ProfessorBainbridge.com

Ugh: The Walmart Meltdown

The real bummer [of the Wal-Mart] is that all of this alleged misconduct has happened in recent years—that is, after the Sarbanes-Oxley Act was passed, after the Justice Department began enforcing the Foreign Corrupt Practices Act, after Hewlett-Packard fired its former CEO for inappropriate contact with a female employee, after Satyam imploded in fraud and disgraced “India Inc.” All of these companies had (or still have) top executives who knew what misconduct looked like, and had crystal clear examples of what the consequences would be.

And yet, here we are, staring at a whole new generation of misconduct. You have to wonder whether any of the work that ethics and compliance officers have done in the last 10 years makes much difference.

via www.complianceweek.com

It also makes you wonder why there are people, such as The New Yorker Who Must Not be Named, believe so passionately in the ability of regulators and the efficacy of regulation. Increasingly, it seems obvious that regulation serves to severely burden the honest while doing little to deter the dishonest.

Did Wal-Mart have an obligation to disclose uncharged potential FCPA violations to shareholders?

The Wal-Mart scandal could give rise to potential liability under the Foreign Corrupt Practices Act. It also could give rise to liability under state corporate law and Sarbanes-Oxley. At least for some of those potential sources of liability, a predicate question will be whether the failure to disclose uncharged criminal conduct rendered Wal-Mart's disclosures to its shareholders materially misleading.

Item 103 of Regulation S-K provides that the company must disclose in, inter alia, its annual report to shareholders "any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject."

Importantly for present purposes, the disclosure must include "similar information as to any such proceedings known to be contemplated by governmental authorities."

The SEC has taken the position that this aspect of Item 103 requires disclosure of a prospective or anticipated proceeding if a company is informed by a responsible governmental authority that such an action is “likely.” While there is little guidance, either in the Commission's regulations or elsewhere, as to what constitutes a “proceeding” for purposes of Item 103, the plain meaning of the term “proceeding” as stated in Item 103 suggests that it refers to administrative or adjudicatory proceedings rather than law enforcement investigations. [1278 PLI/Corp 455]

The case law also suggests that failure to disclose uncharged criminal conduct generally will not give rise to liability. See United States v. Crop Growers Corp., 954 F. Supp. 335 (D.D.C. 1997) (holding that Item 103 does not require disclosure of uncharged illegal conduct); In re Browning-Ferris Shareholders Derivative Litig., 830 F. Supp. 361 (S.D. Tex. 1993) (holding that a company need not disclose under Item 103 the fact that a nominee director had received a criminal “target” letter), aff'd mem., 20 F.3d 465 (5th Cir. 1994).

Having said that, however, "failure to disclose uncharged criminal conduct may expose a public company to civil liability if: (1) nondisclosure makes other disclosures materially false and misleading, and (2) nondisclosure is material and directly related to company's financial condition. See, e.g., SEC v. Fehn, 97 F.3d 1276 (9th Cir. 1996), cert denied, 522 U.S. 813 (1997); In re Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628 (3d Cir. 1989); Ballan v. Wilfred American Ed. Corp., 720 F. Supp. 241 (E.D.N.Y. 1989); see also Joseph F. Savage Jr., & Allan Urgenti, Secrets and Lies: Is There An Obligation By Public Companies to Disclose Uncharged Criminal Conduct?, White-Collar Crime Rptr. (Jan. 2000)." [1850 PLI/Corp 289, 312]

Suppose, for example, that Wal-Mart's annual report to shareholders bragged extensively about the profits being earned in Mexico. Would failure to disclose the alleged corruption make those disclosures misleading? That's the big question Wal-Mart will be facing in coming years.

Wal-Mart meet Caremark

The WSJ Law Blog has details on the latest news about the Wal-Mart scandal:

Wal-Mart Stores Inc., the world’s largest retailer by sales, is grappling with very public allegations that it paid $24 million in bribes in Mexico to cut through red tape as it was rapidly expanding in that country in the early aughts. ...

