Corporations: Still Not People

Watching big companies abandoning corporate citizenship shows the flaw in the Supreme Court's Hobby Lobby decision.
Reuters

Citizens United, Hobby Lobby, Walgreens, Medtronic, Stephen Schwarzman. If Ed McMahon had used these five as a setup for Johnny Carson's Carnac the Magnificent, Carson would have had a great punch line. Unfortunately, my punch line is not funny. I will get to it in a bit.

Monday's Hobby Lobby decision has understandably gotten a huge amount of attention, with its impact on women and its implications for religious freedom. I believe the most dangerous part of Samuel Alito's decision had to do with his definition of a for-profit corporation, and not just closely held ones. "A corporation is simply a form of organization used by human beings to achieve desired ends," he wrote. "When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people."

He added, "Some lower court judges have suggested that RFRA [the Religious Freedom Restoration Act] does not protect for-profit corporations because the purpose of such corporations is simply to make money. This argument flies in the face of modern corporate law .... While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives."

Alito's stirring defense of corporations, of course, builds on that applied by Justice Anthony Kennedy in Citizens United, which was itself amplified by a paean to corporations delivered in a separate opinion and partial dissent by Justice Antonin Scalia—in which he asserted, remarkably, how much the Founding Fathers (other than Thomas Jefferson) loved corporations. In both cases, a corporate charter—the idea that these are separate, artificial entities created for narrow and specific purposes—is ignored, dismissed, or downplayed in the desire to equate corporations with individuals in granting rights. To Alito, corporations are collections of individuals, and deserve all the protections the individuals in the collective have. Of course, missing from his collective are the employees of the corporation.

Here is the textbook legal definition of a corporation: an association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those of its members.

Why are for-profit corporations set up? The characterization tells us: to make profits. And the corporate charter has multiple benefits that go way beyond those of individuals. There are major tax benefits unavailable to individuals. There are stringent legal protections from liability unavailable to individuals.

For decades, the Supreme Court recognized that reality, and put limits on the ability of for-profit corporations to overwhelm or disproportionately influence elections. Kennedy blew that history apart in Citizens United, and Alito amplified it in Hobby Lobby. When Alito writes about humanitarian and other altruistic objectives, the fact is that for-profit corporations with shareholders justify charitable giving and other altruism to their shareholders as actions that are good for them in their goal of maximizing profits.

Alito tried to make a deep distinction for closely held corporations; reading his decision, one might think that these are mom-and-pop operations, small family businesses. Of course, as many observers have pointed out, Cargill, Mars, Koch Industries, and other closely held corporations have tens of thousands of employees (in Cargill's case, 133,000) and many billions in business and profit. Hobby Lobby is a huge business. Give the Hobby Lobby owners' family credit for their deep religious convictions. But if profit-making were truly subordinated to those convictions, which are strongly in opposition to abortion rights, Hobby Lobby would provide paid maternity leave for employees who shun contraception and abortion to have babies. It doesn't.

But for the majority on the Roberts Court, through a series of rulings that favor corporations over labor or other interests, it is clear that corporations are king, superior to individual Americans—with all the special treatment in taxes and protection from legal liability that are unavailable to us individuals, and now all the extra benefits that come with individual citizenship. Call it the new Crony Capitalism.

What has that got to do with Walgreen and Medtronic? Both are giant for-profit American corporations maneuvering to buy European companies to free themselves from U.S. taxes by moving their headquarters abroad. Walgreen is considering merging with Alliance Boots, a drugstore chain in Europe and moving its base from Illinois to Switzerland; Medtronic is buying competitor Covidien and moving its home from Minneapolis to Ireland. As Steve Pearlstein wrote in The Washington Post about Medtronic, addressing the Medtronic CEO:

The tax-avoidance scheme you have chosen is known as an 'inversion.' It involves buying a competitor, Covidien, for a premium price of $43 billion and then taking its legal headquarters in Dublin as your own. In reality, Covidien is no more Irish than Medtronic. The majority of the sales, employees, and profits (properly calculated) of both companies are still in the United States. The only reason Covidien has its legal address in Ireland is that its previous home, Bermuda, was so transparent a tax dodge that better cover was needed when the company was spun off from Tyco International in 2007.

In The New York Times, Andrew Ross Sorkin writes the Walgreen story in a piece titled "At Walgreen, Renouncing Corporate Citizenship." He notes that when Walgreen's CEO sought tax breaks from Illinois a couple of years ago, he said, "We are proud of our Illinois heritage." He got the tax breaks, and now is breaking for Switzerland. Sorkin notes that Walgreen and its subsidiary Duane Reade get almost a quarter of their $72 billion in revenue from the U.S. government—$16.7 billion from Medicare and Medicaid last year. Of course, Walgreen and Medtronic are not alone; many companies are using inversions and more will jump on the bandwagon before long.

Presented by

Norm Ornstein is a contributing writer for The Atlantic, a contributing editor and columnist for National Journal, and a resident scholar at the American Enterprise Institute for Public Policy Research. More

Ornstein served as codirector of the AEI-Brookings Election Reform Project and participates in AEI's Election Watch series. He also serves as a senior counselor to the Continuity of Government Commission. Ornstein led a working group of scholars and practitioners that helped shape the law, known as McCain-Feingold, that reformed the campaign financing system. He was elected as a fellow of the American Academy of Arts and Sciences in 2004. His many books include The Permanent Campaign and Its Future; The Broken Branch: How Congress Is Failing America and How to Get It Back on Track, with Thomas E. Mann; and, most recently the New York Times bestseller, It's Even Worse Than It Looks: How the American Constitutional System Collided With the New Politics of Extremism, also with Tom Mann.

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