Sotomayor Issues Challenge to a Century of Corporate Law
online.wsj.com
online.wsj.com
A corporation should not be considered a person in and of itself. A corporation is a contractual agreement between people over the ownership of property. This was the original understanding of a corporation, until the courts started creating this weird, and wrong, personhood doctrine. A corporation should not have rights - a corporation is a contract - the idea of a contract having rights is non-nonsensical.
But Sotomayor is also wrong. The people running the corporation, and the people owning the property do have rights. Just as Arthur Sulzberger has first amendment right to hire people to speak for him, shareholders of a corporation have a first amendment right to hire people to speak for them. The government has no right to restrict the freedom of speech of employees or shareholders of a corporation.
The transcript is at http://www.supremecourtus.gov/oral_arguments/argument_transc... and I urge people to read it. The relevant portion is as follows:
JUSTICE SOTOMAYOR: Going back to the question of stare decisis, the one thing that is very interesting about this area of law for the last 100 years is the active involvement of both State and Federal legislatures in trying to find that balance between the interest of protecting in their views how the electoral process should proceed and the interests of the First Amendment.
And so my question to you is, once we say they can't, except on the basis of a compelling government interest narrowly tailored, are we cutting off or would we be cutting off that future democratic process? Because what you are suggesting is that the courts who created corporations as persons, gave birth to corporations as persons, and there could be an argument made that that was the Court's error to start with, not Austin or McConnell, but the fact that the Court imbued a creature of State law with human characteristics.
But we can go back to the very basics that way, but wouldn't we be doing some more harm than good by a broad ruling in a case that doesn't involve more business corporations and actually doesn't even involve the traditional nonprofit organization? It involves an advocacy corporation that has a very particular interest.
In other words, she is asking the attorney for Citizen's united if he is aware that the basis of his argument for invalidating Austin McConnell (in which a court ruled that Congress had the right to balance electoral and first amendment considerations) would create the basis for a challenge to corporate personhood itself, by making the right of corporate speech pendant on past court decisions which assumed the validity of corporate personhood without ever having formally established it.
Your point about employees and shareholders enjoying free speech qua individuals makes ethical sense, but have you considered that treating the corporation as proxy for the rights of its human owners or agents would conflict with the idea of corporate severability, the legal framework which protects shareholders from direct legal liability for wrongdoing carried out on behalf of a corporation by its officers?
sorry for the long-windedness :-/
Your point about employees and shareholders enjoying free speech qua individuals makes ethical sense, but have you considered that treating the corporation as proxy for the rights of its human owners or agents would conflict with the idea of corporate severability, the legal framework which protects shareholders from direct legal liability for wrongdoing carried out on behalf of a corporation by its officers?
Corporate severability is bogus. Shareholders should be held to the same level of criminal liability as anyone else who knowingly profits from criminal acts. In practice, this would be rare, as shareholders in public companies would not knowingly profit from criminal actions, because if the actions were publicly known, they would be immediately stopped.
Your argument for why 'corporate severability is bogus' is mistaken, I believe, but first I must correct myself - 'severability' was not the right word to use, and refers to the validity of a contract if one of its terms is violated. What we are actually discussing is the idea of limited liability - I apologize for the mistake.
Anyway, I guess what you're saying that that the issue of shareholders' limited liability is bogus because they can't be profiting from criminal behavior they don't know about, and when such criminal behavior is discovered it is stopped so there is no profit.
I am unpersuaded. This is like saying that if I am arrested immediately after robbing a bank, I should not be penalized because I haven't had an opportunity to spend any of the money yet and therefore derived no benefit from its theft. Surely, when a company is found guilty of some abuse (eg Pfizer's recent $2.5bn fine), haven't shareholders already enjoyed the profits in the form of dividends? OK, so after such a fine there won't be any more fat dividends for a while, but this is of no consequence to the shareholder who has already sold his holdings I'm afraid I see the doctrine of unlimited corporate rights but totally limited liability as a clear case of moral hazard.
I will bet you $25 that she will not vote in favor of corporations having the right to free speech.
As for the criminal liability issue:
Imagine you loan money to a friend. Your friend tells you he is going to use the loan to buy a bus ticket to a job interview. Your friend promises to pay you back plus 20% in a week. That friend then uses the money to buy a gun, and uses the gun to rob a gas station. He pays you back the money, with interest. You do not know about the crime, but you have profited from criminal actions.
A court would likely not hold you criminally responsible, as long as you had no reason to suspect your friend of using the money to engage in criminal actions. It would probably require you to pay back the money.
If you knew your friend was going to use the money to buy a gun, then you indeed would be criminally liable.
If there was a "wink wink" arrangement (ie, you say to your friend, "here's some money, turn it into more money, but don't break the law, wink, wink"), you could be held criminally responsible.