If the allegations are true, Wal-Mart begins with a weak bargaining position. The Justice Department and the SEC  sermonize about the need for companies to self-report compliance issues to the government as they arise (as opposed to six years after the fact, in a bid to preempt a newspaper article) if they want leniency.

The analysis of potential Caremark liability in my post the other day about News Corp would seem to apply to Wal-Mart's board, as well. Again, the key question likely will be whether there were red flags that were "numerous, serious, directly in front of the directors, and indicative of a corporate-wide problem"?

ISS Influence on 2012 Shareholder Voting

In 2011, the Manhattan Institute launched its ProxyMonitor.org database, which catalogs shareholder proposals at America’s largest companies. Drawing upon information from the database, we have been examining a growing trend in shareholder activism wherein investors attempt to influence management and corporate practices through the shareholder voting process, sometimes in ways not directly related to maintaining or increasing shareholder value. [1]

This finding summarizes early trends in 2012 shareholder proposal findings and examines 2012 results to date in shareholder advisory votes on executive compensation—including the significant role played by the shareholder advisory firm Institutional Shareholder Services (ISS). This report also looks ahead to significant classes of shareholder proposals on the horizon that I have previously identified as items to watch for this year [2] — proposals relating to corporate campaign finance and political spending, proposals to separate the positions of corporate chairman and CEO, and proposals to grant shareholders proxy access for their director nominees. While votes on these issues have not occurred to date, several such proposals are on proxy ballots in the coming weeks, and we expect these to be major issues during this proxy season.

via blogs.law.harvard.edu

Very helpful analysis

Legal Theory Lexicon: Persons and Personhood

Corporations and governmental units are legal persons--they have legal rights and responsibilities and can sue and be sued, but we do not say that corporations are natural or moral persons.  (More precisely, the claim that corporations are moral persons would be controversial.)  A corporation is not a natural person, because it is nonnatural in the relevant sense. Corporations are artificial or nonnatural because they are the creations of the law.

via lsolum.typepad.com

Very interesting piece. Go read it.

Judge’s Harsh Words for High Court

Since the Supreme Court adopted the rational-basis test, very few economic regulations have been struck down. Indeed, what really distinguishes the president’s comments from Judge Brown’s is that she recognizes what an unmitigated disaster this has been for the nation. Over the past 80 years, judicial abdication has led to an explosion in the size and scope of the government, including an alphabet soup of federal agencies, massive public debt, special-interest bailouts, and the lowest government-approval ratings in history.

via www.nationalreview.com

Federal merit review of securities offerings? No thanks!

In The Complete Guide to Sarbanes-Oxley, I explain that

Back in 1933, Congress considered three different models of securities regulation that states used in their blue sky laws:

• The merit model: Review by a state official of a proposed offering of securities to determine whether the deal included provisions that were “unfair, unjust, inequitable or oppressive” and whether it offered “a fair return.”
• The fraud model: Simply prohibit fraud in the sale of securities, with civil and/or criminal penalties for committing fraud.
• The disclosure model: Allow issuers to sell very risky or even unsound securities, provided they gave buyers enough information to make an informed investment decision.

In adopting the Securities Act of 1933, Congress opted for a mix of the latter two approaches. As a result, there is no merit review of whether investors will earn a decent return or the terms of the deal are fair. In theory, the act allows you to sell investors a rotten egg, as long as you tell them very clearly that the egg is rotten.

Stefan Padfield nevertheless proposes reconsidering "whether merit review might be a proper regulatory response to a Supreme Court that seems quite willing to strike down regulation of corporate speech."

It's not entirely clear whether he wants to consider merit review as an addition to the current disclosure-based regime or only as a substitute for the current regime in the unlikely event that the Supreme Court were to invalidate the mandatory disclosure regime as an infringement of corporate First Amendment rights.

