A Very Special Person

It takes but a casual glance at Fortune Magazine’s list of the 500 biggest corporations to discover some disturbing trends. Exxon Mobil, generously considered at the very bottom of socially and environmentally conscious oil companies, and amidst soaring oil prices at home and an extravagant oil war abroad, somehow managed to set an American record with its $39.5 billion in pure profit in 2006. And Wal-Mart, despite being both staffed and sustained by America’s financially challenged, and facing negative publicity last year over training employees on how to collect their welfare checks, still managed to rank #2 in global profits. Both of these companies have annual revenues that exceed all but the world’s 20 largest national economies.

To understand such unprecedented wealth accumulation amidst such deplorable citizenship requires delving into the structure and legal history of corporations. By definition corporations are, in essence, legal entities formed and owned by individuals whose legal existence is distinct from that of the corporation itself.

This distinction between the company and the people behind the company is vital. It endows the modern American corporation with limited liability and perpetual life. Limited liability makes shareholders financially responsible for only what they “own” of the corporation, meaning they cannot lose more than they initially put in. Perpetual life lets a corporation’s lifespan endure beyond those of its shareholders.

The crux of modern corporate power boils down to a simple, but crucial notion of “personhood,” a philosophical and legal concept developed over the years to make those distinct legal entities actually distinct legal “people.”

It does not take a rocket scientist to observe that corporations are not really people. Not only, as eloquently noted by an English baron, have corporations “no soul to save and no body to incarcerate,” but they are designed and they function purely to produce profits. Profit-maximization is the only purpose a corporation is legally allowed to have, and wherever it is legal, these profits must come before any other societal interest.It is these qualities that have prompted some scholars to observe that corporate personhood is a perverse notion, if only (as famously argued by Canadian lawyer Joel Bakan) because its structural abandonment of morals, obligatory greed, sense of immortality, and immunity from feeling loss make the corporate “person” a medical psychopath. Real people do not benefit from limited liability and perpetual life. To the contrary, our physical and moral fears and limitations temper human behavior, a crucial mechanism that keeps most of us from murdering, exploiting, or polluting until the end of time.

Revolutionary

When did the corporation become a person?

Sociologist Charles Derber, author of Corporation Nation, is quick to point out that the earliest corporations were not considered persons, but rather democracy-serving tools of the government. Following the American Revolution, the newly-formed United States government made provisions for joint-stock companies similar to those commissioned by the Tudor and Stuart monarchs of England, though it clearly stipulated that charters only be issued for projects that worked toward the public interest. Derber writes, “The charters in most states put rigid strictures on how a corporation could exist, what it could do, and how many assets it could accumulate: They also outlined specific ways in which corporations were obliged to serve the public interest.”

In a sense, a corporate charter was a gift from the government. Multiple individuals could combine their resources to form a distinct legal entity that had special privileges. By pooling their wealth, the shareholders of these “joint-stock” companies could invest and profit at levels greater than they could as individuals, all while assuming limited risk.

In exchange for absolving individuals of liability, a government charter obliged a corporation to work in the public interest – for example, to build a bridge, to create a university, or to explore new lands. Corporate activities were often time-limited and firmly restricted to the business for which they were chartered, with violations prompting revocation.

In the latter half of the 19th century, however, corporate entrepreneurs sought to unbound corporations from these limitations. Derber reports a philosophical shift during which politicians, judges, intellectuals and, above all, businessman began viewing corporations as spontaneous “natural” entities, rather than artificial, commissioned ones. Harnessing the lingering American spirit of free enterprise, expanding Constitutional guarantees to citizens, and protection against the state, the pro-corporate movement sought a status for these “natural entities” tantamount to citizenship. Rather than behold them to their charters, “personhood” would allow corporations Constitutional “rights” to everything from the pursuit of happiness and free speech to freedom from unlawful searches.

Birthday

Corporate personhood was legally realized in the 1886 Supreme Court case, Santa Clara County v Southern Pacific Railroad Company. In the mid 1800s Santa Clara County levied land taxes against Southern Pacific Railroad, which for six years refused to pay them on the grounds that they were being taxed differently from everyone else in California.

The case went to the US Supreme Court because Southern Pacific argued that corporations were legal “persons” owed equal protection from the law under the Fourteenth Amendment.

The Court ruled in Southern Pacific’s favor. However, the verdict in the Santa Clara case has remained a source of confusion and contention for over 100 years. Santa Clara County v Southern Pacific Railroad, it turns out, has its own fascinating tale of error, deceit, and dubious judgment.

According to Thom Hartmann, author of Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights, the Court did not base its decision on the question of corporate personhood. Court records indicate that before closing arguments Chief Justice Morrison Waite refused to hear arguments on whether the Fourteenth Amendment’s equal protection clause applied to corporations, adding, “We are all of the opinion that it does.”

The Justices' actual ruling in Santa Clara, announced later, was based on a technicality of the defense’s argument, (who did the appraising, rather than “who” was the appraised), a technicality that did not rely on the question of whether the Fourteenth Amendment applied to corporations as “persons.”

In fact, the official ruling explicitly stated that the Court was not ruling on the question of corporate personhood.

That the Santa Clara case was recorded and henceforth cited as legal precedent for corporate personhood appears due to an erroneous transcription by court reporter J.C. Bancroft Davis. After the case’s conclusion, Davis wrote in the headnotes of the case – his own commentary – “corporations are persons,” as was unofficially discussed prior to the actual ruling. These headnotes were historically, and mistakenly, treated as the ruling itself. (A later, unrelated Supreme Court ruling determined that headnotes cannot be considered the Court’s ruling.)

