May 16, 2009
Parting Thoughts on Christianity and Corporate Law
Posted by David Skeel

I’ve greatly enjoyed the two weeks of discussion of Christianity and corporate law, and think there are many promising leads for those of us who are so inclined to pursue. I just wanted to add a pair of unrelated thoughts as the two weeks come to a close.

First, much of the discussion has focused on the very important issue of how much scope directors who are religious believers have to take their beliefs into account in the board room. This discussion was loosely tied at one point to the Delaware courts’ recent good faith decisions, which hint at the possibility that the duty of loyalty will be expanded beyond the relatively narrow, formal boundaries it has long been thought to have. I haven’t read all of the cases yet (that’s a project for the fall), but I worry about the potential implications. I think there’s a lot to be said for a more limited duty of loyalty that has clear boundaries. Expanding its scope could open a can of worms. What, for instance, is the remedy if a director violates her duty of loyalty in a situation where she does not have a clear conflict of interest? In a sense, I am talking about the standard of formal review, whereas much of our discussion has focused on the standard of review, to use Mel Eisenberg’s distinction between standards of review and of conduct in corporate law.

Second, and slightly off topic, I personally am intrigued by the issue of the role that belief plays in markets generally. An interesting article in the current issue of First Things (Gary Anderson, “Faith and Finance”) points out the linguistic connections between credit and belief, and argues that failures of belief lie at the heart of the recent credit crisis. I personally think the article presses the analogy between credit markets and belief a little too far (and similarly presses the idea that giving alms is like a loan to God too far), but it seems to me raise some interesting issues about the relationship between faith and markets.

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May 14, 2009
Economics and Virtue
Posted by Ronald Colombo

At the risk of engaging in a degree of self-indulgence here, please allow me to share with you an editorial I penned that The Huffington Post was kind enough to publish this week.  Entitled "A Crisis of Character", the editorial touches upon a theme raised in this forum on faith and corporate law: namely, the indispensability of virtue to a well-ordered corporation, economy -- well, just about anything.  The editorial makes the point that law, regulation, and markets are all of limited efficicacy in curbing wrongdoing.  At the end of the day, our companies -- and our society -- will only be good as its people.  Not exactly rocket science, but something that, I feel, has been sorely missing from the debate over our current economic crisis. 

Yes, Justice Holmes was onto something important when he observed that law is largely written for the "bad man".  Indeed, he was basically parrotting Aquinas on this point.  Nevertheless, we may wish to reconsider the role that "sin and structures of sin" can play in making the "bad man" even worse (as per Pope John Paul II observation's).

(An aside:  I very much look forward to Benedict XVI's upcoming encyclical on the economy, which, I expect, will sound these same themes - and then some.)

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May 13, 2009
Faith in the Boardroom
Posted by Sarah Duggin

Lyman Johnson’s analysis of the potential risk for directors who draw on personal faith in the corporate decision-making process is right on target. In seeking to defend directors’ reliance on nonmonetary factors, it is often wise to look to “long term” interests. Although there are times when this approach won’t work – e.g., when the company’s short term survival is at stake – it seems likely that most decisions, particularly those about business lines and product development, legitimately involve broader considerations over the longer run. While John Maynard Keynes once said that “in the long run we are all dead,” there is a sense that business decision makers have greater discretion to consider nonmonetary factors as time horizons stretch over periods of years or decades. When courts were struggling with corporate philanthropy, at least some of the early cases upholding corporate donations justified the practice on grounds that corporations legitimately could take steps to ensure the development of an educated work force or other social conditions conducive to business. Similarly, one way to justify a decision that may not maximize profits at present is to direct attention to the future benefits of the action.

This approach suggests that faith and morality enter the corporate decision-making process not as primary considerations – i.e., not as measures of what is the “right” thing to do – but as elements that may be considered so long as the ultimate goal is the best interest of the company. Cultural factors have a great deal to do with this reality. For good reason, even people of deep faith are often wary of agreeing that faith values offer legitimate bases for corporate decision-making. That’s not ideal for those of us for whom faith is important, but, as Lyman Johnson also observes, we need to take advantage of opportunities to start conversations. As Michael Naughton points out, corporations, like faith, arise out of particular cultures. Sadly, because religion has engendered so much conflict for so long, many people in our culture worry that introducing faith as a factor in the corporate decision-making process may allow people trying to pursue a particular agenda to divert the busines purpose of the enterprise. While this may be unlikely to happen very often for a variety of reasons, the perceived neutrality of the market often seems safer.

