Crime & Justice
6:24 am
Mon July 28, 2014

When Did Companies Become People? Excavating The Legal Evolution

Originally published on Mon July 28, 2014 12:52 pm

Are corporations people? The U.S. Supreme Court says they are, at least for some purposes. And in the past four years, the high court has dramatically expanded corporate rights.

It ruled that corporations have the right to spend money in candidate elections, and that some for-profit corporations may, on religious grounds, refuse to comply with a federal mandate to cover birth control in their employee health plans.

These are personal rights accorded to corporations. To many, the concept of corporations as people seems odd, to say the least. But it is not new.

The dictionary defines "corporation" as "a number of persons united in one body for a purpose." Corporate entities date back to medieval times, observes Columbia law professor John Coffee, an authority on corporate law. "You could think of the Catholic Church as probably the first entity that could buy and sell property in its own name," he says.

Indeed, having an artificial legal persona was especially important to churches, says Elizabeth Pollman, an associate professor at Loyola Law School in Los Angeles.

"Having a corporation would allow people to put property into a collective ownership that could be held with perpetual existence," she says. "So it wouldn't be tied to any one person's lifespan, or subject necessarily to laws regarding inheriting property."

Later on, in the United States and elsewhere, the advantages of incorporation were essential to efficient and secure economic development. Unlike partnerships, the corporation continued to exist even if a partner died; there was no unanimity required to do something; shareholders could not be sued individually, only the corporation as a whole, so investors only risked as much as they put into buying shares.

By the 1800s, the process of incorporating became relatively simple. But corporations aren't mentioned anywhere in the Constitution, leaving the courts to determine what rights corporations have — and which corporations have them. After all, Coca-Cola is a corporation, but so are the NAACP and the National Rifle Association, and so are small churches and local nonprofits.

"All these truly different types of organizations might come under the label 'corporation,' " Pollman observes. "And so the real difficulty is figuring out how to treat these different things under the Constitution."

In the early years of the republic, the only right given to corporations was the right to have their contracts respected by the government, according to legal historian Eben Moglen.

The great industrialization of the United States in the 1800s, however, intensified companies' need to raise money.

"With the invention of the railroad, you needed a great deal of capital to exploit its purpose, " Columbia professor Coffee says, "and only the corporate form offered limited liability, easy transferability of shares, and continued, perpetual existence."

In addition, the end of the Civil War and the adoption of the 14th Amendment provided an opportunity for corporations to seek further legal protection, says Moglen, also a Columbia University professor.

"From the moment the 14th Amendment was passed in 1868, lawyers for corporations — particularly railroad companies — wanted to use that 14th Amendment guarantee of equal protection to make sure that the states didn't unequally treat corporations," Moglen says.

Nobody was talking about extending to corporations the right of free speech back then. What the railroads sought was equal treatment under state tax laws and things like that.

The Supreme Court extended that protection to corporations, and over time also extended some — but not all — of the rights guaranteed to individuals in the Bill of Rights. The court ruled that corporations don't have a right against self-incrimination, for instance, but are protected by the ban on warrantless search and seizure.

Otherwise, as the Cato Institute's Ilya Shapiro puts it, "the police could storm down the doors of some company and take all their computers and their files."

But for 100 years, corporations were not given any constitutional right of political speech; in fact, quite the contrary. In 1907, following a corporate corruption scandal involving prior presidential campaigns, Congress passed a law banning corporate involvement in federal election campaigns. That wall held firm for 70 years.

The first crack came in a case that involved neither candidate elections nor federal law. In 1978 a sharply divided Supreme Court ruled for the first time that corporations have a First Amendment right to spend money on state ballot initiatives.

Still, for decades, candidate elections remained free of direct corporate influence under federal law. Only money from individuals and groups of individuals — political action committees — were permitted in federal elections.

Then came Citizens United, the Supreme Court's 5-4 First Amendment decision in 2010 that extended to corporations for the first time full rights to spend money as they wish in candidate elections — federal, state and local. The decision reversed a century of legal understanding, unleashed a flood of campaign cash and created a crescendo of controversy that continues to build today.

It thrilled many in the business community, horrified campaign reformers, and provoked considerable mockery in the comedian classes.

"If only there were some way to prove that corporations were not people," lamented the Daily Show's Jon Stewart. Maybe, he mused, we could show "their inability to love."

