Wednesday, 9 July 2014

Just What is a Corporation: How Hobby Lobby may have Pierced the Corporate Veil

Corporations are people, my friend.
A few weeks back the Supreme Court dealt a largely symbolic blow to President Obama's signature healthcare reform bill by ruling that Hobby Lobby, as a legal person under the law, would have rights granted by the Religious Freedoms Restorations Act (RFRA) infringed by the Affordable Care Act's contraceptive mandate, which stipulated that employers must also cover the cost of contraception for their employees.  While it was definitely a setback for those who are pushing for healthcare reform, the bigger story that came out of the landmark ruling was the many questions it raised.  Between this and Citizens United, corporations increasingly seem like vehicles for those who control them to disregard laws that restrict their ability to unduly influence others.  

Firstly let us examine the "Corporate Veil", which was designed to shield shareholders of a company from personal liability (Hence the "Limited." suffix attached to the name of every corporation).  The foundation of this legal protection is the emphasis of a corporation as a seperate legal entity, independent of its shareholders.  Justice Samuel Alito, in writing the majority opinion, claimed that "allowing Hobby Lobby, Conestoga, and Mardel to assert RFRA claims protects the religious liberty of the Greens and the Hahns."  And yet just how is it that laws applicable solely to their corporate holdings also seemingly affect the Greens and Hahns?  When Hobby Lobby and other so called "religious corporations" were incorporated, their owners did so voluntarily, acknowledging that in exchange for shielding both themselves and their wealth from the company's liabilities, they were relinquishing absolute control over the company (Think Apple firing Steve Jobs), which would then become a legal entity of its own, independent of them.  Since then, David Green, CEO and founder of Hobby Lobby, has amassed a fortune (estimated at $4.5 billion by Forbes) in no small part thanks to the protections that the corporate veil has afforded him, including various tax benefits. David Green willfully and knowingly incorporated his picture frame business, and as a result has reaped the benefits of doing so.  With Hobby Lobby's Supreme Court case he now sought to ignore the legal seperateness of him and Hobby Lobby, for it was now personally convenient for him to do so.

"We're Christians, and we run our business on Christian principles."  That is how David Green describes Hobby Lobby's business model.  Setting aside the veracity of those claims, it's important to note that following "Christian principles" would be impossible in situations where it clashes with law because companies do not have religious freedoms.  The Supreme Court implied this by choosing not to rule on religious protections afforded companies under the First Amendment.  The court however also argued the RFRA stipulated that a person had to comply with a government law that violated their religious beliefs only if it was restrictive in the least possible way (held up under Strict Scrutiny) and that Hobby Lobby, as a person under the law, was protected under this law.  This becomes problematic when one attempts to determine where a corporation's religious beliefs come from.  The Supreme Court seems to believe that companies whose controlling shareholders possess devout religious views determine the religious views, if any, of their company.  

There are many worrying questions that arise from this, not only what constitutes "sincerely held beliefs", for Hobby Lobby engages in a few decidedly "un-Christian" practices, but also is the Corporate Veil maintained even while the religious views of a company and its shareholders are now synonymous?  Can companies now just claim a religious exception to any laws they do not like?  This will no doubt be clarified in the coming year as pending cases in the lower courts are ruled upon, but New York Times editor Dorothy J. Samuels captured the issue perfectly when she wrote "If owners indicate that they are not entirely separate from their corporation-by denying corporation employees' birth control coverage based on their personal religious beliefs-the case could be made in future state-court litigation that they have waived their right to be shielded from responsibility for corporate financial liabilities."  

Over the years the culpability of shareholders for the misdeeds of the corporations they helm has slowly increased, and may this be the final blow?  On the flipside, the current slate of Supreme Court Justices seem determined to hand corporations rights and protections normally only granted to humans without giving much consideration to how the sheer scale of the average corporation gives it a natural advantage in exercising those rights compared to the average American, and the subsequent impact that has.  A single person excercising their religious objection to contraception by refusing to shop at stores who sell it does not have the same outsized impact that a corporation denying its employees access to contraception has.  The recent SCOTUS decisions granting corporations various rights has eroded the seperation between a company and its owners, turning them into little more than vehicles which they can then utilize to influence national discourse.  This is a dangerous precedent and must be addressed quickly, lest the United States continue its trajectory towards what is increasingly looking like a corrupt kleptocracy where those who dictate policy are those who benefit from it the most.