There is probably no way to turn this situation around quickly, but there are steps we we can continue to take to build a stronger foundation for establishing faith values as a legitimate consideration in corporate decisions. This forum is certainly one of them, and I am grateful to Lyman Johnson for initiating the conversation and to Gordon Smith and The Conglomerate for hosting it. A second step is to keep working on educating business people, business and law students, and shareholders on the relatively broad discretion available to directors to consider faith, morality and ethics -- under the business judgment rule and as reflected in standards such as section 2.01 of the ALI Principles. (Lawyers offering this counsel in advice work can refer to the reference to moral and social considerations in section 2.1 of the Model Rules of Professional Conduct.) A third approach is to model the kind of language Lyman suggests in the boardroom and in advising corporate decision makers. A fourth option -- one already adopted by a number of companies – is to include language in corporate charters designed to facilitate consideration of faith values and/or make faithful stewardship part of the corporate purpose. As Michael Naughton notes, advising entrepreneurs that this approach is at least an option could make a real difference to the culture of a new company.

Perhaps we also need to involve theologians in this conversation. Michael Naughton makes an excellent point that, at least for believers, faith should be an integral part of corporate life. But it is also true that business decisions are often complex and that what is “right and good” in many situations is far from clear. Unfortunately, I have found little on a “theology of the firm,” although books such as Tom Chappell’s “The Soul of a Business” are certainly helpful. It seems to me that there is much work to be done -- in theology as well as in business and law. It’s easy to say that we need to put faith at the center of business life, but what does that mean? The ways in which faith should affect business decisions and the behavior of business decision makers is a complex question that has yet to be adequately explored. Perhaps I have returned to David Skeel’s initial questions, but the point is that theologians need to weigh in on the issue as well. Faith discourse may be rare in the boardroom because of cultural factors and misperceptions about legal limitations, but the lack of accessible theology pertaining to business issues plays a role as well. While I am not suggesting that we should all change professions, as the conversation continues -- as I hope it will -- we can urge theologians, churches and other religious organizations to get involved and to join us in exploring the issue. What does it mean to do justice in the pursuit of economic value? If only St. Augustine had written about “just profit”!

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The Influence of Faith in Corporate Life
Posted by Michael Naughton

This is a historical moment for me—my first blog ever. I am grateful for the opportunity to participate and join the blogging world. I would like to glom on to what Lyman has been pointing to in his posts concerning the influence of faith in corporate life. As has been indicated already, the relationship between faith and corporations is first an empirical claim. People of faith start and work in corporations and their faith influence the form and practice of corporations. We live in a county that allows people to freely associate with each other for purposes not pre-defined by the state, although the state can prescribe limitations to such free associations. What is often not told in the history of entrepreneurship and business is how many companies started with a vision that was informed by the religious faith of their founders and leaders, companies like Cadbury (Quaker), Herman Miller (Calvinist), Service Master (Evangelical), Dayton Hudson (Presbyterian), Cummings Engine (Disciples of Christ), Reell Precision Manufacturing (Lutheran/Covenant), Mondragon and Quimet-Cordon Bleu Foods Inc. (Catholic) and many others. Economic life is embedded and grows out of a particular culture. Corporations do not start out in the theories of economic man, but out particular cultures, communities and families. This cultural seedbed influences how economic and corporate life if understood and practiced and informs what the purpose of a corporation is.

An important influence of how religious faith influences the purpose of a corporation is how profit is understood. Profit for the people who started and lead these companies is a means, an essential means, to something else. It can never be an end, since it would distort the nature of the work being done (for a more philosophical treatment of this relationship see Alasdair MacIntyre’s discussion of internal and external goods in After Virtue (188ff). To tell the founders and leaders of these companies that their purpose in the corporations they run and work in is the maximization of profit would be a form of economic and political totalitarianism. Even when these companies moved into the public realm, their purpose was defined in such a way that shareholder wealth was a means to the end of the product and work community they were creating. In this public realm, corporations are asking new shareholders to sign onto a particular kind of purpose, although once they do go public there are new pressures they are subjecting themselves to.

It is precisely because they saw profit as a means rather than an end that people of faith within corporations developed a series of corporate practices such as a creating goods and services to meet genuine needs, to design good work, to pay just wages, to use layoffs as a last alternative, to tithe corporate profits, etc. Of course people who do not have religious faith create such practices as well, but people of religious faith should be creating such practices if they are faithful to the message of the gospel. That is, religious faith first and foremost should provide a human form to corporate life. Influenced by their culture particularly family and religious life, their faith should guide them in creating conditions in corporate life that foster human development.

