for-profit corporations to pursue profit at the expense of everything else and many do not do so.” “[I]t is not at all uncommon for such corporations to further humanitarian and other altruistic objectives.” “Not all corporations that decline to organize as nonprofits do so in order to maximize profits. For example, organizations with religious and charitable aims might organize as for-profit corporations…” Alito then notes that “the objectives that may properly be pursued by the companies in these cases are governed by the laws of the states in which they are incorporated…” Given the breadth of objectives that can be pursued under state corporate law, it was easy for the Court to conclude that corporate liberty extended to “the pursuit of profit in conformity with the owners’ religious principles.” This liberating principle was pointedly germane to the Hobby Lobby case itself, as Alito cited to the record wherein the owners of that corporation calculated they lose millions of dollars annually by closing on Sundays - precisely because of religious beliefs. Doing so, that is, sacrificing profits, the Court ruled, is permitted and altogether proper under corporate law. Too bad former Chancellor William Chandler did not have the benefit of Alito’s recent primer when Chandler wrote the deeply-flawed eBay v. Craigslist decision in 2010.
To hold that close corporations were “free” from the contraceptive mandate of the Affordable Care Act, because of RFRA, the Court thus had to determine that, under state corporate law, such companies are likewise “free” from some imagined state legal mandate to maximize profits. Readily concluding that corporations clearly do have the liberty not to maximize profits, the Court concluded that, as a legal matter, they were necessarily “free” to exercise religion. But critically, that means business corporations, being free in this respect under state corporate law, can pursue a whole host of objectives other than making money. Those objectives include various humanitarian, social, and environmental objectives of the sort progressives have long championed. As one who for decades has favored a vision of corporations (and corporate law) as being utterly conducive to serving broad social purposes - as freely determined, of course, by the appropriate corporate decisionmakers - and as one who supported Hobby Lobby, I found it odd to see these companies opposed by so many corporate progressives. When one advocates for freedom on the corporate purpose front, just as is the case on the free speech front, one fights for those with whom one may disagree. Remember here Voltaire and his “I do not agree with what you have to say, but I will defend to the death your right to say it.” But take comfort: although progressives lost the Hobby Lobby battle, they gained (accidently) an ironic victory on the all-important corporate purpose war.
On the other hand, those in the corporate law academy who think corporate law mandates strict profit maximization now have a formidable judicial foe, and one that dwarfs the puny authority of Dodge v. Ford Motor Co. or eBay: i.e., the U.S. Supreme Court. Time to change the syllabus on corporate purpose… To those on the right who favored Hobby Lobby (me) but who also favor the now-discredited position that corporate law requires profit maximizing (not me) take note: you won the battle on religious freedom but to do so you had to suffer a major setback on corporate purpose.
Finally, this case shows me that those who seek corporate reform may do so either from progressive impulses or from religious impulses, and from the left or the right of our political and theoretical spectrums. The Hobby Lobby decision should, in that respect, ultimately be seen as a unifier for those in corporate law with reformist goals, not as a divider.
My longtime colleague and collaborator, David Millon, and I, who typify these two quite different reformist impulses, respectively, will have much more to say on this vital subject in an article now in the works….
Screening of applications begins September 15, 2014.
Applications can be sent to email@example.com or
Department of Business Law or College of Business Administration and Economics
California State University Northridge
Northridge, CA 91330-8375
More information here.
FOR ACADEMIC EYES ONLY (practicing readers may be deeply offended by my self-indulgence)
By my count we are in week 7 (out of 12) of "summer"--the time between graduation and when the fall semester resumes. We are more than half-way through this shimmering mirage, this beacon of hopeful productivity, balance, and reprieve. All year long, I think, THIS summer I will...... And now this THIS summer is here, I am feeling concerned about all that hasn't been tended to at work or at home. At least not yet. (And it isn't for lack of trying--75 exams graded, 3 conferences attended, 1 article draft complete, 3 unexpected child illnesses, and 1 empirical study bogged down in the details.)
