We the Corporations Page 2
After the Constitution was ratified, corporations quickly sought to gain the rights it guaranteed to individuals. Although there was never a broad-based popular movement for corporate rights, throughout American history the nation’s most powerful corporations have persistently mobilized to use the Constitution to fight off unwanted government regulations. The Bank of the United States, the brainchild of Alexander Hamilton and the first great American corporation, brought the first corporate rights case to the Supreme Court in 1809; the Southern Pacific Railroad pushed to win rights of equal protection and due process in Roscoe Conkling’s case; tobacco companies sued to gain the Constitution’s protections for criminal defendants; and First National Bank fought to win political speech rights for corporations three decades before Citizens United. Standard Oil, Ford Motor Company, General Motors, the New York Times Company, and U.S. Steel all played roles in the story of corporate rights—along with insurance companies, brewing companies, mining companies, newspapers, and national chains. Political scientists have shown that large companies tend to be more politically active and show greater sophistication in their political activity than smaller firms, and the pursuit of corporate constitutional rights may be understood as another illustration of the phenomenon.8
Although the focus of this book is on business corporations, we will see that several of the Supreme Court’s most important corporate rights cases involved other types of organizations that nonetheless took the corporate form: Dartmouth College, the National Association for the Advancement of Colored People, and even Citizens United, a nonprofit advocacy group, were all “corporations” that fought to establish their own rights. Yet because the Supreme Court has rarely differentiated among the various types of corporations, even these cases resulted in greater constitutional protections for business.*
Corporations have a straightforward motivation to seek constitutional rights: to fight laws and regulations that restrict business autonomy and interfere with the pursuit of profit. The profit motive has long made corporations formidable political actors who exert a strong influence on lawmaking, and indeed the vast majority of lobbyists in Washington work for companies and business-oriented trade associations. Yet as the story of corporate constitutional rights reminds us, business influence is not restricted to the elected branches. Corporate interests have also exerted themselves aggressively in the courts of law, using the Constitution to expand their power. When popular pressures have succeeded in winning laws to restrict corporations—be it in the name of consumers, investors, the environment, or the public at large—constitutional litigation has provided business with another chance to manipulate public policy to increase its own profits. Even if the companies lose in the end, the costs of litigation might still serve to discourage lawmakers from adopting future regulations.9
Corporations are all but compelled to seek constitutional rights by American corporate law—the body of legal rules that dictate how corporations are formed and managed. Corporations are required by long-standing corporate law principles to maximize profit for shareholders, at least in the long term. When government regulations impose significant costs on a corporation, this legal requirement directs companies to pursue any lawful, cost-effective means of reducing the cost of compliance. For corporations, filing lawsuits to establish their rights and overturn unwanted regulations is just another cost of doing business.10
In gaining the protective coverage of the Constitution, corporations have been assisted by the brightest, most able lawyers of the day. Just as the civil rights movement had Thurgood Marshall and the women’s rights movement Ruth Bader Ginsburg, corporate rights had Daniel Webster, widely considered the greatest advocate in the history of the Supreme Court, who argued 223 cases before the justices, many on behalf of the nation’s largest corporations; Horace Binney, a young and creative lawyer who won the first corporate rights cases in the Supreme Court by employing an ingenious argument designed to hide the fact that a corporation was involved; and Theodore Olson, the lawyer who argued Citizens United and the dean of an emergent school of Supreme Court specialists that bolstered the clout of business in the nation’s highest tribunal. Even Thurgood Marshall argued for constitutional rights for corporations during the height of the civil rights era, when corporate rights became entangled with issues of race.
As Marshall’s example suggests, the fight for corporate rights weaves through some of the most important controversies and turning points in American history: Alexander Hamilton and Thomas Jefferson’s battle over the national bank; the fight over slavery before the Civil War; the trust-busting crusades of Theodore Roosevelt and the demagoguery of Huey Long; the civil rights revolution; and the emergence of the Tea Party. The nature and growth of corporate constitutional rights were shaped by those debates. And in turn, we will see, those debates were influenced by the struggle for corporate rights.
