Whose Values Count? The Hobby Lobby Decision and Corporate Social Responsibility

David Levy, Professor and Associate Dean in the College of Management at UMass Boston and Director of the Center for Sustainable Enterprise and Regional Competitiveness

Women held placards proclaiming “Bosses out of My Bedroom” to protest last week’s Supreme Court decision in the Hobby Lobby case, which permits privately-held corporations to exclude coverage for contraception from health insurance coverage on religious grounds. In the media, opponents of the decision saw the issue as corporate owners imposing their religious beliefs on all the employees in Hobby Lobby’s nearly 600 stores. The decision has been widely condemned by feminist and other progressive groups, who smell a theocratic agenda that represents discrimination against women (Viagra and vasectomies are covered by insurance), a threat to women’s health, and a continuation of efforts to control female sexuality. The Court itself was divided along gender lines for this and the follow up Wheaton College decision regarding exemptions for religious non-profit organizations, in which the three female judges issued a sharp dissent. For women, reproductive freedom and economic independence are closely intertwined, as Justice Ginsburg noted in her dissent: “The ability of women to participate equally in the economic and social life of the Nation has been facilitated by their ability to control their reproductive lives.”

But the Hobby Lobby (HL) case is not just about corporate control over women’s work and health; it holds broader significance for corporate governance. The decision severely undermines those who seek to use corporate social responsibility (CSR) to hold business accountable and to channel the vast financial, technological, and organizational resources of business to advance social goals. The heart of the HL case turned on the technical question of whether a for-profit corporation, as a legal person, has the same rights as an individual to exercise religion under the 1993 Religious Freedom Restoration Act (RFRA). On the face of it, the idea of a corporation having a religion is somewhat bizarre. After all, we don’t see corporations being baptized or singing at a Bar Mitzvah ceremony. But if a corporation, as a person, does have values or religion, whose are they? A small group of owners, or the wider community?

The Obama administration argued that a corporation is established as a separate legal entity in order to insulate owners from economic risks and enable it to undertake commercial transactions and contracts. This separation should also insulate the corporation from the owners’ religion. A group of forty-four corporate law professors filed an amicus brief to support the Administration’s view, arguing that “there is no basis in law or in fact to disregard the separateness between shareholders and the corporations they control. Hobby Lobby’s… attempt to ‘reverse veil pierce’—that is, to imbue the corporation, either by shareholder fiat or a board resolution, with the religious identity of certain of its shareholders—should be rejected”. The minority dissent to the Court’s decision followed this reasoning, noting that by “incorporating a business . . . an individual separates herself from the entity and escapes personal responsibility for the entity’s obligations.” In other words, owners cannot have it both ways: if the veil shields owners from economic risks, it also shields the corporation from arbitrary interference from the owners.

While the Supreme Court majority opinion held that the definition of “person” in RFRA included for-profit entities, it did not strengthen the status of the corporation as an independent entity. The Court rejected the veil argument and stated that for some purposes, a “corporation is simply a form of organization used by human beings to achieve desired ends.” And not just any human beings; the corporate person represents the owners. A key danger with this ruling is that it opens the door to corporations claiming exemption based on personal beliefs from a host of regulations that threaten owners’ interests, from climate change to labor protections. The corporate law professors’ brief pointed out that “a ‘values pass-through’ theory would also have potentially dramatic and unintended consequences with respect to laws… such as the Public Accommodations and Employment Discrimination provisions of the Civil Rights Act of 1964”. While the Court claimed that the decision was restricted to closely held companies and contraceptive devices, closely held companies comprise up to 90% of all businesses in the US and employ over 50% of the workforce. Moreover, the principle established here is very broad, and court decisions are frequently extended by later rulings to other contexts.

A few progressives see a potential silver lining in ripping a hole in the corporate veil. One blogger wrote that “the result will be a potentially fatal undermining of the very thing that gives our modern corporations their crushing size and power. It’s the limitation on liability that opens up investor wallets, lets corporations grow to monstrous size, gives corporations monopolistic and oligarchic power, and lets sociopathic CEOs indulge their every destructive whim while hiding behind that ‘corporate veil’… the Hobby Lobby hole would work both ways, and by exposing corporate shareholders and officers to liability once again, it could well usher in an era of unprecedented corporate transparency.” This prediction is unrealistic, however. The pro-business Supreme Court is highly unlikely to abolish shareholder protections, and the HL decision actually undermines efforts to improve corporate transparency and accountability.

Some observers have accused liberal critics of the Court decision of hypocrisy, noting (rather too gleefully) how the HL decision supports the ability of companies to pursue Corporate Social Responsibility (CSR). Keith Bishop has claimed that the corporate law professors’ brief is a “frontal assault against CSR”, arguing that: “If corporations can’t have religious beliefs, then it follows that they can’t believe in climate change, sustainable investment or any other beliefs embraced by the corporate social responsibility movement”. The Court did not specifically mention CSR, but did recognize that for-profit firms can and frequently do consider social objectives. Justice Alito, writing for the majority, stated that: “Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else and many do not do so… it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives.”

But CSR advocates should not embrace the HL decision. One distinction, noted by Haskell Murray, is that CSR is usually understood as going beyond minimum legal compliance requirements, rather than seeking exemptions from them. But more importantly, the Court’s decision embraces a particular view of CSR, one that views the owners as the sole decision-makers regarding corporate values and CSR practices. The Court’s stance presumes that the choice of “humanitarian and other altruistic objectives” is determined by the owners without any input from other societal stakeholders affected. The relation between owners and CSR is reduced to a property right of the shareholders regarding corporate operations. The HL decision equating freedom of religious expression with shareholder prerogatives is consistent with the 2010 Citizens United case, which abolished most political campaign spending limits by equating freedom of speech with spending money.

Haskell Murray commented, before the decision was announced, that “Hobby Lobby could have improved its chances by converting to some form of for-profit benefit corporation and being specific about its religious views in its articles of incorporation.  The Delaware Public Benefit Corporation (PBC) statute makes the ability to maintain a religious purpose in a PBC explicit when it defines ‘public benefit’ as ‘a positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.’” A PBC therefore needs to demonstrate that its purpose is to benefit ‘communities of interest’ (stakeholders) other than owners. With this definition, it’s unclear how a PBC would have served HL’s purpose or even passed legal muster.

CSR is not just something that companies simply do to improve society – rather, it’s the terrain for a political struggle among shareholders, managers, workers, activists, and other groups over the meaning and practice of CSR. Who decides whether the goals should be the environment, human rights, or labor conditions? How far should a company go and how much expense should it incur? How should conflicts among stakeholders, for example, regarding climate change or sexual identity rights, be resolved? I’ve examined the political character of CSR in academic work with colleagues, and have pointed to the contested character of CSR.

On the one hand, CSR can be viewed in an optimistic light as more democratic corporate governance, in the context of the emergence of global civil society and the diffusion of authority to more decentralized networks of actors. This vision of CSR promises greater transparency, accountability, and capacity in solving problems requiring collective action. It’s a movement to re-embed the economy in the polity and make business accountable to society. On the other hand, CSR can also be understood as an extension of private corporate power into the social and political realm, a privatization of governance that tends to serve narrow interests of business owners and managers. Over time, many CSR initiatives, such as coffee standards or the Global Reporting Initiative, seem to have shifted from more activist origins toward tools for managing quality, supply chain risks, and brand reputation. In this political context, the Hobby Lobby decision represents a more profound statement regarding whose values and whose interests count for business; in equating a corporation’s values with those of its owners, it endorses the ‘private power’ approach to CSR and disenfranchises other constituencies.