A Job is Not a Hobby: The Judicial Revival of Corporate Paternalism

Leo Strine, Chief Justice of the Delaware Supreme Court, and the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, delivered the Alan B. Levenson Keynote speech to the 42nd Annual Securities Regulation Institute of Northwestern University School of Law and an address to the American Constitution Society Student Chapter at Harvard Law School based on an article he recently posted to SSRN here.

This article connects the Supreme Court’s decision in Burwell v. Hobby Lobby to the history of “corporate paternalism.” It details the history of employer efforts to restrict the freedom of employees, and legislative attempts to ensure worker freedom. It also highlights the role of employment in healthcare coverage, and situates the Affordable Care Act’s “minimum essential guarantees” in a historical and global context.

The article also discusses how Hobby Lobby combines with the Supreme Court’s earlier decisions in Citizens United and National Federation of Independent Business v. Sebelius to constrain the government’s ability to extend the social safety net, and shows how those decisions put pressure on corporate law itself. If Citizens United and Hobby Lobby are correct and the corporation has a multi-constituency focus, why are its religious and political values determined by reference to the equity owners and who they elect? Why not others: e.g., employees, customers, the communities in which the company operates, or creditors? The tradition, at least in Delaware, has been that directors must make the best interests of stockholders their end, within the bounds of law. This is not to say that other constituencies cannot be considered, but only as means to the end of stockholder welfare. But when the Court concludes that corporate funds can advance religious or political objectives unrelated to stockholder profit, it weakens the arguments of those who would have corporate law operate on a basis where stockholder welfare is the only legitimate goal. If corporate managers have the ability to use their control of the corporation for religious and ideological purposes, corporate law itself may have to change. Finally, and of critical importance, because Citizens United enables corporations to inhibit the ability of government to regulate corporate externalities and expand the social safety net, the argument that internal corporate law constraints are not needed is weakened.