Tag Archives: corporate rights

File Under “Be Careful What You Wish For”

All eyes are on the lawsuit Hobby Lobby has pending in the U.S. Supreme Court, and most of the commentary revolves around the question of a corporation’s right to disregard a law of general application if that law offends its “sincerely held” religious sensibilities.

The threshold issue is whether a corporation can have religious sensibilities, sincere or otherwise. And hidden in plain sight in that question is an enormous threat to American business. In short, if Hobby Lobby prevails, it is likely to be at the expense of limited liability–which is the whole purpose of incorporation.

As one amicus brief noted,

The essence of a corporation is its “separateness” from its shareholders. It is a distinct legal entity, with its own rights and obligations, different from the rights and obligations of its shareholders. This Court has repeatedly recognized this separateness.

Shareholders rely on the corporation’s separate existence to shield them from personal liability. When they voluntarily choose to incorporate a business, shareholders cannot then decide to ignore, either directly or indirectly, the distinct legal existence of the corporation when it serves their personal interests.

The brief goes on to point out that it is this very “separateness” between shareholders and the corporation that they own that promotes investment, innovation, job generation, and the orderly conduct of business.

Think about it. How likely would you be to buy stock in a company if you thereby ran the risk of being found personally liable for improper or negligent corporate behavior?

Several commentators have noted that Hobby Lobby is effectively asking for the best of both worlds.  Its owners want to benefit from the protection against personal liability, but they don’t want to recognize that the corporation is an artificial entity not entitled to personal individual rights.

Hobby Lobby and Conestoga argue that they should be exempt from federal law because of the religious values of their controlling shareholders, while seeking to maintain the benefits of corporate separateness for all other purposes. These corporations have benefited from their separateness in countless ways and their shareholders have been insulated from actual and potential corporate liabilities since inception. Yet now they ask this Court to disregard that separateness in connection with a government regulation applicable solely to the corporate entity.

If the Court rules in favor of Hobby Lobby–if it finds that a corporation can assert a religious right to discriminate–it will be the beginning of the end of limited liability and corporate immunity for shareholders.

It’s tempting to say “it would serve them right,” but the truth is, such a result would be a body blow to business and the American economy.

There’s a reason the business community has stayed out of this litigation.

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Exceptionalism, Corporate Edition

Only in America. No other nation gives its corporations as many rights as we do.

Before you launch into a knowing and cynical “sure–big business bought our lawmakers,” consider the fact (highlighted in a recent article in the Journal of Law and Courts) that these expansive rights are almost all the result of federal court decisions, not legislation.

The privileges currently enjoyed by the fictitious “persons” we call corporations weren’t a result of our Constitution, either.  According to David Ciepley, author of the referenced article,

“the framers were so concerned about the possibility of privileged monopolies squeezing out ordinary citizens that they did not endow Congress with the traditional right of Parliament to charter corporations, let alone expressly extend constitutional rights to corporations.”

There are three theories about corporations and their rights: the associational theory (corporations are constituted by their members and thus deserve the same rights as those members); the “real entity” theory (a corporation is distinct from its members–a separate, albeit fictional, “person” entitled to the rights accorded to “persons” under the 14th Amendment); and the grant theory (corporations exist because government has created them, and they have only the powers with which their creator endowed them).

The legal problem with the associational theory is that in the U.S., rights are individual. My family doesn’t have a right to free speech–although each member of my family does. The practical problem with basing a corporate right to free speech on the First Amendment rights of its shareholders is obvious: those shareholders are likely to have different opinions (especially on public policy issues) and to want to say different things.

The notion that a corporation is somehow an organic “person” separate from both government and its shareholders and entitled to 14th Amendment protections is so historically and logically flawed as to require little rebuttal–especially in an era where Justice Scalia remains ambivalent about including living, breathing women within that Amendment’s protections.

The only theory that accords with both history and logic is the grant theory. Governments  created corporations in order to encourage commerce–in large part by limiting the liability of individuals. (We are more likely to innovate if a failure won’t entirely wipe us out.) Corporations should have all of the rights that are required to fulfill their purpose, which is to do business–the right to own property, to contract and to engage in commercial speech.

The Supreme Court has gotten two things very wrong: money is not speech, and corporations are not people. (I have to agree with a popular Facebook slogan: I’ll believe corporations are people when Texas executes one.) Those two errors have massively distorted our politics and corrupted our governing institutions.

The Court failed to recognize the contemporary operation of the golden rule: He who has the gold, rules.

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