Constitutional Law

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On Friday, Bill Haslam, the Governor of the State of Tennessee, spoke at a session sponsored by the C. Warren Neel Corporate Governance Center on The University of Tennessee’s Knoxville campus.  He is our former city mayor and a hometown favorite for many.  I always enjoy his talks.

His talk on Friday focused on how Tennessee is attracting businesses and jobs and how education–including higher education–plays a role.  But before he honed in on that topic, he asked an intriguing, albeit basic, question that operates on theoretical, political, and practical planes.  That question: How is government similar to and different from private enterprise?  He wanted audience participation.  I waited to see how everyone would react.  He got lots of good answers that cut across economics, management, finance, and governance.

Provocatively (at least for me), he characterized his gubernatorial role as akin to the role of a chief executive officer in a corporation.  He has served as a corporate manager (president of his family’s firm and the CEO of a division of another firm), and his vision of the state gubernatorial role is clearly framed by that experience.  He actually called the legislature his “board of directors” in his role as governor. 

Well, after that analogy, I just had to contribute to the discussion with a comment.  I endorsed the governor’s view of his position, but I also noted that the executive, as the head of a separate branch of a government of three branches, has power independent of the power afforded to the legislature.  That is when things got interesting, at least for me.

I love a good debate and appreciate the opportunity (provided by Professor Bainbridge’s thoughtful post yesterday) to engage a bit more deeply on the thesis of Wednesday’s post suggesting an approach for how to incorporate Citizens United and Hobby Lobby into the survey BA/Corporations course. 

By way of recap and ruthless summary, Stephen Bainbridge wants nothing to do with these issues (or other constitutional law questions) in his course because of the:

  1. Existing emphasis of public law over private law and resulting imbalance in law school curriculum;
  2. False impression that constitutional law is the holy grail of law teaching and practice;
  3. These cases present a hornet’s nest of controversial and divisive topics; and
  4. Coverage constraints.  The menu options of what we can (should) teach is already more ambitious than time allows.

And to no surprise to anyone, anywhere:  Stephen Bainbridge is right on the money with all of these points.

As a survey course and one that almost every student in my law school (Georgia State) takes, I feel a responsibility to provide context for the subject matter that we teach and to do my best to “hook” students who didn’t come to my class with an…

I have posted an updated draft of my latest piece, “Corporate Social Responsibility & Concession Theory” (forthcoming __ Wm. & Mary Bus. L. Rev. __) on SSRN (here). Here is the abstract:

This Essay examines three related propositions: (1) Voluntary corporate social responsibility (CSR) fails to effectively advance the agenda of a meaningful segment of CSR proponents; (2) None of the three dominant corporate governance theories – director primacy, shareholder primacy, or team production theory – support mandatory CSR as a normative matter; and, (3) Corporate personality theory, specifically concession theory, can be a meaningful source of leverage in advancing mandatory CSR in the face of opposition from the three primary corporate governance theories. In examining these propositions, this Essay makes the additional claims that Citizens United: (A) supports the proposition that corporate personality theory matters; (B) undermines one of the key supports of the shareholder wealth maximization norm; and (C) highlights the political nature of this debate. Finally, I note that the Supreme Court’s recent Hobby Lobby decision does not undermine my CSR claims, contrary to the suggestions of some commentators.

I expect to have at least one more meaningful round of edits, so all comments…

Let me start by publicly announcing a forthcoming panel discussion at this year’s AALS Annual Meeting, tentatively titled “The Role of Corporate Personality Theory in Corporate Regulation.” As the organizer of this panel, I am extremely grateful to Stephen Bainbridge, Margaret Blair, Lisa Fairfax, and Elizabeth Pollman for agreeing to participate in what promises to be a thoroughly enjoyable discussion. For those of you who like to plan ahead, the panel is scheduled for Monday, Jan. 5, from 2:10 to 3:10 (part of the Section on Socio-Economics Annual Meeting program).

Given Stephen Bainbridge’s pending participation, I was interested to read a couple of his posts from a few weeks ago wherein he asked (here), “When was the last time anybody said anything new about corporate personhood?” and concluded (here), “I struggle to come up with anything new to say about the issue, when people have been correctly disposing of the legal fiction of corporate personality for at least 126 years!”

While I understand that asserting there is nothing new to say on a topic is not necessarily the same thing as saying it is not worth talking about, I still find myself motivated to explain why I think talking about corporate personality theory continues to constitute valuable scholarly activity (and, yes, I will connect all this to Hobby Lobby).

First of all, some qualifiers: (1) I distinguish corporate personality theory from corporate personhood because a thumbs up on corporate personhood (i.e., acknowledging that corporations can sue and be sued, etc.) still leaves a number of important questions regarding the nature of this “person,” which I believe theories of corporate personality (typically: artificial entity theory, real-entity theory, or aggregate theory) are well-positioned to answer. (2) While theories of corporate governance (typically: shareholder primacy, director primacy, or team-production theory) are distinct from theories of corporate personality, I believe there are at least some legal issues that are profitably analyzed by viewing both sets of theories as constituting a pool from which to choose an answer. With those introductory propositions in place, here are three reasons why I believe corporate personality theory still matters:

The following is a contribution from guest blogger Sarah Haan, Associate Professor of Law at the University of Idaho College of Law.

