The Evolution of Corporate Legal Standing in U.S. and
,International Law: One View of The Doctrine of
"Corporate Personality"
Michael Zara
Introduction
In the early 1980s a California consumer interest group called Toward Utility
Rate Normalization (TURN) filed a complaint with the California Public Utilities
Commission (PUC), a state oversight board. TURN, which represented a constituency
of utility rate-payers, protested that the local utility, Pacific Gas & Electric (PG&E),
regularly enclosed in its billing envelopes a newsletter that took specific positions on
controversial political topics, such as nuclear power. Arguing that such material
unfairly and one-sidedly propagandized a captive audience of utility customers on
topics of direct financial and political interest to PG&E, TURN asked the PUC to
forbid such enclosures.
Rather than restrict PG&E, the PUC held that TURN would be allowed, four
times per year, to place its own inserts into the billing envelopes; the group could
include whatever information it desired, in the interest of equal access, so long as it
clearly indicated that its viewpoint was not that of PG&E, and the inserts added no
greater cost to the mailing. PG&E sued the PUC. The U.S. Supreme Court eventually
ruled that the PUC had overstepped its power and could not force PG&E to include
TURN's material. The Court's rationale offers us a view of an odd Anglo-American
legal doctrine: the corporation as a "person."
The Court held that forcing PG&E to enclose TURN's inserts in its billing
envelopes violated PG&E's freedom of speech. In so holding, the Court invoked what
are known as "negative" speech rights, that is, the right not to speak, in addition to the
right to speak out as one wishes. PG&E the Court noted, might be compelled on the
basis of TURN's consumer advocacy to respond to the rate-payer group: first, to
counter any TURN claims that PG&E might find objectionable, and, second, to dispel
any idea that PG&E endorsed the opinion of TURN. While the latter point seems
moot, given the PUC's insistence that TURN clearly indicate that PG&E in no way
was associated with TURN positions, it is the argument as a whole-that the
corporation, PG&E, has speech rights-that is most strange.
A corporation is a specific mode of organization that establishes a legal entity
separate from its member(s). There are many formats for incorporation, and members
or owners may range from merely one (a "corporation sole") to an infinite number
Kroeber Anthropological Society Papers
("corporations aggregate"). It is the most common form of business organization; its
primary attributes include perpetuity (i.e., the corporation lives on beyond the life of
any of its founding members), limited liability (limiting members' responsibility for
the financial, legal and moral debts of the company to the amount of their monetary
investment), and, most importantly, the creation of a new "corporate person" which is
considered the legal actor in all corporate affairs. It is, thus, a fictitious person, as
opposed to a "natural", human person; existing only on paper and in concept, it cannot
be injured, killed, imprisoned, etc., nor has it a mind, will, or soul.
Yet, the Supreme Court attributed not only the property and political rights
commonly understood to be those of United States citizens, residents, and
inhabitants-i.e ., all the human beings within U.S. jurisdiction-but also a capacity
of mind to feel "compelled." In short, the corporation, the fictitious person, was
seemingly also considered to be a psychological person, as well. How did such a
construction come about?
This paper explores the development of that construction, albeit in a narrowly
focused manner. The formation or evolution of a legal-political concept is a complex
process, and to completely trace the lines of influence at all levels is beyond the scope
of the present work. The doctrine of the corporation as a person, however, has been
most clearly and functionally articulated through the decisions of the U.S. Supreme
Court, in particular those concerning the economic and political rights of the
corporation.'
Through its "judicial review" power, the Court passes judgment on whether
state and federal laws challenged before it are in line with the parameters set forth by
the U.S. Constitution. These parameters include the personal property and political
rights laid out in the text of the document proper, and in subsequent amendments. In
this role the Court has, since the early nineteenth century, debated and decided on the
nature of the corporation, in cases brought before it by either corporations seeking to
escape regulation, or by regulating branches of government seeking to enforce their
power over the firms.
In fact, from the functional standpoint it may be said that the doctrine of the
corporate person emanates from the Supreme Court, while acknowledging that many
lines of social, cultural, economic and intellectual forces have influenced the Court's
direction. The Court has long occupied a dominant position in our legal system. In the
realm of legal scholarship the Court has unparalleled prestige, but its opinions do not
achieve such status solely of its own intellectual merits (although it may, reflecting
major or pioneering schools of legal thought). Rather, because the decisions-that is,
1 Also worthy of research but not herein addressed are the implications of corporate personality
in the adaptations by the Court of the doctrines of personal jurisdiction and the attorney-client
privilege to the corporation.
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the rulings and their accompanying rationales-have the force of federal policy, the
opinions are structurally privileged in the legal/political community. They are a legal
reality, which other developments and theory must take into account.
That the Court is backed by the full coercive force of the United States
government is of no small importance. Furthermore, because the Court, as interpreter
of the Constitution, the supreme law of the land, is subject only to a rare power of
congress (through the unwieldy Amendment process - requiring a two-thirds majority
of both houses, and ratification by three-fourths of the state governments) its rulings
are powerful, governmental shapers of United States society. Accordingly, in its
limited scope, this study will focus largely on an analysis of corporate personality
doctrine as developed and disputed in certain of the Court's opinions.
It is important, however, to bear in mind that the Court - as but one of three
structural elements in the United States' constitutional arrangement of powers - is, at
various times, more or less influential in shaping governmental policy and practice (at
the federal, state, and local levels), legal theory, and popular opinion. James Willard
Hurst, the preeminent American legal historian of the 20& century, warns us of the
tendency for both the public and the community of legal scholars to exaggerate the
influence of courts (1950:86-87). Certainly his caveat applies to the Supreme Court,
which delivers the most widely publicized decisions.
Similarly, sociologist David Sciulli emphasizes the restricted role that the
Supreme Court in particular plays in the primary, quotidian regulations of
corporations:
Since the founding of the U.S. Government, first state legislatures and
then state courts-not  the Supreme Court, Congress, or any
regulatory agency-have overseen how corporations govern
themselves and exercise their collective power in civil society.
Today, the state courts of Delaware, California, New York, and New
Jersey in particular comprise what legal scholars call the 'corporate
judiciary.' [1999: 1]
So, it must be noted at the outset that while the doctrine of the corporation-as-
a-person may prove to have been instrumental and critical in the development of
American corporate capitalism, it was probably of marginal rather than central effect,
and powerful perhaps less due to its specific content than to its timing and position in
the larger streams of U.S. economic development and ideology. While the general
trends of societal organization may prove to the reform-minded to be inertial and
resistant, to those operating along those trends' vectors the effect would prove to be
accelerative:
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We must not view the inertia of institutional cumulation simply as a
source of resistance to directed effort. As in the case of general social
drift, institutional inertia was a factor of ambiguous import for change
or stability. Where directed effort ran counter to the cumulative drift
of an institution, the problem of achieving purposed direction was
largely one of overcoming resistance . . .. But a determined and
aggressive group could move policy far and fast toward its special
objectives, if its effort moved along the cumulative institution drift.
[Hurst 1972: 81]
Paradigms of Legal and Ideological Change
Hurst distinguishes drift from "direction" and "function" as a key element in
"major social change or stability": "Drift and direction are in a measure polarities; but
there is a sense in which drift is a prerequisite to direction. Function has some of the
character of each of the other styles of cause..." (1972:63). Drift, for Hurst, means the
tendency of institutions, groups, individuals, and society as a whole to move
functionally and ideologically with the prevailing, cumulative trend of largely
unpurposed activity. Rather than designing practice and institutions on the basis of an
explicit societal function, or toward a specific and result (direction), people and their
governing bodies tend to move incrementally along a path created by myriad tiny,
daily decisions, and large forces of techno-economic change. "We tend to exaggerate
the relative importance of conflict or contrivance in United States legal history. Most
of what happened in the growth of this country - as probably in all man's history -
happened without plan or intent or purpose or desire or even awareness of what was in
process of happening" (Hurst 1972:63). Indeed, consciously directed change is limited
by cultural and ideological constraints, a certain "economics of creative effort" (Hurst
1972:68).
I will thus argue that the development of the "corporation-as-person" doctrine
was largely a result of drift, and utilize the concept in analyzing several key doctrinal
transitions. Hurst, again:
Thus social institutions had influence partly by drift-because the
represented values and procedures which men most of the time took
on faith or habit-and partly by stimulating conscious decisions
within the limited frames of reference provided by the perceived
needs of operations. An institution was constituted both by inertia and
by conscious direction. Law was such an institution in United States
history. It was also an institution of peculiar interest because its
structure put uncommon emphasis on direction. [1972:77]
Such an understanding is at odds with the model introduced by Sir Henry
Maine. A cultural evolutionist, in step with the mode of 19' century social science,
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Maine declared that legal systems transformed with society from a basis in status, to
one of contract (1917:100). As societies evolved from "primitive" emphasis on
kinship and clan structures toward a "civilized" notion of free individuals in
association, so too did the legal system. Such a formulation fits nicely, as we shall see,
with the prevailing liberal economic philosophies that are at the root of corporate
capitalism: freedom of the market, rational choice, and individuals in fair and open
competition. In contrast, Hurst's model of drift suggests that the direction of legal
evolution was contingent upon the particular setting of United States socio-economic
change.
The development of corporate doctrine occurred in the dual contexts of (1)
vast economic and technological growth, and (2) the cumulative effect of doctrinal
precedent on subsequent development. As to the first, Hurst declares U.S. economic
evolution to be a field of "[C]ontinuing, open-ended, irreversible change [spelling]
enormous force for drift rather than direction in this society because of the added
effect of cumulation, context and pace" (1972:83). More specifically related to the
subject of corporate doctrine, he also notes that by the 19kh century, at least,
organization itself was the key factor of production (1972:83).
As to the second point-that of the cumulative effect of developing doctrine,
it is important to recognize that-especially in a system such as the Anglo-American,
in which legal/judicial precedent binds, or at least strongly influences subsequent
decisions - concepts and legal fictions like the corporation-as-person may have the
tendency to become self-perpetuating, and reified. Legal historian Robert Gordon
notes that Hurst, rather than "thinking law achieves its capacity for control over social
change from its distinctive forms... believes one of the common causes of 'drift' is
mindless adherence to such forms" (1975:50). More specifically:
For Hurst as for American Progressives generally, the most
conspicuous example of 'drift' is the persistence through the late 19db
and early 20'h centuries of the habitual consciousness of private-
market-and-business-oriented individualism. [Gordon 1975:47]
Methodology and Scope
This inquiry is limited to selected Supreme Court opinions in order to provide
a setting in which to understand the development of doctrine. Robert Gordon notes,
there is a great danger inherent to such an approach: "The study of big decisions
fundamentally misleads, since it is only by tracking long sequences that it is possible
to sketch the dynamics of drift" (1975:52). I attempt to compensate for the
fundamental misinterpretation associated with the case analysis method, by examining
doctrine throughout almost the entire lifespan of the Court (and of the American
republic, as well).
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"Judicial lawmaking" may be viewed as a series of literary events. Through
its opinions the Court rationalizes and disputes its interpretations and applications of
the Constitution to new circumstances. In so doing it legitimates or marginalizes
thought and action, formulating both policy and ideology. Leaving for later the
question of on whose behalf the Court operates, it is worth noting the relation of the
Court's dual role to Gramsci's concept of the intellectuals - and recognizing that
limited though the Court's influence may be (pace Hurst), it is nevertheless a
powerful institution, and thus worthy of study in its own right.
Gramsci defines the intellectual not by his activity (thinking or writing) but by
his function in the social structure (1997:12-13). Intellectuals are not an autonomous
group, but rather a part of the class in which they are embedded and whose interests
they serve - as social and political support for the economic and productive activity of
the class, therefore effectively expressing the hegemonic2 function of intellectuals.
Intellectuals operate in both the private and public sectors-the arenas of "hegemony"
and "direct domination," respectively. Through cultural control and ideology they
operate to effect legitimization of the order, while through coercive power as State
functionaries they achieve consent and administration. As Bowman notes:
...when law provides ideological justification of power relationships
that are themselves sanctioned by law, one encounters the essential
interrelationship between law, ideology, and power. In short, the
coercive and ideological functions of law combine to enable and
stabilize relationships of control. [1996:13]
Hurst observes that while the internal dimensions of corporate power-that is,
issues of organization, stockholder rights, powers of the directors-were primarily
defined by legislative activity, the external dimensions-involving third parties, the
government, or society-at-large-were largely sculpted through a body of judge-made
law (Hurst 1971:125-127). He notes:
[I]t was the existence of the Supreme Court which provided the
means to define and enforce values of the corporate style of business
which could be realized only through law above and beyond the
sovereignty of any one state. [1971:143]
And, we might add, in the absence of federal legislation that (even had Congress been
willing to embrace the project of regulating corporations) dared not transgress that
very state sovereignty. Furthermore, the Supreme Court provided a site in which
2 In its limited reference to Gramsci, this paper considers the term "hegemony" to mean simply
"intellectual and moral leadership" (Granmsci 1997:57, Kurtz 1996:103, 105). No further
glossing of the term is necessary for the purposes of this study: the point is merely to provide a
convenient understanding of the court's role in promulgating ideology.
