Veiling the corporate instrument

John A. Di Camillo writes that sound ethics requires recognition of religious freedom . . .

John Di Camillo

The for-profit firm Domino’s Farms and its owner, Tom Monaghan, successfully obtained an order of injunction to protect them temporarily from the government’s unjust “preventive services” mandate, which requires that employers provide medical insurance for surgical sterilizations, contraceptives and abortion-inducing drugs.

The court order on March 14, 2013, invoked common sense: A business organization, regardless of whether it is considered a “person,” can be an extension of the beliefs, rights, and mission of its owners. A business entity is an instrument of individuals, regardless of whether it is for-profit, non-profit, or religiously affiliated.

This is clear when thinking about an organization’s identity and how it “acts.” It typically has a constitution or articles of incorporation, a mission statement, bylaws or protocols providing additional details on how its mission is to be accomplished. The acts of individuals with control over the company (owners, shareholders, corporate members, boards of directors, etc.) determine how the company acts. The individuals act on behalf of the company, and the company acts through the decisions of the individuals. For example, while “the company” is considered the employer of any employees, it’s clear that individuals make hiring and firing decisions.

In this light, consider the government’s response to requests for religious and conscience exemptions to the mandate. Despite a feeble nod to the religious liberty of some non-profit religious organizations with an exceedingly narrow religious exemption and a feigned “accommodation,” the government unabashedly claims that a for-profit organization can be compelled to do what its owners consider evil without violating the religious freedom of the owners.

The implication is that the organization is sufficiently distinct from its owners that there is no religious freedom conflict at all. This denies that an organization is an instrument of individuals. An organization, so the government seems to claim, creates a “moral responsibility shield” around its owners. The owner is not morally responsible for the company’s actions — there is only legal liability for the company’s illegal actions. Since the company’s existence depends on civil and contract law, there is no wrongdoing so long as the company obeys duly established procedures and statutes.

This legalistic reasoning has been recognized as faulty by U.S. courts in cases in which corporations are invoked as a liability shield to protect owners (and their money) when they act immorally. Of course, interpreting the civil law in this manner requires an appeal to morality that goes beyond the letter of the law: A criminal may be obeying all proper statutory protocol but for purposes that conflict with the spirit of the law, in other words, for immoral purposes. The owner may integrate his or her personal funds with those of the company to set up Ponzi schemes, hide assets, or otherwise “cheat the system.”

Courts have intervened in such cases to “pierce the corporate veil,” as it is termed in legal language, so that the individual is punishable for crimes or liable for debts that the letter of the corporate law might not otherwise indicate. The reasoning invoked is that the company has become indistinguishable from the individual running it. Just as an inert instrument such as a pen cannot be invoked to protect the moral agent from responsibility for written libel, so a company cannot be invoked to shield the individual from legal liability for criminal actions accomplished through the company.

How does this reality square with the government’s reasoning about for-profit companies and the preventive services mandate? Rather than piercing the corporate veil to rightly assign legal penalties for an individual’s immoral actions, it seems the government is veiling the corporate instrument to achieve its own immoral aims, quashing the religious liberty and conscience rights of individual owners. It is hiding the reality that business organizations are instruments of individuals so that it can dismiss the moral claims of those individuals.

It seems far too convenient and dangerous to pierce the corporate veil when an individual violates the moral law and claims the legal structure of a corporation as a shield, but then to veil the corporate instrument when the government wishes to impose immoral actions without interference from individual conscience and religious freedom rights.

On the one hand, government courts rightly pierce the corporate veil, transcending the strict letter of the law when an individual is acting immorally under the presumptive protection of the legal fiction of a business entity. Yet on the other hand, the government presumes to veil the corporate instrument, considering the organization to be a distinct agent held liable only to legal regulations — however immoral — in order to shut down conscience and religious freedom claims brought by individuals. Sound ethics and law require proper recognition of the moral conscience and religious freedom of every individual.

JOHN A. DI CAMILLO is a staff ethicist at the National Catholic Bioethics Center in Philadelphia.