The business case against Indiana's religious faith

Indiana Gov. Mike Pence has signed into law the Religious Freedom Restoration Act despite fierce opposition by business leaders within the state.

The law, signed Thursday, allows businesses to use an owner's faith as a reason to refuse service to customers, including same-sex married couples. The risks from the act range from potential workplace lawsuits on religious grounds to a broader and deeper business chill in the state, with money-making conferences and major corporations threatening to pull out, difficulty attracting key job creators like tech companies and a wide-ranging ripple effect on small-business owners.

The governor's move comes during a sensitive period of time for Indiana's economy—it has shown signs of a small-business boom in recent years, and has fared relatively well in job creation and new-company formation, but is also seeking to break out from the sluggish growth that has typified the post-crisis economic recovery.

A window sticker on a downtown Indianapolis florist, Wednesday, March 25, 2015, shows it's objection to the Religious Freedom bill passed by the Indiana legislature.
Michael Conroy | AP
A window sticker on a downtown Indianapolis florist, Wednesday, March 25, 2015, shows it's objection to the Religious Freedom bill passed by the Indiana legislature.

The Indiana Chamber of Commerce was narrow in its opposition to the religious freedom law in a statement earlier this week, with its CEO Kevin Brinegar saying it was unnecessary—religious freedom was already protected by state law—and there was risk it could expose businesses to lawsuits over religious belief claims from employees.

But other voices from the business community went further. Columbus, Indiana-based Cummins, the world's largest diesel engine maker—which has been among the nation's most outspoken business voices against LGBT discrimination statutes—publicly opposed the new law in strong terms, fearing a weakened hand for corporations based in Indiana when trying to lure top talent to the state.

"We're disappointed with the passage of the Religious Freedom Restoration Act," said a Cummins spokesman. "Cummins believes it's bad for business and bad for Indiana and sends the message that the state is unwelcoming." He added, "We are a global company in a competitive environment and it could hinder our ability to attract and retain top talent."

Salesforce.com's Marketing Cloud division CEO Scott McCorkle wrote in a recent letter speaking out against the act, "Our success is fundamentally based on our ability to attract and retain the best and most diverse pool of highly skilled employees, regardless of gender, religious affiliation, ethnicity or sexual orientation." Salesforce bought Indianapolis-based marketing software company ExactTarget in 2013.

Salesforce.com CEO Marc Benioff also tweeted on Thursday about the decision in a series of comments that went viral and said the company would be forced to dramatically reduce its spending in the state. He also called on the rest of the tech industry to take a stand against the Indiana government's decision.

Yelp CEO Jeremy Stoppelman posted an open letter on Yelp's official blog stating that it was "unconscionable to imagine that Yelp would create, maintain, or expand a significant business presence in any state that encouraged discrimination by businesses against our employees, or consumers at large."

PayPal co-founder Max Levchin tweeted that what was happening in Indiana, no matter how it was "dressed up" was discrimination and "pretty unbelievable."

Say goodbye to Hoosier 'hipster' talent

Another smaller, though lucrative piece, of the Indiana economic engine that came out against the act is its convention business centered on the revival of Indianapolis. The organizers of Gen Con, a gaming conference that is among the marquee events of the year in the city, sent a letter to Gov. Pence this week stating that it might move in future years if he signed the bill.

"Legislation that could allow for refusal of service or discrimination against our attendees will have a direct negative impact on the state's economy, and will factor into our decision-making on hosting the convention in the state of Indiana in future years," wrote Adrian Swartout, owner and CEO of Gen Con.

Timothy Slaper, who directs the Indiana Business Research Center at Indiana University, said while critics point to convention dollars lost from events like Super Bowls, the real threat is to the future growth of Indiana's economy. It is still dominated by traditional industries, including agriculture and auto manufacturing.

"I'm more concerned about the longer-term cultural implications in terms of the magnetism of the state to attract the young creative class," Slaper said. "The engineers or artists you want to have in your city and state to cultivate the ecosystem for entrepreneurs. It's the location decisions of companies like Salesforce and attracting this brain power for the next several decades."

"We're relying on our old core strengths in an age when we need to be a little more aspirational. Indiana desperately needs hipster brains. This probably isn't a great way to cultivate them." -Timothy Slaper, Indiana Business Research Center director

Slaper said new industries will have the greatest effect on Indiana's economy. "We'll never see an increase in per capita income if all we do is attract standard manufacturing jobs. The jobs that pay well are engineers and designers and marketers and if we're not able to attract those workers in the occupation class, it's gonna be a tough road to hoe," Slaper said.

He noted that even in manufacturing, pharmaceuticals and medical devices have been among the growth areas, and those are areas where engineers are among the top talent. "We're relying on our old core strengths in an age when we need to be a little more aspirational. Indiana desperately needs hipster brains. This probably isn't a great way to cultivate them," Slaper added.

