Abolishing Corporate Personhood: Be Careful What You Ask For

Contrary to popular belief, corporate personhood was not an invention of late nineteenth century robber barons.

Fol­low­ing the Supreme Court’s land­mark de­ci­sion in Cit­i­zens United, calls for the abo­li­tion of cor­po­rate per­son­hood have mul­ti­plied. Noam Chom­sky, Al Gore and Ralph Nader are ad­vo­cates. Oc­cupy Wall Street pro­test­ers men­tion it as a pos­si­ble de­mand. Move to Amend is a coali­tion of or­ga­ni­za­tions and in­di­vid­u­als pur­su­ing a con­sti­tu­tional amend­ment. Be care­ful what you ask for.

There is one fun­da­men­tal prob­lem with cor­po­rate per­son­hood. That is the ju­di­cial ac­tivism it—in com­bi­na­tion with the Four­teenth Amend­ment—may en­gen­der. The Four­teenth Amend­ment’s equal pro­tec­tion clause states in part:

No State shall … de­prive any per­son of life, lib­erty, or prop­erty, with­out due process of law; nor deny to any per­son within its ju­ris­dic­tion the equal pro­tec­tion of the laws.

It was en­acted to pro­tect for­mer slaves dur­ing post-Civil War re­con­struc­tion. In the hands of the Supreme Court, for over a cen­tu­ary, it has been in­ter­preted as guar­an­tee­ing for cor­po­ra­tions—as “ar­ti­fi­cial per­sons”—rights sim­i­lar to those of nat­ural per­sons. Mat­ters came to a head with the Supreme Court’s 2010 de­ci­sion in Cit­i­zens United, which gut­ted cam­paign fi­nance laws on the the­ory that they vi­o­lated cor­po­ra­tions’ free­dom of speech. On the other hand, the Supreme Court’s 2011 de­ci­sion in FCC v. AT&T Inc. re­jected a claim by AT&T’s lawyers that cor­po­ra­tions enjoy per­sonal pri­vacy rights under the Free­dom of In­for­ma­tion Act.

Con­trary to pop­u­lar be­lief, cor­po­rate per­son­hood was not an in­ven­tion of late nine­teenth cen­tury rob­ber barons. As early as the 1819 case Dart­mouth Col­lege v. Wood­ward, the Supreme Court ac­cepted cor­po­rate per­son­hood. The con­cept ac­tu­ally dates back to an­cient Rome.

It is nat­ural to think of an or­ga­ni­za­tion as hav­ing a col­lec­tive iden­tity dis­tinct from that of any par­tic­u­lar per­son who owns or be­longs to it. The Ro­mans for­mal­ized this, legally, with the no­tion of cor­po­rate per­son­hood. It is a clever idea that makes it un­nec­es­sary to de­velop a sep­a­rate body of law so or­ga­ni­za­tions can do the same things as nat­ural peo­ple—things like con­tract­ing, own­ing land, in­cur­ring debts, bring­ing law suits and hav­ing law suits brought against them. It is sim­pler just to say that, for such pur­poses, or­ga­ni­za­tions shall be treated as if they were peo­ple.

The word cor­po­ra­tion de­rives from the Latin word cor­pus for body, rep­re­sent­ing a body of peo­ple au­tho­rized to act as an in­di­vid­ual. Cor­po­rate per­son­hood, there­fore, is not a prop­erty of cor­po­ra­tions. It is the orig­i­nal Roman de­f­i­n­i­tion of cor­po­ra­tions.

Cities were the first en­ti­ties the Ro­mans treated as cor­po­ra­tions. Over time, the con­cept was ex­tended to cer­tain com­mu­nity or­ga­ni­za­tions called col­le­gia. These in­cluded ar­ti­san as­so­ci­a­tions, re­li­gious so­ci­eties and so­cial clubs formed to pro­vide fu­ner­als for mem­bers. Under the Em­per­ors, char­i­ta­ble cor­po­ra­tions were es­tab­lished to serve Rome’s grow­ing in­di­gent pop­u­la­tion. The emerg­ing Catholic Church also em­ployed the cor­po­rate form as a ve­hi­cle for joint own­er­ship of prop­erty.

Roman law sur­vived the fall of the West­ern Roman Em­pire to reemerge in as­pects of the Church’s canon law and Eu­rope’s sec­u­lar bod­ies of law. Dur­ing the Mid­dle Ages, cities, guilds, monas­ter­ies and uni­ver­si­ties were all char­tered as cor­po­ra­tions.

Start­ing in the late 1500s, cor­po­ra­tions that were es­sen­tially guilds of mer­chants evolved to be­come lim­ited li­a­bil­ity joint-stock cor­po­ra­tions. Most fa­mous among these were Eng­land’s and Hol­land’s re­spec­tive East India Com­pa­nies, which chal­lenged Por­tu­gal’s dom­i­na­tion of the spice trade.

Early con­cerns with cor­po­rate per­son­hood stemmed from cor­po­ra­tions’ ex­tended lives. Over many gen­er­a­tions, a cor­po­ra­tion might ac­cu­mu­late vast wealth or power, per­haps ri­val­ing that of mon­archs. For this rea­son, mon­archs were care­ful about grant­ing cor­po­rate char­ters, and these were often for a lim­ited du­ra­tion. Sim­i­lar rea­son­ing is ev­i­dent in the early years of the United States. Both the First and Sec­ond Banks of Amer­ica were granted 20-year char­ters by Con­gress. Both banks ex­pired when—in 1811 and 1838, re­spec­tively—their char­ters were not re­newed.