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individual litigants (human and corporate) could appeal to an ultimate policy-making
authority, without having to generate a broad base of popular support for their
positions, as required to obtain legislative response (1971:145).
The Court discharges these functions by issuing written opinions of three
types. The majority opinion expresses the ruling and "will" of the Court and has the
force of law. Concurring and dissenting opinions agree or disagree, respectively, with
the majority opinion, and are written and/or signed onto by one or more Justices. The
power of the majority opinion extends beyond the actual decision on the merits of the
case, to the specific and general understanding of the nature of reality at issue, and
how the Constitution bears upon it. For example, in the PG&E decision above, the
strength of the ruling was not only in its holding that PG&E had the right not to be
forced to include TURN's literature in its billings, but also in its explication of the
corporation's negative right not to be compelled to speak.
The development of the corporate personality doctrine has taken three major
phases; to these we must also add a current phase of development beyond the national
realm and the jurisdiction of the U.S. Supreme Court, as transnational corporations
(many of them U.S. giants) vie for power in a global arena. First, from the early years
of the l9t" century to about 1880, was a period of finding corporate personhood in the
nature of the corporation as an aggregate of individuals, deriving its rights to property
and access to justice from those of its members. In this period the question of whether
as a person the corporation was also a citizen was highly contested, as a part of a
larger determination of just which attributes of personhood were to be imbued to the
corporation by its human elements.
Second, a period of consolidation of members' attributes to a "natural entity"
concept which effectively reified the fiction into legal fact. This phase began
effectively with the passage in 1868 of the Fourteenth Amendment, which extended to
the state level some of the civil rights provided against the federal government in the
Constitution. Established to provide protection from continued state-level persecution
of freed black slaves, the Amendment soon was pressed into service by ambitious
business attorneys seeking the due process and equal protection safeguards property
taldngs, for their commercial clients. As Horwitz points out, however, not until the
turn of the century did contested notions of the corporation-as-aggregate-person give
way to a serious acceptance of the corporation as a separate entity unto itself (1985).
While the first decades of this phase saw the solidification of corporate personality,
there was considerable debate in subsequent years, and then a long period of ferment,
when the controversy seemed to disappear.
When explicit discussions of corporate personality re-surfaced in Court
opinions of the 1960s, it was in what became a broad assertion of corporate political
rights. Where early corporations sought protection of property the corporations of the
late 20& century seemed, as we shall see, to seek assurance and legitimization of their
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ability to participate in the U.S. political process. By this stage, so corporatized had
the economy become, and so naturalized the concept of the corporation as individual
person, that, with notable exceptions, there was little debate on the Court regarding
the nature of corporate personality and political rights. Most of the opinions focus on
practical considerations of how far the government was to be permitted to limit rights
of speech, protection from unreasonable search, protection form self-incrimination,
etc., that were understood to belong as naturally to corporate persons as to human
ones. This was a far cry from the common law roots of Anglo-American corporate
theory which was, as Justice White noted in his dissenting opinion in a critical
corporate speech rights case, "generally interpreted as prohibiting corporate political
participation" (First National Bank of Boston v. Bellotti, at 819).
Finally, it is important to acknowledge that corporate power is no longer a
primarily national concern. Large business concerns have long been international in
character-whether the colonial trading firms or the latter-day transnational and
multinational corporations (TNCs/MNCs)-but to the extent that any authority could
contain them, such companies were controlled by the nation-states of their origin or
operation. Absent a supra-national authority, there could be neither a coordinated
effort to regulate international corporate activity, nor a direct channel for corporate
relief from national oversight. This is changing, however, even with the acceptance of
global free trade doctrine and the concomitant rise of regional and global
trade/investment treaties and adjudicatory bodies.
For the first time, TNCs are being offered legal standing equivalent to nation-
states in international law. How corporate doctrine is adapting to the contours and
exigencies of the transnational economy will follow. An exploration of similarities
between the U.S. experience with corporate power emergent in a network of
federalized "sovereign" states, and international efforts to regulate/empower
corporations at the global level, will provide a speculative discussion of the continuing
transformation of corporate guise.
Corporate Citizens: Aggregates of Individuals
On April 20, 1807, Thomas Robertson, a Georgia state official acting under
the orders of his superior, Peter Deveaux, entered the Savannah branch of the Bank of
the United States, and carried off gold and silver worth two thousand dollars. Under a
statute passed by the state legislature in 1805, Georgia claimed the right to tax the
corporate Bank. The Bank refused to pay, so Deveaux had Robertson physically took
the taxes due. The Bank sued Deveaux and Robertson in federal court, but the pair
argued that the Bank, as a corporation, had no right to bring an action in federal court.
The success of the Bank's suit hinged on its ability to sue at the federal level, because
otherwise it would have to file in Georgia state court, and the State of Georgia was
involved as a party to the case.
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The United State's Constitution strictly limits the original jurisdiction of the
federal judiciary in this realm to cases involving suits between citizens of different
states (Art. HI, Sec. 2)3. The judiciary is not granted the power to judge cases brought
against any state's citizens by those who are not citizens of another state. Deveaux and
Robertson insisted that the Bank, as a corporation, was not a citizen of any state, nor
could it be, and that therefore the federal court had no jurisdiction. They sought
dismissal of the case.
The argument of these defendants provides a good summary of the period's
understanding of corporate nature. Deveaux's attorney argued:
[A] corporation aggregate is an artificial, invisible body, existing only
in contemplation of law. It has no analogy to a natural person. It has
no organ but its seal. It cannot sue or be sued for any personal injury.
It cannot be outlawed. It is not subject to an attachment of contempt.
It never dies. It cannot be a citizen of any state because it cannot owe
allegiance. It cannot commit treason nor felony. It can have no
residence because it is an artificial, invisible, intangible body. It
cannot appear in person, but must appear by attorney. [Deveaux
1890:73]
The Bank's retort took two distinct lines, one strictly legal, the other
pragmatic. First, the Bank challenged the notion that the corporation as such, was
required to be a "citizen"; rather, it held, the necessary citizenship(s) were already
held by the corporation's members. Otherwise, the Bank claimed, was it not unjust
that merely by acting through a corporation members of the corporation would lose
rights secured to them by the constitution: "The question," asked the Bank's attorneys,
"is not whether a corporation can be a citizen in its corporate capacity. But whether,
by becoming members of the corporation, the individuals who compose it lose, in
their corporate affairs, those privileges which as individuals they possessed before"
(1890:79).
The Bank was advocating a lifting of the "corporate veil," the putting aside of
the nature of the corporation as entity in favor of its nature as collectivity, and an
examination of that collectivity so as to determine a new facet of the character of the
entity. The defendants strongly denied the legitimacy of such sleight-of-hand. But it is
worth taking note of just how the plaintiff-Bank set out the argument. Referring to the
3 "The judicial power shall extend... to controversies between two or more States, between a
state and citizens of another state, between citizens of different states, between citizens of the
same state claiming lands under grants of different states, and between a state, or the citizens
thereof, and foreign states, citizens or subjects." By the time of Deveaux this section had been
modified by Amendment XI (ratified 1798), which removed from the judicial power any suits
against a state by citizens of another state, or by foreign nationals.
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traditions of English law, which at this early stage in the American republics
constituted the primary precedent, the Bank's attorney noted that,
[T]he rule seems to be, not that the individuals confer their private
privileges on the body corporate, but that as often as justice or
convenience require that the corporation should be considered as
composed of natural persons, the individuals are disclosed and their
character becomes the subject of legal contemplation. [1890:67]
Or again, generally:
[T]he corporation is a fiction of law; the individual members are the
real parties. But fictions of law are introduced for the benefit of the
real parties, not for their injury; and they are to be so molded as to
answer the purpose.... If you cannot inquire who are the members of
a corporation, whenever a right depends upon the question of
citizenship, that right cannot be enjoyed by the corporation. [1890:69]
The Bank was constructing a second argument that pivoted on the issue of
convenience, in this case to the corporation, the business. Indeed, its attorneys
declared that, "[T]he argument from inconvenience is strong" (1890:69. Emphasis
added). Among the reasons why the Court should seek citizenship status behind the
corporate veil, in the membership's citizenship, was that to do otherwise would not
only deprive that membership of its individual rights, but would also work to the
detriment of corporate enterprise and smooth corporate jurisprudence. For example, in
this instance the Bank would be subject to a probably unfavorable ruling in the tax
issue, because it could not escape Georgia's jurisdiction. Other problems that the
Bank's lawyers foresaw were the inability of states or citizens to sue corporations
such as the Bank in federal court, or to sue foreign corporation in those courts
(seemingly undermining the constitution's granting of jurisdiction over foreigners to
the federal judiciary) (1890: 69).
The weakness of this argument is underscored by a similar tack the plaintiffs
took on another aspect of failure to lift the corporate veil. Equally problematic was
their contention that were a corporation not to be judged on the basis of its
membership, the law would be near powerless to prevent the existence of corporations
whose members were felons, treasonous, or otherwise undesirable. True though it
might be, it was not a serious concern. And Deveaux's attorneys argued this point in
support of ignoring the character of the corporation's membership:
[Nbo corporation aggregate can derive aid from the personal character
of its members; nor does it incur an disability from the disabilities of
the individuals who compose the society. Neither the infancy,
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coverture, or outlawry of the individuals can affect the body
corporate. [1890:75]
Indeed, such a limited correspondence between corporation and membership
was one of the purposes and attractive elements of the corporate form from the outset.
Christopher Stone notes that the roots of the business corporation were in mercantilist
England of the seventeenth century. As major shipping companies found their capital
investments in voyages rising sharply, they transformed their organizations from loose
confederations of investors toward vesting of power in central bodies that managed
risk and pursued the membership's interests. Born of maritime pursuits, this early
form of business corporation inherited from its shipping forbears the model of limited
liability, by which a ship's investors were liable only up to the amount of their
investment in the voyage (Steve 1975:12-17)4.
Out of the arguments in Bank of the United States v. Deveaux can be drawn
four issues that will surface throughout the development of corporate doctrine and
which make an analysis of the case worthwhile towards understanding the corporation
as a person. First is the dichotomy between a concept of the corporation as having a
distinct existence apart from its membership, and a concept of it as a mere aggregates
of individuals. Bound up in this opposition is the second recurring theme: competing
notions of how the corporation is to be treated under law, and whether privileges and
liabilities should accrue to the corporation itself, or be distributed to the membership.
A third implication flows from this philosophical tension, and a fourth from
its social setting. The notion that a corporation should enjoy the rights and privileges
of is members, in the face of important limitations to the analogy between corporate
and "natural" persons (such as the formers' perpetuity, incorporeality, lack of mind or
soul, inability to be imprisoned, limited liability, etc.), seems a definite step away
from the concept of corporations as creatures of the law (as expressed in their
charters), and toward a conflation of corporations and persons.
These transitions occurred, however, in a particular setting and toward a
general goal. The "argument from [in]convenience" is important in its brief (and
perhaps unwittingly prescient) formulation of the goals of corporation law: to operate
4 Grossman and Adams point out that many early constitutions (and associated laws) of the
several states, expressly prohibited the sort of limited liability arrangements derived from and
prevalent in Europe. Often the state laws required that investors each be fully liable for the
corporation's debts (1996: 379-380). Grossman and Adams' research indicate that, like much
of the explosion of corporate rights, the acceptance of limited liability was due (at least in
important part) to pressure from industrialists and bankers (1996:378). Hurst concurs noting
that "[D]rags derived from the law's own inertias or abstractions did not last much past the
point at which businessmen began to make common and large scale use of the corporate form"
(1970:157).
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to the favor of corporate enterprises at a time when the organizational form was
becoming increasingly popular and critical for the growth of industry. This fourth
implication of Deveaux is crucial to an understanding of the development of corporate
personhood.
