March 27, 2014
The Supreme Court and Corporate Purpose
Posted by Lyman Johnson

The Supreme Court's ruling in the Hobby Lobby/Conestoga Wood Specialties cases could have a profound impact on the perennial, but critically important, debate about corporate purpose in a democratic society. This is a matter my colleague David Millon and I are now addressing in an article, but here I offer a few thoughts.

The two corporations in these cases expressly have purposes that are religious even as they also seek, quite successfully, to make profits. As noted in my Monday post, the PA corporate statute is remarkable in its breadth of permitted purposes. But as Millon and I have argued since the mid-1980s--along with other long-timers like Professors Stout, Greenfield, Bratton, Dallas, O'Connor, Mitchell, and younger scholars like Professors Bruner and Bodie and others--corporate profit or shareholder wealth maximization is not legally mandated under any state law, with a few(ultimately minor) caveats for Delaware.

If the Supreme Court holds that these two corporations have a free exercise right qua corporations--whatever the ultimate outcome on the merits--hasn't the Court "blessed"(I couldn't resist) their non-profit maximizing purpose? Granted, the Court was not asked per se to rule on whether these two corporations could do what they are doing as a matter of the state law of corporate purpose. [ I think they clearly can, however, and that is why I completely disagree with Mark Underberg's March 4 posting on the Harvard site that raises fiduciary duty concerns that are nonexistent given the corporation's broad purpose]. But that certainly is implicit in the Government's whole case: these are money-making profit-maximizers, not "religious." I think a pro-company ruling on the standing issue will, effectively, vindicate the non-maximizing corporate purpose position many of us have long advocated.

Once a diversity of corporate purposes is seen to be legally permitted--again, I believe this already is the case--then corprate founders and directors can select a particular array of purposes to pursue. Some will choose to advance enlightened or benign environmental or other socially responsible goals, along with profits. Others will seek to couple profit making with generous employment practices or charitable endeavors.[Hobby Lobby, by the way, gives one-third of its profits to charitable and religious causes]. And others yet will bring religious convictions into their thinking about business goals. This means at least two things.

First, freed of a (real or imagined) mandated shareholder primacy or profit primacy obligation, corporations in a democracy will pursue an array of different goals. What is wrong with pluralism? Would some seek to replace the supposed stricture of profit or shareholder primacy with a newly-enshrined narrow set of "correct" corporate purposes? Those of us seeking to end wrong thinking on corporate purpose should not, ironically, fight against it because some don't like a particular purpose, i.e., one shaped by religious belief. As a related example, think here of free speech as a matter of principle, however repugnant the words used by some, yet we support free speech for all. Our ideological commitments should not impede our impartial scholarship.

Second, some(I think most) reform on the corporate purpose front will come through norm shifting and volunteerism, not government mandate. I suspect many progressive corporate law scholars favored the Government position because of a well-intentioned desire to help employees, a central plank in many corporate reform agendas. But ironically, I believe, that position actually hobbles the freedom of corporations, through their boards of directors, to combine profit making with one or more other properly chosen goals, be they religious or environmental or otherwise. Sure, some corporate reformers favor government mandates, in corporate law as in healthcare. But many, like me, prefer the long(frustrating) slog of reform from within, and this for one primary reason from which I have not wavered in 30 years.

That reason is that I simply do not believe that shareholder wealth maximization or profit maximization is conguent with widely shared social norms. Profit making certainly is, profit pursuit is, and private enterprise is; but not the belief that the singular goal of such activity is pursuit of some maximand for a single constituency. I simply do not believe that the vast majority of Americans(or other global citizens) believe that their individual role in American working life is to maximize profits--how spiritually deadening and depressing is the thought. Nor do I think most Americans believe that the great institutions in our collective life--including the business corporation--should have as their very institutional raison d'etre the maximizing of a share price or other narrow commitment. Some institutional pursuit of the common good(narrowly or widely conceived) sustains most healthy institutions. I think the founders and directors of Hobby Lobby and Conestoga Wood Specialties, whether you agree with them or not, are resisting just this shrunken vision of life in the American business world today. A win for them will vindicate a larger quest that many of us favor, though by different paths and for different ends.

There are many cross currents in corporate law today besides that pushed so hard by law and econ folks for so long. These have the potential through our young scholarly colleagues to reopen our field to new breakthroughs that can move corporate law into a more central role in our collective life and make it, frankly, more important. One of the ironies of my own thinking on these larger issues in corporate law is that I disagree in these two cases with so many people with whom I typically agree about corporate purpose in other contexts. And that while I agree with my good friend Stephen Bainbridge on these two cases, I disagree with him on corporate purpose. Who said con law has all the fun and that corporate law had to be dull...

 

Lyman Johnson

Corporate Governance, Corporate Law, Hobby Lobby | Bookmark

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