A liberal case for why corporations are people, too

The Supreme Court will hear two controversial cases about whether President Obama's health care law can require companies to provide certain forms of contraception to their employees through a health insurance plan. Although the case will probably affect only a small group, the implications are potentially far-reaching. Lawyers will debate whether, if corporations are people, they have religious freedom, and to what extent that freedom can exempt them from regulations.

Hobby Lobby, a family owned craft-store chain, sued the government, seeking an exemption from the requirement that the health insurance bought by employers for their employees cover Plan B and other kinds of contraception that can destroy a fertilized egg. The company's owners are Southern Baptists, and they argue that these kinds of contraception are forbidden by their faith. The other case is similar, and it involves Conestoga Wood Specialties, a cabinetmaker.

Many people are baffled and incensed by the argument that corporations are legal persons and are entitled to many of the same freedoms as citizens, and some industries have certainly abused those freedoms already. Yet Andrew Abela, the dean of the new business school at The Catholic University of America, presents the case in favor of Hobby Lobby in a way that some liberals might find more appealing. His case starts with a debunking of the mistaken belief, widely held by investors as well as ordinary people, that corporations solely exist to maximize profits for shareholders.

Abela is controversial for his defense of a donation from the Koch brothers that CUA accepted earlier this year. His views about economics and religion are also likely to offend everyone from pro-choice activists to wealthy Wall Street bankers. Yet the way he combines socially liberal and socially conservative positions provokes hard thinking about our most basic assumptions regarding the place of business in society. That's why, in an email exchange last week, I asked him to explain his opinions, and why I've reproduced his answers to my questions below, editing lightly and adding links for context.

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We all tend to think that corporations exist to make money for shareholders. I think that’s part of the reason why people resent corporate influence in politics. Why is the common perception of corporations wrong?

The Washington Post's Harold Meyerson recently pointed out that corporations do not have any legal obligation to maximize shareholder returns. This is contrary to the conventional wisdom, which is represented perhaps most famously in Milton Friedman’s essay, “The Social Responsibility of Business is to Increase its Profits,” where he argued that the only purpose of a corporation is to produce profit.

Many in the business world and the academy are coming around to Meyerson’s view, which supports a more humane and sustainable economy. John Mackey, CEO of Whole Foods, is a leader in the “Conscious Capitalism” movement, which advocates that businesses should be run for the benefit of customers, communities, suppliers, the environment, as well as for their investors.

Even Jack Welch, who as CEO of GE was perhaps the poster boy for Friedman’s view, now talks differently—the idea of maximizing shareholder value, according to him, is “the dumbest idea in the world.”

This is not a new view. Peter Drucker, the greatest management guru of all time, wrote more than fifty years ago that “profitability is not the purpose of business enterprise and business activity, but a limiting factor on it. Profit is not the explanation, cause or rationale of business behavior and business decisions, but the test of their validity.”

I’m confused. How are corporations different from not-for-profit organizations, then?

It’s true, we do refer to corporations as “for-profit”, but I think this is an unfortunate choice of words. “For-profit” corporations differ from not-for-profits in that they have to sustain themselves financially; they’re not allowed to collect taxes or accept donations. As the quote I just gave from Drucker makes clear, “for-profit” corporations do need to make profits—but this does not make profits their purpose. The purpose of a corporation is to do some good for some defined group of customers, and when this is achieved, the firm is profitable and gets to stay in business and grow. Profit is a condition of existence, not a goal.

Are there examples of corporations that actually operate according to this idea, not seeking to maximize profit?

There are. But to be clear, it’s not that they have anything against profit, it’s just that maximizing profits is not their top priority. I’ve already mentioned Whole Foods, but there are numerous others, including Southwest Airlines, Costco, Chipotle, as well as many smaller firms.

How does Hobby Lobby fit in with this group?

Here’s the thing. If the purpose of a firm, as I mentioned, is to do some good for some defined group of customers, then there’s a vast range of possibilities for the “good” that a particular firm can pursue, and it’s not unreasonable to think that some of these will be inspired by religious values (think of a kosher deli, or a halal butcher) or other moral values (say Tom’s Shoes, or Patagonia). This is what Hobby Lobby seems to be trying to do—to run their company in accord with a Christian view of what is good.

