Published in The Atlantic on Jan 30, 2015
The American left is notoriously fractious. But one belief that unites more than most is this: Corporations are not people. “Corporations are people, my friend,” said Mitt Romney in 2012, and Democrats skewered his cluelessness. “I don’t care how many times you try to explain it,” Barack Obama said on the stump. “Corporations aren’t people. People are people.” During the 2014 midterms, Massachusetts Democratic Senator Elizabeth Warren barnstormed the country to rally the faithful. Her most dependable applause line? “Corporations are not people!”
The main target of the corporations-are-not-people crowd is the Supreme Court’s 2010 Citizens United ruling striking down limits on independent corporate spending in elections. After that case, groups sprang up to fight corporate personhood. Others rebranded themselves by newly taking aim at it. But they do not limit themselves to attacking the Court’s campaign finance jurisprudence. Most groups make a broader attack on corporations being able to assert any First Amendment speech rights at all; and some have called for disabusing all corporations or businesses of any constitutional right.
Common Cause, for example, uses Robert Reich to tout its support for “a constitutional amendment declaring that ‘Only People are People’ and that only people should have free speech rights protected by the Constitution.” Public Citizen, the liberal litigation group founded by Ralph Nader, argues that “rights protected by the Constitution were intended for natural people.” Free Speech for People, one of the groups most influential in the anti-personhood movement, is pushing a “People’s Rights Amendment.” A version has already been sponsored in the U.S. Senate by Jon Tester of Montana and in the House by Jim McGovern of Massachusetts. It would declare that “the rights protected by this Constitution” are “the rights of natural persons.” A range of liberal groups have signed on to the anti-personhood project—MoveOn, Sierra Club and NAACP chapters, and steelworker and SEIU locals. By their count, sixteen states and nearly 600 localities have endorsed some kind of anti-personhood amendment. Even in a moment when the progressive left seems otherwise to be fighting rearguard actions, this movement has genuine energy.
These are my people. Many of the leaders of this movement are friends and respected colleagues. I contributed to Elizabeth Warren’s senatorial campaign and voted for Reich when he ran for governor of Massachusetts. Forty years ago, my coal miner grandfather sat me down and told me how a union had saved his life. As a law professor, I have spent my career as an oddity—a progressive who teaches corporate law, almost always the most liberal person in any room of business law academics. A decade ago, I came up with a novel legal theory that shareholder activists recently put to good use suing the Hershey Company over the use of child labor in West African chocolate cultivation.
A corporate lickspittle I’m not.
But the attack on corporate personhood is a mistake. And it may, ironically, be playing into the hands of the financial and managerial elite.
What’s the best way to control corporate power? More corporate personhood, not less.
If you’re shopping for glue sticks or glitter and hearing Christian music over a loudspeaker, you’re probably in a Hobby Lobby store. An arts-and-crafts retailer, Hobby Lobby is a big company, with upwards of 20,000 employees and more than 600 stores. But it’s a “closely held” corporation—meaning its stock is not publicly traded. The stock is owned by members of one family, the Greens of Oklahoma City, who are devout Christians. As enacted, the Affordable Care Act contained a provision requiring the company to provide its employees with health insurance that includes all medically approved forms of contraceptive care. The Greens objected. They believe that four of those methods are “abortifacients,” and claimed that the coverage mandate violated their rights under the Religious Freedom Restoration Act.
When their suit made it to the Supreme Court in early 2014, a group of corporate law professors (of which I was one) filed a “friend of the court” brief arguing against the corporation.
The brief’s main argument? Corporate personhood.
Understand that “corporate personhood” simply expresses the idea that the corporation has a legal identity separate from its shareholders. That separateness, the brief pointed out, is inherent in what it means to be a corporation. A “first principle” of corporate law (as we explained) is that “for-profit corporations are entities that possess legal interests and a legal identity of their own—one separate and distinct from their shareholders.” The very purpose of the corporation as a legal form is to create an entity “distinct in its legal interests and existence from those who contribute capital to it.” This separateness means that shareholders are not held liable for the debts of the corporation. That makes it possible for people who do not wish to oversee the day-to-day activities of companies in which they invest—and do not wish to risk every penny they own if the corporation goes bankrupt—to invest in corporate stock. In other words, this separateness is what makes capital markets possible. And capital markets are essential for the development of a vibrant national economy. Beyond that, corporations can exist long after the life of any individual that invests in, or works for, them. This means, as the legal scholar Lynn Stout has pointed out, that corporations provide a mechanism for society to make long-term, intergenerational investments that are not linked to government or a specific family.
