Constitution Check: Are corporations the same as the people who own them?

Lyle Denniston, the National Constitution Center’s adviser on constitutional literacy, looks at the long-term impact of Monday’s Hobby Lobby ruling on the idea of a separate existence of corporation and owners.

THE STATEMENTS AT ISSUE:

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“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the right of the people (shareholders, officers, and employees)….Corporations, separate and apart from the human beings who own, run, and are employed by them, cannot do anything at all.”

– Justice Samuel A. Alito, Jr., writing for the majority of the Supreme Court on Monday in the case of Burwell v. Hobby Lobby Stores, finding that family-owned, profit-making corporations are embodiments of the religious views of their owners, under a 1993 federal law on religious liberty.

“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.”

– Chief Justice John Marshall, writing in the 1819 Supreme Court decision in McCulloch v. Maryland – one of the classic statements in American constitutional literature on the nature of the business organized in the corporate form.

WE CHECKED THE CONSTITUTION, AND…

Thomas Jefferson worried deeply, in America’s early years, about the influence of “the aristocracy of our monied corporations,” suggesting that they were challenging “our government to a trial of strength” and were threatening “defiance to the laws of our country.”   And, ever since the Founding, the corporation has been sometimes the darling, sometimes the pariah, under the Constitution.

The story of corporate life in constitutional history is the story of back-and-forth struggles over regulating the combination of economic wealth and opportunity under the corporate umbrella.   There were times of unchecked liberation from government, in the late Nineteenth Century (a time when corporations were, indeed, accepted as constitutional “persons”), and there have been times of almost unchecked government intrusion, in the late Nineteen Thirties after the Supreme Court finally let Franklin Roosevelt have his New Deal way.

But through it all, there has been one basic characteristic of the corporation that has been a tremendous boon to corporate owners, and that has been the fact that the two were separate: the corporation had its own legal personality, and if it did wrong, its owners were spared the blame; they did not have to cover its debts, or pay to clean up after its misdeeds.

In the process of living its separate existence, the corporation accumulated rights of its own, and it has had the capacity to see that those rights were respected and enforced. It was no legal accident when, in the Supreme Court’s decision this week on enforcement of the federal birth-control mandate against profit-making companies, the case before the Justices bore in its title two corporate names: Hobby Lobby Stores, Inc., and Conestoga Wood Specialties Corporation.

An interesting thing happened on the way to the decision in that case, however. The separate existence of corporation and owners collapsed, and the corporations – at least these two companies and others formed as they were – became actual extensions of the personal value systems of their family owners.   If the corporation had rights, Justice Alito wrote for the majority, it did so only because the owners had those rights – in this instance, the right to express their religious beliefs in the conduct of a money-making business.

The Obama Administration, in attempting to enforce the birth-control mandate under the Affordable Care Act against these two corporations, had argued that the Act imposed no duties whatsoever on the family owners; only the corporations, standing apart, had to obey the mandate.   The court’s majority flatly rejected that argument, merging the firm with the family, infusing the corporation with the family’s religious objections to birth-control methods that the family regards as enabling abortions.

These corporations were organized under the laws of two states, Oklahoma and Pennsylvania. And it is clear that those states, like all others, permit the formation of a business as a corporation precisely for all of the benefits of separation from their owners.   But Justice Alito cited only a single provision of each state’s corporate law: allowing them to be set up for “any lawful purpose.” That is enough, according to the ruling, to permit the merger of the owners and the corporation for conducting business in keeping with religious preferences.

How far does that concept extend? The court stressed that it was not accomplishing the same merger of ownership and management of larger companies whose ownership is spread among many (perhaps many thousand) stockholders.   But it did not do so based on any constitutional principle: it said only that the mass of stockholders of a big company probably could not agree on which religious values to implant in the corporation’s operations.   But, moving up from a corporation owned by a single family, as one begins to multiply owners, at what point do the rights and responsibilities of owners and management coalesce sufficiently to make the two legally indistinguishable?   What kinds of laws aimed at the corporation could owners dictating to managers decide impaired the value of their investments?

As long as corporations have been independently accountable, their charters of incorporation spelled out what they could and could not do. The benefits of the corporate form were offset by the obligations to serve public purposes.   And that is a concept that seems to have been understood from the Founding.

As retired Justice John Paul Stevens wrote when he was still serving on the Supreme Court, “the Framers took it as a given that corporations could be comprehensively regulated in the service of the public welfare.”   It will take some time for the court, and for society in general, to sort out whether that remains “a given” when owners and corporations are one and the same.

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