Monday, September 1, 2014


Even Binding on the GAO 

Various media outlets are reporting that the Obama Administration violated federal law when it swapped five Taliban prisoners for Army sergeant Bowe Bergdahl, whom the Taliban had held captive for five years.  (See here and here, for instance.) These stories uniformly cite a report by the non-partisan General Accounting Office, an arm of Congress, prepared at the request of the several U.S. Senators. This report asserts that the swap violated two different statutes. First, the report concludes that the swap violated the National Defense Authorization Act for 2014, which provides that the President must notify Congress 30 days in advance before releasing any prisoner from Guantanamo Bay. Second, the report concludes that the expenditure of money necessary to effectuate the transfer violated the "Antideficiency Act," which prohibits the expenditure of funds that exceeds Congressional authorization.

The GAO report is incomplete to say the least.  Federal law includes more than just statutes duly enacted by Congress.  The paramount Federal law is the U.S. Constitution, which declares itself the supreme law of the land.  Article II of the Constitution vests the Executive power in the President and also provides that the President is "Commander-in-Chief of the Army and Navy of the United States." As previously explained on this blog, this provision grants the President power over what Joseph Story called "the direction of war" once Congress has initiated such hostilities.  Congress has authorized hostilities against individuals and organizations that planned and perpetrated the 9-11 attacks, included those, like the Taliban, who aided and/or harbored the perpetrators.  (See here, elaborating on the September 18, 2001 "Authorization to Use Military Force"). Having authorized the use of military force against our enemies, Congress cannot interfere with the President's exercise of the powers as Commander-in-Chief, any more than Congress can interfere with the President's authority to nominate a judge once it has created the judgeship by statute.

There is a strong argument that the detention and release of prisoners falls squarely within what Story called "the direction of war."  The conduct of military operations often results in the capture and subsequent detention, sometimes for the duration of the conflict, of those who surrender.  Direction of battlefield operations requires continuous decision making about whether to detain such prisoners, how and whether to collect intelligence from such prisoners, and which prisoners to release and when.  Such decisions are bound up with other tactical decisions, such as whether to conduct raids to capture additional prisoners, whether to enter temporary truces during which wounded prisoners are exchanged, and whether to release prisoners for the purpose of planting false intelligence with the enemy. The detention and treatment of prisoners can have strategic implications as well; an enemy might decline to surrender unless it receives adequate assurances that its captured soldiers will be released in a timely fashion.  Finally, successful negotiations with adversaries, again pursuant to the President's Article II powers, often depends upon preventing leaks so as to ensure the utmost secrecy.   Requiring the President always to notify Congress 30 days before releasing one or more such prisoners could in some cases unconstitutionally infringe on Article II of the Constitution.

If in fact the detention and release of prisoners falls within the President's authority to "direct war" and negotiate with adversaries, then President Obama was free to ignore, as unconstitutional, legislative constraints on the exercise of that power. In the same way, for instance, President George W. Bush was free to ignore legislation that purported to require the military to obtain a judicial warrant before gathering military intelligence from phone conversations between Americans and suspected members of Al Qaeda located in other countries. Presidents, like courts, are duty-bound to decline to enforce legislation they believe to be unconstitutional, regardless of whether courts have agreed or will agree with the President. (See here). Indeed, when he signed the National Defense Authorization Act for 2014, President Obama issued a signing statement contending that the notification requirement could in some cases infringe upon the President's Article II authority by depriving the President of the "flexibility, among other things, to act swiftly in conducting negotiations with foreign countries regarding the circumstances of detainee transfers."  As previously explained on this blog, such statements are an entirely legitimate means by which the President may publicly contest legislation he or she believes to be unconstitutional.

The GAO report did not examine whether the statutory provisions it invoked infringed upon Article II of the Constitution.   Instead, the report reiterated the GAO's apparent practice of declining to opine on the constitutionality of duly enacted statutes.  The GAO also asserted that statutes passed by Congress and signed by the President are "entitled to a heavy presumption of in favor of constitutionality."