It is not an overstatement to say that corporate separateness has been one of the legal innovations most important to the development of national wealth.
The professors argued that this separateness meant that the Greens should not be able to attach their own religious beliefs to the corporation. The reason the Greens had chosen to form a corporation was to be able to operate the business without running the risk of losing their personal assets if the corporation went belly up. They wanted separateness.
They should not then be able to stand in the shoes of the corporation for purposes of religion.
The Supreme Court disagreed. It held, 5-4, that the Greens could project their religious beliefs onto the corporation and refuse to provide their employees the required contraceptive-care benefits. Justice Samuel Alito’s opinion is evidence of the Court’s much-discussed pro-business tilt, to be sure. But it’s also evidence that the majority doesn’t understand the basics of corporate law. Its sin was not an embrace of corporate personhood but a rejection of it.
In fact, let us now praise corporate persons.
Consider the Deepwater Horizon oil spill disaster. For three months in 2010, Americans woke each morning to the news of another 50,000 barrels of crude spewing into the coastal waters of the Gulf of Mexico. We were justifiably outraged. In a legal system without corporate personhood, the channel for that outrage would be limited to lawsuits and criminal inquiries against individual human beings responsible—managers, workers, and contractors. That’s important, of course. In any legal jurisdiction worth its salt, the search for culpable individuals has to be part of the settling-up of any man-made disaster. But it should not be all. No human being—except, perhaps, Bill Gates—would have enough money to compensate those harmed by a massive disaster like Deepwater Horizon. Because a corporate entity is also on the hook, there’s a chance for something approaching real compensation or real responsibility. Corporate personhood is thus not only a mechanism for the creation of wealth (by encouraging investment), it is also a mechanism for enforcing accountability (by providing a deep pocket to sue).
The movement against “corporate personhood” does not spend much time talking about these aspects of the concept. When the left cries that corporations are not people, what they mean is that corporations should not be able to claim the constitutional rights that human beings can. Yet even here, there is reason to praise corporate personhood. Remember, the opposite of a constitutional right is a government power. If corporations have no rights, then governmental power in connection with corporations is at its maximum. That power can be abused, and corporate personhood is a necessary bulwark.
In 1971, for example, the government sought to stop the New York Times, a for-profit, publicly traded media conglomerate, and the Washington Post, which had gone public as a corporation only a few weeks previously, from publishing the leaked Pentagon Papers. The Supreme Court correctly decided that the newspapers had a First Amendment right to publish. That was one of the most important free speech decisions of the twentieth century. At the time, no one seriously suggested that the correct answer to the constitutional question was that the Times and the Post, as corporations, had no standing to bring a constitutional claim at all. (And for those of you saying to yourselves, “Well, this isn’t a good example, since the newspapers are protected by the First Amendment’s press clause”: the Court has never given any greater substance to the press clause not already covered in the freedom of speech. And the current proposals to end corporate personhood do not claim to save media corporations any more than pharmaceutical or oil companies.)
In 1992, Planned Parenthood won a hard-fought battle to have the Supreme Court reaffirm Roe v. Wade. Planned Parenthood is a corporation; but no one seriously suggested it had no standing to object to limits on its ability to provide abortions. Today, Google and other media companies are fighting government demands to disgorge the contents of their servers. No one seriously suggests that the government’s power should be unchecked because the media companies, as corporations, have no Fourth Amendment rights to be free of unreasonable searches and seizures. Finally, if corporations were not able to claim the Fifth Amendment rights to be free of government takings, their assets and resources would always be at risk of expropriation. The risk of investing in corporations would skyrocket, undermining the reason we have them in the first place.