The history of corporate rights reveals that corporations are both adept constitutional leveragers and creative constitutional first movers. As constitutional leveragers, corporations have successfully exploited constitutional reforms originally designed for progressive causes, transforming them to serve the ends of capital. The Fourteenth Amendment, for example, was designed to protect the rights of the freedmen, but Conkling and the Southern Pacific Railroad pushed the Supreme Court to use it to protect the rights of corporations. In the 1970s, Ralph Nader won a landmark case on behalf of consumers that established a First Amendment right to advertise—a right that corporations, including tobacco and gaming companies, used to overturn laws designed to help consumers.
Yet corporations are also constitutional first movers, and historically have often been innovators at the cutting edge of constitutional litigation. They have not always piggybacked on the rights already held by individuals. In fact, numerous individual rights Americans hold dear today were first secured in lawsuits involving corporations. Businesses often have an unusual appetite for pursuing novel and risky legal claims, stirred by the desire to increase profits and untangle themselves from regulation. They also often have the resources to justify the costs of litigation. As a result, the earliest Supreme Court cases to strike down laws for violating the First Amendment, for example, were spearheaded by corporations, as were some of the earliest search-and-seizure cases under the Fourth Amendment. Corporations were behind the preponderance of early cases that breathed life into the equal protection and due process guarantees of the Fourteenth Amendment—rights that in subsequent years became the basis for Brown v. Board of Education, outlawing racial segregation in schools; Roe v. Wade, guaranteeing the right to choose abortion; and Obergefell v. Hodges, recognizing the right to same-sex marriage. It is not fanciful to say that on more than one occasion, corporations have been among the unsung heroes of civil rights.
To say that corporations have had a civil rights movement of their own should not trivialize the historic struggles by racial minorities, women, the LGBT community, and others to gain equal citizenship. The people involved in those fights for constitutional protections overcame violence and terror to establish their rights, and some lost their lives in the effort. There is no moral equivalency between the civil rights, women’s rights, and gay rights movements on the one hand, and the corporate rights movement on the other. Nor should the recounting of the history of corporate rights be taken as an endorsement of broad protections for corporations—or, for that matter, as an attack on corporate rights. The goal here is simply to show how corporations have pursued a long-standing, strategic effort to establish and expand their constitutional protections, often employing many of the same strategies as other well-known movements: civil disobedience, test cases, and the pursuit of innovative legal claims in a purposeful effort to reshape the law. For better or worse, the corporate rights movement, like its more famous cousins, has also transformed America.
We the Corporations uncovers this lost history of the corporate rights movement and tells the dramatic, surprising, and even shocking storie
s behind the landmark Supreme Court cases that extended the Constitution’s most fundamental protections to corporations.
* Throughout this book, “corporation” is used primarily to refer to a business corporation. Other types of corporations typically include a modifier, such as “nonprofit corporation” or “educational corporation.” On occasion, where the context makes it clear, “corporation” is also used to refer to the entire category of organizations that take the corporate form.
PART ONE
CORPORATE ORIGINS
CORPORATIONS LIKE THE EAST INDIA COMPANY, WHOSE INVENTORY WAS DUMPED OVERBOARD DURING THE BOSTON TEA PARTY, PROFOUNDLY INFLUENCED THE REVOLUTION AND THE CONSTITUTION.