Unfortunately, we have a hard time talking about faith in corporate settings. Because there have been significant abuses, corporate counsel, in order to reduce liability, will encourage their corporate clients to eliminate any reference to religious faith in corporate mission statements and other such documents (for an interesting case study that alludes to this see Ken Goodpaster’s case on Reell Precision Manufacturing).[1] This seems to me to be Lyman as well as Sarah Duggin’s point when they note that corporate counsel should feel free to explore with their corporate clients a rich moral purpose and the cultural sources of this purpose. When such counsel is given to entrepreneurs, lawyers can have an influence in creating more humane economic institutions. How this is done in publicly traded companies will in part depend upon the preexisting corporate mission and history.

[1] For a fuller discussion on this company see Business Ethics: Policies and Person 151ff (Kenneth E. Goodpaster, Laura L. Nash & Henri-Claude de Bettignies eds., 4th ed. 2005) (1985).

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Loyalty and Honest Conversation
Posted by Lyman Johnson

Gordon notes that Andrew Gold and I have, in our respective articles, explored the unappreciated breadth of loyalty.  Ron then raises a question about the limits of a particular director's moral conscience in light of the duty of loyalty.  I will respond briefly to the substance of the question posed by Ron but I think, in fact, he implicitly touches on an even more intriguing question:  how to have honest conversation when legal duty and heartfelt moral/religious belief co-exist.

As to substance, it seems unlikely that a board would face liability for voting, as a board, not to pursue a particular business option.  In that case at least a majority of the various directors evidently had (business) reasons beyond that of the lone moral-objector director for not acting.  And if the board did approve the action but the objector voted against it, he was simply outvoted.  But as to the individual director himself, he, like other directors, is supposed to act for the good of the company.  He may object to action A on personal moral grounds and advocate action B, or simply non-A, instead.  If he does so because he honestly believes that is best for the company over the long-term, then he is fine. If, however, he honestly believes that action A is best for the company but he objects then I think he may have a potential problem.  Section 2.01 of the ALI Principles addresses this at length and notes that a range of nonmonetary factors can be weighed by a director and those factors need not have a majority of societal support if they are "emerging" or have "significant" (as I recall) societal support.  Probably highly idiosyncratic beliefs would not meet that test but anything within the "significant" rubric would be fine.   Again, this would not ultimately matter unless a majority went along for those idiosyncratic reasons, as opposed to acting either way for other business reasons.  Commendably in Ron's hypo, the objector raised his religious objection openly.  That is the interesting part to me.

Noah Feldman in his 2005 book Divided By God, deftly responds at the end of that splendid book to Stanley Fish's assertion that religious arguments are "conversation stoppers."  Feldman notes that there are ways to extend and advance an argument when a religious ground for a position is raised.  For example, in Ron's hypo, although there are many possible responses by the other directors to the objector's assertion that he is likely to vote against action A on religious grounds, how about the following response by another director:

"Joe, I am not sure I follow how voting against action A serves to advance the interests of the company.  Can you elaborate?"

Here we have a director who understands that a colleague has taken a risk and spoken honestly about something important to the speaker.  Honoring that, the second director respectfully engages the colleague as fully human and as a person with a moral dimension.  He also is seeking further information for his own consideration.  Who doesn't value understanding the views of those we work with who have shown good judgment before but who now take a view we are not following?  Such conversational approaches serve to "open up" not shut down dialogue.  We all do this every day as we navigate our various relationships and, for those of us who are professors, as we teach.  There are techniques for stopping conversation and those for moving it along.  There is no reason why people of faith should not be required to give an account of how their faith leads them to arrive at a point of view with implications for the company.  One cannot just play the religion card as a trump even though, for the believer, the conviction is authoritative.  One should articulate and try to connect the business position taken to one's underlying belief.

At the same time, some genuine respect and engagement by others when that is done also is needed.  The best conversations often ensue, in all settings, when someone does what isn't easy:  speaks from the heart about something rather than using cant or the usual tropes.  So, religious and moral talk is risky for both the speaker and the listeners but there is a huge payoff if we avoid the usual move of silence or ridicule we see in the larger arena.  Presumably in smaller settings a spirit of trust and candor can facilitate such talk.  Not easy, but easier than in the public square.  That is why in the piece Gordon cited that I wrote, I call the corporate boardroom a "safe place" for such discourse.  If we can get over the skittishness about religious talk in various voluntary associations maybe we can improve as a country in the public venues, where we badly need more civil discourse.

