Tuesday, February 9, 2016
My home state in West Virginia is struggling. The economy is struggling because two of the state's main industries -- coal and natural gas -- are facing falling production (coal) and low prices (gas). Severance taxes for the state account for approximately 13% of the budget, and both are down dramatically. Tax revenues for the state were down $9.8 million in January from the prior year and came up $11.5 million short of estimates. For the year-to-date, the state collected $2.29 billion, which is $169.5 million below estimates. Oddly enough, state sales and income taxes for January both exceeded estimates, but not enough to offset other stagnation in the state.
The state has long been known as a coal state, and that industry has dominated the legal and political landscape. West Virginia has been criticized for having a legal system that is "anti-business," with the United States Chamber of Commerce finding stating that West Virginia is the 50th ranked state in terms of the fairness of its litigation. (See PDF here.) CNBC (with input from the National Association of Manufacturers) also ranked West Virginia last in terms of business competitiveness, so the starting point is not good.
Now, the West Virginia legislature is considering the state's Religious Freedom Restoration Act, which many (including me) see as about legalizing specific forms of discrimination, and not promoting or supporting religion. And some religious groups agree. As the Catholic Committee of Appalachia’s West Virginia Chapter explains:
We appreciate the background of 1993 federal act with the same name, and the history leading up to it, with its pertinence to protecting Native American sacred lands and religious practices from governmental infringement. With the U.S. Supreme Court’s decision that RFRA would only be applicable to federal actions, we can recognize, also, the value of an argument for versions of a law to be passed at the local level. However, the primary motivation behind West Virginia’s bill #4012, and others like it, seems not to be the protection of legitimate religious exercises, but securing the ability of religious groups to discriminate against marginalized populations on the basis of religious convictions.
Just as important for purposes of this post, many West Virginia businesses oppose the bill. Local Embassy Suites and Marriott hotels representatives spoke out against the bill, and the Charleston (WV) Regional Chamber of Commerce and Generation West Virginia, along with several city mayors, have opposed the bill, as well. They have good reason. When the state of Indiana passed a similar bill, Indianapolis promptly lost as many as twelve conventions and estimates around $60 million. Ouch. As one mayor said, West Virginia legislators need to "Get out of the way."
Morgantown, home to my institution, was the state’s second city to pass an LGBT non-discrimination ordinance in February 2014. West Virginia University’s faculty senate also unanimously yesterday approved a resolution condemning the bill. And there was a chance to make clear the intent of the bill was not intended to be used as a way to discriminate against someone based sexual orientation through a proposed amendment making that clear. Unfortunately, the amendment was deemed “not germane.”
Beyond coal, natural gas, chemicals, and timber, tourism is one of our state's main industries. It's also a great one. From whitewater rafting to skiing to hiking, the state is a great place for outdoor activities. Craft breweries and a few great local restaurants are helping make the state a destination. Unfortunately, the debate about this bill, especially in the wake of the backlash in Indiana, is hurting the state's ability to make build up it's tourism industry by making many people feel unwelcome.
It's really too bad as a local restaurant, Atomic Grill, made international news for how they responded to comments about their waitresses and has been lauded for their response to other intolerance in their restaurant.
I don't like this bill because, to me, it's either a tautology or an attempt to discriminate through legislation. But beyond that, it's stupid, terrible way to promote business in the state. We spend enough time trying to get people to come visit -- and when people do, they almost always like it. It really is a great place in so many ways. At a time when the entire state is looking at 4% budget cuts across the board -- when we need to be building bridges to broader audiences -- the state's legislature is screwing around with bills that have zero economic upside and reinforce stereotypes about the people of our state.
Being pro-business means being pro-consumer, which really means being pro-people. This bill is none of those. We need to do better, and it's disappointing our time and our money are being wasted like this.