The trend of economic and legal growth are recursively related to economic
and legal ideologies that shaped the development of the doctrine of the corporation as
a person. The arguments and oppositions laid out in Deveaux return, modified, in later
cases. The tendency of the decisions in these cases is to increasingly merge the
seemingly opposed notions and properties of entity and collectivity, creating a
synthesized corporate form that combines the benefits of personal existence with those
of corporate status.
Six years after Deveaux, in Terrett v. Taylor (1815), the Court underscored
the property right it had found for the corporation in Deveaux, drawing somewhat
closer the rights of the corporation and those of its members. The State of Virginia
had incorporated the Episcopal Church and granted it post bellum lands that it had
possessed prior to the War of Revolution. The State later repealed the charter of
incorporation, while re-confirniing to the Church its grant of lands. Subsequently, the
Alexandria portion of Virginia was separated from the state in the formation of the
national capital, The District of Columbia (D.C.).
Episcopal officials wished to sell certain of their real estate holdings in
Alexandria, but D.C. authorities claimed the lands for the poor under a statute
annexing unincorporated church properties. In response to the Episcopal Church's
suit, the Supreme Court struck down the D.C. annexation, ruling that Virginia's repeal
of the Church's corporate charter had been an unconstitutional abridgement of
property rights. Writing for the Court, Justice Story allowed that while private
corporations might lose their franchises for "mis-usere or "non-user," and public
corporations (such as counties and towns) might have their charters altered by the
legislature so long as the property was secured by the corporation's members (the
public), nevertheless, absent such showing of cause, private corporations' charters
were an inviolable bestowal of property.
But that the legislature can repeal statutes creating private
corporations, or confirming to them property already acquired under
the faith of previous laws, and by such repeal can vest the property of
such corporations exclusively in the state, or dispose of the same to
such purposes as they may please, without the consent or default of
the corporators, we are not prepared to admit; and we think ourselves
standing on the principles of natural justice, upon the fundamental
laws of every free government, upon the sprit and the letter of the
constitution of the United States, and upon the decisions of most
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respectable judicial tribunals, in resisting such a doctrine. [Terrett
1850: 52]
Leaving aside Story's invocation of "natural law" property rights,5 there are
three important elements to his declaration. In the latter portion of the above passage,
he continues the line of thought from Deveaux that ties the rights of the corporation
and its voice to those of the corporators or members. Additionally, he underscores the
identification of the corporate grant itself as property and edges toward a notion of the
corporation as an entity that once generated cannot be destroyed. The dichotomous
understanding of corporate nature--as between entity and aggregate of individuals -
is evident here, as is the critical distinction between private and public corporations
and their susceptibility to state power.
These concepts receive full attention in a case recognized as a landmark in
corporate theory, Dartmouth College v. Woodward (1918) (Bowman 1996, Lustig
1982). In August of 1816, the college, which had been incorporated in the colonial era
by special charter of King George HI, fired William Woodward from his post as
secretary and treasurer. In December of that same year the New Hampshire legislature
amended Dartmouth's charter, which it had confirmed after the War of Revolution.
Among the provisions of the new charter were a name change (from "Dartmouth
College" to "Dartmouth University"), an increase in the numbers of trustees
(directors) from twelve to twenty-one, and the establishment of a new board of
overseers-with most of the new trustees and overseers to be appointed by the state.
In February of 1817, Woodward, who had kept possession of the College's
account and record books, was appointed secretary and treasurer of the University,
picking up where he had left off the previous August. The twelve Trustees of
Dartmouth College filed suit against Woodward for recovery of the books (or their
value), claiming that the amended University charter and its controlling legislation
were invalid, having deprived them of their property in the original College charter.
The Trustees argued, involving the contract clause of the Constitution:6
[I]f we have satisfied the court that its charter must be regarded as a
contract and such a contract as is protected by the constitution of the
United States, it will hardly be seriously denied that the acts of the
5Property is of course a function of state power -- or of coercive force in the starkest analysis.
Appeals to natural law conceptions of property rights are disingenuous: as Marx pointed out,
there is no historical "state of nature" in which man has existed without social
interdependence. Property, whether collective or private, is a creation of social understanding
and arrangement; in modem industrial society it is created and secured through the agency of
state power, which is thus implicate in even classic liberal protestations. See Giddens
(1971:35) and Gramsci (1997:272).
6"No state shall... pass any... law impairing the obligation of contracts..." (Art. I, Sec. 10).
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legislature of New Hampshire impair this contract. They impair the
rights of the corporation as an aggregate body and the rights and
privileges of individual members. [623]
The Court was satisfied and agreed that the original charter, as confirmed,
was a contract and thus a grant of property, between first the original donors/founders
of the College and later the corporation itself. Following Terrett, the Court established
that the charter of Dartmouth College as a private corporation was not subject to
amendment or repeal by the state; the charter was protected by the contract clause.
Justice Story wrote:
[I]n respect to corporate franchisees, they are properly speaking legal
estates vested in the corporation itself as soon as it is in esse. They are
not mere naked powers granted to the corporation but powers coupled
with an interest. The property of the corporation vests upon the
possession of its franchises; and whatever may be thought as to the
corporators, it cannot be denied that the corporation itself has a legal
interest in them. [700, concurring opinion]
Interestingly, Story took pains to distinguish the corporation as an entity
proper, from the corporators themselves, differentiating the rights of the aggregate
body and the individuals. Elsewhere in the opinion he elaborated:
[I]t [the corporation] is, in short, an artificial person, existing in
contemplation of law, and endowed with certain powers and
franchises which, thought they must be exercised through the medium
of its natural members, are yet considered as subsisting in the
corporation itself, as distinctly as if it were a real personage. [667,
concurring]
The entity/aggregate dichotomy is not resolved here, for the opinions clearly
base the corporate property rights in those of the individual members. But the Court
does provide a fuller understanding of the nature of the corporation, as the majority
opinion demonstrates. Chief Justice Marshall wrote, for the Court, that the
donors/founders were
...represented by the corporation. The corporation is the assignee of
their rights, stands in their place, and distributes their bounty, as they
would themselves have distributed it, had they been immortal....
Their potential rights... were as completely out of the donors at the
instant of their being vested in the corporation... as at present. [642]
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Marshall, therefore, concluded
... that in these private eleemosynary institutions, the body corporate,
as possessing the whole legal and equitable interest and completely
representing the donors, has rights which are protected by the
constitution. [654]
The gross effect of the decision was to remove non-public corporations from
much of traditional state control, originally accepted as the sovereign's right and
power over its own creation. The net effect proved to be much less because in
considering the grant of a special corporate charter the state had ultimate authority
over what it would endow upon the corporation, and which it would reserve to itself -
including, often subsequent to Dartmouth, the express right to amend the charter
(Bowman 1996:45). This was after all, a matter of contract.
However, the decision also attached contract rights to the corporation itself as
distinct from the corporators. This twist had two significant implications. Even against
the Court's insistence that rights derived from those of the members the concept that
the artificial corporate entity had real protected rights, was supported. Although this
support was only one more argument not functionally resolved until the twentieth
century.
More important, against the backdrop of U.S. political philosophy of the time,
was the notion that the corporation itself was an individual who had contracted with
the State of New Hampshire, and therefore required protection from that State's
depredations. The U.S. had inherited from England (and developed a native strain of)
a liberal economic theory that celebrated the individual entrepreneur.
At its core classical liberalism contains an affirmation and defense of
the freedom and rights of the individual whether they be political,
religious, or pecuniary. It is the last of these for which liberalism
offered the strongest defense and understandably so, since it sought to
justify an economic system that was premised on contractual relations
between individuals. To the classical liberal mind government is a
necessary evil. [Bowman 1996:6]
This identification of the private corporation with the classical liberal
individual would prove an essential tool of those who sought to expand the power of
the business corporation, within the ideological limits of acceptability. This
identification also became, when reified, a force that seemed to demand such
expansion. (1979:88).
Bowman connects the power of the corporation as individual entrepreneur to
the "American Dream":
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[A] product of both Enlightenment and the Reformation, classical
liberalism also contains a conception of history as material progress-
a partly economic, partly religious view that identifies industry and
acquisitiveness with the social good and heavenly rewards7 ....
Furthermore, American liberalism contains a version of material
progress that is peculiarly its own-namely the doctrine of the open
frontier, economic expansion, unlimited opportunity and upward
mobility-in short, the American promise. [Bowman 1996:7]
Citizenship Revisited: Sovereignty vs. Economic Practicality
The power of individual states to block corporations' making good on the
American promise was still a critical issue as were the rights and powers of states
versus the federal government in the decades before the Civil War. The general mood
and specific tension in the area of corporate rights against state power is evident in
arguments for the defense in Bank of Augusta v. Earle - and growing schism between
advocates of states' rights and those of federalism:
A person, like a state, may do whatever is not prohibited. A
corporation like this confederation [the federal government] can do
only what is expressly allowed by charter. An American person is a
sovereign, retrained by no fetters but of his own making. A
corporation is this creature, bound by strict obligation. Persons may
traffic everywhere, but why? Because they become subjects wherever
they are. But corporations are amenable only to the state creating
them .... [T]he reverse argument of corporation license is to be a
citizen without being a subject, while all natural persons are subjects,
even though not citizens. [557-58]
Augusta (1839) concerned a bill of exchange drawn by defendant Earle, in
New Orleans, which was purchased by the Bank of Augusta, Georgia through a New
Orleans intermediary. Earle defaulted on the bill, under a Louisiana statue that
outlawed the operation of foreign banks in the state, and held any contracts of such
firms to be void. In the words of counsel for the bank:
[A] corporation is the creature of the law, and it is clothed with all the
powers of a person. The position on the other side [Earle and the State
7 It is worth noting the relation of this Weberian notion to the difficulty in the late twentieth
century of criticizing corporate power as other than based on merit. Weber's observation that
under Calvinism and post-Calvinism, worldly success was an indicator of spiritual superiority,
goes some of the way toward an understanding of why the public is often unreceptive to
suggestions that something is wrong with a "mixed" economy that allows such tremendous
concentrations of wealthy, power and of control of markets.
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of Louisiana] is that when it leaves the state which gave it existence
by granting its charter, it loses its personal existence and has no
existence whatsoever. [524]
The Court ruled in favor of the plaintiff-Bank, invalidating Louisiana's statute
and its ability to utterly exclude even independent intermediaries for foreign firms.
Writing for the Court, Chief Justice Taney mused on the nature of the corporation's
"personal existence."
Now, natural persons, through the intervention of agents, are
continually making contracts in countries in which they do not reside,
and where they are not personally present when the contract is made;
and nobody has ever doubted the validity of these agreements. And
what greater objection can there be to the capacity of an artificial
person, by its agents, to make a contract within the scope of its
limited powers in a sovereignty in which it does not reside; provided
such contacts are permitted to be made by them by the laws of the
place. [588-589]
In contrast to the protocol of Deveaux, which located the rights of the
corporation in those of its constituent human members, Taney seemed drawn toward a
more naturalized entity notion of the corporation, by recognizing a fundamental flaw
in the logic of the previous case. Although the jurisdiction of the federal judiciary was
established in Augusta by the same narrow and restricted determination of the
corporate citizenship used in Deveaux, Taney urged caution. If, he wrote, the Court
were to look beyond the corporate entity to the individual members, in order to
provide rights and privileges to the corporation further than the federal jurisdiction
allowed by Deveaux, it risked undermining the essential nature of the corporate form
itself. If the corporation were to receive full protections due its individual members,
then it must also assume their full liabilities (and vice versa)(586).
However, determining the citizenship of a corporation proved more complex
than even Taney had foreseen. The 1844 case of Louisville, Cincinnati and Charleston
Railway v. Letson led the Court to a determination of citizenship based wholly upon
the corporation as an entity, quite apart from its membership. On appeal from a lower
federal court, the Railway insisted that it was not subject to the Court's jurisdiction as
it was not a citizen of any state, and therefore unable to be sued in federal court by
Letson, of South Carolina. Deveaux had declared corporate citizenship to be a
function of the citizenship of the individual members, but the Railway had discovered
a loophole. Its membership was of disparate character and origin: many members and
directors were citizens of Ohio, but there were members from other states, including
South Carolina - even the State of South Carolina itself was a stockholder/member of
the corporation. In addition, another corporation, chartered in New York, was also a
stockholder/member. Deveaux seemed salvageable only through some sort of complex
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algorithm, and even then some members rights would not inhere to the aggregate
body.
