1970-01-01 02:00:00
rlp
Schumpeter
Peculiar people
OVER the past year and a bit the United States Supreme Court has produced two
landmark rulings on the metaphor at the heart of corporate law: the idea that
companies are legal persons. Unfortunately, the rulings point in opposite
directions. In Citizens United (2010) the court ruled that the constitution s
first amendment guarantees companies the same right to free speech as
flesh-and-blood people. This means they have the same right as individuals to
try to influence political campaigns through advertisements. But in a case
involving AT&T the court ruled this month that the company has no right to
personal privacy.
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.
The concept of companies as people became ever more vital as capitalism
developed. Until the mid-19th century companies (as opposed to partnerships)
were regulated by corporate charters which laid down tight rules about what
they could do. But reformers used the idea that companies, like people, should
be captains of their own souls, to free them from these restrictions. The
result of this liberation was an explosion of energy: Western companies
turbocharged the industrial revolution and laid the foundations for mass
prosperity.
America s legal system has been forced to grapple with the meaning of corporate
personhood more thoroughly than other countries courts have done, because the
constitution is so specific about the rights it bestows on people. And for the
most part the Supreme Court has been generous in extending the rights of
flesh-and-blood people to artificial persons (which include trade unions and
other collectives as well as corporations). In Santa Clara County v Southern
Pacific Railroad in 1886, for example, it ruled that companies enjoy the
protections of the 14th amendment (including due process and equal protection
under the law).
Yet these artificial persons have always provoked worries, too. Aren t they
likely to use their collective muscle to trample over the little people? And
won t they invoke the rights of ordinary people without burdening themselves
with the responsibilities? These worries started in Britain in the age of
chartered corporations. In the 17th century Sir Edward Coke, a jurist,
complained that they cannot commit treason, nor be outlawed, nor
excommunicated, for they have no souls. But the complaints have grown louder
as companies have been freed from their charters and the Supreme Court has
reinforced their rights.
Some critics of corporations have also put the idea of corporate personhood to
their own uses. Joel Bakan, a legal academic, has produced a book and a film
both called The Corporation which argue that, if companies are people, they
are particularly dysfunctional and irresponsible ones. In the film, he even
consults a psychiatrist who argues that companies display all the
characteristics of a psychopath: callous disregard for others feelings,
inability to maintain relationships, a willingness to bend any rule and break
any law if it advances their interests, and an obsession with amassing power
and money.
This is overheated rhetoric, to be sure. But you do not have to be a radical to
worry about the might of organisations that can live for ever and take up
residence in dozens of countries at once. 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.
Don t take it personally
The court knows it can take the analogy too far. It has ruled against companies
being allowed to take the fifth amendment (against self-incrimination). It has
restricted companies rights to make political contributions: for example, they
cannot give donations directly to individual candidates. In the AT&T decision
John Roberts, the chief justice, devoted a lot of effort to demonstrating that
personal is more than an adjectival offshoot of person : when a company s
boss asks his finance director a personal question he is not likely to be
asking about the company s balance-sheet. Indeed, the term personal is
frequently used to mean the very opposite of corporate . But all this umming
and erring confuses more than it clarifies.
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). Companies or rather their bosses and
owners should welcome such constraints: any further rights would, sooner or
later, be matched by onerous responsibilities.