In either case, however, it's worth remembering why merit review was rejected in the first place. Wendy Gerwick Couture has identified the common complaints lodged against merit review (63 Baylor L. Rev. 1):

Merit standards vary, but a typical statute imposes a “fair, just, and equitable” standard. One component of the merit evaluation is the fairness of the offering price. Regulators assess the fairness of the offering price by examining the company's earnings history and the potential for future earnings, among other factors.

[Merit review thus is] premised on the debatable notion that a security has an ascertainable fair price. In addition, by lowering offering prices below what the market will bear, [it will] divert money away from the issuer to be scooped up by speculators in the secondary market.

… [She then identifies three additional criticisms.] First, merit review is widely criticized as unduly paternalistic. The primary rationale for merit review of offering price is to protect the public from paying unduly high prices for securities--in essence, merit review protects investors from themselves. …

Second, merit review is often criticized for interposing an ill-equipped middleman between issuers and investors.  As recognized by Professor Morrissey, a weakness in his argument for federal merit review is the Securities and Exchange Commission's ineffectiveness in its current role, much less in the expanded role of merit regulator. …

Third, merit review is often maligned for preventing issuers from raising capital by denying them registration. As Professor Rutherford B. Campbell, Jr. succinctly explained: “[M]erit regulation unnecessarily constrains the freedom of people to do business as they see fit, discourages entrepreneurial initiative and impedes the flow of capital to its most efficient use.” 

In an assessment of merit review in Chinese securities law, Robin Hui Huang suggests another problem with merit review systems: "merit regulation has also provided a fertile breeding ground for rent seeking and corruption by regulators. This is because the approval requirement makes the right to do an IPO a scarce commodity and thus leads to many rent-seeking activities in the process." (41 Hong Kong L. J. 261, 270) Later in the article, Huang notes that US state "'blue sky' laws have been vehemently attacked in recent times for its problems similar to those China has experienced, such as associated costs, indefiniteness, inconsistency and the potential for corruption. In a developed market, it seems to be clearer that public regulators are unable to outperform the market in evaluating financial products." (277) Although he notes a potential role for merit review in emerging capital markets, the US capital markets hardly qualify for that characterization.

Therese Maynard notes that merit review also has been blamed for impeding capital formation. "Small issuers in particular complained bitterly that the cost of complying with California's merit review standard in order to register their securities offerings for sale in this state substantially raised their capital formation costs. These issuers, therefore, maintained that the merit review process as applied in California disproportionately impacted the small-business issuer's efforts to raise capital." (30 Loy. L.A. L. Rev. 1573, 1586.)

So let's just say no to merit review.

What would I do if the Supreme Court struck down the current mandatory disclosure regime? (You mean, besides being stunned?) I'd rely on voluntary disclosure. See my article Mandatory Disclosure: A Behavioral Analysis:

Mandatory disclosure is a defining characteristic of U.S. securities regulation. Issuers selling securities in a public offering must file a registration statement with the SEC containing detailed disclosures, and thereafter comply with the periodic disclosure regime. This regime has been highly controversial among legal academics. Some scholars argue market forces will produce optimal levels of disclosure in a regime of voluntary disclosure, while others argue that various market failures necessitate a legal mandatory disclosure system. To date, however, both sides in this debate have assumed, inter alia, that market actors rationally pursue wealth maximization goals. In contrast, this paper draws on the emergent behavioral economics literature to ask whether systematic departures from rationality, such as herd behavior or the status quo bias, might result in a capital market failure. The paper concludes that such a market failure could occur, especially in emerging markets, but also contends that one should not jump to the conclusion that legal intervention in the form of a mandatory disclosure system is necessary, especially insofar as the highly evolved U.S. capital markets are concerned. The paper concludes with a cautionary note against the potential for behavioral economics to be glibly invoked as a justification for government intervention.

Want to see a brain drain?

The UCLA faculty association blog reports that:

In an earlier post, we noted a bill in the state legislature that would limit pay of state employees to the salary of the governor, about $174,000.  The bill exempts UC because of its constitutional position.  Nonetheless, should such a bill be passed, it would create difficulties for UC as an outlier.  The bill advanced in committee yesterday.