Sunday, January 17, 2016
Development Studies Workshop - Organized by the Banque Populaire Chair in Microfinance of the Burgundy School of Business (Dijon, France)
Development Studies Workshop
Organized by the
Banque Populaire Chair in Microfinance of the Burgundy School of Business (Dijon, France)
In collaboration with
BG Foundation (India)
With Support from
Theme: Spirituality, Organization and Development
Dates: 28th and 29th October, 2016
Venue: Gurgaon/Delhi (India)
At a time of terrorism, war, and general confusion on human values, there is increasing concern to develop the world in a more sustainable manner. Harmony with nature, ethics, morality and even spirituality is being sought at an individual level, at an organizational level and at the macro level, while continuing the focus on development and making life worth living for all our fellow human-beings. At this juncture, more and more academics and practitioners are turning towards religion to see if some spiritual lessons can be incorporated for an enhanced work-life. At the very least, understanding the spiritual culture of different persons is important to work in global corporations. It is even more important to understand large waves of immigrants and to mentally prepare for their differences in values. The theme of this workshop is therefore relevant to promote human understanding in a globalized world.
A research workshop's primary aim is to help each other improve our papers so that we can publish in high ranked international journals and specialized books on a topic. For this, we would like to bring together a large diversity of researchers from different backgrounds to focus on a relevant and interesting theme, which is meaningful to the present moment.
While papers in any of these individual themes is welcome, papers combining two or more elements of spirituality, organization and economic development will be given preference.
Examples of possible topics combining two themes (not exclusive, not exhaustive) to spark your thoughts:
- Spiritual Development
a. Yoga in the workplace
b. Gandhism and sustainable development
c. Organizing Ayurvedic health systems
- Organizational Development
a. Organization Leadership and community development
b. Corporate transformation through Islamic Finance
c. Managing Conflicts through the Art of Living
- Economic Development
a. Microfinance and Hinduism
b. Confucianism and development of intellectual property rights
c. Economics of Spiritual tourism of Christian holy places
Please send abstracts by April 15, 2016 to email@example.com.
Guidelines for Abstracts (150 to 300 words)
Title of the paper
Author Information: Names, designations and affiliations, current locations (city, country)
Impact (on new research or on new practices, policies)
Value added/ Originality
There will be no parallel sessions. A minimum of six and a maximum of fifteen working papers can be presented.
Abstracts will be selected based on conformity to the theme and diversity of origins.
A few people whose abstract is not accepted can opt for being discussants or participants, subject to place availability.
[more below the fold]
Thursday, December 17, 2015
A year ago today, President Obama shocked the world and enraged many in Congress by announcing normalization of relations with Cuba. A lot of the rest of the United States didn’t see this as much of a big deal, but here in Miami, ground zero for the Cuban exile community, this was a cataclysmic event. Now Miami is one of the biggest sources of microfinance for the island.
Regular readers of this blog know that I have been writing about the ethical and governance issues of doing business with the island since my 10-day visit last summer. I return to Cuba today on a second research trip to validate some of my findings for my second article on governance and compliance risks and to begin work on my third article related to rule of law issues, the realities of foreign direct investment and arbitration, what a potential bilateral or multilateral investment agreement might look like, and the role that human rights requirements in these agreements could play.
This is an interesting time to be visiting Cuba. The Venezuelan government, a large source of income for Cuba has suffered a humiliating defeat. Will this lead to another “special period” for the nation similar to the collapse of the Soviet Union? Major league baseball players who defected from Cuba just a few years ago announced a homecoming trip today. Yesterday, the US government authorized commercial flights to return to Cuba. The property claims for the multinationals and families who had homes and business confiscated by Castro are being worked out, or so some say.
Over the next few days in between touring Old Havana and fishing villages, I will learn from lawyers and professors discussing arbitration law in Cuba, foreign investment law 118/2014, tax and labor implications for the foreign investor, the 2015 amendments to the Cuban Assets Control Regulations, requirements for gaining government approval and forming state partnerships, and the Cuban banking system.
