The Economist's Schumpeter has an interesting column on corporate personhood in the most recent issue. He (?) argues:
The legal conceit that companies are natural persons is vital to capitalism. It simplifies litigation greatly: companies can act like individuals when it comes to owning property or making contracts. Timur Kuran of Duke University argues that the idea of corporate personhood goes a long way to explaining why the West pulled ahead of the Muslim world from the 16th century onwards. Muslim business groups were nothing more than temporary agglomerations which dissolved when any partner died or withdrew. Legal personhood gave Western firms longevity. ...Western companies turbocharged the industrial revolution and laid the foundations for mass prosperity.
I agree, as regular readers know. I also agree with Schumpeter's implicit concern that US law confers personhood on the corporation without a coherent theory of why it does so or where the boundaries of that legal fiction are to be located. As I complained after the recent AT&T decision:
Chief Justice Roberts could have summed up his opinion far more succinctly: "Because at least 5 of us say so."
The Citizens United decision last term attracted much criticism--not least from Con Law Professor-in Chief Obama--for holding that a corporation is a person and as such has certain constitutional rights. While I agreed with the holding, I was disturbed that the Chief Justice's majority opinion for the Supreme Court so obviously lacked a coherent theory of the nature of the corporation and, as such, also lacked a coherent theory of what legal rights the corporation possesses.
The utterly specious word games that drive this opinion simply confirm that Chief Justice Roberts has failed to articulate a plausible analytical framework for this important problem.
Returning to Schumpeter, however, I disagree rather strongly with his chief concern:
Nor is it unreasonable to wonder why the idea of corporate personhood should only cut one way: if companies enjoy the same rights as flesh-and-blood humans then shouldn’t they be under the same obligations? The conservative majority on the Supreme Court is in danger of digging a trap for itself: strengthening the arguments of people who insist that companies have a moral duty to pursue social rather than merely business ends.
It's not clear why Schumpeter is worried on this score. On the one hand, corporations already have the "same obligations" as natural persons in the key respects. Corporations have the same obligation to obey the law as natural persons. Corporations are taxpayers, just like natural persons. In time of war, corporations have even been conscripted, being told by the government what to make and what pricesto charge. So why is Schumpeter worried?
In any case, Schumpeter seems also to be concerned that corporate personhood strengthens the arguments of the corporate social responsibility crowd. But how? Just as natural persons are free to refuse to be Good Samaritans, corporations remain free to decline to comply with "moral" duties. Giving the corporation recognition as a legal person, doesn't change that analysis as far as I can tell. Granted, he is subject to strict word limits, but some elaboration would have been helpful.
As it is, I think Schumpeter gets it exactly backwards. The CSR crowd sees corporate personhood as an obstacle to their goals rather than a means to their ends. Corporate personhood gives corporations legal rights and protections that help protect them from the demands of CSR activists.
Finally, Schumpeter offers a propsoed "fix" for the problem:
What would help is if the Supreme Court (and indeed corporate law in general) adopted a clear principle when it comes to the analogy between artificial persons and real ones: that companies should be treated as people only in so far as it is expedient. They clearly need to be able to enter into contracts just like individuals. But they should not be treated as if they experience such essentially human emotions as embarrassment and a desire for self-expression. Thus they should not have the same rights to privacy and political freedom as a citizen, but should have only as much of a right to confidentiality and political participation as is helpful for the efficient functioning of business (including letting firms contribute to the public debate on the regulation of business).
But who decides what is expedient? Ultimately, whether it is expedient for corporations to have some right or another will depend on whether 5 justices of the SCOTUS think it's expedient.
As a decision rule, Schumpeter's proposal sucks. It provides no certainty or predictability, due to the lack of a bright-line test. It relies on a concept-expediency--that is inherently ambiguous and, worse yet, largely subjective.
Consider, for example, his suggestion that firms be granted free speech rights to "contribute to the public debate on the regulation of business." Given how pervasive business is in our culture and how pervasively business is regulated, virtually any corporate speech arguably would fall under that protection. E.g., a corporation could argue against recognition of same-sex marriage because doing so would affect employee benefits.
We need is a better rule, but relying on 5 old men and women in robes--most without any business experience--and their wet behind the ears law clerks to decide what is and what is not expedient is not a better rule. In fact, sub silentio, it's essentially what we do know.
Seeing as corporations are a creation of law (not the Constitution), any rights that corporations have should be codified in the law.
But then we have choice of law problems. For example, what if a company incorporates in Delaware and Delaware passes a law that gives corporations all the rights of a person? Well and good.
But what if California passes a law that gives corporations none of the rights of a person? Then, for the purposes of at lease law enforcement, and perhaps due process, there could be a significant problem for companies incorporating in Delaware, but operating in California.
This would be compounded by federal rules and regulations.
All the more reason to have federally chartered companies? Or not?
My rule would be: corporations are what the codified law says they are, and nothing more. They have no rights other than those given by the incorporating state and recognized by the jurisdiction where they operate.
Posted by: Katall | 03/28/2011 at 08:08 AM