Figuring out if you knew the intentions of your friend is a judgement call.
Likewise, if I invest in a corporation that I know to be engaging in criminal acts, I should be criminally liable for those actions.
If I invest in a corporation that is secretly engaging in criminal acts, and I have taken reasonable precautions to ensure that my money is not being used for criminal acts, then I should not be criminally liable.
If the company is later convicted for criminal/third party tort charges, and the amount of the fine exceeds the liquidation value of the company, it would make sense to claw back into previously paid dividends, the same way as you confiscate any blood money.
And maybe you're right, but in this case all she did was point out that the plaintiff's argument would raise such a question and might result in an excessively broad ruling for such a narrow problem. what she did and what we might do in the future are two entirely different things, and you are applying your opinion about the latter to the former with no basis in fact. I know, I'm being pedantic here, but I think you're reading far too much into what she actually said.
Edit: I'm more and more confused about where you think she would be wrong anyway if the did vote this way, since you do don't think corporations should enjoy the status of legal persons. How would a suggestion that corporations don't enjoy constitutional protections infringe on the individual rights of those shareholders?
Presumably, even if DownWithPedro Corp is forbidden from advertising on the eve of the election, I could still write an impassioned screed on the same subject in my own name. to be honest, I think the reason this particular company (in the lawsuit under discussion) exists is not to make a profit but to protect its investors from the financial risks of being sued for libel if they released the film as a group of individuals without the benefit of limited liability.
If the company is later convicted ... make sense to claw back into previously paid dividends ...
I agree with most of what you say. We are not so far apart on the possible implementations. My beef is not with the basics of capitalism per se, but the fact that nowadays at least, arcane corporate structures are all too often employed to diffuse responsibility to the point of meaninglessness. In the Pfizer case I mentioned, one sales manager got 6 months of house arrest plus a $100 fine, which I frankly thought was just as unfair to Pfizer shareholders as to consumers. A few years back I thought Sarbanes-Oxley would lead to meaningful reforms in comporate decision making and risk management, but the events of the last 2 years have proved me woefully mistaken :-/
Let me rephrase. I believe that corporations are not persons. But I believe that the owners and operators of a corporation have the rights of persons, and they have the Constitutional right to use their corporate funds for political speech. There have been court rulings that oppose this view, and I'm guessing that Sotomayor agrees with those rulings (although you are right, she has not said this explicitly, I read the original article too fast and attributed views to her by association, since I know she's generally a left-wing judge.)
Presumably, even if DownWithPedro Corp is forbidden from advertising on the eve of the election, I could still write an impassioned screed on the same subject in my own name.
If the first amendment means anything it protects the right to pay someone to speak for you, to organize as a group to speech, to organize as a group to fund the printing of pamphlets, etc. Freedom of speech is not limited to me as individual yelling off of a soapbox. It protects my right to organize with others to print newspapers, make videos, promote videos, etc. If I'm going to organize with others, I'll often need to setup a contract to guide the organization - ie a corporate charter. Court rulings that limit the political speech of people in corporations are essentially banning one particular form of organization from speaking, and allowing others (NYTimes and Harvard Corporation get free speech, Exxon Mobil does not). Freedom of speech does not mean freedom of speech for organizations that Congress likes. It means freedom for everyone.
to be honest, I think the reason this particular company (in the lawsuit under discussion) exists is not to make a profit but to protect its investors from the financial risks of being sued for libel if they released the film as a group of individuals without the benefit of limited liability.
Legally, I am pretty sure libel would not protect against libel committed by the management or shareholders.
In the Pfizer case I mentioned, one sales manager got 6 months of house arrest plus a $100 fine, which I frankly thought was just as unfair to Pfizer shareholders as to consumers.
I don't know a whole lot about the Pfizer case. But it doesn't seem like the crime was fraud in the common law sense. Rather they failed to comply with FDA administrative procedures. At least that's my impression of the case ( http://www.overcomingbias.com/2009/09/for-med-free-speech.ht... ), correct me if I'm wrong. Six months house arrest does not seem lenient for an essentially administrative violation. I don't think that represents the sales manager getting special treatment because of limited liability protections.
Since corporations necessarily have contracts with other entities and a contract as an entity can't be a party to another contract, then your corporation would have to somehow specify a process for employees to hold contracts in proxy.
Also, a corporation that's just a contract between individuals can't provide any protection from lawsuits by people who aren't employees or shareholders.
Certainly there's a place for the kind of construct you're talking about, but it seems to be fundamentally incompatible with anything remotely similar to the way business is structured today.
That's exactly what a corporate charter is. It's the shareholders delegating the management and contracts associated with a piece of property to a process determined by the corporate charter.
Also, a corporation that's just a contract between individuals can't provide any protection from lawsuits by people who aren't employees or shareholders.