Do the morons that are pushing this legislation (I'm talking to you State Senators Joel Anderson and Juan Vargas) realize that the minute such a bill passes, the state's brain drain will accelerate, especially if extended to the UC system? 

UC salaries already lag those of our competitors:

Compensation studies indicate that average UC faculty salaries lag the “Comparison 8” group of universities by 11.2%, and the gap is even greater compared to the private institutions that are UC’s main competitors for faculty. In terms of total remuneration (cash compensation and benefits), UC was between 4% and 7% below the market average before accounting for the 2009-10 furloughs and the restart of contributions to UCRP in 2010. 

Capping the top of the scale will exacerbate the recruitment and retention problems we already face as a result of that lag. Any faculty member making more than the governor would start updating his/her cv the minute it passed. The professional schools and the senior ranks of lots of key science departments would be gutted. And what about star juniors who face the prospect of bumping into a much lower salary ceiling? How do we retain them when they get offers from private schools or public schools in other states without such a moronic cap?

Freedom of choice

Why is it that left-liberals value the freedom of choice when it comes to killing unborn kids but not when it comes to whether I get to eat foie gras?

Chancellor Strine Talks About What Attracts Corporate Businesses to Delaware

Chancellor Leo Strine, Jr. of Delaware’s Court of Chancery gave a speech at his alma mater, the University of Delaware, and discussed why Delaware is an attractive place for companies to incorporate. His Honor indicated that it was not, as some wrongly believe, because Delaware does not tax companies as much as other states. To the contrary, our franchise taxes are higher than many other states. Rather, the top judicial officer of Delaware’s equity court explained that a big factor is the predictability and speed with which decisions are dispatched–without the variable of juries. An article highlighting the presentation is available here. The photo above of His Honor appears in the University of Delaware’s student publication called The Review, and is credited to Joe Marinelli.

via www.delawarelitigation.com

Did Wal-Mart lawyers violate their Sarbanes-Oxley section 307 duties? Did Wal-Mart violate SOX 404?

As I explain in my book The Complete Guide to Sarbanes-Oxley, section 307 of Sarbanes-Oxley and the SEC rules thereunder require lawyers appearing and practicing before the Securities and Exchange Commission are under a duty to "report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company (or the equivalent thereof). If "the counsel or officer does not appropriately respond to the evidence" the attorney "must report the evidence to the audit committee of the board of directors of the issuer or ... to the board of directors."

I mention this because of the NY Times report on the internal investigation at Wal-Mart of corruption at their Mexico subsidiary:

Confronted with evidence of corruption in Mexico, top Wal-Mart executives focused more on damage control than on rooting out wrongdoing.

In one meeting where the bribery case was discussed, H. Lee Scott Jr., then Wal-Mart’s chief executive, rebuked internal investigators for being overly aggressive. Days later, records show, Wal-Mart’s top lawyer arranged to ship the internal investigators’ files on the case to Mexico City. Primary responsibility for the investigation was then given to the general counsel of Wal-Mart de Mexico — a remarkable choice since the same general counsel was alleged to have authorized bribes.

The general counsel promptly exonerated his fellow Wal-Mart de Mexico executives.

When Wal-Mart’s director of corporate investigations — a former top F.B.I. official — read the general counsel’s report, his appraisal was scathing. “Truly lacking,” he wrote in an e-mail to his boss.

The report was nonetheless accepted by Wal-Mart’s leaders as the last word on the matter.

Here's what inquiring minds want to know: Did the lawyers go to the audit committee? If not, will the SEC go after them?

Looks like there may also be SOX Section 404 issues, as well as major securities fraud issues, since Wal-Mart's internal controls seemingly have problems detecting and preventing corruption:

A confidential investigation, conducted for Wal-Mart in 2003 by Kroll Inc., a leading investigation firm, discovered that Wal-Mart de Mexico had systematically increased its sales by helping favored high-volume customers evade sales taxes.

