Lobbyists United in Corporate America
In the history of corporate governance worldwide, “shareholder primacy” is the legal notion that shareholders — those who invest the capital necessary for companies to grow and innovate — do (and should) exercise ultimate control over business decisions. Because shareholders commit funds and take on much of the risk of a corporate project, the argument goes, they are thus entitled to become the principals of a business enterprise. Accordingly, corporate managers and directors are agents that should reward their shareholders not only by preserving their investment funds, but also by affirmatively deploying them in business activities that maximize profits and, relatedly, financial returns on investments. Therefore, it is no overstatement to speak of an all-out “duty of loyalty” that corporate directors owe towards their investors.
But what has religion to do with this “shareholder-centric” model of the business corporation?
Overall, on a broader and descriptive level, the idea of “loyalty” in business puts forward a claim of obedience that draws an interesting parallel between for-profit companies and another type of corporation: the church. Phrased it differently, just as shareholders in a company appoint directors with the expectation that they will maximize profits and capital returns, bishops in a diocese can similarly recruit ministers that they deem more suitable for maximizing spiritual growth within the faith community.
However, and putting aside similes, there is a second normative level of analysis that merits attention. The underlying assumption is that the scope of corporate governance is defined by players informed by the cultural and moral norms that shape the environments in which they act and operate. Early signs of such a cultural transmission of values in business could be traced back to some Anglo-American conservatives in the 1980s, whose ideas appear to have particular relevance to law and religion. Politicians like Margaret Thatcher and Ronald Reagan, for instance, further entrenched the corporate objective of “shareholder primacy” — and its related profit-motive — with arguments that assumed normative, ethical, if not even religious, undertones. Somewhat more specifically, Thatcher had “an active Christian faith” that informed her program of massive privatizations and her desire to turn Britain into a nation of shareholders, guided by the belief that “self-reliance is the first step towards helping others.” From this vantage point, Thatcher’s reading of Christian charity seemed to offer a moral foothold to legitimize entrepreneurial and profit-maximizing behavior as an essential spark for promoting innovation and overall public welfare via the incentives of private growth and returns on investments.
With the unfolding of the Cold War, and in the hands of Thatcher’s American political partner, President Ronald Reagan, the profit motive then turned into something more. Joining religious narratives with the interests not just of the business community, but also of the U.S. government, market capitalism and its profit-oriented ethos was elevated into a “spiritual weapon” in the ideological battle between American liberalism and Soviet communism. A speech that Reagan delivered in March 1983 is particularly relevant to this analysis. Using quasi-religious terminology to legitimize before the public eye the economic (and moral) superiority of free markets over communism, he dubbed the Soviet Union as an “evil empire,” thus casting the Cold War narrative as an apocalyptic tug of war “between good and evil.”
Taken together, religious tropes and metaphors became key elements that both Thatcher and Reagan employed to usher in and legitimize the view of “shareholder primacy” that is still very much popular among business scholars, lawyers, and entrepreneurs today. Fast forward to present, it seems, in fact, that some U.S. faith-based shareholders have begun to operationalize in court the strategic use of religion that Anglo-American political leaders anticipated years ago to advance market freedoms. Grappling with these cases, this essay critically explains how the United States Supreme Court has begun to re-conceptualize the legal category “freedom of religion or belief” (FoRB) into a new economic tool to advance shareholder value in corporate America. For proof, it will be introduced and defended on the claim that religious freedom rights are now enabling faith-based companies to obtain conscience exemptions from laws of general applicability that reduce their costs of doing business and, relatedly, increase unfair profits for their shareholders. To complete this picture, this essay highlights how net gains obtained from legal carve-outs could also be functionally leveraged by these actors to engage in political spending and lobbying campaigns to manipulate regulations according to their ideological and profit-oriented agendas.
