corporations – Page 2 – Sheila Kennedy

Corporations and the First Amendment

We live in an era when everything–every case decided by the Courts, every law passed by Congress or a state legislature, every encounter between police and citizens–generates frightening headlines, hysterical tweets, and multiple emails from activist organizations exhorting recipients to take action (usually involving signing a petition and sending money).

So it’s easy to become jaded, to attribute the decibel level to partisanship, or a lack of perspective or analysis. I know I increasingly find myself thinking “just chill out. This isn’t the end of the world. Get a grip.”

Some things, however, prove to be every bit as worrisome as the scolds and screamers predicted. A grim assessment from a recent Harvard study suggests that the consequences of Citizens United and the line of cases leading up to it have been even more damaging than we were warned at the time.

Some of the study’s key findings include

While the First Amendment was intended to protect individual freedom of religion, speech and assembly, as well as a free press, corporations have begun to displace individuals as its direct beneficiaries. This “shift from individual to business First Amendment cases is recent but accelerating.”

Over time the high court has shown an increasing willingness to rule in favor of corporate interests, as a result “reducing law’s predictability, impairing property rights, and increasing the share of the economy devoted to rent-seeking rather than productive activity.”…

The ability for corporations to obtain relief from the courts gives them incentive to “place bets not on new technologies or marketing strategies, but on legal and political ‘innovation’” to protect markets they have and exclude new entrants. This also has the effect of causing regulatory agencies to reduce their efforts, because enforcing existing laws becomes increasingly difficult….

American public discourse tends to be very bipolar and “zero sum.” Policies are either right or wrong, good or bad. A right accorded to X must mean diminished rights for Y.

In the real world, however, the goal of policy is more often than not to achieve an appropriate balance between or among competing interests, all of whom are entitled to have their rights respected. Most Americans would agree that businesses have the right to participate in the marketplace of ideas, and that the law should respect the fiction of corporate “personhood” in the contexts for which that personhood was originally created.

It is when Court decisions and legislative actions create troubling imbalances of power, we risk substantial damage to our social ecosystem. Cases like Citizens United and Hobby Lobby have upset that balance, empowering corporations while disempowering individual citizens.

“These findings present a challenge to the view, articulated by the majority and concurrences in Citizens United and Hobby Lobby, that corporations and other business entities should be understood ‘simply’ as aggregations or associations of individuals, and so should not be distinguished from them for purposes of First Amendment analysis,” the author writes in his conclusion, continuing: “The corporate takeover of the First Amendment represents a pure redistribution of power over law with no efficiency gain — ‘rent seeking’ in economic jargon. That power is taken from ordinary individuals with identities and interests as voters, owners and employees, and transferred to corporate bureaucrats pursuing narrowly framed goals with other people’s money. This is as radical a break from Anglo-American business and legal traditions as one could find in U.S. history.”

Sometimes, the decibels are appropriate.

Comments

Original Intent

Can you stand one more post on Hobby Lobby?

Over at Forbes Magazine, Rick Unger has challenged the basis of the decision–and the fiction that Scalia, et al, are “originalists”– by pointing to the Founders’ original conceptions of corporate identity.

After the nation’s founding, corporations were, as they are today, the result of charters granted by the state. However, unlike today, they were limited in how long they were permitted to exist (typically 20 or 30 years), only permitted to deal in one commodity, not permitted to own shares in other corporations, and their property holdings were expressly limited to what they needed to accomplish their specific, corporate business goals.

Put another way, every single investment bank on Wall Street, as we know it today, would have been illegal in the days of our founding.

And here is the big one —in the early days of the nation, most states had rules on the books making any political contribution by a corporation a criminal offence.

Indeed, so restrictive was the corporate entity, many of early America’s greatest entities were set up to avoid the corporate restrictions. Andrew Carnegie formed his steel operation as a limited partnership and John D. Rockefeller set up Standard Oil as a trust in order to avoid the restrictions placed on corporations. Yet, it is now apparently too much to ask that those holding strong religious views, such as the Green family who hold the stock of Hobby Lobby, do the same.