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May 12, 2009
Faith and the Morals of the Marketplace in Corporate Decisionmaking
Posted by Sarah Duggin

Note: A few days ago I inadvertently posted portions of the following paragraphs as a comment. I include them in this post in response to a number of issues raised by other forum participants over the past few days.

In the course of many years in practice, like most lawyers, I often found myself sitting with clients as they struggled to make hard decisions. On one occasion the CEO of a major corporation was facing a very difficult choice. He looked at me and asked, “How can I make this decision? What can I possibly do?” I replied, “In the end you need to do what you think is right.” He responded, “If only I could, but I don’t have that luxury. I have a company to run.” Fast forward several years to a law school classroom. It’s near the end of the semester in Corporations class, and we are talking about corporate ethics and social responsibility, specifically the fiduciary obligations of corporate directors facing a decision whether to expand the company’s business into an area that is legal but morally objectionable to many – e.g., a children’s video game company offered an opportunity to increase profits significantly by making “adult” videos featuring pornography and violence against women. As others have pointed out in recent postings, students are hesitant to address the moral and ethical issues. When we finally begin to do so, a student raises his hand and says, “I’m a very religious person. Don’t get me wrong. From a personal perspective I would never approve of pornography or violence against women, but faith is faith, and business is business. Corporate decision makers need to make and sell the products consumers will buy, regardless of their personal beliefs.”

I often reflect on the similarity between the views expressed by the CEO and the law student. Too often people are suspicious of the notion that a personal moral compass has a place in corporate law or in business generally. As others have noted in recent postings, too often business people, lawyers, and even law professors take the shareholder primacy norm so much to heart that they fail to see the connections between individual belief systems and behavior in the business world. Yet, when corporate decision makers put aside personal belief systems in favor of the “morality of the marketplace,” they do not achieve neutrality. Instead they set the stage for allowing the market alone to determine the ethics of production, sales and myriad other aspects of business behavior. This approach is quite appealing in many ways, principally because it offers an ostensibly neutral framework for decision-making that can be measured by profits and other economic indicators. At times, this focus on purely monetary measures serves to promote the public good. For example, the business community’s realization that embracing diversity in hiring and marketing is good business helped to promote a more equal society.

But the apparent neutrality of the market can be counterproductive, too. When business and legal decision makers allow the market to serve as a personal moral compass, ethics and morality can become subservient to the passion for profits on the part of some and to a misplaced sense of obligation to the single goal of maximizing pecuniary benefit on the part of others. It then becomes even more difficult to make critical decisions on matters such as risk management, product safety and employment policies. When profit alone becomes the guiding light for decision makers, morality and ethics fade into the background, and too often greed – on a personal and corporate level – emerges as the critical criterion for decisions. Decision makers rationalize avoidance of moral and ethical questions on grounds that their businesses are simply responding to the demands of consumers, bargaining effectively with labor, or appropriately reducing all kinds of risks to monetary calculations. Over time, corporate decision makers – as well as law students – can get caught up in the notion that people have a right to whatever they are willing to pay for, and that shareholders have a right to expect managers to give it to them -- so long as there is profit in supplying whatever it is that consumer want and, as Milton Friedman would say, their actions do not violate the rules of the game.” Unfortunately, these “rules” are often murky.

It seems to me that if we are to find a way to make it clear that faith offers corporate decision makers a legitimate alternative to relying solely on marketplace morals we need to demonstrate that the neutrality of the market is often a false notion. We need to continue challenging the idea that the shareholder primacy norm is the only available guiding light and , perhaps most importantly, begin to fashion ways of measuring the validity of the decisions made by corporate directors and officers that do not rest on profit maximization alone. As Lyman Johnson and Richard Colombo have pointed out, this requires us to tackle tough issues such as the question of the roles of objective and subjective components in corporate decision making. This endeavor promises to be both challenging and exciting.

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May 11, 2009
Limits on the "Faithful" Fiduciary
Posted by Ronald Colombo

Following up on Gordon's very interesting post, what are (or, what should be) the limits of the "faithful" fiduciary?  More specifically (and I feel as though I ought to know this), to what extent does a fiduciary have a "conscientious objection" defense were he or she to breach the shareholder wealth maximization norm on account of deeply held personal beliefs? 