Strangely, I am excited. While I should be decompressing from the shock of reading student exams discussing “creepy tender offers” and “limited liability corporations,” I can’t wait to delve into the next phase of my research and practice my business Spanish at the bar of the Parque Central in La Habana. My internet access will be spotty and expensive but if you can think of any pressing questions I should ask leave a comment below or email me at firstname.lastname@example.org.
December 17, 2015 in Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Food and Drink, Human Rights, International Business, International Law, Law Reviews, Marcia Narine, Religion, Writing | Permalink | Comments (0)
Saturday, June 13, 2015
Apparently, there is a split of opinion on what some people believe God wants the world to do about the climate. On one side, Senator Jim Inhofe does not believe the man is responsible for climate change. He has publicly stated that, “[T]he Genesis 8:22 that I use in there is that ‘as long as the earth remains there will be seed time and harvest, cold and heat, winter and summer, day and night.’ My point is, God’s still up there. The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.” When I mentioned this quote to a European audience at a conference on climate change and business in 2013, there was an audible gasp. He also wrote a 2012 book, The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future. His position did not change after the 2013 Intergovernmental Commission on Climate Change Report definitively declared that climate change was largely man made. This would all be irrelevant if Senator Inhofe wasn’t the Chair of the Senate committee that oversees the environment. Inhofe was the keynote speaker last week at the Heartland Institute’s annual conference on climate change (watch the video clip in the article in which the Catholic Church and the Pope get special mention).
On the other side of the debate, Pope Francis will enter the fray with a new Encyclical on climate change next week, and it's expected to have some influence on upcoming UN talks on the subject. Many US politicians argue that the Pope should "mind his own business" and stick to issues that affect the poor and the faithful around the world. Climate change is actually directly related to the ability of poor people to gain access to water, grow crops, and avoid natural disasters, and thus I would argue that this is the Pope’s “business.” It’s also Senator Inhofe’s business as he's allegedly received over $1.7 million from the oil and gas industry over his career.
Although oil and gas companies have contributed to Senator Inhofe, a number of them have already tried to be proactive in their CSR reports and other marketing efforts. The tide may be turning against climate change deniers. Norway’s $900 billion sovereign wealth fund just divested from 122 fossil fuel companies ($945 million), and that fund was largely financed by Norway’s oil wealth. In any event, I look forward to reading the Pope’s comments and seeing how foreign governments and US businesses respond to it.
Monday, October 27, 2014
In addition to the two letters Anne Tucker mentioned earlier, Lyman Johnson (Washington & Lee and University of St. Thomas) has now organized another group of legal scholars to respond to the HHS post-Hobby Lobby Rules. The Johnson letter is available here.
As Stephen Bainbridge (one of the authors) notes, Lyman Johnson brought together a group of scholars with diverse views for this letter. The letter is worth reading and the abstract is provide below.
In late August 2014, after suffering a defeat in the Supreme Court Hobby Lobby decision when the Court held that business corporations are "persons" that can "exercise religion," the Department of Health and Human Services ("HHS") proposed new rules defining "eligible organizations." Purportedly designed to accommodate the Hobby Lobby ruling, the proposed rules do not comport with the reasoning of that important decision and they unjustifiably seek to permit only a small group of business corporations to be exempt from providing contraceptive coverage on religious grounds. This comment letter to the HHS about its proposed rules makes several theoretical and practical points about the Hobby Lobby holding and how the proposed rules fail to reflect the Court’s reasoning. The letter also addresses other approaches to avoid in the rulemaking process and argues for rules that, unlike what the HHS has proposed, align with the Supreme Court’s reasoning while being consonant with generally applicable precepts of state law and principles of federalism.
Friday, October 10, 2014
Last night (actually this morning around 1 a.m.), I returned to Nashville after a delayed connection on my way back from an excellent conference at Seattle Pacific University. The conference was hosted by SPU's Center for Integrity in Business.