GAO's failure to consider the constitutional dimensions of the question was unfortunate and weakens the persuasiveness of the report's conclusion that the Administration "broke the law," given that unconstitutional statutes are not "law" in the first place. Moreover, the report's invocation of a presumption of constitutionality is misplaced. Such a presumption might make sense in the judicial context, when judges evaluate the constitutionality of legislation passed by Congress and defended in court by the President.  Where, however, Congress and a sitting President disagree about the constitutionality of legislation that purports to constrain the President, the application of such a presumption is unwarranted.  As Justice Scalia once explained, in such cases there is simply  no rationale for according the constitutional views of one branch of government greater deference than those of the other. See Morrison v. Olson, 487 U.S. 687, 704-705  (Scalia, J. dissenting).  As James Madison explained in Federalist 49: "The several departments being perfectly co-ordinate by the terms of their common commission, neither of them, it is evident, can pretend to an exclusive or superior right of settling the boundaries between their respective powers." (quoted in id.)  Thus, "[a]s one of the interested and coordinate parties to the underlying constitutional dispute, Congress, no more than the President, is entitled to the benefit of the doubt."  Morrison, 487 U.S. at 705 (Scalia, J. dissenting).    By ignoring James Madison and Justice Scalia and invoking this misplaced "heavy presumption," the GAO avoided the sort of analysis that may have clarified and helped resolve the constitutional dispute between Congress and the President.

Hopefully GAO will discard its practice of disregarding the Constitution when opining on the legality of executive branch actions.

Monday, August 18, 2014

On The Lawless Indictment of Rick Perry



Will Beat the Rap


Commentators on both sides of the political spectrum are condemning the recent indictment of Texas Governor Rick Perry, and indictment claiming that Perry violated two different criminal statutes.  For instance, Harvard Professor Alan Dershowitz decried the indictment as unwarranted criminalization of political differences.  Moreover, writing at ThinkProgress, Ian Millhiser thoughtfully suggests that the prosecution of Perry unduly interferes with the Governor's constitutionally-conferred veto power and thus "raises serious separation of powers concerns," even if Governor Perry's actions otherwise violate Texas law.  While the legislature could constitutionally ban the Governor from threatening to use a veto as part of a scheme to solicit a bribe, Millhiser writes, there is no allegation that Perry did anything of the sort.  By contrast, he says, a law that purported to criminalize Perry's actual conduct likely "cuts too deep into the governor's veto power," contrary to the Texas Constitution that confers this power.  On the other side of the spectrum, Senator Ted Cruz has echoed Millhiser's separation of powers argument.  According to Senator Cruz:  "The Texas Constitution gives the governor the power to veto legislation, and a criminal indictment predicated on the exercise of his constitutional authority is, on its face, highly suspect."    

Dershowitz, Millhiser and Senator Cruz are right to question the indictment on the grounds they invoke.  There is, however, a more mundane reason that this prosecution should end.   Simply put, the Governor's conduct did not violate either statute that the indictment invokes.  Thus, continued pursuit of this prosecution contradicts a fundamental attribute of the Rule of Law, namely, that the State may only exercise coercion against its citizens, including political officials, pursuant to intelligible rules announced in advance. Bending Texas law after the fact so as to render innocent conduct "criminal" violates this core principle of a free society.

The indictment alleges that Governor Perry threatened to veto an appropriation to support the Texas Public Integrity unit overseen by Travis County District Attorney Rosemary Lehmberg, who had been convicted of driving while intoxicated, unless Ms. Lehmberg resigned her position.  When Lehmberg declined to resign, Governor Perry carried out the veto threat.  (For a summary of the allegations, go here.)

The indictment claims that Governor Perry's actions violated two different criminal statutes.

The statute invoked by the first count of the indictment penalizes any public official who:

"misuses government property, services, personnel, or any other thing of value belonging to the government that has come into the the public servant's custody or possession by virtue of the public servant's office or employment."

