The U.S. Supreme Court heard arguments on the Hobby Lobby case yesterday. Hobby Lobby is a closely held (family owned) for-profit corporation. If you’re unaware or only vaguely aware of it, this case concerns whether a for-profit business corporation or its owners can claim the protection of the federal Religious Freedom Restoration Act (RFRA). Specifically, the question to be decided is whether RFRA permits a corporation to avoid compliance with the so-called HHS Mandate requiring businesses to supply cost-free contraceptives, sterilizations and abortifascients to their insured employees under the Obamacare law if compliance would offend the religious sensibilities of the owners of the corporation.
The for-profit corporation is our ubiquitous legally created “servant” but I believe that the unique nature of this type of servant is little understood. Most Americans see these servants rather as oligarchs and overlords. According to the 1919 Michigan Supreme Court case, Ford Motor Company v. Dodge, the nature of the corporation and its governance can be described as follows:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.
There is committed to the discretion of directors, a discretion to be exercised in good faith, the infinite details of business, including the wages which shall be paid to employees, the number of hours they shall work, the conditions under which labor shall be carried on, and the price for which products shall be offered to the public.
It is pretty simple according to the law, a corporation is a “good man of business” which is the term used by Ebeneezer Scrooge to describe his late partner Jacob Marley in Charles Dickens’s A Christmas Carol. Corporations are our servants because we have created them to serve our needs. Corporations were conceived of as a method by which men could accomplish economically desirable ends for society which would otherwise be impossible or exceedingly difficult to achieve. Corporations are empowered to accomplish these economically desirable ends by means of a fictional personhood which permits organization of large amounts of capital and numerous employees. In contrast to humans as owners, who have inherent limitations chief among them being their mortality and other human frailties, corporations renew themselves with fresh blood whenever necessary and they can do so eternally. Corporate investors are provided with limited liability and, for this benefit, they surrender the control of the details of the business to a board of directors who themselves can be replaced whenever necessary or convenient. The limited liability aspect of the corporate ownership facilitates accumulation of large amounts of capital since the investors are not generally liable for anything other than their original investments. The corporation’s employees and customers can work for it and contract with it as if it were a person in its own right. In concept the corporation is just that simple. We shall see, however, in upcoming installments that there are unintended and un-envisioned complications of utilizing the corporate form including the possibility that a family like the one which owns Hobby Lobby, can be forced to use its money is ways which would clearly violate the “free exercise of religion” clause of the First Amendment and the Religious Freedom Restoration Act if the family owned the business other than through the use of the corporate form.
Short and Sweet Blog 