Business law professors no doubt felt relief yesterday when the news media corrected course and stopped distilling Hobby Lobby into a sound bite about “family-owned” corporations.  The three corporations challenging the Affordable Care Act in the case – Conestoga, Hobby Lobby, and Mardel – happen to be family-owned, but the majority opinion, penned by Justice Alito, was careful to articulate its holding as applying to “closely held” corporations, of which family-owned corporations are just a subset.

Commentators (like the Business Law Profs Blog’s Anne Tucker) have noted that the Court’s failure to define what it meant by “closely held” is significant.  By using the ambiguous phrase, and by suggesting that the opposite of a closely held corporation is a “publicly held corporation,” Justice Alito was opening the door to RFRA free exercise claims by a wide range of companies, the vast majority of which will bear no likeness to mom-and-pop businesses.  Generally, a “closely held” corporation is one that has a “small number” of shareholders (ALI Principles of Corporate Governance), or, under an alternate theory, one in which the identity of owners and managers is “substantially identical.”  Importantly, there is no consensus about how many shareholders a “closely held” corporation can have.  Under Delaware law, a statutory “close” corporation (a subset of closely-held corporations) can have as many as 30 shareholders.  Under Maryland law, there is no limit.  “’Closely held’ is not synonymous with ‘small,’” Justice Ginsberg rightly pointed out in her dissent.

But there is more to Justice Alito’s slight-of-hand than the murky distinction between a “closely held” corporation and a “family-owned” one.  The government argued that giving corporations free exercise rights under RFRA will lead to religious battles among shareholders that distract from the economic objectives of the corporation.  In a paragraph that echoed the majority’s discussion of the “mechanisms of corporate democracy” in Citizens United, Justice Alito explained why shareholders’ religious disagreements are little cause for concern:

The owners of closely held corporations may – and sometimes do – disagree about the conduct of business.  And even if RFRA did not exist, the owners of a company might well have a dispute about religion.  For example, some might want a company’s stores to remain open on the Sabbath in order to make more money, and others might want the stores to close for religious reasons.  State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure.  Courts will turn to that structure and the underlying state law in resolving disputes.

In this paragraph, the Court acknowledges that shareholders in a closely held corporation might not have the same religious views, but assumes that such a corporation can still exercise a religion under RFRA.  All shareholders at each of the three corporations in Hobby Lobby held the same set of religious views, but nowhere does the Court suggest that this is a requirement of RFRA personhood. To the contrary, this passage reveals that the Court does not mean to limit corporate religious exercise to only those closely held corporations whose shareholders all agree about religion.  In fact, the Court anticipates that shareholders of companies exercising a religion under RFRA will have religious disputes, and it views the mechanisms of state corporate law as the proper means for sorting out those disagreements.

And here’s the rub:  The most basic principles of state corporate law allow a controlling shareholder to, well, control the corporation.  So what the Court has really decided is that a single controlling shareholder, or a sub-group of shareholders with voting control, can make religious exercise decisions for the corporation, even over the objections of minority shareholders.  Because that is how state corporate law resolves intra-corporate disputes.

In other words, the sincerely-held religious beliefs of a closely held corporation may just be the sincerely-held religious beliefs of its controlling shareholder.

Greetings from Salvador, Bahia, one of the twelve cities hosting the World Cup. Apologies in advance for any spacing issues. I am typing on an iPad with spotty internet service in Brazil so editing is an issue.
The long plane ride gave me some time to reflect on the Law and Society Conference I attended two weeks ago. It was my second time and once again, it didn’t disappoint. I served as the discussant on a panel on Theorizing the Corporation with Elizabeth Pollman, Charlotte Garden and Sarah Haan. All of the papers talked about a right to speak. The common theme was the question of who is speaking, the basis of that right and whose interests are being served by the speech. I found them particularly interesting given my background. Prior to joining academia I was a deputy GC and our PAC and lobbying activities reported to me.
Elizabeth Pollman presented “The Derivative Nature of Corporate Constitutional Rights”, which she co-authored with Margaret Blair. She started off by providing us with a 200-year history of the corporation which I plan to incorporate in my BA class next fall. Her paper provided a framework for the court to think about…

In March, the Fourth Circuit held in Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, that racial identity can be imputed to a corporation for purposes of standing under Title VI, citing to case precedent from the several circuits allowing 1981 claims to be raised by corporations. 

“[W]e observe that several other federal appellate courts have considered this question, and have declined to bar on prudential grounds race discrimination claims brought by minority-owned corporations that meet constitutional standing requirements.” 

The Fourth Circuit had to deal with the following language in Arlington Heights, 429 U.S. 252, 263 (1977): “As a corporation, MHDC has no racial identity and cannot be the direct target of the petitioners’ alleged discrimination. In the ordinary case, a party is denied standing to assert the rights of third persons.” In Arlington Heights, the Supreme Court however did not need to “decide whether the circumstances of this case would justify departure from that prudential limitation and permit MHDC to assert the constitutional rights of its prospective minority tenants. For we have at least one individual plaintiff who has demonstrated standing to assert these rights as his own.” (citations omitted).  The dicta in Arlington Heights was…