At our UCLA conference on competing theories of corporate governance, my friend David Skeel raised the relevance of my director primacy model to the pending Hobby Lobby case. As the conference call explains:
In Stephen Bainbridge’s director primacy model, the board of directors is not a mere agent of the shareholders, but rather is a sui generis body whose powers are “original and undelegated.” To be sure, the directors are obliged to use their powers towards the end of shareholder wealth maximization, but the decisions as to how that end shall be achieved are vested in the board not the shareholders.
As David pointed out, a question posed by Hobby Lobby is whether the religious beliefs of a corporation's shareholders should be understood to define the corporate purpose and thus determine whether the free exercise clause and/or RFRA protect those shareholders from compliance with a government mandate that offends the shareholders' beliefs.
In response, I would invoke a passage from my book The New Corporate Governance in Theory and Practice:
At the outset, I should acknowledge that there are important limits on the domain of cases within which the model is relevant. First, director primacy’s claims fare poorly whenever there is a dominant shareholder. As such, the model’s utility is vitiated with respect to close corporations, wholly-owned subsidiaries, and publicly held corporations with a controlling shareholder.
This is so, of course, because the shareholders’ right to elect the board of directors can give the former de facto control even though the statute assigns de jure control to the latter.
As a close corporation (albeit a very large one in terms of assets and employees), Hobby Lobby's governance would not be expected to be board centric. Looking beyond Hobby Lobby, in my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, I point out that a victory for Hobby Lobby could (and I expect likely will) be limited to close corporations:
Veil piercing is a close corporation doctrine. In this context, in particular, a public corporation with many shareholders holding diverse views is a poor candidate for RVP-I. In contrast, a closely held corporation – even if quite large by metrics such as assets or employees – with a small number of shareholders holding common religious beliefs is a good candidate.
So I don't think the Hobby Lobby case poses a problem for the director primacy model or vice-versa. Hobby Lobby and its ilk fall into a different governance domain.