Despite its age, the debate surrounding corporate rights and duties remains unresolved. The questions at stake are manifold. For instance, should corporations be given the same rights that their shareholders possess? How, and to what extent, should we attribute tortious and criminal liability to corporations? Are corporations capable of bearing social responsibility? In my forthcoming chapter (available here), I engage with these issues and suggest an alternative approach to assessing corporate rights and duties.
Currently, the most controversial area with regards to corporate rights is constitutional law. Although my chapter discusses several other areas as well, in this blog post, I will focus only on the constitutional issues recently considered in this respect by the US Supreme Court.
In 2014, the US Supreme Court rendered its decision in Burwell v. Hobby Lobby Stores, Inc. concerning the scope of corporations’ religious rights. The majority found that the purpose of extending constitutional and statutory rights to corporations was to protect the rights of individuals that are associated with such entities, in particular shareholders, officers, and employees. The Court concluded that protecting the free exercise rights of corporations was necessary to protect the religious liberty of the humans who own and control corporations.
Previously, the Supreme Court’s last major foray into the corporate rights debate was in the 2010 decision of Citizens United v. Federal Election Commission. There, the Court also viewed the corporation in question – which was claiming First Amendment political speech rights – as a composite of individuals and attributed their rights to the corporation. The decision resulted in the Court affirming the corporation’s constitutional right to use its funds to influence election campaigns.
The Supreme Court’s conviction that corporate rights are those of its shareholders was the dominant belief of lawyers in the latter half of the nineteenth century. This ‘aggregate’ view of corporations originated from a time when the law still struggled to understand the precise nature of corporate entities and saw them as combinations of individuals without their own legal existence.
However, why the Supreme Court still subscribes to the outdated aggregate view remains a mystery. Disregarding the corporation’s separate legal personality when determining its rights is not only wrong but also leads to more questions than it answers. Whose interests should courts take into account when ascertaining corporate rights and how should they handle diverging interests among the ‘associated’ individuals? Will conceptualizing corporations as mere aggregates weaken the principle of limited liability? Can this framework, by extension or analogy, also apply to corporate duties, leading to a future decision where a corporation’s responsibilities are deemed those of its owners?
The latter point is particularly worrisome for business owners. Logically, if corporations are viewed as mere aggregates of individuals, their shareholders would have to be liable for business debts and other obligations. This is the ugly flipside of the Supreme Court’s outdated conception of incorporated entities, suggesting that Hobby Lobby may be nothing but a pyrrhic victory for businesses.
Rather than being helpful, the use of corporate theories – particularly those that are as outdated as the ancient aggregate conception – tends to serve as a vehicle to inject policy into judicial decision-making. In my chapter, I suggest to determine corporate rights and duties by looking to corporations’ broader economic and social function and effects, and by balancing economic and social factors.
For instance, a case in point is Citizens United, which instead of opaque references to corporate theories could have entailed weighing the necessity and benefits of granting political speech rights to the plaintiff, a non-profit corporation, against potential negative impacts in the form of a distortion of the electoral process or undue political influence. Another example is Hobby Lobby, where the party claiming religious rights – Hobby Lobby Stores, Inc. – had a core business of selling crafting supplies, not disseminating religious views. Using the balancing approach, the effects of granting the right (denial of health-insurance coverage for certain methods of contraception for Hobby Lobby employees) would have required justification in light of the right’s non-economic nature. This would have been difficult given that the right was apparently not essential for the corporation’s core (economic) mission.
Compared to current approaches dominated by centuries-old theories, a balancing approach promises to provide a more useful, transparent, and goal-oriented analytical framework. Consequently, it should put lawyers, judges, and legislatures in a better position to ascertain what rights and duties legal entities should have going forward.
Martin Petrin is a Lecturer at the University College London Faculty of Laws.