Corporations Aren’t People

When the U.S. Supreme Court ruled for the plaintiffs in Citizens United vs. FEC, it held that corporations have full First Amendment rights to free speech, and that they cannot be subject to restrictions on political campaign spending that human beings are not.  Contrary to most liberals, I was neither surprised by the majority’s opinion nor very critical of its legal reasoning.  Based upon precedent, it was hard to see what other conclusion the Court could have come to.[1]

The legal doctrine that corporations are persons predates the American republic, dating back to Renaissance era rulings in England.  There was no particular reason it needed to be imported to the U.S., but it was.  It is the concept underlying several key elements of the corporate  form of doing business.  These include limited liability and a perpetual existence beyond the lives of its founders.  Other bases could have been constructed, but they weren’t.

 

That corporations are persons has important consequences, such as the existence of the corporate income tax.  One often hears arguments that it is inherently unfair, in that it taxes the owners’ income twice, at both the corporate and individual level.  Conceptually, this is a badly flawed argument.  The income tax is levied on economic transactions between different entities.  The establishment of corporations as persons sets them apart from their owners as a separate individual.  If owners do not want to operate a business that is subject to taxes, they can always set up as a partnership.

Of course, in doing so, they would have to operate without the numerous benefits that incorporation provides.  It is questionable whether much of the modern economy could exist in the form that it does without those benefits.  There are many who believe that they are entitled to those benefits as a matter of course, and that they are not obligated to pay for them.  It is as if they believe that limited liability is an inherent attribute of life in the state of nature, red in tooth and claw.

In fact, corporations have an uneasy relationship with the libertarian ideals nominally espoused by most conservatives.  The concept of a corporation is entirely a construct of the state.  It is only through governmental intervention that there can be a non-living entity that contains the features that define a corporation.  When libertarians argue that the government needs to remove its hand from the economy entirely, most fail to recognize the irony of this. 

It is established law that corporations are persons in the legal sense.  That does not answer a crucial question: should corporations be considered persons?  At first glance, it seems an odd position to take.  The term ‘person’ has a well understood common meaning, and having a biological nature is an essential part of it.  This is even more true now than it was at the time that a corporation was originally conceived to be a person.  Then, the ‘person’ of the monarch embodied more than just the individual, but also the power of the state.  Over the ensuing centuries European countries, even those that retain a monarch, changed the nature of the state such that it was no longer vested in a person at all, whether biological or legal.

The justification for corporate personhood, beyond the continuation of a historical fact, has changed.  In Citizens United, as in many of the previous cases on the subject of political free speech rights for corporations, one of the particular claims is that restrictions on corporate expenditures violate the right to free association.  In this argument, a corporation is simply an association of individuals that have gathered to pursue their collective interests.  As such, it must have the same rights as the individuals would have on their own.

This argument is specious.  No one is saying that people do not have the right to form associations and express their views.  The question is whether people have the right to use the corporate form to make such expressions.  Consider what the authors of the First Amendment meant by a right.  It is something that is inherent and inalienable, meaning that those rights exist separate from even the existence of government, and that they cannot be granted by a government.

To make the argument is to implicitly assert that the corporate form of organization is a fundamental right of being human.  We are entitled to limited liability as an inherent part of our existence.  This is a ridiculous argument.  We do not have an inherent right to benefit from our actions in whole while being less than wholly exposed to the torts we commit.  So long as we stand to reap the benefits of those actions, individual responsibility requires that we be subject to the costs.  This is true whether our participation in those actions and torts is direct or through an agent, so long as we retain effective control over the resources involved.[2]

Since everything about corporations, including their very existence, is the result of government action, nothing about their usage can be considered a fundamental right.  This presents severe problems for the idea that a corporation is a person.  They are not insurmountable problems on their own, but the idea starts at a disadvantage while still needing some sort of argument from first principles to sustain it.

Any argument from first principles, however, does run into an insurmountable problem.  Corporations, by their nature, lack the most fundamental attribute of personhood.  They are not moral actors.  The dividing line between humans and other animals, in classical liberal thinking, is not the difference in intelligence, per se.  It’s the fact that the more advanced intelligence of human beings allows us to distinguish right from wrong.[3]  It is this ability that sets us apart as persons, in both the legal and the philosophical senses.