I was only in Seattle for about 48 hours, but the trip was well worth it. As I have mentioned before, there isn’t a good substitute for meeting people in person. Seattle Pacific University gathered an excellent, diverse group of practitioners and academics from various disciplines to discuss topics at the intersection of faith and social enterprise. I may write more about the conference later, but am pretty wiped out right now after limited sleep, catching up, and teaching today.
While I seem to always get at least one delayed flight when I travel, I do not mind traveling because I love the quiet time on the plane or the car. (With an 18-month old son at home "quiet" is relatively rare in my life.) Almost always, I can finish at least one full book on the airplane on a trip like this one. This time I read Paul Collier’s The Plundered Planet. I might write more on the book later, but for now I will just provide an excerpt from the opening pages:
Environmentalists and economists have been cat and dog. Environmentalists see economists as the mercenaries of a culture of greed, the cheerleaders of an affluence that is unsustainable. Economoists see environmentalists as romantic reactionaries, wanting to apply the brakes to an economic engine that is at last reducing global poverty.
The argument of this book is that environmentalists and economists need each other. They need each other because they are on the same side of a war that is being lost. The natural world is being depleted and natural liabilities accumulated in a manner that both environmentalists and economists would judge to be unethical. But the need for an alliance runs deeper than the practical necessities of preventing defeat. Environmentalists and economists need each other intellectually. (pg. 9)
Paul Collier is a good person to write a book about the intersection of economics and environmentalism; he is an economics professor at Oxford University and his wife is an environmental historian.
This conference at Seattle Pacific University not only brought together economists and environmentalists, but also professors in finance, marketing, management, accounting, political science, geography, psychology, theology, and law. A number of business and legal practitioners, including Bill Clark (the primary drafter of the Model Benefit Corporation Legislation) and multiple business owners, were also part of the group. The conversation was rich, in large part because we all brought different perspectives on the issue from our own areas.
Tuesday, September 23, 2014
March of the Benefit Corporation: So Why Bother? Isn’t the Business Judgment Rule Alive and Well? (Part III)
(Note: This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides. The previous installments can be found here and here (NLPB) and here and here (BLPB).)
In prior posts we talked about what a benefit corporation is and is not. In this post, we’ll cover whether the benefit corporation is really necessary at all.
Under the Delaware General Corporation Code § 101(b), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” Certainly there is nothing there that indicates a company must maximize profits or take risks or “monetize” anything. (Delaware law warrants inclusion in any discussion of corporate law because the state's law is so influential, even where it is not binding.)
Back in 2010, Josh Fershee wrote a post questioning the need for such legislation shortly after Maryland passed the first benefit corporation legislation:
I am not sure what think about this benefit corporation legislation. I can understand how expressly stating such public benefits goals might have value and provide both guidance and cover for a board of directors. However, I am skeptical it was necessary.
Not to overstate its binding effects today, but we learned from Dodge v. Ford that if you have a traditional corporation, formed under a traditional certificate of incorporation and bylaws, you are restricted in your ability to “share the wealth” with the general public for purposes of “philanthropic and altruistic” goals. But that doesn't mean current law doesn't permit such actions in any situation, does it?
The idea that a corporation could choose to adopt any of a wide range of corporate philosophies is supported by multiple concepts, such as director primacy in carrying out shareholder wealth maximization, the business judgment rule, and the mandate that directors be the ones to lead the entity. Is it not reasonable for a group of directors to determine that the best way to create a long-term and profitable business is to build customer loyalty to the company via reasonable prices, high wages to employees, generous giving to charity, and thoughtful environmental stewardship? Suppose that directors even stated in their certificate that the board of directors, in carrying out their duties, must consider the corporate purpose as part of exercising their business judgment.
Please click below to read more.
Sunday, September 14, 2014
This coming Tuesday, I am scheduled to provide a brief overview of the corporate law/theory aspects of Hobby Lobby as part of the University of Akron’s Supreme Court Roundup. What follows are the seven key quotes from the opinion that I plan to focus on (time permitting) in order to highlight what I see as the key relevant issues raised by the opinion. Comments are appreciated.