See Texas Penal Code -- Section 39.02

The statute invoked by the second count of the indictment penalizes any official who:

"influences or attempts to influence a public servant in a specific exercise of his official power or a specific performance of his official duty or influences or attempts to influence a public servant to violate the public servant's known legal duty[.]" 

The actual and threatened veto did not violate the ordinary meaning of either statute.   Take the first count first.  The funds that the legislature attempted to appropriate were no doubt valuable. However, Governor Perry did not "possess" or have "custody" of such funds and thus could not have misused them within the ordinary meaning of the statute.   Moreover, the power to veto a bill is obviously not "property, services, [or] personnel." Thus, Governor Perry's actions can only violate this statute if the veto power is a "thing of value belonging to the government . . .[in Governor Perry's] custody or possession[.]" This interpretation seems strained to say the least.  The veto power is not a "thing."  Nor does it "come into an individual's possession or custody" any more than it can depart from such possession or custody.  Instead, the veto power is constitutionally-conferred legal authority that a governor may exercise at his or her discretion.

Basic principles of statutory construction confirm that treating the veto power as "a thing of value" would stretch the meaning of the statute too far.   The canon of statutory construction ejusdem generis teaches that a general word or phrase that follows an enumeration of two or more things applies only to persons or things of the same general kind or class specifically mentioned.  See Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts, 199 (2012).  Thus, a statute referring to an "automobile, automobile truck, automobile wagon, motor cycle or any other self-propelled vehicle not designed for running on rails" does not refer to airplanes.  See McBoyle v. United States, 283 U.S. 25, 26-27 (1931).

The term "any other thing of value" is "a catchall at the end of an enumeration of specifics" (Scalia and Garner, Reading Law, at 199). This enumeration consists of the terms "property," "services," and "personnel," terms that provide context and thus limit the meaning of "thing of value."  See id.  These three terms all refer to items that have a potential market value or use separate and apart from their public function, thus giving rise to a risk of abuse by public officials. Think, for instance, of a government-owned automobile ("property"), which an official might convert to personal use, or government employees ("personnel"), whom an official might order to paint her house on the weekend. None of these terms, by contrast, refers to the discretionary exercise of governmental authority, such as the veto power, which has no value separate and apart from official functions. Thus, application of ejusdem generis confirms that the power to veto legislation is not a "thing of value" within the meaning of the statute.

The canon noscitur a sociis --- related words bear on one another's meaning --- points in the same direction.  See generally Scalia and Garner, Reading Law, at 195.  A statute that refers to "tacks, staples, nails, brads, screws and fasteners" does not refer to fingernails ("nails") or reliable and customary food items ("staples"). See id. at 196 (employing this example).  In the same way, a statute referring to items ("property, personnel and services") that have value or use separate and apart from their governmental function does not refer to governmental powers that do not.  Indeed, the statute includes an explicit exception providing that, say, "frequent flyer miles," "hotel discounts" and "food coupons" that employees earn while conducting state business are not "things of value" within the meaning of the statute, but only for reasons of administrative convenience.  This exception is only necessary if such items are otherwise "things of value," thus further bolstering the contention that the statute is designed to prevent wrongful use of items that have value separate and apart from their public function.  

What about the second statute?  Here again the plain meaning of the statute does not prohibit Governor Perry's conduct. The Governor urged Ms. Lehmberg to resign.  While this demand was an attempt to influence Ms. Lehmberg to step down and thus vacate her office, the indictment nowhere alleges (aside from rote recitation of the statutory language) that Governor Perry sought to influence her "in a specific exercise of [her] official power," a "specific performance of [her] official duty," or any "known legal duty."  The statutory language simply does not prohibit Governor Perry's conduct.

Some readers may find the language of the statutes quoted above more ambiguous and perhaps susceptible to a strained interpretation that prohibits Governor Perry's conduct.  Others might urge the courts to interpret the statutes expansively, so as to ban conduct they believe to be improper.   However, it is a cardinal rule of statutory construction that criminal statutes are to be construed strictly, with ambiguities resolved against the prosecution and in favor of individuals. As Chief Justice John Marshall (pictured above) explained in United States v. Wiltberger, 18 U.S. 76, 95  (1820).