I have seen an analogous question raised with regard to judges: what must a judge do when confronted with an unjust law, in light of his / her oath of office?  The answer that appears most correct to me is that, assuming the confrontation is intractable, the judge must resign.

But something tells me that since the boardroom is a context different from that of the courtroom, a different solution might be more appropriate under corporate law.

Imagine a director faced to vote upon an opportunity to further the corporation's interests (and shareholder wealth), yet recoils from doing so because the opportunity violates his moral principles.  What are his or her options?  What should corporate law say about this?

And is the test entirely subjective, or should it involve an objective component?  Compare, if you will, the following two hypothetical corporate opportunities:  one that the vast majority of people would consider acceptable (imagine, for example, the sale of earrings), but that the individual director finds objectionable because of his/her particular religious beliefs (imagine, for example, a rather robust view of the biblical command against the bodily mutilation); versus one that the vast majority of people (including the director) would consider unacceptable (imagine: the creation and sale of computer-generation child pornography - assuming, for the sake of the hypo, that this would be both legal and profitable for the corporation in its jurisdictions of operation). 

In short, even if some "conscientious objection" defense for directors were to be recognized (under a theory of good faith) should need there be a limit or a reasonableness standard applied to the director's level of scrupulosity / moral sensitivities? 

I don't presume to know the answers to these questions - I'm simply thinking out loud, and raising the question for the group's consideration.  If forced, my initial reaction is that the director should be absolved of liability if he or she acts in subjective good faith due to the dictates of his or her particular conscience, and if the reasons of his/her actions are honestly and appropriately disclosed.  The remedy here would be at election time - or via the sale of stock on the part of investors who disapprove.  But, as I mentioned in my last post, granting directors this amount of discretion raises some very serious concerns regarding shareholder protection - the very concerns around which so much of corporate law has evolved.

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Varying Conceptions of Loyalty in Corporate Law
Posted by Gordon Smith

One of the hottest topics in corporate law scholarship over the past five years has been the relationship between good faith and loyalty, a topic we have discussed frequently on this blog. In our second week of discussions "Exploring the Connection between Religious Faith and Corporate Law," I thought a discussion of this topic might be in order, especially since Lyman Johnson has written an important piece on the subject entitled, "Faith and Faithfulness in Corporate Theory."

I hope that I can be excused for a gross oversimplification of Lyman's argument, but the essence of his position, it seems to me, is that directors and officers of corporations have sufficient discretion to "draw on and express themselves in ways influenced by faith." As a result, some corporate managers might discharge their legal obligation to be “faithful” fiduciaries by using biblical ideas:

Faithfulness in biblical teaching, therefore, although described as a spiritual quality, is to be manifested in practical allegiance to the interests of another. The stance of faithfulness toward others is to grow out of a more general stance of unselfishness in relating to others, also taught by the Bible.

This is a much more expansive notion of loyalty than generally assumed to be required of corporate managers, but it is not inconsistent with much of the recent rhetoric on loyalty in the Delaware courts. While Lyman is arguing merely for a "more prominent religious voice within corporate discourse," Andrew Gold has written an excellent new paper on "The New Concept of Loyalty in Corporate Law," 43 U.C. Davis. L. Rev. __ (2009) (not yet now available on SSRN) contending that a more expansive notion of loyalty is required to make sense of Disney + Stone. Andrew argues:

The broad conception of loyalty which I will focus on here is not unique to corporate law. Instead, it is a commonly held understanding of a specific type of loyalty, recognizable in non-legal, social settings. Loyalty can encompass an obligation to be honest, to be reliable, to keep one’s word. Loyalty, in other words, can involve a type of respect toward another. This is evidenced by the kind of behavior the loyal party shows toward the beneficiary – the means, and not just the ends, of the loyal actor are at issue.

I think Andrew and Lyman are onto something here. Though they agree that their insights (probably) will not affect the potential for liability of corporate managers, this alternative conception of loyalty may affect the way directors behave. And that would be no small accomplishment.

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May 08, 2009
View from Europe;Paradigms
Posted by Lyman Johnson

I strongly urge readers to read the Defining Tension comment to my second post, Why It Matters. The link noted in that comment takes you to a very thoughtful, balanced, and helpful essay. It is must reading for those interested in the debate over corporate goals. It convinces me that this debate over corporate purpose is critically important both here and abroad as it touches on a fundamental matter that cannot be dismissed.