Issue 1: Did corporate theory play a role in Hobby Lobby?
While I believe the majority made a pitch for applying a pragmatic, anti-theoretical approach (“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of … people.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), the following quote strikes me as conveying an underlying aggregate view of corporations:
In holding that Conestoga, as a “secular, for-profit corporation,” lacks RFRA protection, the Third Circuit wrote as follows: “General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors.” 724 F.3d, at 385 (emphasis added). All of this is true—but quite beside the point. Corporations, “separate and apart from” the human beings who own, run, and are employed by them, cannot do anything at all.
134 S. Ct. at 2768.
September 14, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Religion, Social Enterprise, Stefan J. Padfield, Unincorporated Entities | Permalink | Comments (2)
Sunday, July 27, 2014
An Updated Draft of “Corporate Social Responsibility & Concession Theory” and Some Further Thoughts on Hobby Lobby
I have posted an updated draft of my latest piece, “Corporate Social Responsibility & Concession Theory” (forthcoming __ Wm. & Mary Bus. L. Rev. __) on SSRN (here). 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. Finally, I note that the Supreme Court’s recent Hobby Lobby decision does not undermine my CSR claims, contrary to the suggestions of some commentators.
I expect to have at least one more meaningful round of edits, so all comments are welcome and appreciated.
As to the last point of the abstract, let me explain why I don’t think Hobby Lobby has meaningfully expanded the ability of corporations to pursue socially responsible actions lacking in any colorable shareholder wealth justification, which, in light of the business judgment rule, is where I believe much of the interesting CSR action is taking place. I’ll first briefly go through my understanding of what the Court held in Hobby Lobby, and then see if anything new is added to our understanding of corporations’ ability to pursue CSR activities. My analysis proceeds roughly as follows:
1. Are corporations capable of exercising religion?
As a matter of statutory construction, determining whether corporations can exercise religion for purposes of the RFRA requires looking to the Dictionary Act, which includes corporations under the definition of "person" unless the context indicates otherwise. I agree with Justice Ginsburg that the context of exercising religion is one that properly excludes corporations. In addition, due to my view of the corporation as being fundamentally a creature of the state, I have Establishment Clause concerns about allowing the recipients of the state’s corporate subsidy to further religious ends via that grant. (I address some of the related unconstitutional conditions arguments here.) But in the end, the Court said corporations can exercise religion, so that’s likely the final word till a Justice retires.
2. Is the exercise of religion by corporations ultra vires?
Given that the Court has deemed corporations capable of exercising religion, the next question is whether they have been granted the power to do so by the state legislatures that created them. In other words, is the exercise of religion ultra vires? When Justice Alito says that “the laws … permit for-profit corporations to pursue ‘any lawful purpose’ or ‘act,’ including the pursuit of profit in conformity with the owners' religious principles,” I believe he is best understood as affirming that religious exercise, like charitable giving, is not ultra vires, nothing more.
3. Can corporations sacrifice shareholder wealth to further religious exercise?
So, corporations have the ability to exercise religion and it is not ultra vires for them to do so. None of that, however, should change the fact that if the religious exercise does not somehow advance shareholder wealth and any shareholder legitimately complains, then a viable waste or fiduciary duty claim has been asserted. Alito seems to recognize this point when he qualifies his conclusion about the viability of abandoning profit-maximization with: “So long as its owners agree ….” As Jay Brown put it (here), “this is a rule of unanimity…. it doesn't actually alter the board's legal duties.” In other words, I agree with my co-blogger Josh Fershee when he argues (here) that Hobby Lobby should not be read to create some new First Amendment defense for controlling shareholders or directors facing viable claims of waste of corporate assets or duty of loyalty violations.