This is a common refrain of conversations had with fellow academics. It all goes by too quickly and with self-imposed pressure to make the most of it professionally (write two articles for August submission!) and personally (go on exotic travel adventure with family!). By my personal count, I am failing on both fronts. While this is a unique schedule for academics, I think that the promise of summer lures most people from all walks of life into an unrealistic vision of this time that is inevitably filled with the juggling act of travel and work and family and fun. So with 5-6 weeks left, I am taking stock of my writing expectations (maybe that short piece won't get finished THIS summer) and re-prioritizing because I want to feel good when I walk back into the classroom on day 1. Mostly, I just want to avoid feeling like this:
Tuesday, July 1, 2014
The following is a contribution from guest blogger Sarah Haan, Associate Professor of Law at the University of Idaho College of Law.
Business law professors no doubt felt relief yesterday when the news media corrected course and stopped distilling Hobby Lobby into a sound bite about “family-owned” corporations. The three corporations challenging the Affordable Care Act in the case – Conestoga, Hobby Lobby, and Mardel – happen to be family-owned, but the majority opinion, penned by Justice Alito, was careful to articulate its holding as applying to “closely held” corporations, of which family-owned corporations are just a subset.
Commentators (like the Business Law Profs Blog’s Anne Tucker) have noted that the Court’s failure to define what it meant by “closely held” is significant. By using the ambiguous phrase, and by suggesting that the opposite of a closely held corporation is a “publicly held corporation,” Justice Alito was opening the door to RFRA free exercise claims by a wide range of companies, the vast majority of which will bear no likeness to mom-and-pop businesses. Generally, a “closely held” corporation is one that has a “small number” of shareholders (ALI Principles of Corporate Governance), or, under an alternate theory, one in which the identity of owners and managers is “substantially identical.” Importantly, there is no consensus about how many shareholders a “closely held” corporation can have. Under Delaware law, a statutory “close” corporation (a subset of closely-held corporations) can have as many as 30 shareholders. Under Maryland law, there is no limit. “’Closely held’ is not synonymous with ‘small,’” Justice Ginsberg rightly pointed out in her dissent.
But there is more to Justice Alito’s slight-of-hand than the murky distinction between a “closely held” corporation and a “family-owned” one. The government argued that giving corporations free exercise rights under RFRA will lead to religious battles among shareholders that distract from the economic objectives of the corporation. In a paragraph that echoed the majority’s discussion of the “mechanisms of corporate democracy” in Citizens United, Justice Alito explained why shareholders’ religious disagreements are little cause for concern:
The owners of closely held corporations may – and sometimes do – disagree about the conduct of business. And even if RFRA did not exist, the owners of a company might well have a dispute about religion. For example, some might want a company’s stores to remain open on the Sabbath in order to make more money, and others might want the stores to close for religious reasons. State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure. Courts will turn to that structure and the underlying state law in resolving disputes.
In this paragraph, the Court acknowledges that shareholders in a closely held corporation might not have the same religious views, but assumes that such a corporation can still exercise a religion under RFRA. All shareholders at each of the three corporations in Hobby Lobby held the same set of religious views, but nowhere does the Court suggest that this is a requirement of RFRA personhood. To the contrary, this passage reveals that the Court does not mean to limit corporate religious exercise to only those closely held corporations whose shareholders all agree about religion. In fact, the Court anticipates that shareholders of companies exercising a religion under RFRA will have religious disputes, and it views the mechanisms of state corporate law as the proper means for sorting out those disagreements.
And here’s the rub: The most basic principles of state corporate law allow a controlling shareholder to, well, control the corporation. So what the Court has really decided is that a single controlling shareholder, or a sub-group of shareholders with voting control, can make religious exercise decisions for the corporation, even over the objections of minority shareholders. Because that is how state corporate law resolves intra-corporate disputes.
In other words, the sincerely-held religious beliefs of a closely held corporation may just be the sincerely-held religious beliefs of its controlling shareholder.