Citizens United v. FEC: Stevens' Pernicious Version of the Concession Theory

In his dissent in the Citizen United v. FEC case, Justice Stevens reveals a rather pernicious understanding of the reason society validates the corporate form:

Unlike other interest groups, business corporations have been “effectively delegated responsibility for ensuring society’s economic welfare ....

No. They haven't. 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 Stevens' comment, however, that he 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.

The state provides the corporate form not so the corporation can ensure social welfare, but solely as a means of facilitating private ordering amongst people.

The point goes directly to Stevens' argument that the corporation had no First Amendment rights that were infringed by the law at issue in Citizens United. 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).

In contrast, the logic of Stevens' view would allow the state to hijack the corporation whenever it feels like it.

Comments

[Fred Heutte]

If you disagree with Stevens, do you then believe that corporations have a cognizable existence outside the charter provided by the state?

[skeptic]

I'm amazed that the debate over corporate personhood has completely ignored the role of limited shareholder liability.

If a corporation is nothing more than a web of contracts, how do we justify the special privilege of limited shareholder liability?

I understand the policy rationale for allowing limited liability. But from a constitutional standpoint, all of a sudden we have certain "citizens" (namely, corporations, LPs, and LLCs) that have a distinct advantage over us flesh-and-blood folks.

If the state is able to create a corporation and give it special powers, then why can't the state likewise require certain concessions in exchange?

[Greg]

@skeptic

I think the exact opposite is true. The only difference between a corporation and an unincorporated group of people is limited liability. What does limited contract/tort liability have to do with free speech?

If 7 students get together to rally a political cause on a university campus, we would never deny them the right to free speech. If those 7 students sell sandwiches (without incorporating) to help support the cause and pay for their expenses as the press their political issue of choice, we would still never dream of restricting their rights to speech.

Suppose the same group of students decides that they should limit their personal liability by incorporating (a wise move for sure) and continue in the very same business. What fundamentally changed that causes them to lose their rights?

[luci]

"[T]he logic of Stevens' view would allow the state to hijack the corporation whenever it feels like it."

Bingo!

[skeptic]

response to Greg:

very good point. There's nothing preventing a partnership from incorporating, and there's no good reason to prevent the members of the association from engaging in the same activities regardless of which form they choose.

But, given that the state has just provided the corporation with a distinct advantage over the partnership (limited liability), shouldn't the state have some authority over the new entity?

Granted, my arguments don't actually address the Citizens United decision, since the case involved a congressional imposition on corporations. But there's an unstated federalist dimension to the case -- namely, can the states impose speech restrictions as a condition of granting corporate charters?

Personally, my view is that we would be well-served if states granted corporate charters in a much more restrictive fashion (i.e., corporations are prohibited from supporting political, social, environmental causes, etc.), or we might even consider abandoning limited-liability altogether. Limited liability is a really remarkable development that we all take for granted. But nothing in the logic the common law requires that corporate shareholders be granted limited liability, particularly when we have a robust bankruptcy system for individuals.

[Ghost of Roscoe Conkling]

I don't think Stevens is harking back to concession at all, nor does he need to. Corporations as a class have precisely been tasked with ensuring society's economic welfare--that's the rationale for allowing limited liability not merely among the parties whose affairs the corporate form organizes, but also between shareholders and society. Like the negligence doctrine, incorporation (and especially check-the-box, form incorporation) and the externalities in which it results are permitted because they are supposedly essential for economic growth in an industrialized society.

To the contrary of your statement that "The state provides the corporate form ... solely as a means of facilitating private ordering amongst people," the corporate form has profound effects that go far beyond parties to the corporate contracts. Not only shareholders are affected––employees and creditors are affected, the government is affected, and third-parties injured by acts of the corporation are affected. In fact, the rest of society is frequently left holding the bag for corporations, net of limited liability, and on the understanding that it's all better for society in the end and aggregate.

So, Stevens is exactly right that corporations are different from other interest groups. Moreover, the corporation is specifically intended, and corporate and accounting law designed to ensure, powerful economic concentration and growth. Corporate speech is thus exclusively commercial speech. It's entitled to less protection. Even if it were not––even if the nature of the corporation did not preclude its capacity to engage in political speech––treating corporations like natural persons or other interest groups is akin to pretending that the 24/7 soapbox-ranting of a man who speaks at 1000 dB presents no cognizable threat to the speech rights of other townsfolk.