A draft of Kroll’s report, obtained by The Times, concluded that top Wal-Mart de Mexico executives had failed to enforce their own anticorruption policies, ignored internal audits that raised red flags and even disregarded local press accounts asserting that Wal-Mart de Mexico was “carrying out a tax fraud.” (The company ultimately paid $34.3 million in back taxes.)

Wal-Mart then asked Kroll to evaluate Wal-Mart de Mexico’s internal audit and antifraud units. Kroll wrote another report that branded the units “ineffective.” Many employees accused of wrongdoing were not even questioned; some “received a promotion shortly after the suspicions of fraudulent activities had surfaced.”

As I explain in my book The Complete Guide to Sarbanes-Oxley, section 404 of Sarbanes-Oxley management must acknowledge its responsibility for establishing and maintaining a system of internal controls and procedures for financial reporting and an assessment, as of the end of the most recent fiscal year, of the effectiveness of the firm’s internal controls. How could Wal-Mart have provided a positive assessment of their internal controls in light of these problems?

Inside Hubert

As I droned on and on at our recent faculty meeting, this bit by David Frye kept playing in my head:

Inside Hubert (LP Version)

Zuckerberg's Folly

Maybe the Instagram purchase will be a great thing for Facebook, but that's not the point. Facebook is gearing up for an IPO, and Zuckerberg is acting like he is running a sole proprietorship. If Zuckerberg is this cavalier about corporate governance on the cusp of the Facebook IPO, imagine how he will run his company after he has the money.

via www.theconglomerate.org

The mind boggles.

Could News Corp board face Caremark liability?

The Guradian reports that:

Rupert Murdoch faces a growing legal challenge in the heart of his global media empire as lawyers representing alleged victims of phone hacking on US soil begin gathering evidence ahead of possible court action.

Mark Lewis, the English lawyer who has been a driving force behind phone-hacking revelations in the UK, and his American legal partner Norman Siegel, have revealed that they have been approached by at least 10 people bearing complaints relating to Murdoch's News Corporation.

The complaints relate largely to alleged hacking by News of the World journalists into phones in the US, but also extend to other News Corp holdings including Fox News.

Let's assume for the moment that News Corp and/or one or more of its subsidiaries ends up with major fines or civil liabilities arising out of the phone hacking scandal.

You'll recall from our earlier coverage that News Corp reincorporated in Delaware a few years ago, so any corporate law claims arising out of the scandal will be subject to Delaware law.

It was reported back in 2011 that shareholders had already filed derivative suits claiming that News Corps' board had breached fiduciary duties to shareholders by failing to prevent the phone hacking scandal:

News Corp shareholders have alleged that company directors were aware of the extent of the phone hacking in Britain, which resulted in last month's closing of the 168-year-old News of the World newspaper, or turned a blind eye to it.

They say Murdoch's alleged control over the board in part may explain the directors' inattention or reticence to act.

According to the complaints, the scandal has cost News Corp, forcing it to abandon its bid to take full control of pay-TV company British Sky Broadcasting Plc (BSY.L), and opening it up to investigations including an FBI probe.

So far, at least three lawsuits have been filed in Manhattan federal court and one in Delaware Chancery Court.

Various commentators opined at the time that the lawsuits were a longshot. Which is probably right, but let's revisit the question in light of what we know now.

Since the Caremark decision the board of directors of a Delaware corporation has had a duty to ensure that appropriate “information and reporting systems” are in place to provide the board and top management with “timely and accurate information.”  Accordingly, the board of directors’ duty to be attentive to the business of the corporation “includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.” (In re Caremark Intern. Inc. Derivative Litigation, 698 A.2d 959, 970 (Del. Ch. 1996).) 