This argument however does not ignore the fact that faith-based shareholders sometimes might not only want to maximize gains, but also create a business culture and environment where their sincerely-held beliefs could be shared and experienced by the public via the marketplace. Two landmark United States Supreme Court rulings, Burwell v. Hobby Lobby and Citizens United v. Federal Electoral Commission, seem to point in this direction. In fact, and as will be seen, the combined effects of these decisions have enabled socially-committed individuals to advance public and non-financial goals that they find appealing through the medium of the corporation. If these rulings thus appear to flip the conservative and profit-oriented view of “shareholder primacy” to its head, this essay actually demonstrate how the opposite is true. An alternative reading of Hobby Lobby and Citizens United invites speculation that religion could be actually misused to make short-sighted business, and political-spending, decisions at the expense of the whole social fabric.
In 2014, the Supreme Court recognized that two Christian closely-held companies, Conestoga Wood Specialities Corporation and Hobby Lobby Stores, Incorporated, have a right to religious freedom to opt out of the Patient Protection and Affordable Care Act 2010 (ACA or “Obamacare”). This piece of legislation requires employers with 50 or more employees to include birth control coverage within their workers’s health insurance plan, which the companies’ shareholders opposed on the ground of their Christian belief that life begins at conception.
By and large, some touted the Supreme Court decision in favor of these Christian families as an unparalleled and progressive turn that upended the conservative version of “shareholder primacy” that was introduced in the introductory bits of this essay. That is, the idea that the sole purpose, and duty, of business enterprises is to generate maximum profits for their investors. For these commentators, the reason was quite simple: for the first time ever, the Supreme Court had established that a business commercial could be run in accordance with non-financial objectives, such as the religious scruples of the shareholders in the cases at hand. And because these investors accepted decreased profitability to comply with their faith — such as by closing stores on Sunday and avoiding trading in drugs and alcohol — Hobby Lobby supporters opined that the Court had rightly deemed their objections to the ACA as sincere. This also summarizes the official reasoning of the Court which, by a 5-4 vote, concluded that the claimant-companies in Hobby Lobby deserved a conscience exemption under the Religious Freedom Restoration Act (RFRA) to oppose a burdensome federal law. Be that as it may, the Court however did not weigh this sincerity-argument against the issue of ensuring female employees’ access to contraceptive care under the ACA, and to healthcare generally.
Thus the criticism in this case is that the USSC allowed corporate religious objectors to externalize the costs of their business – those arising from supplying contraceptives for free – onto third parties without an adequate balancing exercise. Such costs are borne by female-employees saddled with out-of-pocket expenses for contraceptives, or the state itself (read: taxpayers). If third-party harm and cost-shifting are thus the real issues at stake in Hobby Lobby, then the Supreme Court seemed to have ignored an important and related element. Namely, that the claimant-companies might have invoked Biblical values to support the profit-maximization norm, rather than depart from it. At the end of the day, the pursuit of conscience exemptions to ward off regulation that could generate business costs clearly fits with the conservative corporate law theories of shareholder primacy and wealth maximization. Seen it from this angle, and as an aside, the claimant-companies’ refusal to open their stores on Sundays and sell drugs and alcohol can be read more as a branding choice to increase their Christian customer-base, and, relatedly, long-term gains, rather than an index of lower profitability. In this sense, although the Supreme Court did not explicitly use this phrase, this analysis suggests that the Court resolved the Hobby Lobby case under the classic “business judgment rule” — the principle that courts will not interfere with the discretionary choices that corporate directors and managers consider to be in the best interest of shareholders.
All in all, from this perspective, Hobby Lobby appears to be nothing new in terms of conventional corporate law theory. However, upon closer examination, this decision has shaken a foundational corporate governance mechanism: the legal separation between ownership (i.e. shareholders) from management (i.e. the board of directors). Without belaboring the details, the point to be gleaned is that a foundational principle of corporate law is that shareholders are physical persons distinct and separate from the corporation: an artificial entity that is managed, and thus “personified,” by the board of directors. In light of this ownership-management divorce, it is the directors — and not the shareholders — that define the purpose of a corporation and its objectives, including non-monetary goals such as the pursuit of Christian values. This is important since, according to this view, the claimant-companies in Hobby Lobby could have not taken, in principle, the religious identities of their controlling shareholders without violating the doctrine of corporate separateness. The fact remains, however, that the business commercials at hand were family-owned companies: a common form of business organization that keeps their shares closely-held so as to ensure that control remains in the family and is not dispersed among external investors. Seen it this way, shareholder-families in close companies typically own sufficient voting stocks to gain working control of the company, serve on the board of directors, appoint officials, and delegate some work to employees. They thus completely undermine the principle of separation between ownership and control.
