Corporate Governance Redux in the Light of Citizens United

“Presumably in a free market economy the players require some restraints in their pursuit of society’s resources and creation of externalities, and these restraints are to be imposed by government acting in response to the preferences of individual human beings who have a much broader range of preferences than simply wealth maximization. To allow the wealth maximizing business corporation a powerful voice in determining how social resources are to be allocated by government is to give that corporation significant power in determining how the rules of the only game it is playing should be changed, rather than confining it to play under the rules preferred by human individuals.” [1]

The Corporation

A corporation is a creature of the state; it is not a natural creature created by the Almighty and entitled to the rights of flesh and blood human beings. The language of judicial supporters of corporate personhood mingles various kinds of association. In his lengthy Austin dissent, Justice Scalia referred to “that type of voluntary association known as a corporation”, “that form of association known as a for-profit corporation,” and “those private associations known as corporations.” In his Citizens United concurring opinion, Scalia refers to “associational speech”, “the right to speak in association with other individual persons”, “the speech of many individual Americans who have association in a common cause, giving the leadership of the party [Republican or Democrat] to right to speak on their behalf. The association of individuals in a business corporation is no different – or at least it cannot be denied the right to speak on the simplistic ground that it is not “an individual American.”

Out of respect for Justice Scalia, I will consider at some length the nature of the corporation at the time of the Constitution and the First Amendment by referring to the great scholar Oscar Handlin [2] who was teaching across the road when the Justice and I were attending Harvard Law School:

“The constitution of 1780 spelled out a tendency long in maturation when it provided that corporations could not arise spontaneously. A century and a half of development in the New World had determined that only the state could create them.”

“The public purpose which justified extension of government powers to a bank, to bridges and to a factory soon comprehended a wide and ever widening circle of enterprises.”

Incorporation was easy to come at when it seemed to serve the interests of Massachusetts, but only in such cases. The hectic pursuit of incorporation did not immediately extend into the fields of industry because the legislature was unable to bestow in charters to manufacturing enterprises the exclusive features which alone would have made the grants valuable. The incorporation movement did not gain way in this area until two decades later, and then only when stimulated by the state for the sake of implementing a public policy. By 1815 the corporation had developed tendencies unforeseen thirty years before and had spread into many new fields. But the state still continued to judge which activities deserved encouragement, and it passed upon proposals for incorporation even in new spheres, in terms of the primordial concept of common interests.

Such diffusion (of corporations) had a profound effect upon the place of the corporation in the state and would ultimately transform the conception of the association. But in 1815, the time not yet come, the body politic remained a special public body until the law caught up with the practice and impacted new connotations to later diffusion. As the corporations increased in number and flowed over into new channels strange problems emerged, the solution of which altered the original status and created a distinctive pattern of autonomy. That autonomy did not exist to begin with. Public function took precedence over private rights. The Commonwealth was master of its creatures, particularly since Massachusetts after 1780, no longer recognized the constituent powers of prescription and embryonic organizations could not evolve to the higher corporate status without charter. The government prescribed the character and conditions of duties in return for the grant, delegating to its agencies what powers and privileges it wishes for the better service of its own interests. It alone could terminate the existence of a corporation or relieve it of obligations.

Divested of its communal functions, the corporation became an anomalous creature, privileged but unprincipled, armed with power yet devoid of responsibility. But unhappily the animal and intellectual part of Corporations generally govern the body, and conscience is a non-corporate word.

Corporations have been creatures of limited and specifically delegated powers. Activities not permitted are deemed ultra vires and voidable or grounds for charter revocation. Stated otherwise from the perspective of corporation law, if an expenditure is in aid of profit to the corporation it is legally appropriate, if an expenditure is not in aid of profit, it is not legally tolerated. In the political context, what this means is – if a corporation does not derive benefit from its political contribution, this will violate corporation law. Simply put, the contributing corporation either violates corporation law or successfully purchases public privilege.

The question as to whether there is an implied (perhaps common law) power in corporations to make political contributions was considered by the Chancery Court in the United Kingdom in Re Lee, Behrens & Co. Ltd:

“But whether they be made under an express or implied power, all such grants involve an expenditure of the company’s money, and that money can only be spent for purposes reasonably incidentally to the carrying on of the company’s business, and the validity of such grants is to be tested, as is shown in all the authorities, by the answer to three pertinent questions: (i) Is the transaction reasonably incidental to the carrying on of the company’s business? (ii) Is it a bona fide transaction? And (iii) Is it done for the benefit and to promote the prosperity of the company?” [3]

“If, however, corporate money does have an impact then this raises fundamental questions about our democracy: It suggests that votes may be bought and that wealthy parties have a clear advantages in a campaign. In other words, Conservative Party fund-raising is impaled on the horns of a dilemma. If spending levels make no difference to the outcome of an election then company political donations must surely be ultra vires because they cannot possibly be incidental to achieving or promoting any of the goals of the company. If, on the other hand, spending levels do have an impact, the charge of buying votes is an irresistible one which suggests a compelling need to introduce a ceiling on the amount of campaign expenditure, at a level which at least the two main parties could reasonably hope to meet.” [4]

The Justices

Justice Lewis Powell conjured up the concept of “corporate speech” in his majority opinion in Bellotti. It is historical irony that there words published by Justice Powell were written only months following the authorship by attorney Powell to his client, the U.S. Chamber of Commerce, of a most insightful memorandum as to the steps necessary to restore the position of business to its traditional lofty position in the pantheon of American interest groups.