Writing for the Court, Justice Wayne took another route to resolving the
character of corporate citizenship, and thereby salvaging federal jurisdiction. He wrote
that
.a corporation created by and doing business in a particular State, is
to be deemed to all intents and purposes to be a person, although an
artificial person, an inhabitant of the same State, for the purposes of
incorporation, capable of being treated as a citizen of that State, as
much as a natural person. [507]
Wayne's appeal to the local character of the state-chartered corporate entity
sidestepped both the dangers prophesied by Taney, and the complex nature of
corporate membership in increasingly larger and interstate enterprises. However, the
assertion of even limited citizenship due the corporation on its own personal merits
carried risks, as well (see discussion of Paul v. Virginia, below), and certainly
provided support for a conception of the corporation as entity, rather than aggregate.
Indeed, Wayne's logic, in the context of Railway's denial of federal jurisdiction due to
the multiple citizenships of its members, starkly argued against the notion of corporate
character deriving from the character of the corporators.
For some members of the Court, such reification of what was, after all, an
association of investors, exposed the absurdity of corporations' special and amorphous
status. The case, eight years later, of Rundle v. 7he Delaware and Raritan Canal co.
(1852) concerned the diversion of Delaware River water into a New Jersey canal, by
grant of that state to the Canal Company. Rundle, of Pennsylvania, was left thus
without power for his mill downstream and sued of relief in federal district court.
When the case reached the Supreme Court, Justice Daniel objected that the
federal courts lacked jurisdiction, inasmuch as the Canal Company was not a citizen
of any state. The majority, however, disagreed and the case was not dismissed for lack
of jurisdiction. Justice Catron noted in. the majority opinion that abseiit federal
jurisdiction, citizens of other states in disputes with any given state's corporations
would be "...in many cases compelled to submit their rights to judges and juries who
are inhabitants of the cities where the suit must be tried and to contend with powerful
corporations, where the chances of impartial justice would be greatly against them"
(92).
Thus, in the power struggle between state and federal authority that would, in
less than a decade, consume the nation, the status of corporate citizenship oscillated
between moderate and minimalist positions. So too did the character of the
corporation as aggregates versus entity. In 1853., the year after Rundle, the Court
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decided the case of Marshall v. Baltimore & Ohio Railroad, swinging from the
naturalized entity conception of Letson back to a justification of citizenship-based
jurisdiction derived from the nature of the corporate membership.
Bowman observes that in Marshall the Court finally concluded that for
purposes of federal jurisdiction, corporations were to be considered residents of the
several states, rather than citizens and thus able to sue and be sued in the national
courts (Bowman 1996:47). As it had in the previous cases, save primarily for Rundle,
the Court based its characterization of the corporation on that of its members. Over the
strenuous objections of Justices Daniel (who again bemoaned the abandoning of the
Constitutional dictate that "citizens only, that is to say men, material, social moral,
sentient beings, must be parties in order to give jurisdiction to the federal courts"
(Marshall v. Baltimore & Ohio R.R., at 339, dissenting)) and Campbell (who
wondered "when the mischief will end" (ibid., at 353, dissenting)), Justice Grier
reiterated why the Court found it necessary to preserve at almost any cost federal
jurisdiction over corporations.
A corporation, it is said, is an artificial person, a mere legal entity,
invisible and intangible. This is no doubt metaphysically true in a
certain sense. The inference, also, that such an artificial entity 'cannot
be a citizen,' is a logical conclusion from the premise which cannot
be denied.
But a [human] citizen who has made a contract and has a
"controversy" with a corporation, may also say with equal truth that
he did not deal with a mere metaphysical abstraction, but with natural
persons; that his writ has not been served on an imaginary entity, but
on men and citizens; and that his contract was made with them as the
legal representatives of numerous unknown associates, or secret and
dormant persons.
The necessities and conveniences of trade and business require that
such numerous associates and stockholders should act by
representation and have the faculty of contracting, suing and being
sued in a factitious or collective name. But these important faculties,
conferred on them by state legislation, for their own convenience,
cannot be wielded to deprive others of acknowledged rights. It is not
reasonable that those who deal with such persons should be deprived
of a valuable privilege by syllogism or rather sophism, which deals
subtly with words and names, without regard to the things or persons
they are used to represent. [327-28]
The mid-nineteenth century witnessed the beginnings of what would be
massive growth of the corporate business sector with the railroads in the vanguard. It
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is in this light that the Court's insistence on exercising jurisdiction should be viewed
and seen alongside attempts at other levels to negotiate co-existence with powerful
commercial interests. The Grander and Populist movements were not so far removed
in intent from Justice Grier's sentiments cited above. Like the citizens who subscribed
to reformist political beliefs, the Court seemed concerned, at least sporadically, with
the ability of society to maintain principles of fairness and justice during a time of
radical economic and social reorganization.
The anti-monopolists of the period saw the primary threat from corporations
as one of state-granted exclusivity and power and pushed for a liberalization of
corporate chartering requirements (Bowman 1996; Hurst 1970). The demise of special
legislative chartering and adoption by the 1880s of general incorporation acts, brought
the anti-monopolist forces wishes to fruition, making incorporation a matter of right
and relatively simple procedure, rather than a special grant of state power. Although in
theory this liberalization did open the benefits of incorporation to the masses, it also
weakened the state's claim to power over the corporation, which could no longer be
construed strictly as a mere "creature of the state." In actual fact, general
incorporation led in steps, but inexorably, to greater commercial concentration and
dominance than had been known before.
Hurst notes several pressures from the business sector which (combined with
the popular anti-monopoly sentiment) contributed to the widespread adoption of
federal incorporation privileges and an increase in flexibility in terms of charter
available. Such factors as the growth of financial markets (most notably post bellum),
the expansion of the railroad empires, the rise of a consumer product industrial sector
and the development of large-scale investment banking (Hurst 1971:71-73), were the
emergent realities of U.S. society whose impact the Court sought, at times, to make
bearable to the public.
In an era when competing notions of rights, morality and economic
philosophy would destabilize and reconsolidate the republic, the Court was no less
fractured than other institutions in a search for acceptable compromise. From the time
of Deveaux, the Court had simultaneously sought to establish its power over
corporations, without overly infringing on the sovereign right of individual states to
control their creations. Even during Reconstruction, the Court tried to maintain this
separation. In Paul v. Virginia (1868), Justice Field found it necessary to reiterate
Marshall's declaration in Deveaux) that corporate "citizenship" was extremely limited
in its application.
At issue in Paul was a Virginia statute which prohibited foreign insurance
companies from operating in the state without obtaining a license and posting a bond
deposit. The statute provided a penalty for individual agents of such companies who
transacted business in violation of the law. So penalized, Paul sued for relief claiming
that as an agent of a corporate "citizen" of another state, he was due the "privileges
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and immunities" granted to Virginians - in this case the right to sell insurance. In
rejecting Paul's defense, Field wrote that although the corporation was considered a
citizen for the purposes of bringing suit, its members in their corporate capacity were
not entitled to enjoy the other privileges of state citizenship. The Court reporter tersely
summarized in the case headnotes:
Special privileges enjoyed by citizens in their own states are not
secured in other sates by this provision [the privileges and immunities
clause], such as grants of corporate existence and power. [168]
Sovereign power was confirmed, but at the same time economic growth and
the preservation of liberal individual rights were important values that clashed with
such control. The emergent doctrine of business corporations as private persons, and
at times citizens, provided the basis for a laissez faire framework within which to treat
such firms,8 while the Court's exercise of its power to protect corporate property
(Terrett, Dartmouth), and assert states' rights to regulate it (Deveaux, Augusta)
achieved a delicate balance of interest between commercial, state, and federal forces.
The Civil War would, of course, challenge all such balances-one of which,
slavery, eerily countered corporate personality in its denial to human, flesh-and-bone
people any recognition of their status as persons, let alone citizens. The formal
rectification of the freed slaves' depersonalization would occur with the adoption of
the Fourteenth Amendment to the Constitution, and this statute would also prove to be
pivotal in the development of corporate doctrine and corporate power.
The Corporation as Person
The 14d amendment was critical in the transition from a states' rights
paradigm to one that presupposed a more active role for the federal government in
overseeing the internal affairs of state governments. In the pertinent part, the
Amendment extended to the state level the Constitutional protections against arbitrary
government deprivations, firmly establishing the rights of due process and equal
protection.9
It is critical to recognize that laissez faire was an ideology, rather than a practice, on virtually
every level other than that of preventing society from regulating business. Legal historian
Harry Scheiber points out that, contrary to the received wisdom, state policy in the 18h and
19th centuries was instrumental and interventionist toward creating economic growth and
rearranging older patterns of property in order to foster development and capital accumulation
(1975:59, 63).
9 Section 1: "All persons born or naturalized in the United States, and subject to the
jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No
State shall make or enforce any law which shall abridge the privileges or immunities of
citizens of the United States; nor shall any State deprive any person of life, liberty, or property,
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The attractiveness of these provisions to business lay in the fact that the
Amendment extended such protections to all "persons." Corporate regulation had long
been considered a prerogative of the state-level sovereignty and the new law offered
hope of sharply limiting that control. Eventually, those hopes would be realized; but in
the first major case that invoked the new rights, the Court applied a strict construction
that fell far short.
In 1872, four years after the passage of the Fourteenth Amendment, the Court
decided the Slaughter-House line of cases. The state of Louisiana had granted to a
corporation the exclusive rights in the city of New Orleans to provide facilities for
livestock butchery and storage. Prior to the grant, individual butchers had housed and
slaughtered stock on the premises of their own businesses and the trade was spread
among a fair number of these small-scale slaughterhouses. Under the corporate
monopoly grant however, while individual butchers were still free to practice their
trade, they were required to do so on corporate property-and pay the firm for the
privilege, virtually obliterating their narrow margin of profit.
The butchers filed suit protesting that the grant of exclusivity to the
corporation deprived them of their right to earn a living without due process of law
(generally understood as a function of judicial review), as provided for in the new
Amendment. Justice Field, in a dissenting opinion, agreed, arguing for the property
right to one's livelihood. But the majority, through Justice Miller, refused to extend
the due process protection beyond the "Negro race," for whose benefit, Miller noted,
the Amendment had been drafted. The monopoly grant was recognized as a
legitimate, if regrettable, exercise of the police power of the state.
Similarly restricted was the Court's 1876 decision in Munn v. Illinois, a suit
brought by Chicago grain elevator operators against an Illinois statute that regulated
their prices. The legislature had set rate schedules for elevators in the larger cities, but
not the smaller ones; the operators pleaded that they were not receiving the equal
protection of the laws mandated at the state level by the Fourteenth Amendment.
Again, the Court refused to extend the Amendment's protection, and again Field
dissented, declaring the statute in violation of private property rights.
But only a decade later, in a California tax case against a railroad, the Court
announced an abrupt reversal, without offering or accepting arguments as to its merits.
Chief Justice Waite, before an 1886 ruling that struck down Santa Clara County's tax,
stated:
The Court does not wish to hear argument on the question whether
the provision in the Fourteenth Amendment to the Constitution,
without the due process of law; nor deny to any person within its jurisdiction the equal
protection of the laws."
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which forbids a state to deny to any person within its jurisdiction the
equal protection of the laws, applies to these Corporations. We are all
of the opinion that it does. [Santa Clara v. Southern Pacific Railroad,
at 394]
The decision in favor of the railroad corporation in Santa Clara marked a new
era of empowerment of the corporation, although the actual status of the corporation
as person was still contested, hovering as before between notions of aggregate and
entity. While in practical terms the extension of civil rights to the corporation at the
state and local level was a fundamental reordering of the traditional relationship
between firms and the sovereignties that created and legitimated them, the
philosophical embrace of the corporation was not yet much altered. The natural entity
theory did not reach full flower until after the turn of the century (Horwitz 1985).
Nevertheless, there was little fundamental in the treatment afforded natural
and corporate persons. Minneapolis & S.LR. v. Beckwith illustrates that equality of
treatment before the law could translate into an erosion of those few reforms enacted
to protect natural individuals from the increasing and cavalier power of, for example,
the railroad corporations. Decided in 1888, the case concerned an Iowa statute that
provided for awards of double damages against corporations that were not only
negligent, but failed to pay claims in a timely manner. Three of Beckwith's hogs were
killed along a stretch of track that the railroad was required to fence off, and in
response to the- corporation's refusal to pay his claim, an Iowa court awarded
Beckwith double damages.