In fact, the argument that corporations should never have constitutional rights is embarrassingly flawed. I often think that those who make it are aware of that fact, and are using “corporations are not people” not as an analytic principle but as an organizing and fund-raising tool.
Please don’t misunderstand me. Of course corporations are not genuine human beings. They should not automatically receive all the constitutional rights that you and I can claim. Corporations cannot vote or serve on juries, for example; it does not make any sense to think of corporations asserting those rights, both because of the nature of the right and the nature of the corporate entity. Similarly, the Court has held that corporations cannot assert the Fifth Amendment right to be free of self-incrimination. The exclusion makes sense, since corporations could otherwise evade all kinds of disclosure obligations necessary to make markets work. Can you imagine General Motors having a constitutional right not to disclose safety defects in their cars?
When the time comes, the Court should draw the same line with regard to the freedom to exercise religion. The right is to protect the freedom of conscience, and only actual human beings have a conscience. (And only some of them at that.) There should be allowances for genuine associations of religious people, such as churches. But because of corporate separateness—that is, corporate personhood—it will be quite difficult for companies to show that they are genuine associations of religious people.
Should corporations be able to assert First Amendment free speech rights? The answer depends on the context; that context includes the fact that the corporation is a legal form, but is not completely dependent on it. Sometimes it makes little sense to protect the First Amendment rights of corporations. Securities laws, for example, routinely require corporations to disclose to the public their financial well-being. If you or I were required to reveal our personal finances, we could object to the requirement as coerced speech, a violation of the First Amendment. But corporations’ arguments along those lines would fail, and they should. In fact, in 2011, AT&T asked that information about its finances be excluded from Freedom of Information Act requests, because the statute has an exception for “personal privacy.” The Court unanimously rejected this claim—and Chief Justice John Roberts ridiculed it in his opinion. That exception, he wrote, “does not extend to corporations. We trust that AT&T will not take it personally.”
On the other hand, sometimes it’s important to protect the right of a corporation to speak, as in the Pentagon Papers case, not because the corporation owns free speech rights but because of the rights of human listeners to listen to what it has to say. This idea—that listeners have a right to hear the words of corporate speakers—is actually a liberal idea. In the 1970s, Ralph Nader’s group Public Citizen brought a First Amendment challenge to limits on commercial advertising. They argued that these laws violated the public’s right to know. Legal scholar Adam Winkler argues that Public Citizen’s advocacy led directly to Citizens United. In his majority opinion in that case, Justice Anthony Kennedy said that the public has a right to know corporations’ views. Public Citizen now decries corporate personhood; if truth be told, it’s their own fault.
When it comes to campaign finance, I agree with the personhood opponents that Citizens United wrongly expanded corporate rights to spend money on elections. I also agree that the Court’s mistake traces its origins to the 1976 case Buckley v. Valeo, where the Court struck down limits on individual (human) campaign expenditures as violations of free speech. But the problem in Citizens United was not the Court’s supposed holding that corporations are people, and the problem in Buckley was not a supposed ruling that “money is speech.” Both are mischaracterizations, and the critical yelps they attract are poorly targeted in any event. Corporations occasionally say things that matter to voters, even in elections. And while money is not itself speech it is sometimes essential to make speech audible above the din. Giving it, too, can be an expressive act. Imagine if Texas told its citizens they could not contribute to Planned Parenthood or had to pay dues to the National Rifle Association. It would be inane to argue that the First Amendment would not be implicated because money is not speech.
Nevertheless, there are myriad reasons why a commitment to free speech rights—even corporate free speech rights—should not bar reasonable limits on independent campaign expenditures from both corporations and the super rich. It is not hyperbole to say that without such limits, our democracy is at risk. The billions of dollars flooding the electoral process skew it toward the monied and well heeled, and pervert the nature of public service. The current Court is so enamored with a simplistic, libertarian theory of free speech doctrine that it is blind to those risks. A sane Court could easily construct exceptions to otherwise applicable doctrine to protect the sanctity and fairness of our elections. In fact, Canada’s supreme court has done that very thing.