In Hobby Lobby, religion played a significant role in putting into practice this absence of a divorce between ownership and management in family-owned companies. The Supreme Court in fact tapped into the Christian beliefs of the shareholder-families to determine that the claimant-companies are legal “persons” deriving religious freedom rights from their physical members. Disregarding the fact that a corporation is a separate entity from the individuals who flush capital into it, with this reasoning the Court activated the so-called doctrine of “piercing the corporate veil.” With a metaphor, the Supreme Court lifted the “veil” of corporate separateness, to then allow the Christian shareholders to ascribe their beliefs directly to their corporations’ qua artificial (and not physical) persons.
The idea that close-companies are capable of asserting the religious views of their physical shareholders is a result that would not have been possible without the high-profile USSC precedent set by Citizens United v. Federal Election Commission. This landmark case in fact legitimized the theory that corporations can behave like human beings in the exercise of their fundamental freedoms four years earlier, thus offering a legal foothold to the Hobby Lobby Court.
But more than this, Citizens United spread and mainstreamed the idea that “corporations are people” into the realm of campaign finance law, clearing the way for companies to express and advance political views and non-financial objectives in a human-like fashion.
With this ruling, the USSC found that Citizens United, a conservative-leaning non-profit group, had a constitutional right to stream on cable television a controversial documentary on Hilary Clinton within 30 days of primary election. The end result was that, from that moment on, corporations — be they profit or non-profit, closely-held or publicly-traded — obtained a First Amendment right to free, political speech to support or boycott electoral candidates and their causes just like standard citizens. In the aftermath of Citizens United, some commentators worry that corporate entities of any kind could now substantially engage in political spending to influence electoral and legal outcomes, funneling unlimited amounts of money to campaigns that they deem to be the most fit to their agendas and beliefs. To top it all off, there are also increasing concerns that activist CEOs will obtain “far more ability to shape American politics in secret” after the USSC declared campaign advertisement disclosure laws unconstitutional in its 2021 decision in Americans for Prosperity Foundation v Bonta.
Other things being equal, because of Citizens United and Americans for Prosperity, any type of ideological entrepreneur, including the religious CEOs in Hobby Lobby, could potentially spend an unlimited amount of money on political, and religious, advocacy issues. And to come full circle, thanks to Hobby Lobby, faith-based family companies can also leverage conscience exemptions to raise additional funds to support such ideological causes. But this is only part of the story. In 2018, the Trump administration crafted in fact a broader moral exemption — which the Supreme Court then legitimized in 2020 — allowing any private organization, whether religious or secular, non-profit or profit, public or private, to refuse providing birth control coverage. This means that not just faith-based family companies, but virtually any kind of ideological enterprise could now expand its opportunities to obtain tax-exempt status and, relatedly, increase its power to influence political outcomes through the mechanisms of the market.
Given these compelling issues, it would be worth trying to preliminarily assess — although going beyond the scope of this essay — the extent to which for-profit companies that hold themselves out to the public as “religious” should be entitled to religious freedom rights. One solution to this puzzle is to evaluate whether companies with a declared religious — and, in principle, non-financial — value proposition actually strive to add societal value to the communities in which they operate.
Hence, whether public or private, a company should not be deemed entitled to religious freedom rights solely on the grounds of its founding documents, marketing plans, products, or the sincerely-held beliefs of its owners. The focus should rather be on the operations, activities, and behavior of the company itself — an artificial legal entity that, as a matter of fact, is separate and distinct from the natural (and religious) persons that own or hold its offices. The bottom line is thus straightforward: public officials should remain skeptical of all those businesses demanding religious exemptions from public duties that shift negative costs onto society, no matter how positive and sincerely-devout their owners might be.
