From time to time, this blog gives its readers an
assignment. So, it did in its last
posting. That posting reviewed the facts
of three court cases – each dealing with corporate ethical responsibilities. The cases are Dodge v. Ford Motor Company
(1919), Shlensky v. Wrigley (1968), and Burwell v. Hobby Lobby
(2014).[1] If the reader has not read that posting,
he/she is invited to do so. The
assignment in that posting is for the reader to predict what the outcomes of
each case is.
As that
earlier posting states:
[O]ne lesson one can draw just from
the information already given is that not everyone defines societal welfare in
the same way.
[Henry] Ford saw it in its more
commonsensical way – society seeking improvements to the secularly defined
benefits of selected or identified individuals or constituents. [Chicago Cubs owner] Wrigley defined it in
terms of being a good neighbor. And [the
retail chain] Hobby Lobby used religious beliefs – and those religions’
definitions of morality and ethics. With
a little bit of imagination one can visualize other bases for defining what’s
good for society.
The point is, when one is trying to analyze how any entity
attempts to be a good citizen – promoting the common good – that issue can
become and is complex.
Here are the court
decisions of each case:
Dodge v. Ford Motor Company – “the Michigan Supreme Court ruled that Henry Ford
must operate the Ford Motor Company primarily in the profit-maximizing
interests of its shareholders rather than in the broader interests of his workers
and customers.”[2] But the court further ruled,
Ironically, in the same case, the
court upheld the validity of a doctrine known as the business judgement rule, a
common-law principle stating that officers, directors, and managers of a
corporation are not liable for losses incurred when the evidence demonstrates
that decisions were reasonable and made in good faith, which gives corporate
management latitude in deciding how to run the company.[3]
This decision introduces a degree of
nuance by which corporations are to run their affairs. For example, can a corporation, in trying to
strengthen its long-term standing, be justified, in relation to shareholder interests,
to spend revenues on social conditions and/or employee welfare. On the surface, therefore, this seemly
pro-shareholder decision, which it was, does leave the door open for a more
federalist approach to managing a corporation.
Of course, if the general sense of
what is proper within the nation and the economy – especially within general
corporate culture as it did in the early twentieth century – follows a natural
rights bias, those decisions by management will tend to be short-sighted. Surely, during those years, the economy was
noted by the decisions of robber barons and was one of those historical
developments that helped usher in natural rights dominance after World War II.[4]
Shlensky v. Wrigley – Again, this case illustrated a corporate leader deciding
to further the interests of social entities over shareholders. For those readers who are baseball savvy, they
might have gotten this wrong. They know
that Wrigley Field does have lights today and that it was the last major league
stadium to install them. But, were the
owners of the club mandated to install them due to this court case?
Actually, the
owners of the club were not forced to put in the lights due to a court
decision. Wrigley Field owners stated
their objection to the lights were due to concerns over the interests of the
stadium’s neighbors in the adjoining area.
Among various worries, they saw the lights inviting increased crimes in
their neighborhoods if the Cubs began hosting night games.
The court
agreed. “The Wrigley case represented a
shift from the idea that corporations should pursue only the maximization of
shareholder value, as had been held in the Ford Motor Company case.”[5] Therefore, William Wrigley Jr.’s decision to
ban the lights held. So, what happened? Wrigley Field has lights today. In short, Wrigley sold the club to the
Tribune Company in 1981; that new ownership wanted lights; and, after a long
battle with the neighbors, had the lights installed. But all that wrangling does not diminish the
effect of the court’s decision.
Burwell v. Hobby Lobby – Here is a summary:
In a 5-4 decision in favor of Hobby
Lobby, the [US] Supreme Court ruled that some corporations (those that are closely
held by a few shareholders) can object on ethical, moral, or religious
grounds to the Affordable Care Act’s rule that health insurance policies must
cover various forms of contraception; such companies can elect not to offer
such coverage.[6]
As in the Wrigley decision, Justice Alito’s opinion
stated that corporate decisions in cases, where there are a few shareholders,
can decide to follow corporate policy that does not maximize profits. It should be pointed out, in this case,
corporate policy was not questioned by shareholders, but by employees. Also, the opinion was roundly criticized by
advocates that usually argue for limiting profit-sharing policies that bolster
social or employee goals or interests.
Here, these same advocates argued for profit maximization.
In the next posting, this blog will
make general comments on this issue concerning shareholder vs. social/employee interest
decisions by corporations. The above
decisions indicate that corporate ethics can be a muddy area of interests that
often does not elicit clear and consistent argumentation and, therefore, before
ending this posting, a few contextual points are made.
While the Hobby Lobby decision deals
with particular corporate arrangements, that of a corporation with few
shareholders, it does bolster a legal status for corporations; that is of a
virtual “person.” When so defined, a
corporation can claim rights as, it is the case, the Constitution grants
rights to “persons.” As such, this
decision does not advance federalist values but natural rights values.
To quote the BC Campus
article:
The Hobby Lobby case can be
interpreted to mean the people who control corporations … may act on their own
values in a way that might well be inconsistent with the interests of employees
and other minority shareholders. [Alito
writes] “A corporation is simply a form of organization used by human beings to
achieve desired ends. When rights,
whether constitutional or statutory, are extended to corporations, the purpose
is to protect the rights of these people.”[7]
If read closely, while the corporation adopts a federalist
structure, it ignores federalist processes.
Given the above language, Alito seems to be stating, this self-interested
arrangement – of the controlling shareholders – can act as selfishly as it wishes. Personhood doctrine, as described by this
decision, bolsters a self-centered view.
The second
contextual point to make is more friendly to federalist values. That is, if Hobby Lobby can set policy that
in effect affects profits – by placing a social concern above profit
considerations – does this decision not open the door for other decisions that
strive to further other socially defined benefits? One can hear some future case attorneys
arguing in this vein.
The last
contextual point to be made can be too legalistic for the purposes here. That is, corporate laws, by-and-large, are
state laws. As such, corporate laws vary
greatly across the country. Many of
those laws have to do with shareholder statuses in terms of such concerns as
voting rights, buyout arrangements, minority interests, etc. This is getting into the “weeds” and can be
important under the parameters of a given court case, but mere mention of these
factors will do for this review.
[1] “Business Ethics:
Corporate Law and Corporate Responsibility,” BC Campus, n. d.,
accessed August 19, 2019, https://opentextbc.ca/businessethicsopenstax/chapter/corporate-law-and-corporate-responsibility/ AND Robert Gutierrez, “Corporations As Good
Citizens,” Gravitas: A Voice for Civics,
August 20, 2019, https://gravitascivics.blogspot.com/2019/08/corporations-as-good-citizens.html .
[2] “Business Ethics:
Corporate Law and Corporate Responsibility,” BC Campus.
[3] Ibid.
[4] Before the reader jumps to the notion that such
corporate behavior just demonstrated the already dominant position of natural
rights, one needs to remember that such behavior led to the complicated
reaction by the political culture, the progressive movement that questioned natural
rights policies and rationales.
[5] “Business Ethics:
Corporate Law and Corporate Responsibility,” BC Campus.
[6] Ibid. (emphasis added).
[7] Ibid.
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