But notice something. One can support campaign finance regulation and still acknowledge corporate personhood as well.
In fact, most of the money flooding into the electoral process isn’t coming from corporations. It’s coming from rich individuals like Sheldon Adelson and the Koch brothers. There is a lot of corporate money, to be sure. Chevron, the most politically active public corporation in 2012, spent $2.5 million in that year’s election cycle; the Chamber of Commerce, the largest corporate bundler, funneled over $35 million into various 2012 races. But both were dwarfed by the torrent of individual money. Adelson alone threw almost $93 million into various races during the same period, and the Koch brothers ran a network of shady groups that spent over $400 million.
The power of corporations is frequently misused, usually to the advantage of the financial and managerial elite. Employees, communities, consumers, the environment, and the public interest in general are elbowed aside in corporate decisionmaking, unless the corporation can make money by taking them into account. Corporations are managed aggressively to maximize shareholder return. As a result, the risks they run—whether of oil spills in the Gulf or of financial crises erupting from Wall Street—are often unrecognized until too late. The executives who run American corporations do not generally think of themselves as having obligations to the public. The social contract of American corporations is pretty thin.
But these defects of corporate power, fundamental as they are, are not problems of constitutional law or corporate personhood. They are problems of corporate law, and they could be fixed by corporate law.
American courts forged sweeping protections for corporations during the Gilded Age (see sidebar); the legal fortress was slowly breached during the Progressive and New Deal eras. But in many ways we are back where we started. The Supreme Court is applying twisted ideas of free speech and due process to wall corporations off from accountability. In corporate governance, after a mid-century pendulum swing toward more public-spiritedness, managers and investors are now once again fixated on maximizing shareholder value.
In the last few years, however, there’s been a pushback—even a small bandwagon—against the shareholder primacy norm. An article in the Harvard Business Review (that socialist rag!) declared in 2012, “There’s a growing body of evidence … that the companies that are most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing shareholder value. Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do.” New York Times columnist Joe Nocera wrote that “it feels as if we are at the dawn of a new movement—one aimed at overturning the hegemony of shareholder value.” An opinion piece in the Financial Timesrecently argued that “[c]ompanies need a bigger and better purpose than simply maximising shareholder value.” And speaking of socialist rags, a 2011 Forbes article called shareholder primacy “the dumbest idea in the world.”
The case against shareholder primacy was argued best by Steven Pearlstein last year in the Washington Post. Maximizing shareholder value, he wrote, is a “pernicious” ideology that “has no foundation in history or in law.” He continued, “What began in the 1970s and ’80s as a useful corrective to self-satisfied managerial mediocrity has become a corrupting, self-interested dogma peddled by finance professors, money managers and over-compensated corporate executives.” In fact, he argued, “much of what Americans perceive to be wrong with the economy these days—the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods—has its roots in this ideology.”
These skeptics are popularizing what a number of legal scholars and I have been saying for quite a while—that corporations should be seen as having robust social and public obligations that cannot be encapsulated in share prices. Now, executives have legal obligations to take account of shareholder interests. Progressive corporate scholars argue that these “fiduciary duties” should be extended to employees and other corporate stakeholders.
One way to make these obligations operational is to make the decisionmaking structure of the company itself more pluralistic. In a number of European countries, for example, companies have “codetermined” board structures that require representation of both shareholders and employees. Even with these management structures, corporations continue their focus on building wealth—that is the core purpose of the corporate form—but not for a narrow sliver of their investors only. And it works. Germany, where codetermination is strongest, is the economic powerhouse of Europe. A former CEO of the German company Siemens argued that codetermination is a “comparative advantage” for Germany; the senior managing director of the U.S. investment firm Blackstone Group had said that codetermination was one of the factors that allowed Germany to avoid the worst of the financial crisis.
Notice something. These reforms make corporations more like persons, not less. Human beings routinely balance a multitude of interests—I am, for example, a parent, a spouse, a teacher, a writer. Only the rare oddball—Donald Trump, maybe?—behaves as if accumulating money is the paramount and unitary good. Humans have consciences; corporations do not. Left to themselves, they will behave as if profit is the only thing that matters. The best way to constrain corporations is to require them to sign on to a more robust social contract and to govern themselves more pluralistically—mechanisms designed to mimic the traits of human personhood within the corporate form.