Chief Justice Roberts has proclaimed in every available forum his commitment to the principles of “conservative” judicial administration. It is apparent that the resetting of argument in Citizens United so as expressly to question the constitutionality of Austin and McConnell would raise the issue of “judicial activism”. Why would Roberts put his reputation at such risk? [5] Indeed, apart from the “procedural activism” the overruling of established precedent demands scrutiny of the judicial emergency justifying such an extraordinary step. This decision has been described as overthrowing a century’s precedent. Actually, it may go farther that that – did Roberts intend rule the Tillman Act of 1907 unconstitutional? Maybe, he considered it a dead letter. Justice Scalia proclaims himself an “originalist,” but, as we have set forth above, his notion of what a corporation was at the time of the ratification of the First Amendment is seriously at odds with the respected work of Oscar Handlin. Justice Kennedy worked his dissent in Austin into a victorious majority, while Justice Stevens left a magnificent valedictory in dissent.

For those who consider the law as a language of wisdom, the swapping of majority and dissent, both 5-4, creates an impression of a political rather than a juridical legal system. It suggests that the law has changed with the departure of Justices O’Connor and Souter, nothing more, nothing less – a law of persons and not of principles.

The Constitution

To treat the corporation as the “speaker” [Powell’s legacy] entitled to protection under the First Amendment is to reify an association of human beings at the expense of the First Amendment interests of some, perhaps many, of the human members of the association. Such reification is as improper as it is unnecessary. The problem is not whether the speech of the “corporation” is suppressed. The questions are (a) who in the association, which is “the corporation,” should have what decision-making role on whether the group collectively acting as the corporation should speak; and (b) whether the members should be remitted to speaking individually or through an expressive association. The emphasis in the decided cases on the audience’s interest in hearing corporate speech quite ignores the question whether the corporate speaker has power in the sense of authority to speak. [6]

As Justice Stevens puts it on page 77 of his dissenting opinion:

“It is an interesting question ‘who?’ is even speaking when a business corporation places an advertisement that endorses or attacks a particular candidate. Presumably it is not the customers or employees, who typically have no say in such matters. It cannot realistically be said to be the shareholders, who tend to be far removed from the day-to-day decisions of the firm and whose political preferences may be opaque to management. Perhaps the officers or directors of the corporation have the best claim to be the ones speaking, except their fiduciary duties generally prohibit them from using corporate funds for personal ends. Some individuals associated with the corporation must make the decision to place the ad, but the idea that these individuals are thereby fostering their self-expression or cultivating their critical faculties is fanciful. It is entirely possible that the corporation’s electoral message will conflict with their personal convictions. Take away the ability to use the general treasury funds for some of these ads, and no one’s autonomy, dignity, or political equality has been impinged upon in the least.”

Speech

The most important – and harmful – aspect of the majority opinion in Citizens United is the confusion between the modes of expression, including speech, of flesh and blood human beings and state chartered corporations. Corporations are something other than an aggregation of human beings; the modern corporation is the evolution of words, laws, processes and experience so as to create the optimal structure for generating wealth. While corporations are valuable to a society, they are valuable only in so far as the society effectively can proscribe the rules within which corporations function. Including corporations within the rule makers is seriously damaging to a democratic society.

Here are some human traits not shared by corporations:

• The ability both to feel joy and suffering (expressions of our health and well being) and to express these and other feelings in language. Individual humans alone use language to refer both to feelings (sympathy/empathy and the opposite respect/ shame), and to intuitions.
• Having moral intuitions, such as (a) fairness (an ability to judge equality and inequality in social relations and reciprocity) and to find a response fair or unfair; and (b) deriving from our ability to foresee consequences and choose accordingly, the desire to control our choices and resulting actions. In the West it is called autonomy, and it is the basis of our being held responsible, as individuals, for choices.

Epilogue

It is beginning to appear that people outside the United States are increasingly beginning to view us as having the characteristics of a corporate state.

Endnotes

[1] Brudney, Victor. ”Association, Advocacy and the First Amendment.” William & Mary Bill of Rights Journal, volume 4, issue 1 (summer 1985): infra fn 158 at p. 63
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[2] Handlin, Oscar and Mary Flug, Commonwealth – A study of the Role of Government in the American Economy – Massachusetts 1774-1861. (Harvard University Press, 1947).
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[3] Ewing, K.D. “Company Political Donations and the Ultra vires Rule.” The Modern Law Review, volume 69 (1984): p. 57 and infra p. 69.
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[4] Ewing, p. 71
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[5] Roberts has made clear what is important to him. He may well perceive in the question of “corporate speech” a vital element in the Jefferson / Hamilton debate as to what kind of country we want to have. Particularly in a democratic populist administration, the need to strengthen the “property” element in could have been perceived as being critical. If this is the case, it seems strangely misguided. There is a difference between wealthy individuals and corporations.
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[6] Brudney, p. 1 and p. 67.
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