Despite the fact that the official ruling steered clear of the question of corporate personhood, scholars have speculated as to why Judge Waite claimed the Court already accepted its validity. Many cite an 1882 Supreme Court case also concerning Southern Pacific, in which testimony was heard that the original drafters of the Fourteenth Amendment (i.e. the 39th U.S. Congress) intended for the word “person” to eventually be applied to corporations. In this case Roscoe Conkling, a former Republican Congressman who took part in writing the Amendment, submitted his personal diary from the drafting process as evidence that its authors wanted the word to be a loophole for corporations, although later legal scholars determined that Conkling lied before the Court and was working for the railroads to help them gain personhood status.

Returning to 1886, though the reasons for Waite’s comments may never be clear, what is clear is that the Fourteenth Amendment was designed primarily to protect newly-freed slaves from legal discrimination – not to protect corporations from government regulation. In weighing the moral vigor of the Santa Clara verdict, Hartmann also notes that three of the Justices who ruled in favor of Southern Pacific also infamously ruled in Plessy v Ferguson (1896) that racial segregation did not violate the Fourteenth Amendment.

Despite Waite’s comments and Davis’s headnotes, there is no evidence that any Supreme Court or any Congress ever actually ruled on the question of corporate personhood. As Hartmann writes: “No laws were passed by Congress granting that corporations should be treated the same under the Constitution as living, breathing human beings, and none have been passed since then. It was not a concept drawn from older English law. No court decisions, state or federal, held that corporations were ‘persons’ instead of ‘artificial persons.’ The Supreme Court did not rule, in this case or any case, on the issue of corporate personhood.”

Frontiersman

To be sure, the corporation has been a central feature in American and Western economic innovation, expansion, and leadership. Like patents and bankruptcy, the corporate mechanism encourages private entities to pursue scientific and technological advances by offering would-be inventors and entrepreneurs huge financial rewards for success and financial protection from failure. This paradigm of maximum commercial and creative freedom with minimal personal liability has given countless Americans leave to take risks and succeed, giving rise to the country’s epic economic growth and high living standards.

But when the reality of modern corporate power so overwhelmingly surpasses that of voters or elected officials, its freedom becomes excessive.

The corporation’s unique legal status affords it the same Constitutional rights originally given to citizens to protect them from, among other things, monolith undemocratic entities. And yet they are legally obligated to serve the financial interests of their shareholders before any other interest, be it social or environmental. Corporate expenditures seeking to correct what might be perceived as moral transgressions (slashing employee benefits, employing sweatshop labor, contracting with despots, or deforesting, to name a few) are often illegal if they cut into company profits. Milton Friedman himself, the Nobel Prize-winning champion of free enterprise, declared the growing trend of “corporate social responsibility” and “corporate giving,” objectionable on business grounds because it detracts from the rights of shareholders to profit.

What’s more, the corporate legal structure affords owners (i.e. shareholders) and operators (i.e. executives) an extraordinary degree of legal protection in the event of social or environmental injustice, such as death, personal injury, or waste dumping. Though they make the decisions of the corporate “person,” there exist few legal avenues by which these people can be prosecuted for crimes committed by corporations.

(The corporate watchdog Multinational Monitor reports in its list of the world’s Top Ten Corporate Criminals of the 1990s, an average of $24 million per company in fines over ten years for such offenses as environmental damage, campaign finance, bribery, and worker death. This list only includes the companies that pled guilty or no contest to charges, indicating that where laws exist to control their transgressions, they found it more profitable to violate them and pay than to prevent or stop their illegal activities.)

Striptease

Scholars of corporate history have observed the irony in the fact that the United States, which was largely explored, founded, and built with publicly-accountable corporate charters, ultimately became the birthplace of the modern private corporate power that has eroded democracy and transparency.

Equal irony lies in their more recent history, when corporations were absolved of their public accountability in a Supreme Court decision that is at best worthy of reconsideration and at worst a complete lie.

Corporate personhood is among the US’s most dangerous inventions, upheld and cloaked by its most noble Constitutional reform – the Amendment aimed at bringing all other Constitutional protections to the nation’s least empowered citizens.

Would revoking corporate personhood, and thus reforming corporate charters, bring about the collapse of America’s economic wealth? This depends on the individuals who make up corporate leadership – whether they are willing to take back their public accountability and do business on a level playing field. In such a scenario companies like Exxon Mobil and Wal-Mart would still be allowed to form, enterprise, and profit. However, their combined $50 billion profits would come second to the rights of employees to make living wages, the rights of customers to choose where their products come from, and the rights of all Earth’s inhabitants to not suffer global warming.

What would it mean to have corporations stripped of their personhood? Regardless of how one views the Supreme Court’s decision to equate money to free speech (because the rich have more to say?), what would happen if the corporate “person” hadn’t the Constitutional right to drown out those citizens whose financial “voices” could never be as big? What would it mean if executives and shareholders were held personally responsible for the loss of human life and environmental degradation at the “hands” of their company – if contaminated drinking water, radioactive leaks, and oil spills were of obligatory concern to the human decision-makers inside the corporate person’s “head”?

Until the most powerful “person” in the land is no longer a profit-maximizing, Constitutionally-protected, unelected corporation, then business in America will have no moral beyond making money.

WHAT'S NEXT?

Subscribe via RSS or Email  ::  Email This Post   ::  Leave a comment

Bookmark to: