Tuesday, May 3, 2016
A recent Vanity Fair article discussing Citizens United is making the rounds. (I saw it on Facebook!) The article notes:
It had already been established, in Buckley v. Valeo (1976), that anyone has a First Amendment right to spend his or her own money advancing his or her own cause, including a candidacy for political office. Citizens United extended this right to legally created “persons” such as corporations and unions.
I have been giving some more thought to whole “personhood” discussion of late, and my thoughts have taken me back to both Hobby Lobby and Citizens United. What follows is a long blog post that pulls together my thoughts on these two cases in an admittedly not well developed way. But it's a start (though I really should be grading).
"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.
As such, the Court indicates that, unless otherwise stated, any place a person can make a claim, so can “corporations, companies, associations, firms, partnerships, societies, and joint stock companies.” Perhaps, but I think this analysis tops short.
As I have hinted previously, it seems to me that although a federal law may allow a person (broadly defined) to do something, other restrictions may prohibit that person for actually doing the act. That is, an entity may be restricted from certain behavior under state law (as I suggested here), in bylaws or an operating agreement, or because of some other agreement. Hobby Lobby should only stand for the proposition of what a person might be able to do, but it should not create an absolute right for an entity-type person to do something (in that case, essentially exercise religion).
The Hobby Lobby right was rooted in statute, and as such, there should be no problem if, for example, Delaware corporate law did not allow a for-profit entity to exercise religion for the sole sake of religion. I think that is the case right now: that’s not a proper corporate purpose under my read of existing law. (Benefit corporation law would allow such a purpose.)
Citizen’s United, in contrast, stood for a constitutional concern. As such, a state-mandated limit on such types of speech is likely problematic. Still, it seems to me that a corporation or LLC could decide at formation that such speech would not be done by the entity, and that a state could even mandate that an entity must elect whether they would engage in such speech at formation. (Thus, the entity has the right to engage in such speech, if so chosen, but it can also decline to exercise that right.)
In both cases, this raises the question: If an individual or group of individuals have constitutionally protected rights they can exercise as individuals, why should that right be extended to an entity acting as an entity? Perhaps we should bring back an aggregate concept for such rights in all entities to at least ask the entity to state how they will represent its members/shareholders.
Although individuals can grant power to exercise constitutional rights to an entity, maybe we should require that they affirmatively grant that power to do so (e.g., speak, exercise religion) and not make it a blanket right that comes with formation of the entity. That is, make the certificate/bylaws /operating agreement/etc. state that the entity will engage in constitutionally protected activity traditionally reserved for individuals (more on that in a second).
I am firm believer in director primacy, and I have not waivered on that. It’s just that for these areas where the directors are making decisions about what I see as beyond the traditional scope of the boardroom, it seems to me the board (or managers) should ask permission at least one time before they exercise these kinds of individual constitutional rights (like engaging in candidate-related political speech or practicing religion). There is, of course, speech that is plainly corporate speech for the benefit of the entity – and that is properly exercised via the board. I distinguish political speech related to candidates as “individual” because it is related to a vote for a candidate, which entities do not get to do.
Ultimately, I think more expansive views of permissible entity action is acceptable, but I also think there should be a balance to ensure that when entities expand their scope of action, they are doing so within the intended charge of the members/shareholders. For these types of rights, that charge should be explicit.
Update: Prof. Bainbridge makes some good points related to this here: I'd like to get Salesforce CEO Marc Benioff together with Chief Justice Leo Strine. He explains:
[I]f advocating for non-shareholder stakeholders redounds to shareholder benefit, that's fine. But the implication here is that Benioff is willing to make trade-offs between stakeholder and shareholder interests. If so, we must flag him.
* * *
[T]he bottom line is that Benioff is on the verge of admitting that he'll put his own political and policy preference ahead of the interests of Salesforce's shareholders.
Bainbridge is exactly right that statements like this, similar to statements of religious purpose, likely run afoul of Delaware corporate law. I still believe that the business judgment rule should protect all such decisions in the absence of fraud, illegality, or self-dealing. The court has suggested otherwise, so here we are.