On another note, we all know that paradigms shape thinking within a discipline by framing what questions are and are not asked. It may not be a Copernican or Einsteinian revolution, but certainly the contractarian theory changed corporate law thinking several years ago, though many, like me, while finding  it a helpful perspective, are not prepared to abandon more organic conceptions of corporateness that emphasize mutual interdependence over a purely bargain-based conception. My post today though  argues that religion can influence corporate law whatever one's theory of corporateness.  The hard contractarian view of corporate relations can be de-coupled from the shareholder primacy view and, more importantly, it can be de-coupled from a theory of human motivation that contends that people seek only to advance self-interest. The latter point is squarely at odds with the core teachings of much religious teaching about being a "good samaritan." One can contract but do so from motivations other than wealth-maximizing for one's self.

On the other hand, many progressives automatically seek, at least implicitly, statist solutions to corporate ills. Those of a more reform-minded bent on the left should keep in mind, first, that many "progressive" reformers have religious convictions as the grounding  of  their beliefs on corporate reform and, second,  also keep in mind that many with religious beliefs who brand themselves as "conservative"  may actually agree that corporations should be more responsible and seek such reform from the right(whether or not they are contractarians). Politically active conservatives largely have focused on social issues and tax issues without paying sufficient heed as to how their religious commitments might lead them toward criticism of many corporate practices. Also, social conservatives may see this issue quite differently than the libertarians.

Reform by means of non-statist solutions actuated by religious belief, then, need not be dependent on subscription to a particular theory of corporateness or confined to one part of the ideological spectrum.

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May 06, 2009
Why It Matters
Posted by Lyman Johnson

I really appreciate Gordon's comment to my second post. I think the faith/corporate law link matters to corporate law for at least two reasons. First, descriptively, many on this blog may agree that shareholder primacy is not mandated by law, but that remains a contested point, rather remarkably. I doubt Steve Bainbridge, to cite one respected commentator, would yield reaily to my assertion on the corporate goal issue but I think the authority he would rely on is thin and largely a matter of custom and other factors, as I noted before.  Many corporate law professors/casebooks seem to assume shareholder primacy and I can't tell you the number of business people and economists, among others, who I have encountered who think such a goal is the 11th commandment, apparently based on the gospel according to Milton Friedman, vintage 1970.  Yes, markets constrain as Elizabeth notes, but markets work at a pretty crude level and shareholders themselves are not always the narrow, stereotyped money-maximizers we sometimes portray them as being, as Einer Elhauge argued in his 2005 NYU piece. Thus, corporate law as taught, written about, and practiced, requires candid attention to the question of what does the law really does require/permit. This is true both in law schools and in B schools.

Second, there remains a normative debate about what the goal(s) of corporate law should be. Here, professors should deal openly with this issue in a democratic society that entrusts production to the (still) private sector. Again, this is true in legal education where future legal counsellors with vast influence are trained and, even more importantly, in B schools and other venues where business people hone business skills and absorb core beliefs.   

Without meaning to sound like a "crit," I think this is an example of how we need to expose some latent assumptions and lay them bare for examination, both for students and for ourselves.  What is not said and assumed can be more influential than what is said openly.

Finally, needless to say, all this makes a real difference in corporate life too, where what decision-makers do is often shaped by the horizons of how they conceive and frame what is permitted and possible. One of my legal mentors once told me how liberated he was as a young associate to discover that his senior partner felt free to talk to clients about what they should consider doing from a moral perspective;he found it remarkably emancipating to realize that his cramped sense of role had unduly bound him as to what was possible. Of course, we will not consider something possible unless we first believe it is permitted. So, how religion might shape corporate law and life remains open to discussion as we are doing here, but there is much prior work remaining to convince folks in the teaching and professional worlds that the precondition of discretion necessary for meaningful choice genuinely does, and should, exist.

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The Shareholder Wealth Maximization Norm
Posted by Ronald Colombo

Following up on Usha's post, I'd like to advance an argument here that I've explored more fully in some of my writing.  Namely, that the "shareholder wealth maximization norm" is a perverted application of the principle from which it has been derived:  that directors effectively serve as the shareholders' agents, and as such are to operate the corporation with the best interests of the shareholders in mind.

I have posited that to act with the best interest of the shareholder in mind is not the same thing as to act in order to maximize shareholder wealth.  Indeed, for 2,000 years Christians have been warned "what doth it profit a man, if he gain the whole world, and suffer the loss of his own soul?" (Matthew 16:26).  And similar sentiments can be found in some shape or form in pretty much all other religions.