Fellow Comedy Central comedian Stephen Colbert tried unsuccessfully to get the question of corporate personhood on the South Carolina ballot, and also formed a superPAC, which asked whether voters would be comfortable letting Mitt Romney date their daughters' corporations.

But there are serious people on both sides of this issue.

Cato's Shapiro sees all corporations, when they spend on political campaigns, as merely associations of like-minded people.

"Nobody is saying that corporations are living, breathing entities, or that they have souls or anything like that," he says. "This is about protecting the rights of the individuals that associate in this way."

Countering that argument are those who note that individuals are perfectly free to give money to candidates with whom they agree, and to spend unlimited amounts independently supporting those candidates. They shouldn't need a corporation to express themselves, the argument goes.

Some critics, like Pollman, see a difference between for-profit and nonprofit corporations. A nonprofit corporation formed to advance particular political views is one thing, she says. A large for-profit corporation is something else entirely.

"There's no reason to believe that the people involved — shareholders, employees, even the directors or managers — have come together for an expressive purpose related to anything other than really what the business is doing," she argues.

And shareholders and employees, Pollman observes, have no real recourse if they disagree with how corporate money is spent in campaigns.

And then there is the money-is-not-speech argument. The problem for First Amendment believers, Moglen says, arises not because they think corporations shouldn't have rights so much as they think money isn't equal to speech.

"And we are now winding up using constitutional rules to concentrate corporate power in a way that's dangerous to democracy," he says.

That, of course, is not how the Supreme Court majority sees its decision. The court has said that because speech is an essential mechanism of democracy, the First Amendment forbids discrimination against any class of speaker.

It matters not, the court said just this year, that some speakers, because of the money they spend on elections, may have undue influence on public policy; what is important is that the First Amendment protects both speech and speaker, and the ideas that flow from each.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

RENEE MONTAGNE, HOST:

In the last four years, the U.S. Supreme Court has dramatically and repeatedly expanded the rights of corporations.

LINDA WERTHEIMER, HOST:

The court ruled that corporations have the right to spend money in elections for public office.

MONTAGNE: It ruled that some for-profit corporations may refuse to comply with the federal mandate to cover birth control in their health plans if they have religious objections.

WERTHEIMER: These are personal rights, but they are being accorded to corporations. And our listeners have sent us a lot of mail asking, in essence, when did corporations become people? So we turned that question over to NPR legal affairs correspondent Nina Totenberg.

NINA TOTENBERG, BYLINE: Corporation - defined in the dictionary as a number of persons united in one body for a purpose.

JOHN COFFEE: We've had the corporate entity from, really, medieval times.

TOTENBERG: Columbia law professor John Coffee is an authority on corporate law.

COFFEE: You can think of the Catholic Church as probably the first entity that could buy and sell property in its own name.

TOTENBERG: Indeed, having an artificial legal persona was especially important to churches, says Elizabeth Pollman of Loyola Law School in Los Angeles.

ELIZABETH POLLMAN: Because having a corporation would allow people to put property into a collective ownership that could be held with perpetual existence. So it wouldn't be tied to any one person's lifespan, or subject necessarily to the laws regarding inheriting property and that sort of thing.

TOTENBERG: Later on, in the United States, the advantages of incorporation were crucial to the nation's economic development. Unlike partnerships, the corporation continued to exist even if a partner died. There was no unanimity required to do something. The shareholders could not be sued individually, only the corporation could be sued. So investors only risked as much as they put into buying shares. By the mid-1800s, the process of incorporating was relatively routine, and corporations were common. But corporations are nowhere mentioned in the Constitution, leaving to the courts the sorting out of corporate rights. After all, Coca-Cola is a corporation, but so are the NAACP, the National Rifle Association and small, local nonprofits. Loyola's Pollman.

POLLMAN: All these truly different types of organizations might come under that label of corporation. And so the real difficulty is figuring out how to treat these different things under the Constitution.

TOTENBERG: In the early years of the Republic, the most important right accorded to corporations was the right of contract. Legal historian Eben Moglen.

EBEN MOGLEN: And that right, the right to have contracts respected by the state, was the only federal constitutional right that the Supreme Court was thinking about before the Civil War.

TOTENBERG: The Civil War, however, coincided with an era of great industrialization and the need to raise great capital.

(SOUNDBITE OF FILM, "KANSAS PACIFIC")

UNIDENTIFIED ACTOR: (As character) Do you realize how much this is going to cost the company?

