Most people find the notion that corporations are “persons” under the law somewhat odd. We think of “persons” as … well … human beings. How can something inanimate and conceptual, something that is at its core merely a sheaf legal papers and a bank account, be a legal “person?” Why do we have a legal doctrine of corporate personhood, and should that doctrine continue?
Today we’ll explore what I consider the two key doctrines of corporate personhood: limited liability and due process of law. As odd as it sounds, the doctrine of corporate personhood is grounded in good legal policy.
Note: The partial solution to this week’s Kossaku, and why it’s only a partial solution, is at the end of today’s Morning Feature.
First, I’d like to thank plf515 and Mishima for posting Morning Feature the past two days. As I explained in comments to their diaries, I was reading, revising, and synopsizing a manuscript for Herself. It was a wonderful book and I was happy to help Herself get it ready for our agent, but I did miss y’all and I’m happy to be back.
Shoot, Ready, Aim … at Corporate “Persons”
Thomas Jefferson warned of “the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country” Nobel Laureate and former Vice President Al Gore wrote they are “crushing competition from smaller businesses, bleeding farmers with extortionate shipping costs, and buying politicians at every level of government.” Progressive talk show host Thom Hartmann agrees.
Certainly we could all cite examples of bad behavior and excessive influence by corporations. And I’m not going to argue that corporations should be let free to roam our civic and political landscape, defying the law and acting as if they themselves are the government. Yes, there are imbalances that must be corrected if we are to preserve our democracy.
But that needn’t and shouldn’t require ending the doctrine of corporate personhood entirely. To understand why, we have to look at the two key components of and rationales for corporate personhood: limited liability and due process of law.
Corporate Personhood and Limited Liability
The legal concept of corporate personhood is, in part, statutory. Title 1, Section 1 of the U.S. Code provides in part:
the words “person” and “whoever” include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals;
This very early federal statute was necessary because the U.S. Constitution does not mention corporations at all. It sets down rights and duties for persons, the States, Native American tribal nations, and the federal government itself. Were corporations not treated as persons, the federal government could not regulate or tax them, and they could not sue or be sued in federal courts. Instead, the federal government could only regulate and tax – and individuals could only sue – the individuals who owned and/or operated the corporations. That last bit especially creates serious problems.
Let’s say you get $10,000 from a proverbial rich aunt and want to invest it. You do some research and discover WigiCorp, who make the proverbial widget. They make good quality widgets, from what you can tell, and you like how they do business. You figure WigiCorp will grow over the next five to ten years, so you buy $10,000 of WigiCorp stock. You’re a minor owner, and you see it as a long-term investment. Apart from skimming the annual report and cashing your dividend checks, you don’t pay attention to WigiCorp because you’re busy doing your own job.
But three years later, WigiCorp hires Gerry Growth as its new CEO. Gerry thinks WigiCorp could do even better if they had a widget plant in every state. Under his leadership, WigiCorp takes out a huge loan to upgrade and start building new widget plants. But then the U.S. hits a financial crisis, and WigiCorp can’t get operating credit. They start closing down plants, but it’s not enough. WigiCorp files for bankruptcy …
… and you get a notice from the bankruptcy court demanding a complete accounting of your personal property: bank accounts, your home, anything else you own. WigiCorp’s debts must be paid, after all, and you’re one of the owners. If WigiCorp’s assets aren’t enough to cover its debts, the court will have to seize the owners’ assets. Oops….
Relax. That won’t happen, and the reason it won’t happen is the doctrine of limited liability. WigiCorp is its own person, with its own assets, and it has to pay its debts from its own assets. Your liability for any WigiCorp debts is limited to the money you contributed to its assets: the $10,000 you spent to buy the WigiCorp stock.
There are exceptions to this “corporate veil.” If you were an officer or employee of WigiCorp and committed a crime, or leveraged WigiCorp assets outside the scope of your duty, you could be held personally liable. But in most cases, claims against WigiCorp are claims against the corporate person – the corporation itself – and not the individuals who own and/or operate that corporation.
Without that limited liability, no sane person would invest in or work for a corporation, and anything larger than an individual enterprise would have to be run by government itself. And in fact most people who object to corporate personhood don’t object to the doctrine of limited liability. Their objections focus on….
Corporate Personhood and Due Process of Law
The Fifth Amendment provides that “No person … shall be deprived of life, liberty, or property without due process of law.” That protects us from actions of the federal government; the Fourteenth Amendment extends that protection to cover actions of state and local government as well. Without those provisions, you’d be a fool to buy a home, or anything else, because government could seize it at any time, for any reason or no reason at all. Indeed, you’d be a fool to live here, because government could throw you in jail, or kill you, at any time, for any reason, or no reason at all.
Corporate personhood extends that protection to corporations as well. Government can’t simply seize their assets, or shut them down, without due process of law. That means at least procedural due process: notice, fair hearing, rights to counsel, against compulsory self-incrimination, to present and examine evidence and confront accusers, and the like. It also means substantive due process: the idea that a fundamentally unjust law cannot be applied justly, regardless of procedural correctness.
And just as you would be a fool to buy a home or anything else, or even live in the United States, without the core protection of the Fifth and Fourteenth Amendment Due Process Clauses, corporations would be equally foolish to exist here without those protections. Indeed they would not exist, because no sane individual would invest in a corporation if the government could seize the corporation’s assets or shut it down, at any time, for any reason, or no reason at all. Again, we’d be back to only individual enterprises or enterprises run by government.
Shoot, Ready, Aim
And were we to end corporate personhood entirely, that is where we’d quickly find ourselves: with only individual enterprises or enterprises run by government. No sane individual would invest in or work for any corporation without the limited liability and due process protections that attach to corporate personhood.
Yes, there are problems with corporate persons. They can be and are so massive that individual persons’ voices can be drowned out. Individual businesses that directly compete against big corporations stand little chance of success, because the individual can’t afford even a handful of losses, while a big corporation can absorb those losses and stay afloat. Given that losses are inevitable in a chaotic universe, the corporations survive and individual businesses die off unless they grow to a critical, survivable mass. That is, unless they become corporations themselves.
But the other extreme is equally unpleasant. The question, then, is how to make corporate persons more human-like: how to endow them with a civic conscience, and how to ensure they don’t devour and dominate not only individual competitors but government itself. And we’ll look at that in more depth tomorrow.
Here is the partial solution to this week’s Kossaku. It’s only a partial solution because my computer failed yesterday, and my Kossaku template is on the dead computer. That’s also why today’s Morning Feature is late in posting; I’m having to get used to a new computer and a new operating system. I apologize for any inconvenience.
Code Clues: DeMint-y Dot, SC; Reed-y Rot, RI; Sarkozy Slot, EU; Johnson Jot, SD; Leahy Lot, VT; Coburn Cot, OK; Burris Blot, IL; Schumer Shot, NY; Corker Clot, TN.
Final Riddle: “Neurotics build castles in the sky. Psychotics live in them. These folks buy them:” INVESTORS.