Schumpeter
How far should one push the idea that companies have the same rights as ordinary people?
from the print edition
OVER the past year and a bit the United States Supreme Court has produced two landmark rulings on the metaphor at the heart of corporate law: the idea that companies are legal persons. Unfortunately, the rulings point in opposite directions. In Citizens United (2010) the court ruled that the constitution’s first amendment guarantees companies the same right to free speech as flesh-and-blood people. This means they have the same right as individuals to try to influence political campaigns through advertisements. But in a case involving AT&T the court ruled this month that the company has no right to personal privacy.
The legal conceit that companies are natural persons is vital to capitalism. It simplifies litigation greatly: companies can act like individuals when it comes to owning property or making contracts. Timur Kuran of Duke University argues that the idea of corporate personhood goes a long way to explaining why the West pulled ahead of the Muslim world from the 16th century onwards. Muslim business groups were nothing more than temporary agglomerations which dissolved when any partner died or withdrew. Legal personhood gave Western firms longevity.
The concept of companies as people became ever more vital as capitalism developed. Until the mid-19th century companies (as opposed to partnerships) were regulated by corporate charters which laid down tight rules about what they could do. But reformers used the idea that companies, like people, should be captains of their own souls, to free them from these restrictions. The result of this liberation was an explosion of energy: Western companies turbocharged the industrial revolution and laid the foundations for mass prosperity.
America’s legal system has been forced to grapple with the meaning of corporate personhood more thoroughly than other countries’ courts have done, because the constitution is so specific about the rights it bestows on people. And for the most part the Supreme Court has been generous in extending the rights of flesh-and-blood people to artificial persons (which include trade unions and other collectives as well as corporations). In Santa Clara County v Southern Pacific Railroad in 1886, for example, it ruled that companies enjoy the protections of the 14th amendment (including due process and equal protection under the law).
Yet these artificial persons have always provoked worries, too. Aren’t they likely to use their collective muscle to trample over the little people? And won’t they invoke the rights of ordinary people without burdening themselves with the responsibilities? These worries started in Britain in the age of chartered corporations. In the 17th century Sir Edward Coke, a jurist, complained that “they cannot commit treason, nor be outlawed, nor excommunicated, for they have no souls.” But the complaints have grown louder as companies have been freed from their charters and the Supreme Court has reinforced their rights.
Some critics of corporations have also put the idea of corporate personhood to their own uses. Joel Bakan, a legal academic, has produced a book and a film—both called “The Corporation”—which argue that, if companies are people, they are particularly dysfunctional and irresponsible ones. In the film, he even consults a psychiatrist who argues that companies display all the characteristics of a psychopath: callous disregard for others’ feelings, inability to maintain relationships, a willingness to bend any rule and break any law if it advances their interests, and an obsession with amassing power and money.
This is overheated rhetoric, to be sure. But you do not have to be a radical to worry about the might of organisations that can live for ever and take up residence in dozens of countries at once. Nor is it unreasonable to wonder why the idea of corporate personhood should only cut one way: if companies enjoy the same rights as flesh-and-blood humans then shouldn’t they be under the same obligations? The conservative majority on the Supreme Court is in danger of digging a trap for itself: strengthening the arguments of people who insist that companies have a moral duty to pursue social rather than merely business ends.
The court knows it can take the analogy too far. It has ruled against companies being allowed to take the fifth amendment (against self-incrimination). It has restricted companies’ rights to make political contributions: for example, they cannot give donations directly to individual candidates. In the AT&T decision John Roberts, the chief justice, devoted a lot of effort to demonstrating that “personal” is more than an adjectival offshoot of “person”: when a company’s boss asks his finance director a “personal” question he is not likely to be asking about the company’s balance-sheet. Indeed, the term “personal” is frequently used to mean the very opposite of “corporate”. But all this umming and erring confuses more than it clarifies.
What would help is if the Supreme Court (and indeed corporate law in general) adopted a clear principle when it comes to the analogy between artificial persons and real ones: that companies should be treated as people only in so far as it is expedient. They clearly need to be able to enter into contracts just like individuals. But they should not be treated as if they experience such essentially human emotions as embarrassment and a desire for self-expression. Thus they should not have the same rights to privacy and political freedom as a citizen, but should have only as much of a right to confidentiality and political participation as is helpful for the efficient functioning of business (including letting firms contribute to the public debate on the regulation of business). Companies—or rather their bosses and owners—should welcome such constraints: any further “rights” would, sooner or later, be matched by onerous responsibilities.
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