So, viewing corporate law under the light of faith calls into question this very fundamental assumption.  It suggests a rejection of the de-humanizing assumption that human beings equate their best interests with their pocket-books and wallets.  In its place, it suggests an understanding of "shareholder best interests" that would take into account the moral interests and obligations of shareholders as well.

The risk of such an approach, however, is how it affects the very serious challenge of protecting  shareholders from management . . . .

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Vive la Corporate Différence
Posted by Usha Rodrigues

I'll echo Christine's sentiments: I am thoroughly enjoying this symposium on Religious Faith and Corporate Law.  While it's sparked a lot of questions for me, I'd like to focus on a point that Lyman made: different organizations have different goals.  Lyman observes that the “monistic view that all companies all the time must have the same and singular goal, i.e., to maximize profits or the share price” is “not mandated by law but it is a custom, constrained by markets to be sure, and it grows out of business lore and business norms and business education.”

That is, belonging to a corporation does not mean one must value share price above all else, any more than belonging to a religion requires one to ignore traditional corporate goals.  The two sets of values can co-exist along a "continuum of companies on the profit side." But this concept is not merely aspirational.  I suspect, as Lyman posits, that real-world companies currently pursue all sorts of different goals—even despite corporate scholars telling them for the past two decades that all they should do is maximize shareholder value. 

My current work involves some of the how and why these diverse goals exist, and their effect on the form of entity.  That is, to what extent do Google shareholders purchase shares based upon their desire to “belong to” or “express” the values adopted by Google? How does this relate to the feeling one gets by donating to NPR or buying coupon books you don’t really want from local schoolchildren? 

If one starts from the premise (which I’ll expand on in a future post) that, practically speaking, the line dividing for-profits and non-profits is wafer thin, then the situations might be more closely related than one might think.  At some point on the continuum towards non-wealth-maximization goals, most entities opt for non-profit status.  But I’m working towards an argument that that choice, the organizational form choice, fulfills a largely expressive and not substantive function. 

Thoughts are welcome, on-line or off. 


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What vs. How
Posted by Susan Stabile

I'm in the midst of grading Administrative Law exams this morning so don't have time for an extended post.  But just a brief observation that I don't think Lyman and I are as far off as his post suggests in his comment about what vs. how.  The thrust of my Wake Forest piece is to suggest a different way of thinking about corporations and their actors and I speak only briefly about what role the law might play at the end of hte piece.   

The point I made in the article (which I still stand by) with respect to the role of law is that one can justify using law to achieve certain societal aims regarding the corporation.  The fact that corproations are creaturs of the law and can not exist without state permission means there is nothing philosophically wrong with the state setting the parameters under which they can operate.  Moreover, the law gives corporations a lot of benefits via tax breaks, limited liability and the like, making the use of law to achieve some social aim merely a quid pro quo for the benefits corproations reap through the law. 

Whether one decides some type of mandate or a legal incentive or some other legal approach is a good idea in a paricular circumstance is a different question.  I tend, like Lyman, to have some nervousness about legal mandates...and probably have more nervousness about them than I did 5 years ago when I wrote the Wake piece. 

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Customs and Pluralism
Posted by Lyman Johnson

Thanks to everyone who has posted and commented so far. Many interesting and provocative ideas and questions have been noted. I want to raise a matter that cuts across many posts, that of custom in how we think about religious ideas generally(and therefore how we think about those ideas in the workplace) and custom in how we conceive corporate goals, and then I will make a pitch for a more pluralistic approach to corporate life and discourse about the corporation.

Ron notes that his students seem to embody a norm of restraint when it comes to linking the corporation and faith.  That is a deep and widespread norm in our culture, a practice that probably has many causes, one of which is a rather faulty understanding of the First Amendment. The proscription against state action on religion somehow gets wrongly transmuted into a proscription on religious discourse in the public but non-governmental sector, i.e., in those mediating institutions--including churches, schools, clubs, and even the corporation-- that stand between the state and the individual that we call "civil society." Thus, as a culture we are skittish about religion talk. That norm/custom carries over to the corporation. One result, among many, is that noted by Mike Naughton, that people suffer a sense of being inwardly divided in that they cannot connect their most deeply-held beliefs to their work lives. Another effect is a certain dishonesty in that one is expected to "translate" religious ideas into secular discourse to make those idea more palatable, at the cost of being sincere and transparent as to one's real thinking. What, for example, is wrong with openly opposing layoffs on the gound that one believes that employees should be treated with great consideration(not legally mandated, mind you, but one view).[I am not saying one cannot hold the oppsite view;I am simply  saying one basis for my own views on why I resist layoffs unless necessary is the ground of religious belief about the vulnerable].