Assuming all the foregoing is correct, I don’t see anything new in Hobby Lobby vis-à-vis a corporation’s ability to engage in CSR activities. Obviously, it doesn’t take much to satisfy the business judgment rule, but that’s not the issue. If there is any new ground here it should arguably create a defense where no rational business purpose is asserted (I don’t believe Hobby Lobby has redefined “business” for purposes of the waste doctrine). That’s precisely what makes benefit corporations special and necessary – they provide such a defense for corporations pursuing activities with a public benefit but open to the challenge that there is no concomitant shareholder wealth benefit. As Robert T. Esposito & Shawn Pelsinger put it (here), “the principal argument for social enterprise forms rests on the assumption that corporate law and its duty to maximize shareholder wealth could not accommodate for-profit, mission-driven entities.”
So, has Hobby Lobby somehow meaningfully shifted the playing field when it comes to CSR? I don’t think so.
Tuesday, July 15, 2014
The Hobby Lobby decision states:
No known understanding of the term "person" includes some but not all corporations. The term "person" sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations. 20 Cf. Clark v. Martinez, 543 U. S. 371 , 378 (2005) ("To give th[e] same words a different meaning for each category would be to invent a statute rather than interpret one").
The decision continues:
Under the Dictionary Act, "the wor[d] 'person' . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." Ibid .; see FCC v. AT&T Inc., 562 U.S. ___, ___ (2011) (slip op., at 6) ("We have no doubt that 'person,' in a legal setting, often refers to artificial entities. The Dictionary Act makes that clear"). Thus, unless there is something about the RFRA context that "indicates otherwise," the Dictionary Act provides a quick, clear, and affirmative answer to the question whether the companies involved in these cases may be heard.
Thus, unless otherwise stated, any place a person can recover claims, so can “corporations, companies, associations, firms, partnerships, societies, and joint stock companies.” There are opinions that have distinguished the “fictional person” from the “natural person.” See, e.g., All Comp Const. Co., LLC v. Ford, 999 P.2d 1122, 1123 (Okla. App. Div. 1 2000) (stating that an LLC was a "fictional 'person' for legal purposes and thus any damages due to the LLCs would be "due to it as a fictional person," and thus certain damages were not recoverable because LLCs are not "capable of experiencing emotions such as mental stress and anguish"). RFRA, per Hobby Lobby, though, does not make such a distinction.
As such, it seems to me there are places where federal law uses the term person that might now extend potential recovery to entities for things like pain and suffering or mental anguish. Maybe I am missing something here. Any ideas come to mind? Maybe civil rights laws?
The ripples, it seems, are just beginning.
Sunday, July 13, 2014
"How Hobby Lobby Undermined The Very Idea of a Corporation" http://t.co/Rq4F6LKpCr— Ian Bogost (@ibogost) July 5, 2014
"how the common law has personified the state and how those personifications affect ... state responsibility" http://t.co/faAgRTY8cR— Stefan Padfield (@ProfPadfield) July 10, 2014
ICYMI: "Hosanna-Tabor..appears to [=] religious groups are different from secular groups for constitutional purposes" http://t.co/rydH7PM1zr— Stefan Padfield (@ProfPadfield) July 10, 2014
"a corporation has no purposes..separate from those of the people who own and control it" & the state that created it http://t.co/J157qm2PTK— Stefan Padfield (@ProfPadfield) July 11, 2014
Monday, July 7, 2014
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:
Friday, July 4, 2014
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.
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….
Monday, June 30, 2014
Rather than try to rehash what is now done, I will pose a different question: How does one reconcile this religious exercise with the profit-seeking mandate that the Delaware court imposes from time to time. As Chancellor Chandler noted in eBay v. Newmark (more here):
The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment.
Note that “purely” is not an entirely accurate modifier here. Craigslist made a profit and had some ventures that raised money. They just did not monetize the majority of the endeavors
So what about an entity that operates for purely religious ends? Hobby Lobby and those similarly situated seem to be saying that religion trumps profit (see, e.g., Chik_Fil-A closing on Sundays). This is not the argument that our business model is stronger because of our choices, which I have argued before should be protected, but this is saying we choose religion over profit.
