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Northwestern Journal of International Law & Business
Issue 3 Fall
Putting the "Corporate" Back into Corporate
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Caroline Kaeb, Putting the "Corporate" Back into Corporate Personhood, 35 Nw. J. Int'l L. & Bus. 591 (2015).
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Northwestern Journal of International Law & Business Vol. 35, No. 3 Putting the “Corporate” Back into Corporate Personhood Caroline Kaeb* Abstract: The Supreme Court has been wrestling with the doctrinal premises of corporate personhood on several occasions in recent years. The Court follows a long history of jurisprudence that has been criticized as cryptic or nebulous at best by many scholars. Especially since the recent economic crisis, the doctrine of corporate personhood has had polarizing effects on the public debate about the role of corporations in society. At a policy level, the debate revolves around questions about the scope of regulatory reach of the state over business; at a sociological level, the issue presents itself as an oxymoron, whether “corporations have human rights,” as the Wall Street Journal postulated. The article provides an important insight into what is wrong with the majority opinion in Citizens United. The paper argues that corporate legal theory (about the nature of the firm) should inform the debate on corporate constitutional rights in order to avoid intra-corporate conflicts with competing interests of shareholders and— depending on the prevailing corporate theory in a national context—its other stakeholders. In essence, we should put the “corporate” back into corporate personhood.
* Visiting Assistant Professor at Northwestern University School of Law.
3KAEB.DOCX (DO NOT DELETE) 11/16/15 12:18 PM Northwestern Journal of International Law & Business 35:591 (2015)
TABLE OF CONTENTSIntroduction
I. The Transatlantic History of Corporate Personhood
A. The “Artificial Entity” as a Structural Limitation on Government
B. The Corporate Personification as a Function of the Democratization of Incorporation
C. Europe’s Tentativeness and the Troubled Relationship Between its Courts
II. The Lost “Corporate” Person: A Shared Transatlantic Judicial Pragmatism?
A. The Apparent Transatlantic Conventional Wisdom: From Ontology to Teleology
B. The Transatlantic Discrepancy: Corporate Theory within Corporate Personhood
III. The Role of Corporate Theory
A. Competing Interests of Corporate Constituents
B. The Relevance of the Corporate Identity in U.S. Supreme Court Jurisprudence
1. A Reasoned Understanding of Citizens United and FCC v. AT&T
2. Resurrecting Shareholder and Constituency Protection within Corporate Personhood
(a) The Common Thread of Corporate Theory................. 627 (b) The Shortfalls of the “Corporate Democracy” Argument
C. Europe’s Missing “Corporate” Person
1. The Lack of Corporate Theory
2. The Missing Protection Rationale
IV. Normative Implications
A. Doctrinal Shift in Europe
1. Shareholder and Constituency Protection
2. The Regulatory State within Corporate Personhood........... 647 B. Institutional Payout
1. Reconciling the ECHR and Member State Courts Regarding Group Rights
2. Mitigating Post-Lisbon Tensions in Overlapping Jurisdiction between the ECHR and ECJ
The United States has been the perceived thought leader on corporate personhood when compared to major foreign legal systems. As early as 1886, the U.S. Supreme Court coined the legal concept of corporate personhood in its Santa Clara decision: “The Court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to those corporations. We are all of the opinion that it does.”1 The Supreme Court’s ruling marked the beginning of a line of jurisprudence that has increasingly watered down the distinction between corporations and human beings. Thus, the Court has endowed corporations with rights that go well beyond the original corporate privilege of limited liability and even beyond mere commercial rights.
The Court has extended to corporations constitutional rights that primarily avail to natural persons, evoking criticism of judicial activism and a pro-business bias.2 More recently, the Court reinforced its position on corporate personhood in its infamous decision in Citizens United holding that the (corporate) nature of the rights holder is entirely irrelevant when determining the scope of corporate rights under the U.S. Constitution.3 It has even been argued that the United States is the only country in the world providing for corporate personhood in a constitutional context.4 But while the United States has become well-known for its long-standing tradition and leading role with regard to promoting corporate personhood, the notion of corporate personhood is not a uniquely American one.
The notion that the United States has an exclusive hold on corporate personhood is a common misperception, particularly with regard to Europe.
Granted, unlike in the United States, the manifestations of corporate perSanta Clara Cnty. v. S. Pac. R.R. Co., 118 U.S. 394, 396 (Waite, C.J.) (emphasis added).
See Erwin Chemerinsky, Editorial, The Broad Reach of the Narrow Hobby Lobby Ruling, L.A.
TIMES (June 30, 2014), http://www.latimes.com/opinion/op-ed/la-oe-chemerinsky-hobby-lobby-supreme
-court-20140701-story.html; Adam Liptak, Corporations Find a Friend in the Supreme Court, N.Y.
TIMES (May 4, 2013), http://www.nytimes.com/2013/05/05/business/pro-business-decisions-aredefining-this-supreme-court.html?pagewanted_all&_r_0; Gregory P. Magarian, Hobby Lobby in Constitutional Waters: Two Life Rings and an Anchor, 67 VAND. L. REV. 67 (2014).
Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 350 (2010) (referring to “the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker’s identity); id. at 364 (holding that “[t]he First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech); see also id.
Rob Kall, Is the USA the Only Nation in the World with Corporate Personhood?, ECONOMY IN CRISIS (Apr. 10, 2012), http://economyincrisis.org/content/is-the-usa-the-only-nation-in-the-world-withcorporate-personhood (quoting Mila Versteeg) (last visited March 15, 2014)
sonhood have traditionally been more tentative in European legal systems, especially in civil law jurisdictions. This is illustrated vividly by the traditional resistance of European civil law systems to hold corporations criminally liable (as legal persons) under their domestic criminal codes.5 It may seem like a natural progression that European legal systems, which have been holding firm on the doctrine of societas delinquere non potest,6 also would have conceptual troubles acknowledging corporations, as fictional entities, to be holders of constitutional, fundamental, or even human rights.