UNIDENTIFIED ACTOR 2: (As character) That's not our worry. We're here to build a railroad.

COFFEE: With the invention of the railroad, you needed a great deal of capital.

TOTENBERG: Columbia's John Coffee.

COFFEE: If only the Court could form offered limited liability, easy transferability of shares and continued perpetual existence.

TOTENBERG: Legal historian Eben Moglen adds that the end of the Civil War gave corporations a chance to pursue greater legal protection, too.

MOGLEN: From the moment the 14th Amendment was passed in 1868, lawyers for corporations - particularly railroad companies - wanted to use that 14th Amendment guarantee of equal protection to make sure that the states didn't unequally treat corporations.

TOTENBERG: We're not talking here about the right to speak out on about political issues. We're talking about equal treatment under state tax laws and things like that. The Supreme Court extended that protection to corporations. And over time, it also extended to corporations some, but not all, rights guaranteed to individuals in the Bill of Rights. The court ruled that corporations have no right against self-incrimination, for instance, but that they do have a right to be free from unreasonable search and seizure. Otherwise, as the Cato Institute's Ilya Shapiro puts it...

ILYA SHAPIRO: The police could storm down the doors of some company and take all their computers and their files.

TOTENBERG: For a hundred years, corporations were not given any right of political speech in federal law. In fact, quite the contrary. In 1907, following a corporate corruption scandal in the presidential campaign, Congress passed a law banning any corporate involvement in federal election campaigns. That wall held firm for 70 years. The first crack came in a case that involved neither candidate elections nor federal law. In 1978, a sharply divided Supreme Court ruled for the first time that corporations have a First Amendment right to spend money on state ballot initiatives. Even after that, though, candidate elections remained free of direct corporate influence for decades. Only money from individuals and groups of individuals, known as political action committees, was permitted in federal elections. Then came Citizens United, the Supreme Court's 5-4 decision in 2010 extending to corporations, for the first time, full First Amendment free-speech rights to spend money as they wish in candidate elections - federal, state and local. The decision reversed a century-old legal understanding, unleashed a new flood of campaign cash and uncorked a crescendo of controversy. It thrilled many in the business community, horrified campaign reformers and provoked considerable mockery in the comedian classes.

(SOUNDBITE OF TV SHOW, "THE DAILY SHOW")

JON STEWART: If only there was some way to prove that corporations were not people - their inability to love.

TOTENBERG: That, of course, was "The Daily Show's" Jon Stewart. His shenanigans notwithstanding, there are serious people on both sides of this issue. Cato's Ilya Shapiro sees all corporations, when they spend on political campaigns, as merely associations of like-minded people.

SHAPIRO: Nobody is saying that corporations are living, breathing entities or that they have souls or anything like that. This is about protecting the rights of the individuals that associate in this way.

TOTENBERG: Countering that argument are those who note that individuals are perfectly free to give money to candidates and to spend unlimited amounts independently supporting those candidates. So they shouldn't need a corporation to express themselves. Some critics, like Loyola's Elizabeth Pollman, see a difference between for-profit and nonprofit corporations. A nonprofit corporation formed to advance particular political views is one thing, she argues, a large for-profit corporation is something else entirely.

POLLMAN: There's no reason to believe that the people involved - shareholders, employees, even the directors or managers - have come together for an expressive purpose related to anything other than, really, what the business is doing.

TOTENBERG: And shareholders and employees, she observes, have no real recourse if they disagree with how corporate money is spent in campaigns. And then there's the money-is-not-speech argument. Eben Moglen.

MOGLEN: I think the real problem for those of us who see ourselves as strong First Amendment believers - as I do, too - arises not so much because we think corporations shouldn't have rights as because we think that money isn't equal to speech. And we are now winding up using constitutional rules to concentrate corporate power in a way that's dangerous to democracy.

TOTENBERG: That, of course, is not how the Supreme Court majority sees its decision. The Court has said that because speech is an essential mechanism of democracy, discrimination against any class of speaker is forbidden by the First Amendment. It matters not, the Court said just this year, that some speakers, because of the money they spend on elections, may have to undo influence on public policy. What is important is that the First Amendment protects both speech and speaker, and the ideas that flow from each. Nina Totenberg, NPR News, Washington. Transcript provided by NPR, Copyright NPR.