The contract can protect from lawsuits by creditors. When a creditor loans to a limited liability company, the creditor knows that he only has recourse to the funds pledged to the corporation. He can not claw back into the shareholders personal funds. Again, it's a matter of voluntary contracts. If the creditor wants that right, he can explicitly demand that the shareholders pledge their own assets as part of the terms of the contract. ( in fact, that's exactly what banks do when lending to very small businesses).
But an LLC designation should not protect from criminal liability. Shareholders should be held to the normal standards of criminal culpability for the actions of the management. A shareholder who knowingly profits from the management committing criminal acts should be held to the same level of guilt as anyone who knowingly profits from criminal acts.
You are not completely correct here, because the corporation itself can enter into contracts with other people (and corporations).
I know the distinction first-hand because when we invented the license behind FairSoftware (http://softwarebillofrights.org/license.html), we had the exact same problem: we are building virtual corporations by using a licensing contract among participants. It's great, but it doesn't create an independent "person". As you said, it's just a contract between people.
Regular corporations are given special treatment by allowing them in turn to do special things. So they are more than a contract.
But rights like freedom of speech just do not make sense for corporations. They are based on purely human considerations which are just non-existent for fictitious entities. We know that a human being feels oppressed if he/she cannot speak his/her mind. But does a fictitious entity? Of course not. Note that all the actual human beings that are part of the corporation (i.e., stockholders, employees, directors, etc.) have their own free speech rights and can exercise free speech as long as they make it clear they are not speaking on behalf of the corporation.
Thus, an organization should have the right to speech and to voice its opinions, but those rights can be controlled for the public good, for example by laws that prohibit them spending too much money for campaigns or requiring them to identify themselves when buying TV ads.
And of course any organization can fall back on the first amendment rights of its members -- thus as you mentioned they can have all their members sign a document or have them all go to a demonstration, etc. I don't see anythign wrong with this system.
Yes, but the point is that they could be. The reason that rights are explicitly set out in the US Constitution is that governments, left to their own devices, tend to eventually find an excuse to take away any freedom they're not explicitly forbidden from taking away. This isn't because they're bad people, it's just because they're people.
In this case, I'd be very concerned about governments wanting to take away rights from corporations. Governments have always been uneasy about large corporations since Washington tends to dislike the idea of any power centers other than itself.
Giving governments the power to make laws restricting political donations is particularly dangerous, since the party in power is always going to try to twist these laws (always with the most noble-sounding stated intentions) to restrict the ability of the other party to get funding while protecting its own.
Constitutional protections appear to be limited to citizens qua human persons; no protection is offered to institutions, even though powerful non-governmental institutions (churches) were well-established at the time of the United States' founding. being as how no special protections appear to be extended to any organizations other than the states, one might reasonably ask whether the founders ever intended for private organizations to have a distinct legal identity to begin with (as opposed to, say, a board of directors acting with common purpose but individual responsibility).
tl;dr if corporations enjoy constitutional protection, why aren't they mentioned in the constitution?
The whole point is that people are people, whereas their organizations are not them, nor are they free willed individuals on their own.
There's no need for an organization to be immune from censure or regulation when its constituents are all themselves immune.
If the government decides corporations shouldn't be able to pay for political advertising or host fund-raisers, then the corporation's constituents are free to speak out such measures, vote against them, run against the incumbent politicians, etc.
The rights of sovereign governments is a red herring. They have an implicit ability to do whatever they like, either because:they are democratically elected and their actions subject to review and reversal by their citizens' votes; or they rule by force and the will of their citizens is irrelevant.
It might be useful to separate "business rights" from "speech rights", but there should be a way for people to speak as a group. Class-action lawsuits, for example, allow a lot of people to be represented in court without personally being involved in the legal proceedings. Political institutions speak on behalf of significant chunks of the population on a regular basis.
And how would a corporation publish a prospectus without the right to speak? If prospectus contains lies, would you hold the individual who wrote it accountable? That defeats some of the protections a corporation provides, and means the stakeholders get a lot less money if they sue.
Only the deeply cynical could hold that up as an analogue to democratic government and even they wouldn't say it was a positive state of affairs worth emulating.
there should be a way for people to speak as a group There is. You just couldn't speak, as a group, through a shell entity that has its own inalienable right to free speech.
Not having freedom of speech equivalent to individuals doesn't imply a complete re-write of corporate law. It simply means that congress can (constitutionally) make laws abridging and regulating corporate speech.
No-one's proposing a change to how we handle corporate fraud and responsibility. I fail to see how the right to free political speech has any bearing on those areas.
What's more, shareholders have many other options for influence. They can buy additional shares directly. They can 'exit' -- move their money elsewhere, empowering an alternate organization that does represent them.
In the comparison between shareholders and voters, it's not clear to me that it's shareholders who have less influence.