As Chancellor Chandler noted in eBay, if there are no shareholders to complain, then perhaps it is not an issue. Still, as soon as a shareholder disagrees, will decisions such as limiting healthcare options (thus limiting the talent pool for employees) or closing on Sunday? It seems to me the Hobby Lobby decision has opened the door for several fiduciary duty fights down the road.
Can a corporation now choose to give a majority of its funds to a church, even if it harms the entity? I think no, but I hope, for the sake of businesses everywhere, the Court did not just create a First Amendment out to such fiduciary duties.
From Anne Tucker (who is off filming academic videos this afternon--whatever that means!):
Today’s Supreme Court decision in Burwell v. Hobby Lobby Stores Inc. et al. exempted closely held corporations from complying with the contraceptive mandate in the Affordable Care Act. There is plenty to debate about the opinion—corporations are persons under RFRA and can exercise religion as well as a host of choice quotes from the SCOTUS about “modern corporate law”—and I will leave that fun for another time. I want to highlight three initial reactions:
- There is no definition of closely held in today’s opinion. Will we draw lines based on state corporate codes and elections to be S corp? Will we rely upon the IRS definition of a closely held company? It is unclear. There is NOTHING in the opinion that prevents today’s ruling from applying to publically traded, closely held corporations like Wal-Mart. The line drawing engaged by the SCOTUS in Hobby Lobby is not such a neatly drawn, tight circle, but is a wide net. I discussed this briefly in a HuffPost Live segment earlier today—here.
- This is a statutory, not a constitutional ruling. On its face. Of course Congress could amend RFRA and exclude corporations, but there are exactly zero people holding out hope for that solution, at least in our present climate. The language of the opinion, however, gives strong dicta supporting religious rights and identities of corporations, whether for profit or not. [“Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law.”]
- Today, the Court weighed in on the moral dilemma of performing an “innocent” act (i.e., providing health care coverage) that enables an “immoral” act (i.e., using an IUD whether for family planning or medical reasons). May companies object to coverage that includes screening for sexually transmitted diseases because unwed employees may use it ensure safe, premarital sex? The answer would seem to be yes. Of course, we can imagine that the Court would find a compelling interest here like they did with contraceptives, but what about the least restrictive means? In Hobby Lobby, the Court found the existing program for the government to pay for contraceptives (for exempted nonprofit entities) as evidence of a less restrictive alternative. So the government pays for the thing that for-profit corporations don’t want to pay for. In other words, we now subsidize corporate religious beliefs. And if you are a corporation do you want to pay for something that competitors don’t have to? The sincerity of the belief might be an issue, but if corporate law teaches us one thing, it is how to build a record.
Formatting changes/errors are all mine.
Great work, Anne!
The Burwell v. Hobby Lobby opinion is here. 5-4 in favor of Hobby Lobby.
"As applied to closely held corporations, the HHS regulations imposing the contraceptive mandate violate RFRA.”
Sure that a number of us will have thoughts to share.
Friday, June 20, 2014
In various airports and airplanes over the past few weeks I read University of Chicago professor Martha Nussbaum’s (University of Chicago) book on religious equality in America entitled Liberty of Conscience (2008). Even though this book predates the Hobby Lobby case, it addresses a number of underlying issues at play in the case.
More after the break.
Tuesday, April 22, 2014
Over at realclearpolitics.com, a number of leading thinkers, including some leading business law folks such as Richard Epstein and Jonathan Adler, among others, have signed a public statement: Freedom to Marry, Freedom to Dissent: Why We Must Have Both. Following is a portion of the statement:
The last few years have brought an astonishing moral and political transformation in the American debate over same-sex marriage and gay equality. This has been a triumph not only for LGBT Americans but for the American idea. But the breakthrough has brought with it rapidly rising expectations among some supporters of gay marriage that the debate should now be over. As one advocate recently put it, “It would be enough for me if those people who are so ignorant or intransigent as to still be anti-gay in 2014 would simply shut up.”