In fact, even though many EU member states have been reluctant to confer entity liabilities and rights on corporations beyond the context of civil and commercial matters,7 their domestic courts generally have not barred corporations, as legal persons, from procedural safeguards and substantive rights per se.8 Particularly the European Court of Human Rights (ECHR), Europe’s regional human rights court, has had a long history of extending the fundamental rights guarantees under the European Convention on Human Rights (the Convention)9 to corporations and has been the engine for a probusiness agenda of fundamental rights protections in Europe.10 Considering that both the U.S. Supreme Court and the ECHR have exercised a proactive approach to corporate rights, a comparative analysis of commonalities and differences in methodology can shed light on how much “corporate” there still is in corporate personhood on each side of the Atlantic and what lessons the two systems can learn from one another. It is imperative that the distinction between corporations and human beings be restored and reinforced through the law. It is simply not sufficient, with reference to “corporate personhood,” merely to equate corporations with human beings without accounting for the special characteristics of the corporate form, in terms of fiduciary duties, and the possible intra-corporate tensions resulting from the separation of ownership and control. This article argues that instead it is crucial to account for the characteristics and comSara Sun Beale & Adam G. Safwat, What Developments in Western Europe Tell Us about American Critiques of Corporate Criminal Liability, 8 BUFF. CRIM. L. REV. 89, 105 (2004).
“A legal entity cannot beblameworthy.” Thus, whereas corporations have standing to sue and be sued in civil matters in nearly every jurisdiction, civil law systems (especially in Europe) have been traditionally been reluctant to provide for corporate entity liability in the context of criminal proceedings.
However, constitutional rights protections under their respective domestic Constitutions have been applied to corporations in a manner that is far more restrictive than in the United States. See Bundesverfassungsgerichts [BVerfGE] [Federal Constitutional Court] Dec. 12, 2000, 102 NEUE JURISTISCHE WOCHENSCHRIFT [NJW] 591, 2001 (Ger.).
Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols No. 11 and 14, opened for signature Apr. 11, 1950 C.E.T.S. No. 194 (entered into force June 1, 2010) [hereinafter Convention]. The Convention entered into force on September 3, 1953; to date 47 European states are party to the Convention. The Convention provides the treaty basis for the European human rights regime that has aims to ensure compliance with basic human rights principles throughout Europe. See PHILIP ALSTON & RYAN GOODMAN, INTERNATIONAL HUMAN RIGHTS, 891–92 (2013).
MARIUS EMBERLAND, THE HUMAN RIGHTS OF COMPANIES 134–35 (2006).
plexities of corporate structures when determining if respective rights protections are applicable to corporations.11 Only then can conflicts with shareholder interests—as the primary constituency of the corporation—be mitigated and unintended consequences pertaining to corporate personhood be avoided.
Corporations are considered entities in their own right,12 yet they can only act through their agents, while owing a fiduciary duty to the company’s shareholders.13 Thus, it is erroneous to think of a corporation in a onedimensional way, either in terms of an association of individuals or as a person in its own right. Instead, corporations should be perceived as having features of both associations and individuals, at least for the exercise of determining the scope of fundamental rights granted to the corporate entity.
Conferring rights on corporate entities acknowledges them as “independent entit[ies] with interests, ends, and knowledge of its own.”14 Even if one does not go as far as viewing the corporations as an “enforcement agent” of their human constituents’ rights/interests,15 it still cannot be ignored that corporations constitute a complex structure of a multitude of diverse interests that can conflict with one another and that need to be balanced.
This analysis can extend well beyond avoiding conflict between the rights conferred on the corporate entity and the interests of its shareholders to include interests of a company’s key stakeholders16 as well. Certainly, this would require a stakeholder-centric corporate objective and governance See Larry E. Ribstein, The Constitutional Conception of the Corporation, 4 SUP. CT. ECON. REV.
95, 108 (1995) (arguing that the respective theory of the nature of the corporation has “implications for the nature and extent of corporate constitutional rights.”); Daniel Greenwood, Essential Speech: Why Corporate Speech is not Free, 83 IOWA L. REV. 995, 1024 (suggesting that “[i]f corporate speech is to be corporate at all, there must be a clear explanation of how the group decision legitimately can be made.”) See generally Michael J. Phillips, Reappraising the Real Entity Theory of the Corporation, 21 FLA. ST. U. L. REV. 1061 (1994).
See Daniel Greenwood, Fictional Shareholders: For Whom are Corporate Managers Trustees, Revisited, 69 S. CAL. L. REV. 1021, 1021 (1996).
David Ciepley, Neither Persons nor Associations: Against Constitutional Rights for Corporations, 1 J.L. & CTS. 221, 223 (2013).
Burt Neuborne, Of “Singles” Without Baseball: Corporations as Frozen Relational Moments, 64 RUTGERS L. REV. 769, 775 (2012).
There is some variety in how authors have defined the term “stakeholder.” As Donaldson & Preston note regarding a leading example:
The much-quoted Stanford Research Institute’s (SRI) definition of stakeholders as “those groups without whose support the organization would cease to exist” clearly implies that corporate managers must induce constructive contributions from their stakeholders to accomplish their own desired results (e.g., perpetuation of the organization, profitability, stability, growth).
Thomas Donaldson & Lee E. Preston, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, 20 ACAD. MGMT. REV. 65, 72 (1995) (internal citations omitted).