Failure to ensure that internal controls were in place to prevent corporate employees from breaking the law in conducting the corporation's affairs is a basic Caremark violation. See In re Citigroup Inc. Shareholder Litig., 2009 WL 481906 at 10 (Del. Ch. 2009) (“In a typical Caremark case, plaintiffs argue that the defendants are liable for damages that arise from a failure to properly monitor or oversee employee misconduct or violations of law.”).

A Caremark claim can be prosecuted on any or all of three theories. First, plaintiff can argue the directors were interested in the relevant subject matter or were not independent of persons with such an interest. Here, News Corp may have problems. As an earlier Guardian article detailed, "News Corp's 'independent' directors have strong links to Rupert Murdoch." And as the Economist opined in late 2011:

Today only a handful of big firms have the sort of board that seems hand-picked to be loyal to the boss, chief among them being News Corporation, says Paul Hodgson of GMI, a corporate-governance ratings firm. Mr Hodgson describes recent changes to News Corporation’s board as “cosmetic” and points to an unusually large number of directors who are corporate insiders and thus likely to be loyal to the chief executive, Rupert Murdoch.

Delaware courts have shown very little patience lately with supine boards dominated by imperial CEOs.

Second, plaintiff might allege that the board failed “to assure the existence of reasonable information and reporting systems.” We'll need to find out more about News Corps' internal controls to find out if this theory is in play.

Third, plaintiff might allege that red flags were raised by such systems or otherwise that the directors ignored. As an analysis of News Corps' potential FCPA liability explained:

We know of emails sent that copied in James Murdoch alerting him that the problem of hacking was more widespread than initially thought, although he claims not to have read the entire chain. We also know that the Operation Elvedon arrests were carried out on the basis of evidence provided by News Corp’s Management Standards Committee (“MSC”). Of course, timing will be key – when the information came to light and what steps were or could have been taken to prevent the corrupt practices are obviously relevant.

But what did the board know? And when?

All of this, of course, must be considered in the shadow of the Delaware Supreme Court's strong emphasis that “a claim that directors are subject to personal liability for employee failures is ‘possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.’” Stone v. Ritter, 911 A.2d 362, 372 (Del. 2006). The Supreme Court further emphasized the need for proof of a sustained or systematic failure by the board and the “quite high” bar to liability thereby established:

In the absence of red flags, good faith in the context of oversight must be measured by the directors’ actions “to assure a reasonable information and reporting system exists” and not by second-guessing after the occurrence of employee conduct that results in an unintended adverse outcome.

But this just brings us back to the question posed immediately above: Did the phone hacking scandal throw up red flags that were "numerous, serious, directly in front of the directors, and indicative of a corporate-wide problem"?

Inquiring minds want to know.

The utterly moronic "Peoples Rights Amendment"

Some left-liberal outfit is now pushing something called the Peoples Rights Amendment

to the US Constitution, which would provide that:

Section 1.  We the people who ordain and establish this Constitution intend the rights protected by this Constitution to be the rights of natural persons.
 
Section 2.  People, person, or persons as used in this Constitution does not include corporations, limited liability companies or other corporate entities established by the laws of any state, the United States, or any foreign state, and such corporate entities are subject to such regulation as the people, through their elected state and federal representatives, deem reasonable and are otherwise consistent with the powers of Congress and the States under this Constitution.
 
Section 3.  Nothing contained herein shall be construed to limit the people's rights of freedom of speech, freedom of the press, free exercise of religion, and such other rights of the people, which rights are inalienable.

It is, of course, yet another left-liberal hissy fit induced by the Supreme Court's Citizens United decision. In addition to the usual suspects on the far left, former Speaker of the House Nancy Pelosi has come out in favor of it.

“I think one of the presenters [at a Democratic forum on amending the Constitution] yesterday said that the Supreme Court had unleashed a predator that was oozing slime into the political system, and that, indeed, is not an exaggeration,” said Pelosi.

(Jeez, these folks are so worked up, you'd think the Supreme Court had authorized killing unborn babies or something.)