"The rule that penal laws are to be construed strictly is perhaps not much less old than construction itself.  It is founded on the tenderness of the law for the rights of individuals, and on the plain principle that the power of punishment is vested in the legislative, not in the Judicial Department.  It is the legislature, not the court, which is to define a crime and ordain its punishment."

Texas has long recognized this "rule of lenity" when interpreting criminal statutes.  As the Texas Court of Appeals explained in 1886:

"[B]efore a man can be punished, his case must be plainly and unmistakably within the statute, and if there be any fair doubt whether the statute embraces it, that doubt is to be resolved in favor of the accused."

Murray v. State, 21 Tex. App. 620, 633, 2 S.W. 757, 761 (1886).

Presumably the Texas courts will agree with Chief Justice Marshall and decisions such as Murray and decline the indictment's invitation to rewrite Texas law in a manner that expands criminal liability and offends the rule of the law.

Sunday, August 17, 2014

Tribe Shines in Pre-Season Polls



Blacksburg Bound! 

Football season is approaching, and once again the Tribe is nationally-ranked in several pre-season polls. For instance, the Sports Network FCS poll places the Tribe at number 19.  Athlon Sports ranks William and Mary number 15 and predicts that the Tribe will earn an at-large playoff birth. The Tribe ranks 25th in the FCS Coaches Poll. The Sporting News and Lindy's magazine have ranked the Tribe 23rd and 15th respectively.  (See here).  As usual, teams from the Colonial Athletic Association are well-represented in these national rankings. For instance, the FCS Coaches Poll includes New Hampshire, Towson, Maine, Villanova, William and Mary and Richmond in the top 25. Ditto for the Sports Network FCS poll.  

As usual, the Tribe opens on the road, this time against FBS/ACC opponent Virginia Tech, on August 30 in Blacksburg.  (For the Tribe's 2014 football schedule, complete with all time records against various opponents, go here.)  The series between the two teams dates back to 1904, and the Hokies lead the series 40-18-4.  Fans who cannot join the Griffin in Blacksburg can watch the game on ESPNews according to this story.

Go Tribe!

Wednesday, July 30, 2014

Allison Orr Larsen on Intensely Empirical Amicus Briefs and Amicus Opportunism at the Supreme Court

Recent years have seen an explosion in the number of briefs amicus curiae filed in the U.S. Supreme Court. Many such briefs make empirical claims based upon purported facts that do not appear in the record generated at the trial level.  My colleague Allison Orr Larsen has studied the role of Supreme Court fact-finding, including the Court's willingness in some cases to rely upon untested factual assertions drawn from such amicus briefs.    She offered the following observations about the role of amicus-based fact-finding (or lack thereof) as illustrated by two recent Supreme Court decisions: Hobby Lobby v. Burwell and Riley v. California.

"Over 60 amici curiae ('friends of the Court') filed briefs in the Supreme Court’s controversial Hobby Lobby case this Term.  In discussing and dismissing an argument made in one of them, Justice Alito said something that merits a pause.   One amicus brief argued, in support of the government’s position, that the penalty Hobby Lobby would have to pay for not covering its employees’ health insurance would actually be less than the cost of providing health insurance in the first place. As a result, this brief said, Hobby Lobby could avoid the challenged mandate and still be better off than it was before the ACA and its implementing regulations.  If this fact is true, it is quite significant to the Court’s analysis.  Much of Justice Alito’s reasoning for why Hobby Lobby’s religious beliefs were 'substantially burdened' by the contraception mandate depended on the 'economic consequences' that would follow if it did not comply with the law. 

Justice Alito dismissed the amicus claim, however, because, he said, 'we do not generally entertain arguments that were not raised below and are not advanced to the Court by any party.'  He added that this was particularly a bad place to credit the off the record factual assertion because the amici’s argument was 'intensely empirical' (which, as all lawyers recognize, sounds a bit like ‘there is too much math in here.’)