In an age where new generations of socially-responsible customers (mostly belonging to the fringes of later Millennials and the so-called Generation Z) increasingly expect companies to take stands on public policy matters, the issue of corporate ideological speech and political spending is timely, complex, and acute. As Stephen Bainbridge puts it, if it is true that companies are influenced by “the moral climate and social structures” within which they operate, more and more CEOs are, in fact, responding to their customers’ demands with generous sponsorships and contributions to impending social issues. Generally speaking, this trend involves progressively-oriented CEOs who are motivated to include environmental, social, and governance (ESG) concerns in their business practices, and whom their conservative opponents derogatorily dub as “woke” capitalists. This term echoes a widespread feeling among those on the right that purportedly pro-social behaviors serve only to strategically increase corporate social standing before the public eye and enjoy financial gains as a result. For its fiercest critics, the verdict is thus unequivocal: ESG capitalism is a far cry from genuine corporate social responsibility that could not,or does not, want to bridge the gap to meet specific problems of concern.
Be that as it may, conservative groups — some of whom explicitly identify as “anti-woke” — are not themselves immune from the same accusation. In fact, the coordinated action of Citizens United and Hobby Lobby discussed above could open the door wider for conservative-leaning companies to also make corporate expenditures that align with their visions and beliefs. Some of them are already getting in on the act.For evidence, consider some recent developments surrounding Patriot Mobile, a for-profit limited liability company that boasts of itself as “America’s only Christian wireless provider” and whose corporate mission, it says, is communicating Christian values. Towards that aim, and interestingly enough, this faith-based company takes an “organic approach” to business, seeing the secular products it provides, wireless services, as key tools to help people communicate and share their Christian and conservative views. Mobile and internet provision services thus become “religious services” constituting an integral part of Patriot Mobile’s broader faith-based activities and operations. Speaking of which, it bears note how this company has recently emerged as a new player in the American culture war battleground. Despite not being a legal case yet, this cell-phone company made headlines in late 2022 after spending more than $420,000 to “restore” Christian values in the public education system by influencing the appointment of members in four Texas school boards. To carry out that calling, Patriot Mobile presented candidates who promised to clamp down on what they allege is creeping “wokeness” in schools, which includes sexually-explicit books and accommodations for transgender students.
Once again, and this time borrowing from Kent Greenfield, the issue at hand here is to draw a line that distinguishes between permissible and impermissible corporate (religious and political) speech. On the one hand, Greenfield notes, the extension of such human-like attributions to corporations would be certainly admissible, when functional, to further the legitimate aim of making profits to break new ground and create societal wealth via the provision of goods, services, and innovation. On the other, corporate speech becomes objectionable when leveraged to externalize the costs of business onto third-parties, such as employees in Hobby Lobby who might want access to contraception, and increase funds available to influence policies and regulations in a similar manner to Patriot Mobile.
Based on this analysis, and to conclude, religion appears to be playing a new transformative role in an emerging age of “political capitalism.” As seen in Hobby Lobby, faith-based actors have had a deep impact on foundational corporate governance mechanisms, making great strides in operationalizing the absence of ownership-control divorce in close-companies. This is not however a one-way influence, with corporate governance itself also affecting religion, and turning it into what increasingly appears to be an economic and political weapon in the new “corporate culture wars” front.♦
Matteo Corsalini is a Postdoctoral Researcher and Adjunct Professor at the University of Padova – School of Law. His primary interests involve international human rights law, law and religion, and corporate governance. He authored the book Business, Religion and The Law. Church and Business Autonomy in The Secular Economy (Routledge, 2023) which critically analyses the legal interaction between business and religion in US and EU law. He currently serves as the Secretary-Assistant of the European Consortium for Church and State Research.
Corsalini, Matteo. “Lobbyists United in Corporate America.” Canopy Forum, June 2, 2023. https://canopyforum.org/2023/06/02/lobbyists-united-in-corporate-america/.