Here at PB.com, we've been covering the debate over corporate personhood for a while now. To repeat:

For most purposes the corporation is treated as though it were a legal person, having most of the rights and obligations of real people, and having an identity wholly apart from its constituents. Corporate law statutes, for example, typically give a corporation “the same powers as an individual to do all things necessary or convenient to carry out its business and affairs.”

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 corporation is not a legal person with the power to own land, who owns the land? Presumably the shareholders of the company. If the company were therefore required to list all of its 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. But did anybody in Boulder or Madison pause to consider that undesirable outcome of their proposal?

An even more useful feature of the corporation’s legal personality, however, is that it allows partitioning of business assets from the personal assets of shareholders, managers, and other corporate constituents.  This partitioning has two important aspects. On the one hand, asset partitioning creates a distinct pool of assets belonging to the firm on which the firm’s creditors have a claim that is prior to the claims of personal creditors of the corporation’s constituencies. By eliminating the risk that the firm will be affected by the financial difficulties of its constituencies, asset partitioning reduces the risks borne by creditors and thus enables the firm to raise capital at a lower cost. On the other hand, asset partitioning also protects the personal assets of the corporation’s constituencies from the vicissitudes of corporate life. The doctrine of limited liability means that creditors of the firm may not reach the personal assets of shareholders or other corporate constituents. Just how do the brilliant legal minds behind this movement propose to preserve this feature of corporate personhood if they succeed?

The trouble, of course, is that the folks behind this movement are worked up about the Citizens United decision. As Movetoamend.org's website states, their goal is to establish the principle that "human beings, not corporations, are persons entitled to constitutional rights."

Note that what they're doing is kind of clever. Unions were also freed by Citizens United to make independent political expenditures. Unions, however, are uniformly organized as unincorporated voluntary associations. The corporate peronhood proposal thus would leave unions unaffected. Which means a main source of the left's financing would remain free to spend on campaigns and political ads.

On the other hand, what they're doing is mostly stupid. Lots of pillars of the liberal political movement are limited liability entities with the status of legal persons. The NY Times is run by a corporation. Daily Kos is owned by a LLC. The Washington Post is a corporation. Moveon.org is a (nonprofit corporation). And so on. If the goal of preclude corporations from having constitutional rights by denying them the status of legal persons were to succeed both politically and legally, all of these liberal stalwarts would lose -- among other things -- the First Amendment rights they presently enjoy.

In a recent post, my friend and colleague Eugene Volokh makes much the same point in his usual erudite way:

So just as Congress could therefore ban the speech of nonmedia business corporations, it could ban publications by corporate-run newspapers and magazines — which I think includes nearly all such newspapers and magazines in the country (and for good reason, since organizing a major publications as a partnership or sole proprietorship would make it much harder for it to get investors and to operate). Nor does this proposal leave room for the possibility, in my view dubious, that the Free Press Clause would protect newspapers organized by corporations but not other corporations that want to use mass communications technology. Section 3 makes clear that the preservation of the “freedom of the press” applies only to “the people,” and section 2 expressly provides that corporations aren’t protected as “the people.”

Congress could also ban the speech and religious practice of most churches, which are generally organized as corporation. It could ban the speech of nonprofit organizations that are organized as corporations. (Congressman McGovern confirms this: “My ‘People’s Rights Amendment’ is simple and straightforward. It would make clear that all corporate entities — for-profit and non-profit alike — are not people with constitutional rights. It treats all corporations, including incorporated unions and non-profits, in the same way: as artificial creatures of the state that we the people govern, not the other way around.”) Congress could ban speech about elections and any other speech, whether about religion, politics, or anything else. It could also ban speech in viewpoint-based ways.

State legislatures and local governments could do the same. All of them could seize corporate property without providing compensation, and without providing due process. All corporate entities would be stripped of all constitutional rights. Quite a proposal ....

So there you have it. Liberals hate Citizens United so much they're willing to gut the First Amendment in order to undo it. Pity they can't summon up a fraction of that passion for, say, the unborn.