The railroad protested the award under the equal protection clause of the
Fourteenth Amendment and the Supreme Court reversed the lower court's award. In
fact, many of the seminal corporate cases under the Amendment concerned the
railroads as they were the dominant businesses of the era (Bowman 1996; Lustig
1982).
Legal historian Harry Scheiber notes that while, "at first, the corporate form
was chiefly used for banks, turnpike, bridge and canal companies... by the 1830s
manufacturing enterprises and by the 1850s railroads had assumed central
importance" (1975:90). Scheiber emphasizes that the intense competition between
states to attract businesses not only resulted in a competition to reduce deregulation
and oversight, but also prevented any meaningful inter-state collaboration on existing
controls. What is more, the emergence of the railroads as America's first huge firms
exacerbated the importance of what state-level will existed for regulation in the public
interest:
Organized across nearly half a continent, aggregating millions in
capital, and controlling bureaucracies much larger than those of any
state government, the giant railroad firms outdistance the objective
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capacity of the states-if, indeed, a political will was present-to
exercise controls over them. [1975:99]
This growth both fueled and fed upon the destabilization of regulatory regimes, as
Scheiber observes. Rather than "'uncertainties' that hampered orderly investment
processes and vitiated the advantages of rational market operations," he concludes
that:
the public economic policies of the 19'h century United State . . .
favored private entrepreneurial interests, gave impetus to the growth
and power of the large-scale private corporation and contributed to
the dominance of the economy by giant firms which had firmly
aligned themselves by the 1890s with investment-banking and
financial interests. [1975:117]
This massive industrialization and corporatization significantly altered the
nature, as well as the size and organizational character of the U.S. and state economies
as well. While l9W century economic law helped to reduce the costs and risks of doing
business (Miller 1968:26), the U.S. developed decisively from a relatively self-
sufficiency-oriented, subsistence economy, to a market economy (Hurst 1950). A
critical component of this alteration was the creation of consumer dependency (Nader
1984:956). Not only were end users of products no longer self-sufficient for their
basic needs, but the structure of production itself had changed, leaving first-order
producers (such as farmers) increasingly reliant upon corporatized infrastructure and
pre-market conditions (such as railroad transportation and costs).
Adding to the near-anarchy were the policies of the federal government,
particularly the decisions of the Supreme Court, which was remarkably inventive in
developing doctrine that effectively reduced state oversight authority. In 1890, for
example, a Minnesota railroad commission was virtually stripped of any real power to
regulate in the public interest, by a High Court ruling on the basis of "substantive" due
process.
Also known as "liberty of contract," substantive due process involved an
expansion of the concept of property to encompass intangibles; beyond the notion of
an existing contract as property, the Court thus recognized a property right in the
unencumbered ability or liberty to make a contract (Pound 1909). In response to a
complaint from state boards of trade, the Minnesota commission had determined that
the prices the railroad charged for the transport of milk were unreasonable and ordered
a significant reduction. The Court ruled that by the action of the commission -
performed absent a legitimate judicial finding of fact-the railroad had been deprived
of its right to freely negotiate prices with the milk producers.
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Because of the railroad's monopoly on distance transport the milk producers
were in no position to freely negotiate anything with the corporation; such did not
concern the Court which declared:
[1]f the company is deprived of the power of charging reasonable
rates of the use of its property, and such deprivation takes place in the
absence of an investigation by judicial machinery, it is deprived of the
lawful use of its property and thus in substance and effort of the
property itself, without due process of law and in violation of the
Constitution of the United States; and in so far as it is thus deprived,
while other persons are permitted to receive reasonable profits upon
their invested capital, the company is deprived of the equal protection
of the laws. [458]
The conception of the corporation employed by the Court, above, is not
different from that which it employed previously, but I will argue that the extension of
property rights to intangibles provides an important parallel to the development of
corporate personality itself. And the very power of substantive due process in the
emergent turn-of-the-century economy was that it privileged, by means of corporate
personality doctrine, the ever-larger firms that arose.
And privilege it did, often restraining the corrective actions of government
agents in the face of sometimes-obvious corporate wrongdoing. the 1892 case of
Union River Logging co. v. Noble concerned a federal grant to a railroad of right-of-
way through public lands. The Union River Logging Company received this grant
under a Congressional statute that allowed for such bestowals upon "common
carriers," engaged in the transport for the public of freight and/or passengers. Shortly
after the grant, a newly appointed Secretary of the Interior reviewed the railroad
company's grant application and found it to be fraudulent. Specifically, he found that
the railroad was not a common carrier, but in fact merely an adjunct to the loggings
company's for-profit operations, intended to do no more than transport the company's
logs for the company's exclusive benefit; he withdrew the right-of-way grant,
declaring it void due to fraudulent application.
The Court, however, found the actions of the Secretary of the Interior to be
invalid, because it has an unconstitutional deprivation of the company's property,
without due (judicial) process of law. In a manner similar to that by which Dartmouth
College had, upon incorporation, become immediately the repository of the donors'
and founders' property and rights, the Court declared that in so far as the right-of-way
had been granted
[T]he railroad company became at once vested with a right of
property in these lands, of which they can only be deprived by a
proceeding taken directly for that purpose. If it were made to appear
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that the right-of-way had been obtained by fraud, a bill would
doubtless lie by the United States for the cancellation and annulment
of an approval thus obtained. A revocation of the approval of the
Secretary of the Interior, however, by his successor in office was an
attempt to deprive the plaintiff of its property with out due process of
law, and was, therefore, void. [176]
Due process, substantive due process and equal protection became the
bulwarks of rapidly growing corporate scope and power. Before the end of the century
the Court affimed the latter two empowerments as well by pro-corporate rulings in
Allgeyer(1896) and Gulf (1896) which struck down state statutes that imposed
restraints upon foreign and domestic corporations, respectively. The Court's opinion
in Gulf, however, indicated just how little resolved the Justices were on the roots of
corporate personality, hewing again to collectivity:
-..corporations are persons within the provisions of the Fourteenth
Amendment to the Constitution of the United States. The rights and
securities guaranteed to persons by that instrument cannot be
disregarded in respect to these artificial entities called corporations
any more than they can be in respect to the individuals who are the
equitable owners of the property belonging to such corporations. A
state has no more power to deny to corporations the equal protection
of the law than it has to individual citizens. [154]
The Court was no more certain of the ontological status of the corporation
than were the legal theorists of the period, those whom Horwitz describes as fiercely
in dispute over notions of corporation-as-partnership and corporation-as-entity. "The
argument between entity and contractual theorists during the 1880s and 1890s," he
notes, "was, at bottom, a conflict over whether the individual or group was the
appropriate unit of economic, political and legal analysis" (1985:220).
The Rise of the Natural Entity
Increasingly, the Court's rulings and rapid corporatization of the U.S.
economy were combining to make such theoretical concems moot; the corporate
group was becoming the de facto unit of analysis. But similar changes in the structure
of corporations themselves demanded, Horwitz argues, resolution of the
entity/partnership dichotomy. Beyond the wholesale adoption, by the turn of the
century, of general incorporation statutes that effectively declared the corporation a
private concern. There were several factors that urged that resolution in the direction
of naturalizing the corporate entity:
First, by 1900 it was no longer easy to conceive of shareholders as
constituting the corporation. Changes in the conception of the
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shareholder from active "owner" to passive "investor" weakened the
evocative power of partnership theory. Moreover, the entity theory
was better able to justify the weakened position of the shareholders in
internal corporate governance.
Second, the partnership theory represented a threat to the legitimacy
of limited liability of shareholders. The entity theory, by contrast,
emphasized the distinction between corporations and partnerships.
Third, while the partnership theory pushed in the direction of
requiring shareholder unanimity for corporate mergers, the entity
theory made the justification of majority rule possible. [Horwitz
1985:223]
Just as the nature of corporate and economic realities created pressure on the
Court to legitimate already established circumstances, the conflation of group with
individual that marked the doctrine of corporation as a person, seemed to itself
demand concessions and evolution. In 1905 the Court denied to corporations the
protections guaranteed persons under the Fourth and Fifth Amendments, but not
unanimously. Called before a grand jury investigation of monopoly and restraint-of-
trade under the Sherman Act, the secretary and treasurer of the MacAndrews and
Forbes Co., which had entered into certain agreements with the American Tobacco
Company, refused not only to produce the records and accounts demanded of him, but
also to testify. He claimed as the corporation's agent its rights against unreasonable
search/seizurel' and against having to appear as a witness against oneself ."
The Court denied him these rights, as indeed it denied them to the
corporation, invoking somewhat archaically the notion of the corporation as a
"creature of the state... presumed to be incorporated for the benefit of the public"
(Hale v. Henkel 1950:74), and the practical concerns that such interposition of
corporate officers between the justice system and the intangible corporation would
render impossible any regulation at all (1950:74). Justice Brewer, however, dissented,
arguing that "if the word 'person' in [the Fourteenth] amendment includes
corporations, it also includes corporations when used in the 4" and 5t Amendments"
(1950:85, dissenting opinion).
Brewer's application prefigured the bestowal of wide-ranging political rights
on the corporation in the second half of the twentieth century, but did little to resolve
the prevailing dichotomies. Over the course of the next half-century the Court
10 Amendment IV: "The right of the people to be secure in their persons, houses, papers and
effects, against unreasonable searches and seizures, shall not be violated...".
11 Amendment V: "No person... shall be compelled in any criminal case to be a witness
against himself...".
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wrestled with the implications of the corporate person, alternating, as it had in the
past, between recognition and restraint. On one hand the Court ruled that the notion of
corporate legal personality was intended to be treated as if it were literally true
(Puerto Rico v. Russel & Co., International Shoe Co. v. Washington), while on the
other it reasserted the limitations of extending members' rights to the aggregate body
(Hemphill v. Orloff).
After the 1920s however, even the debate among legal theorists over the
nature of the corporate person disappeared (Horwitz 1985:175). Horwitz attributes
this to the persuasion of the discipline by the Legal Realist school that the issue was
largely moot, that both the entity and collectivity notions could be used to support
either expansion or restriction of corporate power. Calling John Dewey's 1926 Yale
Law Journal article "the last great analysis" of the issue, Horwitz quotes Dewey as
declaring:
[corporate personality] has been employed to make the state the
Supreme and culminating personality in a hierarchy, to make it but
primus inter pares, and to reduce it to merely one among many...
Corporate groups less than the state have had real personality ascribed
to them, both in order to make them more amenable to liability, as in
the case of trade-unions, and to exalt their dignity and vital power
against external control.... The group personality theory has been
asserted both as a check upon what was regarded as anarchic and
dissolving individualism, to set up something more abiding and
worthfuil than a single human being and to increase the power and
dignity of the single being as over against the state. [175]
Whether so convinced, the Supreme Court took up the debate in an altered,
practical form in the 1930s and 1940s when the inclusion of the corporation within the
meaning of the Fourteenth Amendment came under attack from within the Court
itself. Dissenting in 1938s Connecticut General case in which the Court struck down a
California statute imposing a special tax on foreign insurance corporations' out-of-
state premiums, Justice Black reviewed the history and language of the Fourteenth
Amendment, concluding that the Court had been mistaken and bamboozled. Black
writes:
A secret purpose on the part of the members of the [Amendment
drafting] Committee, even if such be the fact however, would not be
sufficient to justify any such construction. The history of the
Amendment proves that the people were told that its purpose was to
protect weak and helpless human beings and were not told that it was
intended to remove corporations in any fashion from the control of
state governments.... The language of the Amendment itself does not
support the theory that it was passed for the benefit of corporations.
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...The first clause of ? 1 of the Amendment reads: 'All persons born
or naturalized in the United States and subject to the jurisdiction
thereof are citizens of the United States and of the State wherein they
reside.' Certainly a corporation cannot be naturalized and 'persons'
here is not broad enough to include corporations.
