FROM CARS TO LIGHTS TO HOBBIES

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.

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[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.

CORPORATIONS AS GOOD CITIZENS

If the US is a federated union, shouldn’t its entities – its individuals, organizations, associations, corporations – be arranged and directed to further the common good?  According to Danial J. Elazar,[1] federalism has its processes and those, in turn, call on behaviors and protocols that place the common good above private or individual interests. 

Yes, entities can pursue private or individual ambitions; unlike socialism, federalism identifies individual or private motivations as essential to economic growth, but those interests should, at least, not be antagonistic to the common welfare.  Belief in this view, a view that offers an ideal, was the dominant view among Americans in terms of governance and politics up till World War II.  Since then, another view has taken dominance.  That is the natural rights construct.  This blog has repeatedly made and has described this dynamic.  It has offered evidence to its veracity.  This posting offers some more.

          Before sharing that evidence, a point needs to be made:  such a change – from federalism to natural rights – does not happen overnight.  It usually, at least, takes decades.  Past postings have listed historical developments during US history that have led to this shift in American thinking and feeling. 

Some of those developments include the Western expansion, the corporatism of government structures and processes, and modern technology like TV and the computer.  Generally, those series of events have shifted government viability away from local governance and have heightened individualism, leading to harmful effects on federalist perspectives, structures, and plausibility. 

Also, the rightful rejection among many Americans to earlier biases of federalism, under its more parochial / traditional form, has proven to be harmful to any form of federalist sensibilities.  This latter shift, it has been argued in this blog, was needed to purify American federalism away from unjustly depriving all Americans, such as African Americans or a recently arrived immigrant group, from full membership in the nation’s federation.  Such policies diluted or stifled senses of partnership among citizens that is central to federalism.

But to give parochial / traditional federalism its due, it did introduce the basic concept of a nation being formed by an agreement – a compact.  That agreement was formed by its peoples’ representatives – the peoples of the various states – coming together and ironing out the US Constitution.  That compact identified important goals in its preamble and those who signed it, in the nation’s name, committed the nation to achieving those goals.  Essentially, that format, that process, and those goals were set to form a republican arrangement – a grand partnership.

The claim here is that by so doing, the extension of that partnership to include the deprived or cheated populations was baked into the formula of such an agreement. Yes, it called for sacrifice, like a bloody civil war, but the march was initiated and continues till today.  The old adage comes to mind:  “two steps forward, one step back,” but always towards inclusion.

And with that context, this posting wishes to describe one of those developments that steered Americans away from this ideal view of the nation:  away from partnership and toward radical individualism – but then, from time to time, reels it back.  This forth and back is seldom balanced.  Instead, it is often awkward, aggravating, and even disheartening.  But as one looks back, Americans can see real, meaningful progress.

This blog has hinted at this development.  Earlier on, in describing how American tort law shifted in the nineteenth century away from strict liability toward negligent liability, the courts, in opinion of some legal scholars, pushed the nation to an individualist perspective to protect the interests of corporations.  Probably the business interests most affected was the railroads.[2] 

Under strict liability, every time a train ran into someone or its engines, due to some spark, caused a fire or some movement of a train car caused an injury, strict liability set up the railroad companies to be subject to costly suits.  Relying on negligence as a necessary pre-condition for a railroad to be held liable, saved those companies millions of 1800s dollars.  Hence, negligent liability became the standard to protect those business interests.

But that shift did not end in the nineteenth century.  There have been certain court decisions in the twentieth and twenty-first centuries that continued this trend.  As a matter fact, those more recent decisions have addressed more directly what are the responsibilities of corporations to uphold the common good.  Identified as corporate ethics, this has become a scholarly subject of interest and various analyses have investigated what exactly are the responsibilities of corporations and to whom are they owed.

When one looks at specific related factors, this question becomes complex.  One can find in one case a party supporting corporate heads being given leeway as to their funding decisions – decisions that does not place shareholders’ profits as prominent – and those same parties feeling with another set of factors, that they should not have leeway.  Three cases provide varied factors that demonstrate these inconsistencies.  The cases are Dodge v. Ford Motor Company (1919), Shlensky v. Wrigley (1968), and Burwell v. Hobby Lobby (2014).[3]

This posting limits its presentation to providing the basic facts of each of these cases.  The next posting will review the significance of each in determining how much a corporation can veer away from bolstering shareholder profits in its management decisions.  Running through these cases are two concerns:  corporate social responsibility and business judgement rule.  The reader is encouraged to think of these cases and see if he/she can “predict” how and why the courts decided each.