Bear in mind that the corporation is free to do anything that isn't prohibited. What we're talking about here is whether a corporation can avoid a legitimately-enacted regulation by claiming immunity based on a fundamental human right. Corporations can go right on publishing prospecti. And corporate officers are immune from liability (except in certain extreme cases of wrongdoing).
This will be the case as long as government (ie, we the people) decide it's in our best interests. If for some reason government (again, us) decide it's no longer in our best interest, then we can prohibit publishing a propectus without fear of violating some imaginary entity's rights. We can already prohibit the formation of corporations entirely (ie, withdraw the privilege of immunity that corporate officers enjoy), so it is simply silly to say that we can't regulate them on some bizarre human rights claim.
The reason this comes up in the election context is that corporations want to double dip: all of their personnel can give to the individual limit, then give again in the name of the imaginary entity. It's a shell game, and it's good to see Sotomayor is smart enough to see it.
Let's take a concrete example, and suppose that the government outlaws corporations from criticizing government policy. If corporations don't have free speech rights, then it would be perfectly constitutional for them to do so. Do you think that this is okay, since all the individual shareholders still have the right to complain? Even if every individual shareholder gets up at a meeting and says "This new government policy is stupid", the company can be banned from passing a resolution that says "This new government policy is stupid"?
I can see how _some_ individual rights do not extend to corporations, but free speech is not among them. The right of groups of people to assemble and make joint declarations is a fundamental part of the right of free speech.
Why should the corporation need a right to speech to furtehr its interests over and above what a partnership, club, community group, or fraternity have?
As I understand it those organizations make joint political declarations all the time, without the benefit of being able to contribute to their chosen political campaigns above and beyond what their members can.
Why do corporations need an extra leg up in defending their political interests?
But now I'm confused as to what the actual law is. Let me put this all together... corporations have the right to free speech, and somehow this extends to the right to make political donations. On the other hand, individuals have the right to free speech, yet individuals are severely restricted in the amount and kind of political donations they can make thanks to McCain-Feingold. If the right to make political donations is considered part of the right to free speech then how can McCain-Feingold be constitutional at all?
The case in front of the Supreme Court is one where a company produced a special that would have been legal if they only worked with private money, but wasn't because they had some corporate money.
I think this requires some clarification. Obviously it's important that the government can't pass laws preventing people from engaging in collective speech. If two people get together and publish a birth control pamphlet (or a right-to-life pamphlet) the government shouldn't be able to say, "By the terms defined in Statute 778-B, you two are a Filth Advocacy Organization and thereby forbidden from advocating birth control." However, a corporation is voluntarily and explicitly incorporated in order to gain certain privileges from the government, so restricting the speech of corporations doesn't present the same threat to free speech.
Note that all the actual human beings that are part of the corporation (i.e., stockholders, employees, directors, etc.) have their own free speech rights and can exercise free speech as long as they make it clear they are not speaking on behalf of the corporation.
No, this is wrong. A person has the first amendment right to speak on behalf of whomever or whatever they please.
http://www.thecorporation.com/
(spoiler: a sociopath)
The reason is that people confuse the corporation with its component members, ie its personnel because the corporation can't be visualized the way a bee can. As such visualizations become more common, I think people will see more clearly that giving corporations human rights is ludicrous.
That isn't to say that we shouldn't give them certain privileges, but the power to regulate a for-profit corporation should be absolute, since it owes its existence to a government charter in the first place.
I'd like to make this proposal: when a corporation dies (goes bankrupt), it should be treated as murder. If the CEO is responsible for killing that corporation, shouldn't he go to jail?
That would put an interesting twist on corporate responbilibity.
They "buy" politicians and their money and power provide huge voices with which to drown out views they do not like.
Can't die, don't go to jail, hard to regulate, suing them just gets rid of some of the employees/executives the corp goes back to doing whatever it can get away with. Bankruptcy is rarely fatal
There's a reason that, when it comes to criminal acts committed on behalf of a company, individuals are the ones that go to jail: THEY committed a crime, whether they did it to help their organization or not.
The idea of corporate person-hood a perfect example of a (very) leaky abstraction
Flagged.
Here is my biased view of the issue. If corporations gain the right to unlimited direct political advertising, then they will have a much more powerful lobbying option than any they have already. This will give incumbent corporate powers increased influence.
It is the nature of incumbents to try to maintain their dominant position by fair means or foul. Therefore we'll see companies asking the government to erect more powerful barriers to competition. These barriers will often be bad for startups and innovation.
Obvious examples of barriers are expanded patent and copyright laws. However that is just the start. Suppose that the oil industry decided that the right president pursuing the right foreign policy would improve their profit margin by 5%. If they had invested 1% of their 2008 profits into the last election, that would have been more than both presidential campaigns spent together. Is this really how we want US policy decided?