...The [second] clause of the second sentence reads: 'Nor shall any
State deprive any person of life, liberty or property without due
process of law...' It has not been decided that this clause prohibits a
state from depriving a corporation of 'life.' This Court has expressly
held that the liberty guaranteed by the Fourteenth Amendment against
deprivation without due process of law is the liberty of natural, not
artificial persons.' Thus, the words 'life' and 'liberty' do not apply to
corporations and of course they could not have been so intended to
apply. However, the decisions of this Court, which the majority
follow, hold that corporations are included in this clause insofar as the
world 'property' is concerned. In other words, this clause is construed
to mean as follows:
"Nor shall any State deprive any human being of life, liberty or
property without due process of law; nor shall any State deprive any
corporation of property without due process of law." [Connecticut
General Life Insurance Co. v. Johnson, 1938: 87-88, dissenting
opinion]
Black further noted that no one had suggested that the section of the Amendment that
apportioned representatives to Congress on the basis of the numbers of persons in
each state would apply to corporations. Neither should anyone more widely construe
the same word in the other sections of the Amendment, he argued closing with the
mention that in the Court cases in the first fifty years of the law designed to protect the
freed slaves, "less than one-half of one percent invoked it in protection of the Negro
race, and more than fifty percent asked that its benefits be extended to corporations"
(Connecticut General Life Insurance Co. v. Johnson 1938:90, dissenting opinion).
Black's dissent was joined by the content-identical one of Justice Douglas a
decade later in Wheeling Steel Corporation v. Glander (1948), in which the majority
struck down as violative of equal protection an Ohio tax on the intangibles (e.g., notes
and accounts receivable) of foreign corporations operating in the state. Wheeling was
a Delaware-chartered,'2 interstate corporation that nonetheless had four of its eight
12 The States of Delaware and New Jersey, in particular, led the nation in adopting highly
liberal, deregulative corporate legal frameworks, beginning with the move to general acts of
incorporation and including the lifting of restriction on size, purpose, capitalization and
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production plants in Ohio. The tax statute, which did not apply to domestic
corporations, was probably intended to ameliorate just such situations as those of
Wheeling, whereby a firm doing substantial business in the state could protect a large
portion of its revenues from standard in-state assessment, through its legal-financial
residence out-of-state.
For the Court, Justice Jackson responded to the dissents of Black and Douglas
in an addendum to the majority opinion. His rebuttal however, was of the weakest
variety, merely invoking the Court's long tradition of finding corporations within the
Fourteenth Amendment term "person," and noting that the dissenting justices had
previously supported such construction without demur. Apparently, Justice Jackson's
appeal to the inertia of drift secured his position. His opinion was that of the majority,
and the dissenting opinion never gained enough popularity on the Court to prevail.
The issue seemed largely settled and the corporation safely protected from the
property regulations of the state.
The Political Rights of the Corporation
The corporation had been long regarded as an instrument of property holding
and the expansion of corporate personality that occurred in the first century-and-a-half
of US jurisprudence was largely intended to secure that property from government
control. But, as can be seen in the utilization of the Fourteenth Amendment, and the
bid in Hale v. Henkel to enlarge (with the support of Justice Brewer) the range of
personal freedoms enjoyed by the corporation, the fiction tended to take on its own
ontological life. Once accepted as legitimate, the metaphorical likening of the
corporate entity to the human entity that was the object of political and legal
contemplation and individualism, tended to obscure the differences between the two
and require the enlargement of corporate rights to match those granted human persons.
That such reification was occurring is evident in the establishment of political
rights to the corporation - most notably the right to freedom of speech, but also the
right to petition. Where once Justice Black invoked the absurdity of such notions,
exposing the selective logic in construing the Fourteenth Amendment "persons" to
include corporations, the Court of the later twentieth century invoked a wider concept
of "liberty" than had been before articulated. Where the invocation of personal
property rights on behalf of the corporation might have been justified on the basis of
the corporation's essential function as a property-holding instrument, the application
of personal political rights seems to have been clearly the result of unpurposed
implications of the animistic corporate model. That is the fiction of the corporation as
a personal entity had become normalized: the metaphysical corporate dignitas was
ownership of other corporations. See Bowman (1996), Lustig (1982) and especially Grossman
and Adams (1996), and Hurst (1970).
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granted ritual value equivalent to that of human dignity, requiring the protections and
taboos appropriate to that sacred status.
The First Amendment right of petition'3 was called to corporate service
against anti-trust actions that responded to corporations' (and groups of corporations')
engagement in massive lobbying campaigns. Eastern Railroad Presidents'
Conference v. Noerr Motor Freight (1961), United Mine Workers v. Pennington
(1965) and California Motor Transport v. Trucking Unlimited (1972) all involved
corporate activity to influence legislation and thereby ruin competing firms or
industries. As much as individuals, the Court ruled repeatedly, corporations and their
trade groups were entitled to inform lawmakers of their opinions and to do so even
with the express goal of thereby harming someone else, so long as their methods were
not themselves illegal.
Of course, such corporate "speech" consisted largely of money -
contributions in support of candidates and causes - as what else could it be of an
intangible person? In 1976 the Court addressed this fundamental distinction. While
silent on the issue of the corporate personality, the Court nevertheless expanded the
concept of speech to include political expenditures; in short, "money is speech"
(Buckley v. Valeo). Such a novel construction was consistent with the earlier creation
of property rights in the liberty to make contracts via "substantive" due process and
indeed the naturalization of the corporate person fiction, itself.'4 And whereas
theoretically, finances were not implicated in the exercise of speech by natural persons
(able to vocalize, or sign, in utter penury), they were at the heart of corporate
existence. After Fuller, below, we may speculate that this new fiction, as all fictions
are, was introduced to patch over a huge gap in the fabric of corporate doctrine (itself
fictional), specifically, that no matter how naturalized the concept of the corporation
as a person became, the immaterial and metaphysical corporate entity could never
truly speak, or even have an opinion.
Six years later, in First National Bank of Boston v. Bellotti (1978), the Court
turned to the explicit issue of corporate freedom of speech. Beyond the right to
petition, and considering that "money talks" (Tushnet 1982:259), the Court expanded
13,"Congress shall make no law abridging... the right of the people peaceably to assemble, and
to petition the Government for a redress of grievances."
14 The idea of "money as speech" seems to possess certain animistic - or certainly totemic -
properties of its own. "Speech" - particularly "free speech" - is certainly valorized in
American constitutional liberalism and is often granted a sacred dignity of its own. This can be
seen clearly in the opinion and discussion of Bellotti below, in which the Court detenmined that
what is protected by the First Amendment is not so much the right to speak, but the speech
itself - possession of which seems to cloak the speaker in its dignity. The endowment of this
sacred status on money (itself differently symbolic) is an interesting transmigration perhaps on
a par with that of the movement of the royal dignity to the corporation (Kantorowicz,
Rabinow, above).
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the rights of corporations to "speak" by sending money to influence elections. A
consortium of bank associations and other business corporations had challenged the
constitutionality of a Massachusetts statute that forbade political expenditures by
those types of firms, on issues, referenda, or legislation that did not "materially affect"
the business' interests. in particular, the law prohibited such spending in relation to
any proposed individual income tax measures, and the case at bar concerned expressly
such expenditures.
By an intriguing logic, the Court determined that the speech rights of
corporations were thus violated. Sidestepping the direct question of whether
corporations by their nature were entitled to freedom of speech, the Court allowed that
they were by virtue of their capacity to speak-through camping expenditures, money
talking-and the nature of speech itself was protected. In this construction, the
freedom of speech/money itself imbued the corporation with the right to express it.
Justice Powell wrote for the Court,
[T]he [federal appeals] court below framed the principal question in
this case as whether and to what extent corporations have first
Amendment rights. We believe that the court posed the wrong
questions. The Constitution often protects interests broader than those
of the party seeking their vindication. The First Amendment, in
particular, serves significant societal interests.'5 The proper question
therefore is not whether corporations 'have' First Amendment rights
and, if so, whether they are co-extensive with those of natural
persons. Instead the question must be whether [the Massachusetts
statute] abridges expression that the First Amendment was meant to
protect. We hold that it does.
15 Bigelow v. Virginia (1975) and Virginia State Board of Pharmacy v. Virginia Citizens
Consumer Council (1976) firmly established the concept (earlier propounded by Justice
Homes) of the "marketplace of ideas," in which ideas competed for utility and acceptance as
truth. Under such a regime, there existed a right within the freedom of speech, corollary to the
right to speak, which was the right to hear what was said. This "listener/consumer-centered"
aspect was critical in establishing protection for commercial speech, and political speech no
matter what the source (e.g., corporations).
In keeping with the actual operations of the US markets - generally contrary to the
espoused principles of free and fair trade, through control of market pre-conditions by large-
scale (corporate) enterprise - the Court in Buckley had held that legislative action designed to
ameliorate enormous differentials of power, wealth and access to media, was unconstitutional.
"The concept that government may restrict the speech of some elements of our society in order
to enhance the relative voice of other is wholly foreign to the First Amendment, which was
designed 'to secure' the widest possible dissemination of information from diverse and
antagonistic sources," and "to assure unfettered interchange of ideas for the bringing about of
political and social changes desired by the people'"' (Buckley, at 48-49).
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... If the speakers here were not corporations, no one would suggest
that the State could silence their proposed speech. It is the type of
speech indispensable to decision making in a democracy, and this is
no less true because the speech comes from a corporation rather than
an individual. The inherent worth of the speech in terms of its
capacity for informing the public does not depend upon the identity of
its source, whether corporation, association, union or individual.
[775-77, italics added'6]
"The common law" wrote Justices White, Brennan, and Marshall, in dissent,
"was generally interpreted as prohibiting corporate political participation" (819,
dissenting). Justice Rehnquist likewise rejected the Court's logic in finding corporate
speech rights derived from the speech itself. Arguing for a state's right to regulate its
creation, he also noted that the corporation's interest in protecting its property need
not be enabled by expansive political rights, so long as the state and federal judicial
machinery were in place (826, dissenting).
That the corporate form was a special grant of privilege and protection had
been downplayed, certainly since Dartmouth and especially in the wake of nation-
wide adoption of liberal statutes of general incorporation. But the protections
Rehnquist noted - perpetuity, limited liability and others such as the ability to hold
property and sue corporately - were still endowed by the state and backed by its
police power. In the face of what was called "a conception of property as existing
prior to the state" (Horowitz 1985: 220-21), Rehnquist's dissent in Bellotti argued for
a recognition that at least some forms of property and existence were a function of the
state; they therefore re-asserted in the realm of political activity the sovereign right not
to expand those grants of privilege. Accordingly, Rehnquist disposed of the question
to what extent the existence of a corporation implied wider rights necessary for it to
exist. Referring to the oft-cited example of a newspaper corporation, which would
seem necessarily to possess substantial speech rights, he wrote:
It does not necessarily follow that such a corporation would be
entitled to all the rights of free expression enjoyed by natural persons.
Although a newspaper corporation must necessarily have the liberty
to endorse a political candidate in its editorial columns, it need have
no greater right than any other corporation to contribute money to that
16 As discussed above, the emphasized passage indicates the Court's emphasis on speech,
itself, as the protected entity. It is the speech that may not be "silenced," rather than any
speaker. Again, this seems an interesting conceptual embodiment, and is consistent with the
Court's ideas on the "marketplace of ideas." and a ranking of protection due speech as either
political, commercial, or unprotected (fighting words, "fire" in a crowded theater, etc.)
Nevertheless, such a construction, focusing as its object an intangible speech (as an element of
society) certainly differs from an understanding of political protections.
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candidate's campaign. Such a right is no more 'incidental to its very
existence' than it is to any other business corporation. [825,
dissenting opinion, note 4]
Similarly, Rehnquist was aware that the state-endowed special powers of the
corporation might put it at an unfair advantage in the "marketplace of ideas."
[A] state grants to a business corporation the blessings of potentially
perpetual life and limited liability to enhance its efficiency as an
economic entity. It might reasonably be concluded that those
properties, so beneficial in the economic sphere, pose special dangers
in the political sphere. [825-26, dissenting opinion]
This awareness, however, collided with the Court's warning in Buckley that
the government had no business correcting such imbalances, at least not by attempting
to "restrict the speech of some elements of our society in order to enhance the relative
voice of others" (48-49).
By the 1970s, however, it had become clear that the power of big business in
politics was often drowning out the voices of any citizens and consumer-interest
groups. Where public utilities exercised unfair power, attempts to rectify the
imbalance were led by the actions of state oversight commissions - sometimes
through more novel means than merely restricting the voice of the more powerful
party. But such efforts roundly met with defeat in the Supreme Court and led to
expanded notions of corporate speech rights. This phenomenon was by no means
limited to utilities regulation however, but extended throughout society.