Of course, Scalia’s version of originalism has always been exceptionally malleable–one to be invoked or ignored depending upon the need to twist the matter at hand into ideological conformance with his preferred beliefs.

With respect to this “matter at hand,” however, I am increasingly of the opinion that Hobby Lobby will come back to bite the authoritarian derrieres of the male members of this court. As Tim Peacock recently wrote at Peacock Panache:

[S]everal law experts believe the Supreme Court may have dealt a devastating blow to the corporate veil. Alex Park at Mother Jones reported on the new gaping hole in the corporate veil today stating in part:

“Now, thanks to the Hobby Lobby case, it’s in question. By letting Hobby Lobby’s owners assert their personal religious rights over an entire corporation, the Supreme Court has poked a major hole in the veil. In other words, if a company is not truly separate from its owners, the owners could be made responsible for its debts and other burdens.

‘If religious shareholders can do it, why can’t creditors and government regulators pierce the corporate veil in the other direction?’ Burt Neuborne, a law professor at New York University, asked in an email. That’s a question raised by 44 other law professors, who filed a friends-of-the-court brief that implored the Court to reject Hobby Lobby’s argument and hold the veil in place.”

In the above-mentioned friend-of-the-court brief, those law professors stated in part:
“Allowing a corporation, through either shareholder vote or board resolution, to take on and assert the religious beliefs of its shareholders in order to avoid having to comply with a generally-applicable law with a secular purpose is fundamentally at odds with the entire concept of incorporation. Creating such an unprecedented and idiosyncratic tear in the corporate veil would also carry with it unintended consequences, many of which are not easily foreseen.”

If one Court can pierce the corporate veil in order to protect a (highly selective exercise of) religiosity, a different Court can pierce it to obtain justice for litigants who might otherwise go uncompensated.

That’s the problem with outcome oriented judicial reasoning.

Comments

Ownership

We talk a lot about ownership in America: George W. Bush promoted an “ownership society;” people trying to change institutional systems are urged to help those involved to “own” the changes.

The disconnect comes when we consider corporate ownership–which, increasingly, doesn’t exist in any meaningful way.

Think about the origins of the business corporation. A Henry Ford, an Eli Lilly, a J. Randolph Hearst would begin an enterprise that continued to reflect upon its founder whether or not that founder retained majority ownership (which most did). Other shareholders profited or not, participated in the election of the board or not, attended annual meetings or not, but it was understood that they weren’t owners in the way we understand that word.

A business school colleague once described today’s shareholders and bondholders as two different kinds of lenders. The guy who purchases corporate bonds wants priority and a secure rate of return. They guy who buys shares is gambling, in a sense: he’s willing to risk a greater downside in hopes of a bigger return. Neither of them is really interested in the company or its business, except to the extent necessary to make an investment decision.

Meanwhile, the company is managed by hired guns who rarely have any sort of emotional connection to the corporation, and whose own “ownership” is limited to stock options and other incentives–incentives that tend to reward quarterly rather than long-term performance.

Real ownership is so different.

Last week, the Indianapolis Public Library hosted a small reception for the Lacy family, one of the increasingly rare exceptions to the picture I’ve just painted. The impetus for the reception was the family’s donation of a book–a history of the company–to the Indiana collection. The book traced the company from its origins manufacturing corrugated cardboard boxes to its current incarnation as LDI–Lacy Diversified Industries. During the brief talks, someone made the point that multi-generational family ownership like LDIs currently represents perhaps 3% of American businesses.

If you are thinking, “so what?” think about the contributions made to this community by family-owned companies like LDI or MacAllister Machinery. These are enterprises still run by their founders, or the children and/or grandchildren of their founders. Such businesses are connected to this community in multiple ways that the more impersonal, shareholder-owned companies and their managers are not. They are also far more likely to make business decisions based upon the long-term interests of the enterprise, rather than on the next quarterly or annual report. As a result, they are more likely to be corporate good citizens.

Mitt Romney to the contrary, corporations are not “people, my friend.” But a dwindling number are owned by identifiable people. And that kind of ownership is infinitely preferable to the lottery-ticket shareholder mentality that has largely replaced it.

Comments