Most people have heard the story in their American history classes of how the founder of the Ford Motor Company, Henry Ford, favored providing good salaries to his company’s workers so that they could turn around and buy Ford cars – or so the story goes.  Apparently, Ford did have a concern not only for his employees’ wages, but for other social activities that would benefit the public as well as the workers at his plants. 

To fund those activities, he decided to purposely use the company’s revenues toward those more socially defined goals.  In turn, those funds were diverted from dividend payments that would have gone to shareholders.  Some of the expenditures did go to improving production facilities, improving the quality of Ford vehicles, and for expanding production facilities.  This last factor exemplifies how some of the issues involved can be quite complex; are some of these expenditures just those involved with running automobile plants? 

In any event, the shareholders sued the company.  Through their court action, they sought higher dividends; that is, that profits should be the prominent concern of a corporation especially when compared to socially defined expenditures to improve society.  But also, such a priority should be maintained when management compares the interests of shareholders against those of workers.

Another factor is that Mr. Ford’s decisions on these expenditures was very uncommon; most corporations in the early twentieth century would routinely attempt to raise dividends – or at least be able to report higher profits – to attract more investment that was essential for expansion.  One should remember, this case sprang up during the nation’s industrialization period when a lot of investment was being made.

To top off their argument, the shareholders claimed in court that what Ford was doing in expending revenues on worker pay and other “social expenditures” were not proper and were illegal.  In their decision, the court not only set a precedent concerning shareholders’ rights, but also made an influential decision concerning how a corporation should be run vis-à-vis the freedom management should have in making business decisions.

In the Wrigley case, the question before the court looked at this sense of responsibility from a different angle.  The Wrigley Company (of gum fame) owned the Chicago Cubs baseball team and the stadium in which the team played its home games.  By the late sixties, every major league team and just about every field upon which baseball was played had lights so that teams could play at night.  But that did not include Wrigley Field – the home of the Cubs.

A group of shareholders wanted the team to start hosting night games to enjoy anticipated, increased revenues.  Of course, that called for appropriate lights and their mounting structures to be installed at Wrigley Field.  But ownership, responding to the wishes of the surrounding neighborhoods and their fears lights would lead to noisy nights and increased crimes, refused to install the lights.  The question is:  should the courts, in effect, necessitate the instillation of those lights?

And the final case reviewed here is Burwell v. Hobby Lobby.  In that case, the owners of the retail chain – a relatively small group of businesspeople – wanted to abide by their religious beliefs and refused to provide that portion of the Affordable Care Act that covered various types of contraception.  Women workers sued the company for this coverage as the act provided.

The next posting will share with the readers how each of these cases was decided and how their precedents affected corporate responsibilities regarding societal welfare.  But one lesson one can draw just from the information already given is that not everyone defines societal welfare in the same way. 

Ford saw it in its more commonsensical way – society seeking improvements to the secularly defined benefits of selected or identified individuals or constituents.  Wrigley defined it in terms of being a good neighbor.  And 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. 

For one thing, when this question occurs to most people, one assumes that question revolves on how some civic group believes a corporation can and should be a better “citizen,” but in each of these cases, it is management that is attempting to serve its view of the common good.  But federation theory – in its liberated form – does provide a nuanced but directed sense of what societal welfare means.

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[1] Daniel J. Elazar, Exploring Federalism (Tuscaloosa, AL:  The University of Alabama Press, 1987).

[2] Edward K. Cheng, “Torts,” Law School for Everyone – a transcript book (Chantilly, VA:  The Teaching Company/The Great Courses, 2017) AND Robert Gutierrez, “Saving Huge Costs?”, Gravitas:  A Voice for Civics, September 21, 2018, accessed August 19, 2019, https://gravitascivics.blogspot.com/2018/09/saving-huge-costs.html .

[3] “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/ .