Away from politics, back to small business

Rohit Arora, co-founder of business lender Biz2Credit, said in the past few years states including Indiana have seen a lot of growth from small businesses, in particular immigrant small-business owners moving from coastal areas. Applications for small-business loans in Indiana increased by more than 30 percent last year from 2013, according to Biz2Credit data. So far that level of growth has accelerated in 2015.

Arora said that even immigrant business owners from conservative backgrounds are more interested in moving up the economic ladder than playing politics today.

"The mindset of the more recent immigrants is a focus on economic progress. They are more interested in making money and economic improvement and they don't bother so much about refusing customers," Arora said. "For them it's all about 'how can I increase business.' ... Their biggest motivation was to improve their economic status; they don't come because they are for or against gay marriage."

He added: "Small-business owners are sick and tired of the last six years of slow growth. People are less interested in politics and more getting back on track with business."

Arora was circumspect about the law having an impact on small-business opportunity, though. He said that if larger companies pull out of the state as well as conventions, that would no doubt have a ripple effect on small businesses in areas including food, accommodations, logistics, construction and transportation. But larger business trends favor continued investment in Indiana, namely a rising cost of labor in Asia and the anti-union advances in states including Indiana and Wisconsin. "I don't think any law will change that."

Gov. Mike Pence of Indiana
Source: Governors office of Indiana
Gov. Mike Pence of Indiana
"This bill is not about discrimination, and if I thought it legalized discrimination in any way in Indiana, I would have vetoed it. ... For more than 20 years, the federal Religious Freedom Restoration Act has never undermined our nation's anti-discrimination laws, and it will not in Indiana."

The 2014 Supreme Court decision in the Hobby Lobby case, which ruled family owned companies cannot be required to offer insurance coverage for services that go against their religious beliefs, a decision that agreed with the plaintiffs that "religious freedom" had been violated, has been among the drivers for states seeking additional religious freedom laws.

The Indiana RFRA is one of 24 introduced in 15 states this year that could allow someone to use their religious beliefs to discriminate—numerous other bills specifically single out the LGBT community for unequal treatment, according to the American Civil Liberties Union, which tracks the developments online.

Pence said in his Thursday statement—the signing of the law was conducted in private—"This bill is not about discrimination, and if I thought it legalized discrimination in any way in Indiana, I would have vetoed it. ... For more than 20 years, the federal Religious Freedom Restoration Act has never undermined our nation's anti-discrimination laws, and it will not in Indiana."

"Make no bones about it, the Hobby Lobby decision has been interpreted to mean no one has to follow nondiscrimination laws," said Stacey Long Simmons, director of public policy at The National LGBTQ Task Force. She noted that corporations nationwide have come out mostly against these measures because they understand the dollars at stake that could flow into a state, from sports arenas to conventions.

Indianapolis is playing host to the NCAA Final Four in April, and a notable critic of the governor's decision was the Christian Church (Disciples of Christ), which sent a letter to Pence on Wednesday threatening to cancel its 2017 convention—it has held its convention in the city several times, and Indianapolis has estimated the economic impact at $6 million.

"It's shocking this governor did not follow the lead of Arizona's Jan Brewer, who saw the handwriting on the wall and paid attention," Simmons said.

Last year, Arizona Gov. Jan Brewer was persuaded to veto a similar measure, at least in part due to vocal opposition from business interests.

While there is no statewide economic impact analysis of Indiana's law available, the Williams Institute at UCLA Law School has conducted research that suggests nondiscrimination protections are good for businesses.

Tim Schultz, head of the 1st Amendment Partnership, an organization that supports RFRA legislative efforts, said, "The best way to evaluate the effects of these religious protection laws is to look to the commentary of scholars with no political agenda" and pointed to a letter signed by more than a dozen professors from prominent law schools in the U.S. which argued there is no reason to believe the new law would be interpreted by Indiana courts as providing businesses with a right to discriminate. Though many other legal experts have argued against the law, raising the question of whether any legal expert's opinion can be divorced entirely from Schultz's "agenda" labeling.

The opposition's next step

The Religious Freedom Restoration Act is now law in Indiana, but the fight is not necessarily over.

The Indy Chamber, which represents the economic interests of the state's largest city, said in a statement that it remains opposed to the "divisive and unnecessary law."

Its president and CEO Michael Huber said: "We warned of the impending negative economic impact this legislation would have on our ability to attract and retain jobs, talent and investment, noting the bill will encourage current and potential residents, and visitors to take their business elsewhere. Within moments of this legislation being signed, this warning became a stark reality. The Indy Chamber pledges to work with our partners across the state to strengthen nondiscrimination policies at the state and local level. This is clearly not how we want to be perceived and is not reflective of how we do business in Indianapolis."

"I hope business leaders get louder," Simmons said. She said Gov. Pence and other state leaders who have enacted similar measures have underestimated the sense of where the nation is in terms of LGBT civil rights progress. In the worst-case scenario, business leaders fear Pence has also underestimated what the state's economy needs to continue its growth.