U.S. company religion case on Obamacare may shake shareholder faith

By Reuters Staff
March 21, 2014

(News microphones wait to capture reactions from U.S. Supreme Court rulings outside the court building in Washington, June 25, 2013. REUTERS/Jonathan Ernst )

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Reynolds Holding

The U.S. Supreme Court may be getting ready to shake the faith of shareholders. Company boards have a legal duty to put business interests first. Yet a challenge to the Affordable Care Act’s requirement that corporate healthcare insurance cover contraception could give biblical doctrine priority. Some laws designed to protect investors could suffer collateral damage.

The case raises the novel issue of whether for-profit corporations have religious rights under the U.S. Constitution and other federal laws. Arts and crafts chain Hobby Lobby and Conestoga Wood, a cabinet maker, say their owners’ beliefs excuse the companies from including birth control coverage in employee health plans.

Amidst the broader debate, one question is whether the firms’ boards can legally make this argument. State laws generally require company directors to enhance profit and shareholder value. They have leeway to make charitable donations, tout ideological positions and promote social objectives that have at least some business purpose. That’s why Apple AAPL.O Chief Executive Tim Cook could dismiss critics of the company’s renewable energy policies without fearing lawsuits.

But Hobby Lobby and Conestoga may have gone too far, suggests Mark Underberg in a recent Harvard Law School blog post. The pursuit of faith-based policies devoid of any business benefits could leave the companies open to substantial legal fees and penalties and board members vulnerable to lawsuits.

Other boards have paid for favoring personal views. In 2010, for example, a Delaware court struck down a Craigslist poison pill that was intended to preserve the directors’ hazy notion of corporate culture rather than promote shareholder value.

Hobby Lobby and Conestoga are family-owned companies whose stockholders and board members share religious beliefs. That may help directors avoid litigation, but it doesn’t relieve them of their obligations to act independently in the corporations’ best interests. Companies that want to give social objectives priority can do so as so-called benefit corporations or B Corps, an alternative legal form offered in at least 17 states and the District of Columbia.

The Supreme Court will probably not address these issues directly, but a decision in the companies’ favor would implicitly bless unprecedented board discretion. Investors expecting directors to be guided by shareholder value rather than divine inspiration could be the losers.

CONTEXT NEWS

  • The U.S. Supreme Court on March 25 will hear arguments in a faith-based challenge to the requirement under the Affordable Care Act that companies include contraceptive coverage in their employee health plans.
  • The lawsuits filed by arts and crafts store Hobby Lobby, controlled by evangelical Christians, and cabinet manufacturer Conestoga Wood, owned by Mennonites, argue that the Obamacare mandate violates their right to religious freedom under the U.S. Constitution and the Religious Freedom Restoration Act.
  • Underberg post: http://link.reuters.com/rab77v
  • Reuters: U.S. top court case highlights unsettled science in contraception (Full Story)
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