This descriptive statement by Justice Alito about Supreme Court practice is simply incorrect.  As I have documented before, independent judicial research – research beyond the records and outside of the party briefs – is very common at the Supreme Court.  See Larsen, Confronting Supreme Court Fact Finding, 98 Va Law Rev 1255 (2012).  In fact, Justice Alito himself was actually called out by Justice Scalia for his 'considerable independent research' on violent video games when the Court found such games protected by the First Amendment a few terms ago.   Nor have the Justices been shy about citing 'intensely empirical' amicus briefs or even their own independently-discovered empirical studies in the past on subjects as varied as economics, medicine, psychology, and even terrorism-funding practices.  In short, they do it all the time.

Amicus briefs in particular are a rich resource for the Justices to find factual support for their opinions.  As I argue in a forthcoming article, The Trouble with Amicus Facts, the Court is now inundated with eleventh-hour, untested, advocacy-motivated claims of factual expertise.  And, contrary to Justice Alito’s claim, the Justices are listening.  In fact one does not have to look far back in time for a ready example.  Mere days before the Hobby Lobby decision, a unanimous Court held in Riley v. California that the police may not generally search digital information on a cell phone incident to an arrest.  In so doing, the Court rejected the government’s claim that such a search was necessary to prevent the destruction of evidence.    All the police need to do, the Court tells us, is to isolate the phone from radio waves in bags that are essentially made of aluminum foil.  The authority the Court cites for this?  An amicus brief filed by criminal law professors (good ones at that, some from my own institution).

Whether or not the facts in these amicus briefs are credible and regardless of whether it is a good idea or a bad idea to avoid fact-finding beyond what the parties provide, the larger point here is about inconsistency.   As the Justices are flooded with factual information, and while the amicus business grows in size, this problem is only going to get more significant. We should expect some sort of procedural uniformity when the Court is pressed with and surrounded by factual claims from new places.   This practice of  'amicus opportunism' – we credit them when we want to and dismiss them when we don’t – is troubling to say the least."

           

Monday, July 21, 2014

Americans Voting With Their Feet for Red State Cities



Lone Star Juggernaut






The Census Bureau has released a report of the 15 fastest growing US cities with populations of 50,000 or more.  Here is the list.

1.    San Marcos, Texas
2.    Frisco, Texas
3.    South Jordan, Utah
4.    Cedar Park, Texas
5.    Lehi City, Utah
6.    Goodyear, Arizona
7.    Georgetown,  Texas
8.    Gaithersburg, Maryland
9.    Mount Pleasant, South Carolina
10.  Meridian, Idaho
11.  Odessa, Texas
12.  Gilbert, Arizona
13.  McKinney, Texas
14.  Franklin, Tennessee
15.  Pearland, Texas

Seven such cities are in Texas, and fourteen of fifteen are in so-called "red" states, that is, states that voted for Mitt Romney in 2012 and John McCain in 2008.  This concentration of fast-growing cities in such red states is not surprising.  After all, as previously explained on this blog, the Nation has to some extent embraced a constitutional system of competitive federalism, whereby individual states are free to embrace different philosophies of regulation and taxation.  Because individuals are free to travel between the states, jurisdictions that offer environments conducive to the creation of economic opportunity will attract individuals and capital, while those that impose undue regulatory burdens and taxation will deter in-migration and encourage their citizens to migrate elsewhere.  Indeed, previous posts on this blog have identified various policies, such as minimum wages (see here and here), high income taxes and associated over-spending (see here and here), and statutes authorizing so-called "closed shop" collective bargaining agreements (see here and here), that deter wealth-creating economic activity, stultifying economic growth and opportunity.   By contrast, of the red states represented in this list, only one (Arizona) has a minimum wage that exceeds the federal minimum.   (See here)  Two have no minimum wage at all.   Moreover, all such states are so-called "right to work" states that prevent unions from negotiating collective bargaining agreements that require employees to financially support a union against their will.  It is thus no surprise that cities from red states dominate this list, as they have dominated similar lists in the past.  Removal of federal policies that distort and dampen such competition, discussed here and here, would bolster such rivalry and further discipline those states that adopt policies that hamper growth and opportunity.  