If corporations had these traits of personhood, I would worry less about corporate involvement in the political arena. American corporations have become a vehicle for the voices and interests of a small managerial and financial elite—the notorious 1 percent. The cure for this is more democracy within businesses—more participation in corporate governance by workers, communities, shareholders, and consumers. If corporations were more democratic, their participation in the nation’s political debate would be of little concern.
But corporate personhood opponents are making these corporate governance reforms less likely. Personhood skeptics often characterize corporations as having a narrow social role; because of that narrow role, the argument goes, they owe it to shareholders to stay out of politics. The famous words of the conservative economist Milton Friedman, that the “one and only social responsibility of business” is to make “as much money as possible,” were long used as the mantra of corporate managers who wanted to be released from any social obligation. Now the opponents of Citizens United are endorsing a similarly narrow view of business as a way to explain why corporations should be exiled from the public square. To fight corporate personhood, they are bolstering shareholder primacy.
Take, for instance, Justice John Paul Stevens’s dissent in Citizens United itself. He argued, among other things, that corporate speech should be limited in order to protect shareholders’ investments. Shareholders are seen as owners, as “those who pay for an electioneering communication,” and are assumed to have “invested in the business corporation for purely economic reasons.” Stevens argued that corporate political speech did not merit protection because “the structure of a business corporation … draws a line between the corporation’s economic interests and the political preferences of the individuals associated with the corporation; the corporation must engage the electoral process with the aim to enhance the profitability of the company, no matter how persuasive the arguments for a broader … set of priorities.”
Even more revealing, Stevens cites as support a set of corporate governance principles adopted by the prestigious American Law Institute. The Principles were the product of compromise, both asking corporations to look after shareholder interests and allowing them to act with an eye toward “ethical” and “humanitarian” purposes. But Stevens quoted only the language embodying shareholder primacy: “A corporation … should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain.”
Opponents of corporate personhood are following Stevens into the shareholder rights trap. Common Cause now has a “featured campaign” for “strengthening shareholder rights.” The Brennan Center for Justice is supporting a “shareholder protection act” and calls shareholders “the actual owners” of corporations. Professor Jamie Raskin of American University, one of the smartest and most energetic academic opponents of Citizens United, says that corporations should not be spending in elections because, “after all, it’s [shareholders’] money.” This is all shareholder primacy language brought to bear in fighting Citizens United.
Wall Street loves talk of shareholder rights. Sure, many of us are shareholders through our retirement accounts and the like. But widows and orphans are still the minority; most stock held in American businesses is owned by the very wealthy. (The richest 5 percent of Americans own more than two-thirds of all stock assets. The bottom 40 percent—125 million working-class people—essentially own nothing in terms of stock.) So when opponents of Citizens United focus on shareholder rights, they are singing Wall Street’s tune.
I wish this shareholder-protective rhetoric was just that, but it’s not. Corporate personhood opponents urge, as an intermediate measure short of a constitutional amendment, that corporations be required to seek shareholder approval before spending corporate money on political campaigns. I myself have been tempted by this position, mostly because such a rule would help ensure that executives do not spend corporate monies on issues and candidates opposing company interests. But that benefit is probably marginal, and comes at the risk of validating corporate involvement in the political process in furtherance of shareholder value and to the detriment of other stakeholders. Corporations could speak out in favor of Wall Street but not employees? That would be worse, not better.
The efforts of anti-personhood activists are not only in tension with stakeholder theory on the conceptual level. In the political arena, too, a tension exists because the energy for reform is a finite resource. I believe that, in this moment, there is an opening to question the very framework of how we view corporations and their social obligations. But we won’t get anywhere on that front if the progressive left wastes its energy fighting for a constitutional amendment that is unlikely to succeed and would do more harm than good if it did.
To cure the ills of Citizens United, we should stop fighting corporate personhood. Instead, let’s fight to make corporations more like people.