Mod­ern con­cerns with cor­po­rate per­son­hood re­late to judges cre­atively in­ter­pret­ing cor­po­rate per­son­hood in ways the Ro­mans could not have an­tic­i­pated. What had been a prac­ti­cal legal short­cut is now treated as a doc­trine judges can mine for undis­cov­ered legal truths.

It is widely as­sumed that cor­po­rate ex­ec­u­tives—and the lawyers they pay so hand­somely—are staunch de­fend­ers of cor­po­rate per­son­hood. Noth­ing could be fur­ther from the truth. While they de­light in the Cit­i­zens United gift the Supreme Court gave them, they are ac­tu­ally pur­su­ing a long-term strat­egy to scrap cor­po­rate per­son­hood. They have in­vented a legal the­ory for cor­po­ra­tions that they like even bet­ter. It is called the nexus of con­tracts the­ory of cor­po­ra­tions. This posits that, in­stead of being a legal en­tity, a cor­po­ra­tion is merely a col­lec­tion of con­tracts—con­tracts be­tween share­own­ers, board mem­bers, man­agers, em­ploy­ees, sup­pli­ers and cus­tomers. Under this the­ory, share­own­ers don’t own cor­po­ra­tions, be­cause there is noth­ing to own! In­stead, share­own­ers’ stock rep­re­sents a con­tract under which they pro­vide cap­i­tal to board mem­bers and re­ceive div­i­dends in re­turn.

If you rum­mage through cor­po­rate law and legal de­ci­sions, you will find pre­cious lit­tle about share­owner rights. How­ever, leg­is­la­tors and judges have al­ways un­der­stood that share­own­ers own cor­po­ra­tions, so they have own­er­ship rights. These—un­der­stood but un­spec­i­fied—rights are what we call “share­owner rights”. Under the nexus of con­tracts the­ory, share­own­ers don’t own cor­po­ra­tions, so they have no own­er­ship rights. Un­der­stood but un­spec­i­fied share­owner rights don’t exist.

Under cor­po­rate per­son­hood, board mem­bers have a fidu­ciary duty to share­ownrs. Under the nexus of con­tracts the­ory, their duty is merely con­trac­tual. They may legally ex­ploit their po­si­tion to ben­e­fit them­selves, even if it harms share­own­ers. When­ever that hap­pens, ac­cord­ing to the the­ory, it is the share­own­ers’ own fault for not ne­go­ti­at­ing bet­ter “con­tracts”.

You won’t hear cor­po­rate lawyers ad­vo­cat­ing for the nexus of con­tracts the­ory on Good Morn­ing Amer­ica. They don’t lobby for leg­is­la­tion. They don’t pro­pose a con­sti­tu­tional amend­ment. Theirs is a stealth strat­egy, and they pur­sue it in class­rooms. They are teach­ing the nexus of con­tracts the­ory as fact in Amer­ica’s law schools.

Year after year, class after class, law stu­dents are being taught that a cor­po­ra­tion is noth­ing more than a nexus of con­tracts. Those stu­dents go on to be­come lawyers, judges and some­times leg­is­la­tors. In briefs, de­ci­sions and leg­is­la­tion, they adopt the the­ory they have been taught. Those same writ­ings are re­cy­cled back into the class­room to teach an­other crop of law stu­dents. Grad­u­ally, cor­po­rate lawyers are re­plac­ing cor­po­rate per­son­hood with the nexus of con­tracts the­ory. In doing so, they place the wealth of share­own­ers at the dis­posal of grasp­ing board mem­bers and ex­ec­u­tives, with­out pro­tec­tion of share­own­err rights or fidu­ciary duty.

It is said that the road to Hell is paved with good in­ten­tions. For­mally abol­ish­ing cor­po­rate per­son­hood will take us down that road. It would abol­ish a con­cept that, for over 2000 years, has stood the test of time. By de­fault, it would re­place cor­po­rate per­son­hood with its only sig­nif­i­cant al­ter­na­tive: the morally bank­rupt nexus of con­tracts the­ory.

Cer­tainly, there are prob­lems with how the courts in­ter­pret cor­po­rate per­son­hood today, and this should be ad­dressed—maybe with a con­sti­tu­tional amend­ment or maybe with leg­is­la­tion. Rather than re­pu­di­at­ing cor­po­rate per­son­hood, how­ever, it should be ex­plic­itly em­braced. Here are el­e­ments I would in­clude in an amed­ment or leg­is­la­tion:

  1. that cor­po­ra­tions are ar­ti­fi­cial per­sons under the law, with rights and re­spon­si­bil­i­ties much like—but dif­fer­ent from—those of nat­ural per­sons;
  2. that the rights and re­spon­si­bil­i­ties of cor­po­ra­tions shall be only those spec­i­fied in pro­vi­sions of the con­sti­tu­tion or in leg­is­la­tion that ex­plic­itly iden­ti­fies those rights or re­spon­si­bil­i­ties as ap­plic­a­ble to “ar­ti­fi­cial per­sons”;
  3. that court de­ci­sions ad­dress­ing rights and re­spon­si­bil­i­ties of per­sons shall re­late to the rights and re­spon­si­bil­i­ties of cor­po­ra­tions only to the ex­tent that they ex­plic­itly iden­tify those rights and re­spon­si­bil­i­ties as ap­plic­a­ble to “ar­ti­fi­cial per­sons”;
  4. that the boards of cor­po­ra­tions be freely and solely nom­i­nated and elected by the cor­po­ra­tions’ share­own­ers or mem­bers, and that the boards’ oblig­a­tions to them be fidu­ciary du­ties.

The Ro­mans would be proud.

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