Just as the new wave of social regulation reached its peak in the late
1970s, the Supreme Court conferred First Amendment political rights
on corporations. On balance, this development in constitutional law
might have done more to enhance corporate autonomy than all the
new social regulations might have done to decrease it. [Bowman
1996:141]
In the winter of 1973, the New York State Public Service Commission (PSC)
ordered utilities to stop advertising that promoted electricity usage, due to a fuel
shortage. After three years the shortage ended, but the PSC extended the ban, in
support of its new energy conservation programs. The Central Hudson Gas & Electric
Co. - which was free under the terms of the ban to continue any informational
advertising that did not promote consumption - sued the PSC, claiming a violation of
First Amendment speech rights. The Court, in striking down the PSC ban, did not
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bother to re-articulate its earlier derivation of corporate speech rights from the speech
itself,17 but simply asserted that Central Hudson's rights had been violated.
Rehnquist's dissent was starker than it had been in Bellotti, perhaps because
in Central Hudson, the public utility, possessing a state-sanctioned monopoly, hewed
closer to the old model of special chartering that any contemporary private firm. "...I
disagree," he wrote, "with the Court's conclusion that the speech of a state-created
monopoly, which is the subject of a comprehensive regulatory scheme, is entitled to
protection under the First Amendment" (Central Hudson 584, dissenting opinion).
The Court struck down another PSC decision the same year, in a case that was
a mirror image of PG&E. In Consolidated Edison v. Public Service Commission, the
Court found wanting a PSC ban on ConEd's insertion of politically controversial
material into its billing envelopes. Responding to a 1976 ConEd insert that argued for
the efficacy and expansion of nuclear power, the Natural Resources Defense Council
(NRDC) had requested that ConEd include with its bills NRDC's rebuttal piece.
ConEd refused and the PSC, on appeal from NRDC, barred all utilities from abusing
the privacy of their captive ratepayer audience by inserting flyers on controversial
public policy. Over Rehnquist's assertion of the state's right to regulate a monopoly
power of its own creation, the Court again struck down a PSC ban.
It was the reverse scenario that was explored in PG&E. Recall that in that
1986 case the Court invalidated a California Public Utilities Commission order that
Pacific Gas & Electric include in their billing envelope a consumer-interest insert
from a local rate-payer group; the order was held to violate PG&Es right not to speak.
Two elements of PG&E are worth noting. First, unlike Consolidated Edison (in which
the oversight commission sought to equalize the relative voices of the utility and
reform group by restricting that of the utility) the PUC in PG&E attempted to balance
the power differential by allowing for "equal time," so as not to violate the principle
set forth in Buckley.
But this resulted in the Court's finding of a novel and expanded speech right
for the corporation. As opposed to the "hearer-centered" approach explicated in
Bigelow and Virginia State Board of Phannacy, PG&E developed a "speaker-
17 Perhaps the Court did not re-argue the speech protection as rooted in the speech itself
because, under the circumstances, the speech was offensive - even for commercial speech. The
New York fuel shortage was but a piece of the national energy crisis associated with the Arab
oil embargo of the early 1970s and the latter produced a widespread awareness of the need to
curtail energy consumption. The PSCs action was in line with many other initiatives that
stemmed from the crisis, such as, for example, federal gasoline consumption standards for the
automobile industry. It is somewhat ironic, given the contemporaneous push toward expanded
nuclear energy production and the popular demonization of Arabs that accompanied OPEC's
embargo, that the PSC ban was not hailed by the Court as a measure in the national interest, if
not national security.
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centered" approach that included the right not to speak or be involuntarily associated
with the speech of others, and imbued the corporation with the capacity of mind to
feel so "compelled" (Bowman 1996:158). Not surprisingly, Rehnquist dissented. In
addition to his noting that PG&E, as a public monopoly, should not be subject to the
regulation its state grantor saw fit,'8 he wrote:
This Court has recognized that natural persons enjoy negative free
speech rights because of their interest in self-expression; and
individual's right not to speak or to associate with the speech of
others is a component of the broader constitutional interest of natural
persons in freedom of conscience.... Extension of the individual
freedom of conscience decisions to business corporations strains the
rationale of those [precedent-setting] cases beyond the breaking point.
To ascribe to such artificial entities an 'intellect' or 'mind' for
freedom of conscience purposes is to confuse metaphor with reality.
[The Court in Bellotti and Consolidated Edison] recognized that
corporate free speech rights do not arise because corporations, like
individuals, have an interest in self-expression.... It held instead that
such fights are recognized as an instrumental means of furthering the
First Amendment purposes of fostering a broad forum of information
to facilitate self-government. [PG&E v. Public Utilities Comm'n 32-
33, dissenting opinion]
Metaphor did indeed seem to have been substituted for reality. From the time
of Deveaux, the corporation had been transformed from an artificial creature of the
state to a rights-bearing entity requiring, in Rehnquist's words, "freedom of
conscience" - if not entirely possessing the conscience itself. By no means did the
Court of the 1980s and 1990s strike down every infringement upon corporate speech;
in Federal Election Commission v. National Right to Work Committee (1982) and
Austin v. Michigan Chamber of Commerce (1990), respectively, the Court upheld
federal and state campaign finance laws, somewhat curtailing the ability of corporate
money to talk (but not coincidentally generating and legitimating the political action
committee (PAC) regime of campaign finance).
18 Rehnquist did not take lightly state grants of monopoly power, or even the ordinary grant of
special privilege that accompanied general incorporation. Although the Court generally drew a
distinction between the rights of commercial corporations and those of non-profit corporations
organized for political purposes, Rehnquist held that it was the legislature's right to restrict the
freedom of even he latter type, if it so deemed necessary. His dissent in Federal Election
Commission v. Massachusetts Citizens for Life, Inc. supported a provision of the Federal
Election Campaign Act that the Court struck down. Rehnquist wrote that the provision, which
prohibited corporations from spending general treasury funds in an election for public office,
was a justifiable right of the Congress to legislate "prophylactically" against corruption.
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It is important to note however, that these rulings were justified as legitimate
restrictions upon the established corporate freedom of speech, given a critical and
narrowly tailored state interest. In Austin, for example, those who dissented did so out
of conviction that the state's rationale was not nearly so compelling to warrant
approval. Justice Scalia, covering all possibilities, declared that "[T]he categorical
suspension of the right of any person, or of any association of persons, to speak out on
political matters must be justified by a compelling state need" (Austin v. Michigan
Chamber of Commerce 1990:680, dissenting opinion) - and it was clear that he was
not so compelled.'9 'The very nature of the debate, however, indicates the extent to
which corporate political activity has been legitimized. The issue is not whether
corporations should have political rights (they do), but under what circumstances and
to what extent they should be restricted" (Bowman 1996:155).
Beyond the U.S.: the Global Economy
Some might argue that the issue of restricting corporate power is moot. "Fifty-
one percent of the world's top on hundred economies are individual corporations,"
according to Barlow and Clarke (1998:2), and Bowman (1996:288). Both base their
figures on company sales and gross national products. Barlow and Clarke elaborate
that:
Mitsubishi is richer than Indonesia, the fourth most populous country
on earth. General Motors has more money than Denmark. Ford
trumps South Africa; Toyota is bigger than Norway; Philip Morris
beats New Zealand. Wal-Mart is actually larger than 161 countries,
including Poland, Israel and Greece. Moreover, the combined sales of
the top two hundred corporations in the world outstrip the combined
economies of 182 countries. In other words, there are only nine
countries left in the world, including the United States, with sufficient
economic clout to checkmate these global giants. [1998: 2-3]
The economic clout of these transnational companies (TNCs) translates into
effective power, whether defined as sheer capability, or the practice of affecting
outcomes (Strange 1996). Researchers detailed the power global markets, capital and
corporations exercise over the world's governments, economies and populations
(Barnet and Muller 1974; Palast 1978; Sassen 1993, 1996). Such power seeks
consolidation and legitimate status, an official, sanctioned recognition of its de facto
authority.
19 Note that here (and like the decision in PG&E, which identified the violated speech right to
be that of the speaker, albeit a corporate one) Scalia rejects earlier-discussed notions of speech,
itself, as the protected entity. Rather, and I believe more traditionally, he identifies the speech
right as inherent to and emanating from the subject speaker.
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The problem of legitimization emerges from what is claimed to be the
existence of a third legal system between state law and public
international law. The privatization of the unification of laws and the
complete development of paralegal law, a "non-national private law"
that goes with it, results in an avoidance of national legislatures and
their traditional processes, which includes procedural safeguards and
check and balances. [Berger 1997: 956]
This "problem of legitimization" is long that which the corporation has had to
ameliorate. The history of U.S. corporate doctrine has been the story of the increasing
power of the corporate form and of the corporation's quest for legitimacy. That the
arena of corporate activity has widened to a global economy matters little in the
framing of essential components: questions of citizenship, regulation, protection,
accountability. The immense structural power of the transnational corporate sector
must yet be consolidated through politics and ideology, just as that of the emergent
national firms have been.
With Deveaux, we began to study corporate legitimacy from the standpoint of
citizenship. Although the corporation is still not recognized by U.S. law as a citizen it
is point of fact treated as one just the same (save for certain important franchises such
as the vote). The development of "corporation-as-person" doctrine has been the
struggle surrounding the terms of that treatment, and over contested definitions of
citizenship. If the field of legitimacy and citizenship has been ripe and turbulent
within the growth of a constitutionally-arranged political order such as that of the
Untied States, how much more so must it be within the relatively unstructured and
emergent global arena?
Both the similarity and difference of context make an exploration of corporate
"standing" in global legal politics a necessity. There are parallels between the
expansion and development of the transnational economy and the earlier growth of the
U.S. national economy, which rapidly and sometimes chaotically overran local and
even state jurisdictions; so too is there convergence between a push for supra-national
corporate autonomy and the previous struggle against state intervention in the U.S.
federal system (Bowman 1996: 297). This suggests that there might be further
correspondence in an ideological adaptation of corporate image, one that would
establish it as an equal and legitimate player in the international field (as the
"corporation-as-person" doctrine did in the U.S. national arena). Thus, an
investigation of the corporate conception in the global context might be a natural
extension of the earlier work.
Because global, transnational, or even international political orders are being
constructed, they provide active sites for the examination of ideological and legal
formation. The global economy is novel, according to the scholars of the Deltec
Research Project, published in an issue of the World Anthropology series:
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The multinational corporation (MNC) is a qualitatively new structural
phenomenon in world capitalism. Industrialized Western countries,
including the United States, are themselves subject to the forces of
disequilibria that they MNC can cause in the Third World, such as
technological displacement, inflation, currency fluctuations, trade
deficits and capital outflows that lead to such well-known phenomena
as rising unemployment, increasing prices, currency devaluations and
falling real wages. [Deltec Research Project 1978: 55]
While national economies are increasingly integrated, regulatory regimes are
not. While the sovereign nation-states of the international system are based nominally
on popular consent and are territorially-based, the transnational corporations (TNCs)
are mobile and derive their power from economics, as Barnet and Muller note, adding
that on the international character of capital, Adam Smith and Karl Marx seem to
agree (Barnet and Muller 1974:76-77). Further, there is critical difference between the
prevalent model of TNCs and their reality:
The very advantages the global corporation enjoys over government -
principally mobility and control of information - are creating a
structural lag. Government is operating under a set of economic
assumptions and legal theories which treat the corporation as if it
were a private and national institution when it is in fact a social
institution of global dimension. [Barnet and Muller 1974: 366]
Within the space created by this structural lag, new structure and protocols of
governance have been and are forming. As they have been in the development of U.S.
corporate doctrine, notions of "citizenship" will probably be central to the
organization of transnational regimes of corporate legitimacy. In Losing Control?, her
exploration of national sovereignty in the global era, Saskia Sassen notes that "the
history of modern citizenship shows the importance of underlying conditions in
shaping it. Insofar as the global economy has created new conditions, it may spur
another phase in the evolution of the institution of citizenship" (1996: 33). Sassen
continues:
[W]e must consider the possibility that there exists a form of
economic citizenship that empower and can demand accountability
from governments. The evidence supports this notion but the so-
called economic citizenship it identifies does not belong to citizens. It
belongs to [global financial] firms and markets, . . . and it is located
not in individuals, not in citizens, but in mostly corporate economic
factors. The act of being global gives these factors power of
individual governments. [1996:xiv]
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Such a characterization and locus of citizenship is hardly new to us, fresh
from an examination of corporations' assumption of de facto citizenship within the
U.S. national system. Neither is the global economy entirely novel, although the scope
of international and transnational economics may have widened, the magnitude
increased and the speciflc mode of operation altered (see Immanuel Wallerstein
1974).