And this takes me to Christine's post, which rightly asks "top down or bottom up?" I favor the latter and that is why I disagree with Susan's Wake Forest piece which seems a bit impositional to me. I know she advocates very palatable goals  but I do not want to achieve a desirable WHAT via an undesirable HOW(government mandate). I favor entity pluralism not legal mandates. I think there are many companies(Chick Fil A being just one) that seek to express religious beliefs in the marketplace. We should get over the monistic view that all companies all the time must have the same and singular goal, i.e., to maximize profits or the share price. That practice as we all know is not mandated by law but it is a custom, constrained by markets to be sure, and it grows out of business lore and business norms and business education(See Rakesh Khurana's fascinating indictment of agency theory in B schools in his new book, "From Higher Aims to Hired Hands..."). 

Shareholder primacy, in other words, is one goal of many. Companies could, to varying degrees, and consistent with raising capital(shareholders have choice too and can stay away from comapanies they think are "too" socially responsible), pursue profits but not only profits. Thus, rather than the current organizational dichotomy of profit/nonprofit, we would have a continuum of companies on the profit side(hedge funds being maximizers of wealth and others more diverse). That would give investors choice along with managers and employees and customers, etc. I think the decided turn toward "green" companies and the local food movement are examples of this growing diversity. (Alternatively, maybe there are more such companies out there than we know about--here we need some empirical work-- and it is we law and business teachers who parody this by our reductionism).

I also think we need to ask who within companies we are talking about. I tend to think about this at the director-officer level. I think they should be free(not required) to ground their thoughts about business practices on religious belief and to say so openly. But a lower level employee also should be given some consideration to honor his or her belioefs where possible. Thus, as to Robin's post, she makes the case for an exemption for certain business but I would also hope that senior managers within companies that must comply with various laws would permit employees who object to be excused from certain practices that trouble them on religious grounds. This again relates to Christine's point about whether we are talking about the entity or the individual. I think both, but again, by choice not mandate.

Thus, our ingrained custom of self-censorship on religious matters and our custom of shareholder primacy impede a more pluralistic discourse about this subject and hinder a more diverse business culture. But that can change and talking about it is one way to start.

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May 05, 2009
"The Christian Entrepreneur"
Posted by Ronald Colombo

Christine's question, "what is a Christian Entrepreneur" sparked a memory from this past semester that I thought worth sharing.

I had the joy of teaching a seminar entitled "Controversies in Corporate Law" while a Visiting Associate Professor at Brooklyn Law School this past Spring (2009) semester. 

We had a very good mix of students, ideologically speaking.  Pretty much every viewpoint, from right to left, was well and ably represented in the class.

One of the issues we covered in the seminar was "Religion and the Corporation."  Surprisingly, this was the only issue that the students reached a consensus on:  they pretty much all agreed that corporations should generally not adopt religious missions, and that those which did adopt such missions should certainly not enjoy anything analogous to the "free exercise rights" that individuals enjoy under the U.S. Constitution.

Driving this perspective on their part was the concern that a religiously motivated corporation, especially if endowed with constitutional rights to act upon such motivations, would trample employee freedoms and restrict consumer choice.  "Where would we get our contraceptives if the only pharmacy in town was run by a Catholic corporation?" was a repeatedly expressed concern.

Interestingly, the students also agreed that it would be quite all right for an unincorporated business -- such as a partnership or sole proprietorship -- to pursue a religious agenda.  Corporations were seen as simply different -- too powerful, too large, and too privileged under the law to permit a religious mission on their part.

I think there's a lot of grist for the mill here.  Getting back to David's original four questions, however, I think this implicates his fourth one:  what is the audience of "Christian Corporate Law"?  For there is certainly a fair bit of antipathy towards all things associated with religion these days.  I think there is a very real reason to be concerned that even some tremendously helpful insights brought to bear upon corporate law from a Christian or religious perspective might be rejected, or viewed askance, simply because of their religiously inspired origins -- despite whatever underlying merit they might contain.

PS:  As another follow-up to Christina's post, I refer all interested parties to Chick-fil-A, the corporate mission statement of which is: "To glorify God by being a faithful steward of all that is entrusted to us."

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