In Defense of Corporate Persons

Corporate personhood is getting a bad name.

After Citizens United v Federal Election Decision in 2010, protecting the First Amendment rights of corporations to spend money in elections, the nation has seen the development of a broad-gauged movement to overturn the decision by way of constitutional amendment. These proposals range from relatively limited and contained grants of Congressional authority to regulate campaign finance to broad attacks on what proponents call corporate “personhood.” This attack on corporate personhood is a mistake.

Corporate separateness — corporate “personhood” — is an important legal principle as a matter of corporate law. As a group of corporate law professors argued in an amicus brief filed in the 2014 case of Burwell v Hobby Lobby,[1] “corporate personhood” simply expresses the idea that the corporation has a legal identity separate from its shareholders, employees, and other constituents. That separateness is inherent in what it means to be a corporation, and 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 in case the corporation goes bankrupt—to invest in corporate stock. In other words, this separateness is what makes capital markets possible. 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.

As a matter of constitutional law, corporate “personhood” deserves a more nuanced analysis than has been typically offered by opponents of Citizens United. Indeed, the concept of corporate “personhood” can in fact be marshaled in arguments against corporations being able to assert constitutional rights. In Hobby Lobby, for example, the corporation claimed a religious basis to resist the obligations arising under the Affordable Care Act to provide employee health insurance that included contraceptives. (The argument was based on the Religious Freedom Restoration Act, but mimicked the form of a constitutional claim.) The professors’ brief argued that separateness meant the shareholders, a religiously conservative family, should not be able to attach their own religious beliefs to the corporation. The family shareholders of Hobby Lobby had chosen to form a corporation 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’s eventual ruling in favor of Hobby Lobby was evidence that the majority doesn’t understand the basics of corporate law. The Court’s mistake was not an embrace of corporate personhood but a rejection of it.

The question of whether corporations should be able to claim constitutional rights, and which ones, does not turn on “personhood” at all. Instead, at a high level of generality, the answer to that question turns on both the purpose of the corporate form and the nature of the right asserted. Few general statements can improve on Chief Justice Marshall’s in Dartmouth College: “Being the mere creature of law, [the corporation] possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.”[2] In effect, the proper analysis of corporate constitutional rights asks what rights are “incidental to its very existence.” This is not an easy question, but it does not turn at all on the question of personhood.

Instead, this inquiry must necessarily begin with a discussion of what purposes corporations serve. This in turn draws on a broad scholarly literature, in the corporate law field for the most part, about the purpose of the corporation. There may be much disagreement about the question of — to borrow a phrase — for whom are corporate managers trustees.[3] But there is broad consensus that corporations are economic entities, created for the purpose of benefiting society by creating wealth through the production of goods and services. The constitutional analysis should begin, then, with the presumption that corporations should receive the rights necessarily incidental to serving that economic purpose, and should not receive those that are not germane to that purpose. This presumption may be overcome in specific contexts or to further other constitutional values, but that is the starting place for analysis.

For example, in thinking about whether corporations should be able to assert First Amendment free speech rights, the answer depends on whether the asserted right is inconsistent with corporations’ economic purpose. 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 wellbeing. If human beings were required to reveal personal finances, they would rightly object to the requirement as coerced speech, a violation of the First Amendment. But corporations’ arguments along those lines would fail, and they should. On the other hand, the best understanding of corporate speech rights would include the ability of the corporation to speak publicly about matters germane to its economic role. That is, speech that is “incidental” to its very existence in the marketplace should receive protection. This includes commercial speech at least, and presumptively even that political speech concerning economic matters germane to the business.

The power of corporations, to be sure, 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 are often unrecognized till 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 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. And in corporate law, what we need are changes in corporate governance to make corporations more like persons, not less. Human beings routinely balance a multitude of interests, and humans have consciences. The best way to constrain corporations is to require them to sign onto 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, one could worry less about corporate involvement in the political arena.

ENDNOTES

[1]The brief can be found at http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/briefs-v3/13-354-13-356_amcu_cclp.authcheckdam.pdf.

[2] Dartmouth College v. Woodward, 4 Wheat. 518, 636 (1819).

[3] E. Merrick Dodd, Jr., For Whom Are Corporate Managers Trustees?, 45 Harv. L. Rev. 1145 (1932).

The preceding post comes to us from Kent Greenfield, Professor of Law and Dean’s Research Scholar at Boston College Law School. The post is based on his article, which is entitled “In Defense of Corporate Persons” and available here.

1 Comment

  1. Namrata Shah

    How would one negotiate the concept of corporate constitutional rights “incidental to its purpose” for benefit corporations whose purposes go beyond simple economic gain?

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