The signatories of this statement are grateful to our friends and allies for their enthusiasm. But we are concerned that recent events, including the resignation of the CEO of Mozilla under pressure because of an anti-same-sex- marriage donation he made in 2008, signal an eagerness by some supporters of same-sex marriage to punish rather than to criticize or to persuade those who disagree. We reject that deeply illiberal impulse, which is both wrong in principle and poor as politics.
For those who don’t know, former Mozilla CEO Brendan Eich resigned following the public outcry when it was revealed that he had donated $1,000 to support Proposition 8, a 2008 California ballot initiative and constitutional amendment designed to ban same-sex marriage in the state.
To be clear on my stance: I strongly support same-sex marriage, and I fundamentally disagree with Prop 8. Still, punishing people, as opposed to criticizing people, for contrary and even wrong-headed political views is neither productive nor proper. (Nonetheless, there are multiple examples of people who felt Eich needed to resign. See, e.g., here, here, and here.)
Admittedly, if it’s clear that the head of any organization, whether it is a profit or nonprofit entity, doesn’t further the goals of the organization, then there is a bad fit. Furthermore, this isn’t about Mr. Eich’s free speech rights in that there is no government actor here. This was a private response to a private person’s actions. Mozilla has the power to act to replace Mr. Eich, and members of the public have a right to call for his ouster. It just doesn’t make it inherently right or wise.
Certainly, one can imagine a scenario where a CEO’s prior political or organizational giving would create problems for the organization. For example, an environmental organization may not be comfortable with a CEO who had given money to a group fighting climate legislation. But, in that circumstance, the hiring body, and likely the CEO, would, or at least should, have known that support for climate change initiatives would be expected as part of the job. Top employees often become the face of the organization, and that comes with job, but if a particular political view is deemed necessary for the job, it would help if the CEO knew it during the interview process.
Even if Mozilla was responsible for the mistake (in hiring someone with political views that were not accepted to many employees and customers), as an entity, the company was not improper to respond in what it deemed to be in the best interest as the organization. Just as important, though, is the community response to Mozilla as an entity. The free market allows us all to choose with whom we wish to do business. But when we make such decisions, we need to be careful about who we are punishing and why.
People have a right to be upset and to protest Mr. Eich’s views. I think Prop 8 was dead wrong, and I don’t like that anyone supported it. Still, I don't think calling for Mr. Eich or anyone else to lose their job is proper simply because I disagree with their views. I would feel differently if there were evidence that Mr. Eich discriminated against gay employees. There just doesn't seem to be any support for that proposition.
We need to be careful to avoid a world where every portion of what we do becomes politicized and polarized. Although there are core values each of us holds, we should also recognize that not everyone shares all of our core values, all of the time. Nor can they. My wife and I agree on a lot of things, and it is a big reason why we’re together. Still, some of my best learning has been when we don’t agree. Sometimes I change my mind, and other times I don’t, but even then I have learned more about my views and why I hold them.
I don’t want to live in a world where politicians and news outlets and companies operate in lockstep to a specific set of ideals. There are too many examples of that already to make me comfortable. I don’t want to choose only from a Republican burger joint or a Democratic sub shop. We need more. We need a populist pizza place, and a libertarian ice cream shop, and everything in between. In my view, the litmus test should be whether people do a good job at doing their job, and whether they treat others well (employees and customers), regardless of their ideological differences.
Open public discourse is a right under our Constitution, but it is not socially required. When respectful and thoughtful, open discourse helps all of us be better citizens and better people. If we commit ourselves as individuals to respecting others and listening, even when (and especially when) we disagree, good things will follow. It is one thing to dismiss views with which we disagree; it is another to dismiss, out of hand, the people who hold such views. For all the complaints about the evils of business, I have a suspicion that if we expected more of ourselves, businesses would follow our lead.