Saturday, July 5, 2014

Hobby Lobby and Corporate Social Responsibility


Would He Endorse Hobby Lobby?


The Hobby Lobby decision has predictably resulted in a stream of academic commentary and punditry in the blogosphere, much of it addressing the Court's determination that business corporations are RFRA persons capable of exercising religion.   For instance, two thoughtful scholars, Usha Rodrigues and Lyman Johnson, have opined that Hobby Lobby rejects the view that corporations should maximize shareholder profits in favor of so-called "Corporate Social Responsibility."   Both scholars focus on the same passage of the decision, which Professor Rodrigues quotes in full in her post over at the blog Conglomerate.  (For Professor Johnson's views, go here.)
 
"Some lower court judges have suggested that RFRA 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. “Each American jurisdiction today either expressly or by implication authorizes corporations to be formed under its general corporation act for any lawful purpose or business.” 1 J. Cox & T. Hazen, Treatise of the Law of Corporations §4:1, p. 224 (3d ed. 2010) (emphasis added); see 1A W. Fletcher, Cyclopedia of the Law of Corporations §102 (rev. ed. 2010).  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. Many examples come readily to mind. So long as its owners agree, a for-profit corporation may take costly pollution-control and energy-conservation measures that go beyond what the law requires. A for-profit corporation that operates facilities in other countries may exceed the requirements of local law regarding working conditions and benefits. If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well." 

Professor Rodrigues reads this passage as reflecting a rejection of the profit maximization norm in favor of Corporate Social Responsibility.  As she puts it:

"Shareholder wealth maximization does not rule with the majority, that's for sure.   Milton Friedman be damned,  CSR is alive and well on the Supreme Court."  Later in her post she concludes that: "the conservative majority [in Hobby Lobby] moves to embrace progressive CSR-style rhetoric[.]"

Speaking of the same passage, Professor Johnson opines as follows:

 "[T]hose in the corporate law academy who think corporate law mandates strict profit maximization now have a formidable judicial foe, and one that dwarfs the puny authority of Dodge v. Ford Motor Co. . . .  i.e., the U.S. Supreme Court.  Time to change the syllabus on corporate purpose…  To those on the right who favored Hobby Lobby (me) but who also favor the now-discredited position that corporate law requires profit maximizing (not me) take note:  you won the battle on religious freedom but to do so you had to suffer a major setback on corporate purpose."

Nobel Laureate Milton Friedman (pictured above), of course, famously contended that corporations should reject Corporate Social Responsibility, which he defined as the sacrifice of shareholder profits in favor of broader social objectives.  In his classic work "Capitalism and Freedom" (1962)  Friedman opined as follows on the question:

"[T]here is one and only one social responsibility of business --- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Friedman repeated this assertion in a 1970 essay in the New York Times Magazine, where he elaborated his views of the subject.  (See here).

Both posts are thoughtful efforts to understand the role of Corporate Social Responsibility in the Court's thinking. There does seem to be some tension between the views of Professor Friedman and others (including this blogger) who believe that corporations should maximize shareholder profits, on the one hand, and the excerpt from Hobby Lobby that Professors Rodrigues and Johnson invoke. (See this essay contending that corporate law is best understood as requiring managers to maximize shareholder profits at the expense of other constituencies when necessary.)  

At the same time, I'd like to suggest that the excerpt from Hobby Lobby that Professors Rodrigues and Johnson invoke is entirely consistent with the views of Friedman and those like myself who believe in shareholder primacy and a background profit maximization norm.  It is important to note that the passage in question twice qualifies the Court's assertion that corporations may forgo profits in pursuit other objectives. For instance, the Court states that many for-profit corporations pursue charitable causes "with ownership approval." (emphasis added)  Moreover, the Court states that "so long as the owners agree, a for-profit corporation may take costly pollution-control and energy-conservation measures that go beyond what the law requires." (emphasis added)  Thus, as Stephen Bainbridge has suggested in response to Professor Johnson's post, this passage does not abandon profit maximization but instead treats the profit-maximization norm as a default rule, which shareholders may alter so as to pursue objectives that reduce profits.