But in today’s Supreme Court case, government lawyers are in effect saying that Meyerson and Drucker are wrong on this, and Friedman is right. Their brief indicates that the primary, if not the only, goal a corporation can pursue is profit—what is distinctive about corporations is that they “use labor to make a profit” (I’m quoting from the government brief in the case). I don’t mean to be cheeky, but they seem to want the “dumbest idea in the world” to be the law of the land.

They’re arguing that business owners should check their religious values at the door, because (from their brief again) business owners “face no personal liability” for the actions of the corporation. So should a person of faith, or any moral person, be willing to accept the idea that the corporation they own pollutes, pays pitiful wages, and creates shoddy products—but that’s okay, because the corporation did it, not me? Is the government claiming that the principle of limited liability should extend to our consciences too?

I see the argument here, but I’m not sure I’m convinced, and here’s why. If Obamacare required Hobby Lobby management themselves to use contraception, then it would clearly be a violation of their First Amendment rights. But I’m not sure that Christian teaching of any kind requires me to prevent other people from using contraception.

Think of it this way. Let’s say your religion prohibited you from cruelty to animals, and for some reason, a law was passed that required you to do cruel animal testing in order to remain in business. Would you accept an “accommodation” that said, okay, you don’t have to do this testing, you just have to pay this other group to do it? I don’t think so. If you believe something is immoral, not only do you not want to be forced to do it yourself, but you don’t want to be forced to pay for other people to do it—even if those other people have no personal moral objections to doing the animal testing themselves.

So, suppose you’re Catholic and you want to incorporate a business. If profit is not the goal, what does the Church say about how you should run your corporation?

The clearest statement on this from the Catholic Church—which my co-editor, Prof. Joe Capizzi, and I quote in our new book, A Catechism for Business—is from Pope John Paul II, where he wrote that “the purpose of a business firm is not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavoring to satisfy their basic needs, and who form a particular group at the service of the whole of society.” Most recently, Pope Francis said that business is a noble vocation, but only if business people “see themselves challenged by a greater meaning” of serving the common good. So you should run your corporation as a community of people earning their living by serving the needs of others and the common good.

I’ve long felt that liberals, in response to the Citizens United ruling, have been too quick to attack corporations. We’ve just accepted without even realizing it the Wall Street idea that corporations can only maximize profit, without thinking more broadly about how corporations might use their legal personhood for both liberal and conservative goals. And before Milton Friedman and shareholder value, corporations did have liberal as well as conservative goals. How do you feel about the Citizens United ruling? Do you see some kind of compromise here, between religious conservatives on one hand and religious and secular liberals on the other?

I’m not a constitutional scholar, so I won’t comment on the ruling itself, but I agree wholeheartedly with your general point: in a pluralist society, we need to provide people the freedom to organize themselves to pursue their particular goals. This is something that people across the political spectrum should surely be able to agree with. Whether these goals fit with a liberal, conservative, or some other worldview, sometimes a good way to organize for them will be in a corporate form, where they can be profitable and sustain themselves, instead of having to depend on donations.

Last thing. I won’t ask you to discuss the gift your school accepted from the Koch brothers earlier this year, but since it was so controversial at the time, could you say something about the mission of CUA’s new business school and why you feel that mission is necessary?

The School of Business and Economics here was founded in order to promote what we call a “person-centered” view of the economy. What we mean by this is that economic activity should be organized for the sake of people—so firms should be run not for the sake of profits, but for the sake of serving the needs of all those involved in them: customers, employees, the communities they operate in, as well as their investors; profit is a necessary condition, not a goal. This is authentic Catholic teaching about business, and we are finding it to be very popular among recruiters, donors, and particularly among the students themselves: applications for next year’s incoming class are up 40 percent.

This is why I’m so concerned about today’s case. Living one’s religious faith in business is a big part of what our school is about. Is the Supreme Court going to say that that’s illegal?

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With regard to Abela's last point, it is important to note that the court could rule against Hobby Lobby without ruling against religious freedom. Broadly speaking, the justices could hold that Hobby Lobby's religious freedom does not outweigh the benefits of contraception to the company's female employees.

Yet if the court's recent history is any guide, it does appear that the meaning of corporate personhood will continue to expand, perhaps to include religious freedom at some point if not in this case. Unless liberals are prepared to amend the Constitution or rewrite large sections of federal law, they might consider advocating a more traditional definition of the corporation like the one Abela suggests here. Disputes like the one in the Supreme Court today wouldn't disappear, of course, but at the same time, CEOs could be encouraged to think more holistically and humanely about what they do every day.

Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.
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