The Rockefeller Foundation’s Hand in Hobby Lobby

Americans either have hailed the US Supreme Court’s decision on the Hobby Lobby case this summer as a victory for religious freedom, or criticized it as a regression in women’s health and reproductive rights. The court ruled that the Department of Health and Human Services regulations imposing the contraceptive mandate on for-profit, “closely held” corporations violated the Religious Freedom Restoration Act of 1993. The court reasoned that these for-profit corporations, like religious nonprofits, could exercise religion and refuse contraceptive coverage for their female employees in the process.

Moving beyond this general public conversation, as Robert T. Esposito and Shawn Pelsinger noted last month, the Hobby Lobby decision is also the first time that the Supreme Court has made mention of the emerging body of social enterprise law, particularly benefit corporations. As such, this case is also an important moment for the Rockefeller Foundation and its impact investing initiative. The Supreme Court’s reasoning and decision in Hobby Lobby should make the foundation reflect on the relative wisdom of its initiative to blend the nonprofit and for-profit sectors.

Former University of Pennsylvania President Judith Rodin assumed the presidency of the Rockefeller Foundation in 2005; and a year later, she brought on board Margot Brandenburg, who has been managing the organization’s impact investing initiative ever since. Earlier this year, the two co-authored a book arguing for the further expansion of the foundation’s work in this field, The Power of Impact Investing: Putting Markets to Work for Profit and Global Good.

Rodin and Brandenburg acknowledge that philanthropy is a powerful source for good but contend that we can address the world’s biggest problems only if “substantial portions of our global financial resources [are] devoted to making the world a better place.” While global philanthropy runs into the billions of US dollars, the world’s financial markets reach into the trillions, and it would be wasteful and shortsighted not to put these market funds to use in addressing social problems. Rather than working alone, they argue, individuals in the nonprofit realm can encourage individuals in the for-profit realm to work with them to solve problems such as water scarcity, lack of health care access, and education.

In an effort to help bring these two communities together, Rodin and Brandenburg provide these nonprofit and for-profit actors with a new, hybrid language. As impact investors, they will have the hearts of nonprofits and the brains of for-profits. They will expect their investments “to deliver both financial returns and social and environmental benefits.” Foundation managers, philanthropists, private bankers, and individual investors can simultaneously achieve profits and address social problems, for example, by investing in organizations with these dual goals in mind.

The Rockefeller Foundation has been so confident in the power of impact investing that, in The Power of Impact Investing, Rodin and Brandenburg announced that the organization had invested more than $40 million in building the field and more than $100 million in impact investments from its endowment. One of the very early grantees under this initiative was B Lab, and the foundation is still its dominant funder. Founded in 2006, B Lab is the nonprofit organization spearheading the movement to pass benefit corporation legislation across the United States. Its mission to establish a new corporate class that has the dual goal of profit-making and of making a material positive impact on society and the environment gives corporate form to the Rockefeller’s vision of blending the nonprofit and for-profit sectors. So far, B Lab has helped create this new corporate class in 27 states and, according to its website, it is “working on it” in 14 others.

When Justice Alito wrote the majority opinion for Hobby Lobby, he took note of the national trend of establishing benefit corporations, but he did not seem to know that the Rockefeller Foundation and its grantee, B Lab, were behind the shift. He wrote: “[R]ecognizing the inherent compatibility between establishing a for-profit corporation and pursuing nonprofit goals, States have increasingly adopted laws formally recognizing hybrid corporate forms. Over half of the States, for instance, now recognize the ‘benefit corporation,’ a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners.’” Against this national shift in modern corporate law—blurring the line between for-profit and nonprofit organizations—Alito deemed it reasonable to blur the line between nonprofit and for-profit jurisprudence. In this case, a for-profit organization could, like a religious nonprofit organization, exercise religion and subsequently limit its coverage of contraception for female employees.

In her dissent, Justice Ruth Bader Ginsburg expressed her dismay at the majority’s conflation between the nonprofit and for-profit realms: “Until this litigation, no decision of this Court recognized a for-profit corporation’s qualification for a religious exemption from a generally applicable law, whether under the Free Exercise Clause or [the Religious Freedom Restoration Act of 1993].” Up until Hobby Lobby, Ginsburg noted, the court had respected the distinction between for-profit and nonprofit organizations. She repeated the importance of this distinction: “To reiterate, ‘for-profit corporations are different from religious non-profits in that they use labor to make a profit, rather than to perpetuate [the] religious value[s] [shared by a community of believers].’” Unlike nonprofits, for-profit organizations had the singular goal of maximizing profits and could not argue religion as a means of abrogating the rights of its female employees.

Neither Ginsburg nor Alito made mention of the Rockefeller Foundation or B Lab in their dissenting and majority opinions, but the foundation and its grantee played their part in facilitating the majority’s reasoning. Sure, the foundation and B Lab’s vision for a blended nonprofit and for-profit sector is strictly secular, but this vision has helped create the nationwide legislative changes that the majority leaned on to justify its holding in Hobby Lobby. Against this backdrop, the foundation should take a serious look at its impact investment initiative and question its soundness.

In The Power of Impact Investing, Rodin and Brandenburg try to sell readers on the value of combining the nonprofit and for-profit sectors. Writing with the excitement of recent converts, they argue: “We live in a dynamic era of innovation, change, and new ways of thinking that could push our society in promising directions. As an investor, you can participate in this change; you have it in your power to contribute to a movement that is potentially transformative and overwhelmingly positive. This is the promise of impact investing.” This blending of the for-profit and nonprofit realms is not necessarily a path towards such a utopian future. With Hobby Lobby on the books, the foundation might consider taming its zealous fervor for fusing the two sectors.

Read more stories by Maribel Morey.