Nor, as Jerry Mander informs us, is the logic - or rhetoric - of "globalization"
particularly fresh:
...the deeper ideological principles of the global economy are not so
new; they are only now being applied globally. These rules include
the absolute primacy of exponential growth and an unregulated "free
market;" the need for free trade to stimulate the growth; the
destruction of import substitution economic models (which promote
economic self-sufficiency) in favor of export-oriented economies;
accelerated privatization of public enterprises; and the aggressive
promotion of consumerism, which combined with global
development, faithfully reflects the Western corporate vision.
[1996:10]
Under the influence of such a regime, "best described as corporate globalization, the
new economic model establishes supranational limitations of any nation's legal and
practical ability to subordinate activity to the nation's goals" (Nader and Wallach
1996:94).
The fulfillment of this goal is being attempted through the establishment of
what law professor Klaus Berger, above, has referred to as the "third legal system
between state law and public international law." Here is the point at which the
question of citizenship, perhaps Sassen's "economic citizenship" becomes important.
Traditional international relations and law are based upon the nation-state as primary
actor. The sovereign power of the state is fully legitimized by the legal recognition of
the state, and only the state, as having standing before the various international bodies
- such as the United Nations (UN) or the World Trade Organization (WTO).
International treaties are negotiated and binding upon nation-states, which are then
considered the representatives (if any) of their various subject constituencies.
Ironically, though, according to some observers (Barlow and Clarke 1998,
Mander 1996, Nader and Wallach 1996, Strange 1996, Sassen 1996), the agreements
most recently negotiated by nation-states (or the dominant nation-states) have had the
effect of adulterating, or at least altering their power and control over their economies
and the activities of business firms. Such legitimization consolidates changes and as
we have seen from the U.S. experience, invites further, deeper alterations.
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An example may be found in the most recent version of the General
Agreement on Tariffs and Trade (GATT), and the subsequent negotiations toward a
Multilateral Agreement on Investment. The latest GATT (which took place in the
nation of Uruguay, and takes its name: "Uruguay round") was a far-reaching treaty
that sought, successfully, to clear the way within the international and national
economies for expanded and less restricted trade. The Uruguay round also resulted in
the establishment of the WTA as an adjudicatory, non-democratic body that would
resolve disputes under GATT between signatory nations. Nader and Wallach caution
that:
[T]he Uruguay round puts into place comprehensive international
rules about which policy objectives so-called independent countries
are pernitted to pursue and which means a country might use to
pursue even GATT-legal objectives. In other words, GATT placed
controls over national democracies. [ 1996:96]
Philip McMichael is even starker in warning:
Colonialism historically involved episodes or combinations of
expansion of nations (settler colonialism) and expansion of states, as
in late nineteenth-century imperialism.... The objects of colonization
were territories and peoples. However, in the late twentieth century
nation-states, the regulators of territories and peoples, are being
colonized. The colonization now is essentially by capital, under the
banner of liberalization" (1995: 37). Through the WTO, state and
local powers to regulate environmental, produce and food safety can
be overruled by un-elected trade bureaucrats with the power to
require nations to take all necessary steps, where changes to domestic
laws will be required to implement the provisions [GATT] ... to
insure conformity of heir laws and these [GATT] Agreements. The
GATT regime would complement and intensify the power of the
multilateral agencies to discipline states and withdraw Third World
special treatment (e.g., agricultural protection and technology
transfer). [1995:48]
Deriving their structural power from aggregations of capital and manipulations of
nmarkets, production and demand, these new "economic citizens" should be expected
to seek legitimization of their authority and status through law.
If the corporation has assumed a dominant role in the global economy and
political economy, how is it represented, rhetorically and conceptually, in the
emergent international and supra-national legal order? As before noted, nation-states
have been the fundamental unit of analysis and legal action in the international realm,
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and this jurisprudential respect for sovereign legitimacy holds true even in the
sovereignty-undermiining embrace of GATT/WTO and NAFTA.
The Multilateral Agreement on Investment (MAI) or Free Trade Area of the
Americas (FTAA) contain a major, important shift in the contemplation of the
international order, however, in that it explicitly grants legal standing to private
investors, individual and corporate. This is a sea-change, but seems in the context of
our study a logical expansion of corporate power through legitimizing conceptions.
The establishment of International Commercial Arbitration (ICA) as a forum
for disputed resolution (as opposed particularly to a United Nations or International
Court of Justice venue, which might conceivably possess some democratic legitimacy)
is significant. International legal scholars Yves Dezalay and Bryant Garth (1995) note
that not only have mandatory arbitration clauses become increasingly common m
commercial contact, but that ICA has become the primary method of resolving
international and transnational commercial disputes. This is so, they observe, for
several reasons: the avoidance of perhaps prejudicial national courts, the lack of an
international public law regime and importantly, the tight secrecy attendant to private
arbitration (1995:27-30).
Laura Nader outlines a "user theory of law," that accounts for the form,
content and direction of a given legal system by a recognition that the system will be
shaped most fundamentally by its primary users (1984). She explains:
[A] user theory of law would embrace the view of law as being made
and changed by the cumulative efforts of its users and would argue
that the law is being moved in a particular direction by the dominant
users. Such unconsciously generated cumulative movements may be
considered as separate from and yet equally as important as any
consciously created ones attributable to legal engineering. [1984:952]
ICA seems to have developed in this manner. Dezalay and Garth indicate that
the growth of the international arbitration industry was driven by the growth and new
directions of international trade in the 1970s coupled with the development and rapid
expansion of the petrodollar and Eurodollar markets (95:44) - the latter of which by
its nature eschewed regulatory oversight and national controls. The benefits of private
law, including secrecy and avoidance of national courts, well served the emergent
transnational fims that patronized the ICA system.
The decades-long establishment of ICA has imbued it with an air of
legitimacy, as Nader's theory seems to predict. Such incremental growth of law was
foreseen by Miller, as well, who suggested that "through a process of slow accretion,
these routine activities can in time create a corpus of 'living law' of multinational
constitutionalism, the living law of custom upon which any lasting argument must be
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built" (Miller 1961:89). Nader distinguishes cumulative drift and conscious legal
engineering, acknowledging (as does Hurst) that both operate in the development of
law ways. An important component of Nader's paradigm is the empirically-derived
notion that "the weaker party looks to the law while the stronger party prefers to
negotiate" (Nader 1996:8; Nader 1995).
Conclusion
The development of the concept of the corporation as an economic, social and
political person is a function of the law and fundamental rearrangement of the
economic order to industrialization and the cascading results of each increment of
commercial corporate empowerment. Within the framework of an individualistic
political ideology, the ascendance of gargantuan national and transnational firms
continues to challenge both the ideal and practical relevance of sovereignty (personal
and national) and democratic rule. Subsumed in a codification of corporate personality
and equality of persons before the law is a stark differential of power that has, in
contrast to traditional ideology, displaced the natural individual in favor of
autonomous collectivities.
If Willard Hurst is correct in his assertion that the specific contours of U.S.
corporate law were not themselves determinative of the course of economic
development, then the implication remains that to a certain degree the law merely
reflected and legitimated the emerging realities. This notion, coupled with the
declaration of law professor Lawrence M. Friedman, that "corporations confronted the
law at every point. They hired lawyers and created whole law firms," (cited in
Grossman and Adams 1996: 376, 384) firmly invokes Nader's user theory of law.
Inasmuch as many giant firms began in the U.S., legal doctrine developed by
the U.S. Supreme Court is having global impact. This survey of cases indicates that
the dominant users were corporate business concerns. The doctrine of the corporation
as person is a legal fiction. A convenient fiction that apparently became reified in
judicial thought of the twentieth-century, in as much as latter allocation of personal
political rights to the corporation was justified by the Court less on pragmatic grounds
for appeals to the individual membership of the corporate collectivity, than on an
ideational logic that extended to the corporation such rights as its due as a person, and
imbuing it with a capacity of "mind" previously unrecognized.
The creation and development of the "corporate personality" fiction not only
exposed the complex field of power relations and interrelations in the socio-economic
realm, but required transformations of the dominant political philosophy to fit these
new, "big persons." The American economy incorporated new methods of
transportation and production, and industry asserted itself against a predominantly
agrarian economic base; as, in the aggregate, Supreme Court decisions tended to favor
the establishment and growth of corporate capital.
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The development of corporate personality and functional citizenship, as an
aspect of corporate power, progressed along lines dictated by its need to fit into the
root American political "religion," that of liberal individualism and related global
ideology of free trade. Incorporating concepts of the individual as a basic unit of
society, his (for it was "his" place alone until late in the development of the system)
right to labor and the fruit of his labor, his right to contract and compete fairly in the
market, these ideologies suggest that economic liberty is the best assurance of
freedom and prosperity. But the ascendancy of corporate individuals in the social and
economic sphere has come at the cost of displacing, dispossessing and disrupting large
bodies of natural individuals. Movements in opposition to the growth and perceived
abuse of corporate power have attempted to re-assert the primacy of - or, later, merely
shield from the greatest predations - the natural individual, the human persons from
whom, it was originally conceived, authority and legitimacy of the political order
flow.
Bowman (1996) has documented how the Populist and anti-monopoly
movements, the Progressives and trust-busters and the consumer/environmental
movements ranged in focus from outright opposition to the realities of corporate
power, to quests to limit and regulate it, to attempts to make it more responsive to
society and ameliorate some of its worst tendencies. But the corporation has to date
proven elusive and adaptable, the corporate personality close to inviolable.
From the Grangers and Populists, to the Progressives, to the environmental
and consumer movements of the 1960s and 1970s, to the current critics of
globalization, to Enron, the question of corporate power has been central to the
struggle over the direction of social change. Such large movements of protest have
articulated the contours of each phase in what has been a corporatizing of society, a
series of dislocations and re-subjectifications of economics and politics. The evolution
of U.S. case doctrine and legislation, as well as of international commercial protocols,
indicates that corporate law is an instrument of emergent power in times of social flux.
To study it is to encounter a shaping of law by the dominant users and primary
beneficiaries.
Cases Cited
Allgeyer V. Louisiana, 165 US 578 (1897)
Austin V. Michigan Chamber of Commerce, 494 US 652 (1990)
Bank ofAugusta v. Earle, 13 Peters 519 (1839)
Bank of the United States v. Deveaux, 5 Cranch 61 (1809)
Bigelow v. Virginia, 421 US 809 (1975)
Buckley v. Valeo, 424 US 1 (1976)
California Motor Transport v. Trucking Unlimited, 404 US 508 (1972)
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Central Hudson Gas & Electric v. Public Service Commission, 447 US 557 (1980)
Charles River Bridge v. Warren Bridge, 11 Peters 420 (1837)
Chicago, Milwaukee and St. Paul Railroad v. Minnesota, 1234 US 418 (1890)
Connecticut General Life Insurance Co. v. Johnson, 303 US 77 (1938)
Consolidated Edison v. Public Service Commission, 447 US 530 (1980)
Dartmouth College v. Woodward, 4 Wheaton 518 (1819)
Eastern Railroad Presidents' Conf v. Noerr Motor Freight, 365 US 127 (1961)
Federal Election Comm 'n v. Massachusetts Citizens for Life, 479 US 238 (1986)
Federal Election Comm'n v. Nat'l Right to Work Committee, 459 US 197 (1982)
First National Bank of Boston v. Bellotti, 435 US 765 (1978)
Hale v. Henkel, 201 US 43 (1950)
Louisville, Cincinnati, and Charleston Railway v. Letson, 2 Howard 497 (1844)
Marshall v. Baltimore & Ohio Railroad, 16 Howard 314 (1853)
Minneapolis & S.LR. v. Beckwith, 129 US 26 (1889)
Munn v. Illinois, 94 US 113 (1877)
Noble v. Union River Logging Railroad, 147 US 165 (1893)
Pacific Gas & Electric v. Public Utilities Comm'n, 475 US 1 (1986)
Rundle v. The Delaware and Raritan Canal Co., 14 Howard 80 (1852)
San Mateo County v. Southern Pacific Railroad Co., 116 US 138 (1882)
Santa Clara County v. Southern Pacific Railroad Co., 118 US 394 (1886)
Slaughterhouse Cases, 16 Wall 36 (1873)
Terrett v. Taylor, 9 Crunch, 34 (1815)
United Mine Workers v. Pennington, 381 US 657 (1965)
Virginia St. Bd. of Pharmacy v. Virginia Consumer Council, 425 US 748 (1976)
Wheeling Steel Corp., v. Glander, 337 US 562 (1948)
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