This "default rule" account is well-grounded in corporate law.  As this blogger and co-author Nate Oman explained in a recent essay:

"Religiously motivated decisions may sometimes increase profits, though some such decisions may reduce them.  While some case law [e.g., Dodge], suggests that fiduciaries must unalterably maximize shareholder profits, we believe that shareholders can waive any such rule, like other default rules.  No decision of which we are aware holds that managers must maximize profit over the unanimous objection of the shareholders, who can amend the charter to validate any such choice. Indeed, corporate law even empowers shareholders, by unanimous vote, to ratify alleged corporate waste."

See Alan J. Meese and Nathan B. Oman, Hobby Lobby, Corporate Law and the Theory of the Firm: Why For-Profit Corporations are RFRA Persons, 127 Harv. L. Rev. Forum 273, 284-85 (May 2014).

What, though, about Friedman's wholesale rejection of Corporate Social Responsibility?  Doesn't Hobby Lobby's recognition that corporations  may forgo profits (albeit only after shareholder approval) necessarily contradict Friedman's view?  The answer, I think, is "no."  A careful reading of his 1970 essay reveals that Friedman directed his admonition to directors and managers, not shareholders.  As Friedman put it, "the manager is the agent of the individuals who own the corporation."  Forsaking profits in favor of social goals, Friedman said, contravened the requirements of faithful agency and rendered the manager a principal instead of an agent.  As Friedman put it:    "[t]he whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interest of his principal.  This justification disappears when the corporate executive imposes taxes [i.e., diverts profits away from shareholders] and spends the proceeds for 'social' purposes.").

Indeed, it is worth quoting a lengthy portion of Friedman's 1970 essay in full:

"In a free-enterprise, private-property sys­tem, a corporate executive is an employee of the owners of the business. He has direct re­sponsibility to his employers. That responsi­bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while con­forming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for exam­ple, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.  In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.  Needless to say, this does not mean that it is easy to judge how well he is performing his task. But at least the criterion of performance is straightforward, and the persons among whom a voluntary contractual arrangement exists are clearly defined."

It seems clear, then, that Friedman would be comfortable allowing shareholders  --- the "principals" who "employ" managers --- to alter the default profit-maximization norm, so long as courts could assure themselves that shareholders really did consent to such a modification.  If those who create enterprises can forgo the profit motive altogether, then they can also choose some combination of profit and other objectives.  While such a modification of the profit maximization norm would reduce shareholder profits, the modification would presumably enhance shareholder utility.  Put another way, the profit-maximization norm is not an end in itself, but instead a means of maximizing shareholder welfare, which may consist of values other than material wealth.   Indeed, in the same essay, Friedman expressly stated that "individual proprietors" should feel perfectly free to forgo profit in favor of other objectives.  As he put it:

"The situation of the individual proprietor is somewhat different.  If he acts to reduce the returns of his enterprise in order to exercise his 'social responsibility,' he is spending his own money, not someone else's.  If he wishes to spend his money on such purposes, that is his right, and I cannot see that there is any objection to his doing so."

One doubts that Friedman would treat closely held corporations like Hobby Lobby any differently from firms owned by such "individual proprietors."  In each case the same individuals both own and control the firm in question, with the result that the agency problem that Friedman identified would disappear.  Allowing shareholders of a closely held corporation to pursue certain objectives that reduce profits would thus seem indistinguishable from "allowing" individuals to give money to charity.  Both practices would reduce the material wealth of the donor or shareholder, but both would also presumably increase such individuals' utility.  Thus, shareholder-approved departures from profit maximization of the sort invoked by the Hobby Lobby majority do not, in my view, reflect a rejection of Friedman's views or an embrace of Corporate Social Responsibility.