Theorizing the Firm: Organizational Ontology in the Supreme Court

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Legal Studies and Business Ethics Papers
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Orts, Eric W

In two leading cases in the last several years, the U.S. Supreme Court revitalized interest in questions of “legal personality,” specifically with respect to business firms. Some legal theorists believe that the realist tradition, culminating in a seminal article by the philosopher John Dewey, disposed of the need to inquire very deeply into the “nature” of organizations, notwithstanding their legal attributes as “persons”—including various rights and duties, not least the ability to be represented in litigation.2 Writing during the legal realist period in American jurisprudence, Dewey believed that questions of legal personality should turn not on any inquiry “regarding the nature of things” (such as corporations) but rather on an examination “in terms of consequences” (such as determining what it would mean practically to recognize corporations as having rights or duties in particular circumstances). Given that the law designates organizations, such as corporations and other business firms, as having various attributes, including rights and duties, it then follows from Dewey’s pragmatic approach that the idea of a legal person “signifies what law makes it signify.”4 He advocates for an analysis based on the likely social consequences of recognizing one feature or another of an organization, such as a business corporation, and he declares that nothing much turns of the use of “person” in this context.5 For example, a “rightand-duty bearing unit” would be an adequate, though perhaps awkward, synonym for an organizational “person. As Gregory Mark has rightly observed, the realist critique of the legal personality of corporations and other business firms freed modern jurisprudence from long-standing debates among competing theories (e.g., firms as “real entities” or “fictions”), but it did so at a cost. The realists—and the contemporary scholars following them— “robbed corporation theory of its larger intellectual content” and “failed to replace the rhetorical tradition of personification because it had nothing to replace it with.”7 Citizens United v. Federal Election Commission8 and Burwell v. Hobby Lobby Stores, Inc.9 are two recent and iconic cases in which the U.S. Supreme Court follows in the realist tradition of leaving theories of the firm underpinning its decisions relatively unspoken and unexamined. As I argue in this Article, the opinions in these cases tend to follow pragmatic arguments to reach opposing points of view concerning whether business corporations should be permitted to hold and assert certain kinds of legal “rights” as organizational persons.10 Citizens United addresses the scope of the ability of corporations to assert political rights and claim the protection of freedom of speech under the First Amendment against campaign finance restrictions.11 Hobby Lobby concerns the question of whether business corporations can assert religious rights to claim exemptions from otherwise generally applicable laws regarding health care insurance coverage for certain methods of contraception. My main argument here is that in both cases—which may illustrate a more general contemporary analytical bias—the Supreme Court has undertheorized the nature of business firms and, therefore, missed some important implications that would have helped to clarify the legal analysis if not change the eventual results. Closer attention to a legal theory of the firm reveals the complexity surrounding the contemporary structures of business organizations and their interactions with other major institutions in modern society. A better appreciation of the theoretical canvas on which the Court is painting would help to guide, or at least better understand, future decisions that will inevitably follow in the areas of institutional crossover between the worlds of business and government (as in Citizens United) and business and religion (as in Hobby Lobby). Although Dewey was correct to point out that the legal personality of firms is highly flexible and variable, he emphasized that corporations and other organizational persons were created by law as “concrete facts and relations.”13 Recent philosophical works by John Searle, Philip Pettit, and others also suggest that the law contributes to the construction of a “social ontology,” which includes a world populated by various kinds of organizational persons.14 I suggest that it is useful—indeed “realistic” in the deepest sense of the word—to revisit the legal and social ontology of business firms. Better understanding what these business firms are in terms of their legal and social construction will put the Supreme Court, as well as legislators and other policy makers, in a better position to make decisions concerning them, rather than taking a view that organizational ontology doesn’t matter.15 To ignore organizational ontology is actually to adopt one or another ontological view unconsciously, ignorantly, or manipulatively. This Article proceeds as follows. Part II provides a brief philosophical account of a legal and social ontology of business firms, drawing in particular on arguments by Dewey. The main argument is to recognize that social constructions of “business persons” exist and have a legal ontology by which they can be described and understood.16 Some amendments and extensions of Dewey’s views are suggested in light of Searle’s, Pettit’s, and others’ recent scholarship in what has been called “social metaphysics.”1 Part III then reexamines the opinions in Citizens United and Hobby Lobby. I show how the majority and the principal dissenting opinions in these cases tend to undertheorize the legal nature of the firm and why this failure of theory matters.18 In particular, I suggest that the results in both cases might be called into question with a more robust theoretical grounding based on conceptions of the legal structure of business firms and their role in modern society. Closer attention to “the concrete facts and relations” that underlie the construction and existence of organizations such as business firms allows for a clearer view of legal and policy alternatives available for their governance.

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DePaul Law Review
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