This distinction also exists between humans and intangible entities such as corporations.  All of the decision making capacity of a corporation resides within the human beings that run it, from the CEO down to each and every individual worker.  Even if all of these humans are working to further common goals, it does not mean that these efforts and goals have any existence independent of these individuals.  Every individual has the ability to act independently.  The corporation does not.

For a publicly traded corporation, this inability to be a moral actor goes beyond just the lack of independence.  They are legally prevented from being such.  By law, the management of a public corporation is required to operate in a manner that produces the greatest financial benefits to the shareholders.  This requirement to be nothing more than mechanisms of raw self-interest makes public corporations entirely unfit to be moral actors.  The quest for an ethical corporation is futile.  No matter how many times we exhort management to run one, and no matter how many times we teach MBA students to build one, the ethical corporation is chimerical.  It can’t exist.

Many people use the idea of an ethical corporation as a shorthand for the idea of the executives of corporations to lead in ethical directions.  This rhetorical short cut is pernicious.  Only human beings can make moral decisions.  Calling for a company to make them provides each individual with an excuse for not making hard choices.  This is something about which we shouldn’t allow for any buck passing.  Being a part of an organization does not relieve anyone from the responsibility to make moral choices.

This applies most strongly to executives at the top.  To quote one corporate head, with great power comes great responsibility.[4]  Executives clearly wield great power, particularly, but not exclusively, within their own companies.  More than anyone else, they must be cognizant of the moral implications of what they do, and accept responsibility for their own choices.  Simply saying, “I was working in the best interests of the shareholders,” is not a sufficient excuse for immoral behaviors.  It is the corporate equivalent of saying, “I was only following orders.” 

This is one of the inherent tensions within capitalism, particularly in its Anglo-American form.  Executives are often legally obligated, through their fiduciary responsibility to shareholders, to behave in immoral ways.  A classic example is the behavior of Union Carbide, and its corporate successors, in the wake of the 1984 release of toxic gas that killed thousands of people in Bhopal, Madhya Pradesh, India.  It was their legal duty to pay as little as possible in compensation to the victims and to stall as long as possible.  Making justice the focus of their actions would have been the moral choice, but it would also have violated their fiduciary responsibility.

Corporations are not persons.  They cannot behave as such.  It does us no good to pretend otherwise.  They do not have rights, and the existence of their rules does not absolve human beings that work for a corporation from behaving in accord with their own moral codes.  The discussion we need to be having is not how we can convince companies to behave more ethically. 

Rather, the focus needs to be on the question of what are the moral imperatives for those who work within corporations.  Does the doctrine of fiduciary responsibility to their shareholders replace the normal moral responsibilities that obligate individuals, or is it incumbent upon them to uphold individual standards of morality even when this would reduce the income of the corporation’s owners?

This is not an easy question to resolve.  Most of us would find that any absolute answer to it produces suboptimal results in many instances.  That’s a major reason why it’s important to have that discussion.

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[1] Note that this does not mean that I think that proper legal reasoning is what motivated certain Justices.  I am quite confident that several of them could have figured out how to rule the same way even without a long line of precedent to rely upon.

[2] None of this should be taken to mean that I disagree with Citizens United in its practical implications.  Prohibiting corporations from engaging in particular types of speech has some very bad consequences.  The decision points to serious defects in running a republican form of government in the modern age, but it does not create them.  I am pessimistic about the future of American democracy, as I think that the mere fact that political campaigning is so expensive necessarily makes a mockery of equal representation.  However, prohibiting corporations from engaging in political speech does nothing to solve this problem.

[3] I am ignoring the question as to whether certain cetaceans and simians are capable of sapience for the purposes of this essay.  Let’s also avoid snarky comments about our doubts of some of our fellow humans to distinguish right from wrong.

[4] Of course, Stan Lee acted highly unethically a number of times.  Just ask Jack Kirby.