Go to Top

Ancient Corporate History Yields A Modern Question

When the Bishop of Vasteras acquired a 12.5 percent share of Stora Kopparberg - Sweden’s “Great Copper Mountain” - in 1288, he probably thought he was just making an investment. I doubt he believed he was surrendering any of his religious freedoms.

Of course, that may be because the concept of religious freedom scarcely existed until it emerged here in North America, hundreds of years later. It is interesting to note that corporations and similar associations have been around much longer. They date at least back to the Roman Empire, according to the late legal scholar Harold J. Berman. Corporations allow an enterprise to continue across generations, even across centuries. Copper was mined at Stora Kopparberg for approximately 1,000 years, up until the 1990s.

Yet for all this history, we still debate some fundamental questions about what happens when we form a corporation. Do we gain rights, or lose them, or both, or neither? Does the corporation, which by definition has a legal existence independent of that of its owners or members, have rights of its own?

This is precisely what the Supreme Court will consider in two cases it has agreed to hear during the current term, which will end in June.

The first case, Sebelius v. Hobby Lobby Stores, is a government action, while Conestoga Wood Specialties Corp. v. Sebelius is a private business case. Both grow out of the Affordable Care Act’s requirement that employers provide health insurance that includes birth control and related medical services. The justices are not being asked to strike down this requirement outright; rather, the cases test whether profit-making companies can be exempt from this requirement when it conflicts with the owners’ religious beliefs. (Nonprofit religious institutions are already exempt.)

Corporations and other business entities, such as limited liability companies and partnerships, are demonstrably not people in the conventional, non-legal sense. That is why they are not citizens and why they do not vote. But business entities do act as proxies for their owners, who are all card-carrying members of the Homo sapiens club. I know of no businesses that are owned by Martians. Mitt Romney made this point in his much-quoted remark, “Corporations are people, my friend,” on the presidential campaign trail last year.

Corporations were invented for two pressing reasons. The first is so an enterprise does not, by default, end immediately when its owner dies. It would be enormously disruptive to employees, customers, landlords and vendors if every business abruptly ceased to exist when a particular human life ends. Corporations were historically given the legal status of a “person” only in the sense that they could continue a business over the course of the entity’s “life,” which has the potential to go on for much longer than a human being’s.

The second reason to have corporations and other business structures is to protect the owners’ non-business assets from the business’ debts and obligations. If individuals risked personal bankruptcy every time they invested in a business, the modern stock market could not exist and the Industrial Revolution could never have happened.

It is in society’s best interest to support these features of corporations and private business entities. Business owners do not, and should not, sacrifice their personal rights and liberties merely because they choose to conduct their affairs through one of these structures. We don’t give up our free speech rights when we incorporate, as the Supreme Court rightly held in its Citizens United decision. Nor do we surrender our religious liberties. These rights are enshrined in the First Amendment, as the first order of business in the Bill of Rights. The founders might have written “except for corporations” into the Constitution, but they did not.

Once the high court sorts out these initial issues, the question that will be left is whether mandating that birth control coverage be part of health insurance funded by businesses impermissibly burdens the religious rights of business owners who believe that birth control is morally wrong.

The two cases the Supreme Court will hear raise this question in slightly different contexts. The first is whether corporations can file suit under the Religious Freedom Restoration Act, a federal law passed in 1993 designed to make it easier for individuals to sue when government action restricts their religious rights. The second is whether corporations can make constitutional claims regarding religious freedom under the First Amendment.

If the Court holds that business entities can sue under the Religious Freedom Restoration Act, which is at issue in the Hobby Lobby case, the decision will effectively rule on whether or not a business qualifies as a person under that law. The statute adopts the stance that the courts usually apply when government actions might abridge constitutionally protected liberties: that there must be a compelling government interest in requiring the desired behavior, and that the law must choose the least-restrictive means of addressing that interest.

The liberties at issue are not always religious. Such principles apply when the government requires warnings on cigarettes or pharmaceutical products, or nutritional labeling on food items. These requirements compel speech that the products’ makers might prefer not to make, but that speech serves a compelling interest in protecting public health and safety. Even if you argue that providing birth control is a compelling interest, which is not a universally accepted position, it is not at all clear that the Affordable Care Act’s requirement is the least intrusive way to pursue such an interest.

Similarly, the Affordable Care Act’s mandate that most businesses provide health insurance to workers would survive a direct First Amendment challenge for this reason. (The Supreme Court last week declined to take up a case on this very point, which leaves the employer health insurance mandate intact for now.) So would a challenge to a minimum wage law.

But is there a compelling interest in requiring employer-funded health care programs to cover birth control? The Conestoga Wood Specialties case will tackle this issue from the perspective of the First Amendment, rather than under the 1993 federal statute. The Court plans to hear both cases together, with an hour of argument shared between the two.

Birth control products are inexpensive and readily available. Megan McArdle, a columnist at Bloomberg, pointed out that generic birth-control pills run about $25 a month through Costco’s pharmacy, and about double that for a brand name. A year’s supply would cost far less than the deductible already built into most health insurance plans. If the government wants to make sure that family planning products are available to all who want them, it could freely distribute such products directly. What is the compelling interest in forcing an employer who cites religious objections to provide a plan that covers these products to his or her workers?

The Supreme Court probably took this case because it is uncomfortable with where the lower courts have ended up so far in resolving this question. In the Hobby Lobby case, three federal appeals courts have ruled in favor of the business, while two have ruled against.

My guess is that the birth control mandate will be curtailed or struck down when the court decides the issue next year. The debate over whether corporations are people or whether they have rights is ultimately just semantics. Corporations are owned by people, and people have rights. The corporation is just a useful vehicle through which to exercise them.

That ancient Swedish bishop gained the right to profit from a copper mine when he acquired his Stora shares. He had no reason to think he surrendered any of his other rights. Neither do we.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

This post is also available in: Portuguese Spanish

Related Posts

The views expressed in this post are solely those of the author. We welcome additional perspectives in our comments section as long as they are on topic, civil in tone and signed with the writer's full name. All comments will be reviewed by our moderator prior to publication.

, , , , , ,