Jess Bravin reports that:
In her maiden Supreme Court appearance last week, Justice Sonia Sotomayor made a provocative comment that probed the foundations of corporate law. ... Justice Sotomayor suggested the majority might have it all wrong -- and that instead the court should reconsider the 19th century rulings that first afforded corporations the same rights flesh-and-blood people have.
Judges "created corporations as persons, gave birth to corporations as persons," she said. "There could be an argument made that that was the court's error to start with...[imbuing] a creature of state law with human characteristics."
A DailyKosite observed: "If Justice Sotomayor keeps up with this line of thinking, she will truly represent a great progressive change on a much too corporate-friendly Court."
Maybe so. Maybe not.
If she keeps up with this line of thinking, the one sure thing is that she'll be making a fundamental error (or, more precisely, two fundamental errors).
There are a couple of different ideas bollixed up in Sotomayor's statement. We need to entangle them.
Let's start with the idea of corporate personhood.
It is certainly true that the corporation's legal personhood is a mere legal fiction. A corporation is not a moral actor. Edward, First Baron Thurlow, put it best: "Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and nobody to be kicked?" The corporation is simply a nexus of contracts between factors of production.
Although the corporation’s legal personality obviously is a fiction, it is a very useful one. Consider a large forestry company, owning forest land in many states. If the company were required to list all of its owners—i.e., every shareholder—on every deed recorded in every county in which it owned property, and also had to amend those filings every time a shareholder sold stock, there would be an intolerable burden not only on the firm but also on government agencies that deal with the firm. Hence, for example, it is useful for the law to allow the corporation to sue and be sued in its own name and to own and deal in property in its own name.
Likewise, the corporation's legal personhood is a useful fiction in constitutional law. Government regulation of corporations obviously impacts the people for whose relationships the corporate serves as a nexus. (You see how hard it is to even talk about the corporation without reifying it?) It's useful to allow the corporation to provide those persons with a single voice when seeking constitutional protections.
Indeed, doing so is not just useful, it is necessary to protect the rights of the parties to those various contracts. As Larry Ribstein explains in Corporate Political Speech, 49 Wash. & Lee L. Rev. 109, because "a corporation is a nexus of contracts, these contract rights should be constitutionally protected to the same extent as other contract rights. Thus, the state must show why intervention in the corporate contract is constitutionally justified given the availability of self-protection through private contracting." He continues:
The Court must begin to base its decisions on well-developed modern economic theory rather than on unsupported assertions about corporations and the political process. It is particularly important to understand that any regulation of corporate speech or of the electoral process can have far-reaching consequences in terms of both the costs of governing the firm and the deadweight costs of effecting wealth transfers among interest groups. Until the Court understands these consequences, its decisions may be the proverbial bull in the china shop, particularly as pressure builds for more extensive reform of campaign financing and of corporate political activity.
While it may be useful to allow the corporation "person" standing to assert collective rights, however, it is very important to remember that this is still a fiction that we embrace to facilitate protection of the rights of individuals. As Ribstein recently blogged:
In a nutshell, viewing the corporation as an entity for First Amendment purposes actually serves to push the speech rights of owners and managers under a rug. Abandoning entity reasoning would focus on what matters for the First Amendment analysis. My article and blog post just linked show that once you do that, and put the arguments for limiting speech rights under an analytical spotlight, they look pretty weak.
A distinct problem with Sotomayor's analysis is her treatment of the corporation as a creature of state law. It is true that a corporation must have a certificate of incorporation from the state to obtain legal recognition as such. We might reasonably infer from Sotomayor's overall comment, however, that she accepts some version of the old concession theory, pursuant to which the corporation was regarded as a quasi-state actor exercising powers delegated by the state. It has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously. In particular, concession theory is plainly inconsistent with the contractarian model of the firm, which treats corporate law as nothing more than a set of standard form contract terms provided by the state to facilitate private ordering.
Note how the two points are related. The state provides the corporate form as a means of facilitating private ordering amongst people. When the state wrongfully interferes with how those people have ordered their relationships, those people need the protections of the Constitution. Collective action problems of various sorts may prevent them from banding together to vindicate their rights. Accordingly, the law allows the corporation--under the control of its board of directors--to seek the necessary Constitutional protections on behalf of the community of stakeholders (and, especially, the shareholders who hold the residual claim).
I treat these issues in more detail in my article, Community and Statism: A Conservative Contractarian Critique of Progressive Corporate Law Scholarship.