CHAPTER 1
In the Beginning, America Was a Corporation
THERE IS NOTHING IN THE TEXT OF THE CONSTITUTION that explicitly recognizes corporations or grants them individual rights. In fact, the word corporation appears nowhere in the Constitution. Nor do the records of the Constitutional Convention provide any hint that the Founders ever thought about whether the Constitution should extend its protections to corporations. When the Founders met in Philadelphia in the summer of 1787, the only discussion of corporations was a proposal by James Madison to give Congress the power to charter them, which was ultimately defeated. Corporations and their place in the constitutional structure were not debated in the state conventions that ratified the Constitution, nor mentioned in the famed Federalist Papers, the series of essays written by Madison, Alexander Hamilton, and John Jay to defend the proposed charter of liberty. As best we can tell, the people who wrote and ratified the Constitution simply never considered whether the Constitution applied to corporations.1
One reason the Founders overlooked corporations might be the paucity of business corporations at the time. In 1917, Joseph Stancliffe Davis, an economic historian at Stanford, systematically examined the records of all thirteen of the original states to determine the number of corporations created in early America. Davis knew that, prior to the Revolution, there had been a few colleges in the colonies that were technically corporations, including Yale, Dartmouth, and Harvard. Though not for-profit businesses, all were formed as corporations. Ordinary business corporations, however, were quite rare. Davis found that, in the years immediately preceding the Constitutional Convention, only a small handful of business corporations had been chartered: two banks, two insurance companies, six canal companies, and two toll bridge operators. It is a sign of the Founders’ failure of imagination in Philadelphia that two of these early American corporations would eventually end up in the Supreme Court claiming constitutional protections.2
Some have argued that the Founders were strongly opposed to corporations. According to one scholar, the Founders believed corporations were “dangerous organizations that, if not heavily regulated, would threaten the very freedom of their fledgling nation.” There is surely a kernel of truth in this: the Founders worried about all sorts of concentrations of power, including the concentration of wealth. Thomas Jefferson condemned “the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” Madison, too, worried that “the indefinite accumulation of property” was “an evil which ought to be guarded against” and that the “power of all corporations, ought to be limited in this respect.” Influential Founder George Mason refused to sign the Constitution because it did not do enough to prevent commercial monopolies, and James Wilson, the Pennsylvanian who would go on to become one of the original six Supreme Court justices, warned that corporations “should be erected with caution, and inspected with care” lest “monopoly, superstition, and ignorance” be their “unnatural offspring.”3
Yet it is easy to exaggerate the founding generation’s hostility to corporations. The men who wrote the Constitution were among the wealthiest in America, and many held corporate stock as an investment. Gouverneur Morris, the peg-legged New Yorker who spoke more than anyone else at the Constitutional Convention, was a stockholder in the Bank of North America. So was Robert Morris (no relation), one of only two Founders to score the Revolutionary Era hat trick of signing the Declaration of Independence, the Articles of Confederation, and the Constitution. George Washington was a major investor in the Potomac Company, which built canals along the river north of Georgetown. Benjamin Franklin, Oliver Ellsworth, Elbridge Gerry, and Rufus King were all stockholders; even the wary James Wilson owned shares. There may not have been many corporations, but those that did exist could count a Founder among their investors.4
Moreover, although the men who gathered in Philadelphia never considered whether corporations should have the rights of individuals, the corporation nonetheless profoundly affected their handiwork. For while ordinary business corporations were few in number, extraordinary and exceptional corporations were very much part of the Founders’ world—and heavily influenced their understanding of limited government, individual rights, and constitutionalism. As we will see, the Constitution the Founders wrote reflected the legacy of three corporations in particular: the Virginia Company of London, which brought the first taste of democracy to America; the Massachusetts Bay Company, which provided the Founders with a model for limited government based on a written constitution; and the East India Company, which helped inspire the Revolution that made the Constitution possible. The Founders did not build from scratch, nor did they model their government exclusively on the political institutions of England. Several of the Constitution’s most distinctive and significant features can be traced to America’s colonial experience with the corporation. Indeed, in the beginning, America was a corporation—and the demands of business have shaped the nation and its governmental structures from the start. Centuries before Citizens United, the corporation in many ways had already been bred into the very genes of the American democracy.
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AMERICANS BELIEVE THEIR NATION was born a land of liberty. The origin myths taught to schoolchildren center on the Pilgrims, religious outcasts who landed at Plymouth Rock in 1620. We are told these black-and-white-hatted refugees came to the New World to escape persecution by the king of England and practice their religion freely. In the romanticized stories of America’s beginning, the Pilgrims are potent symbols of the identity and fundamental values of the nation to come: freedom from tyranny, individual rights, and self-government.
The tale of the Pilgrims, however, easily obscures the truth about America’s beginning. This land was first colonized not by religious dissenters but by a business corporation. Thirteen years before the Mayflower brought the Pilgrims to Plymouth, the Virginia Company of London founded England’s first permanent New World colony in Jamestown, on the banks of the Chesapeake. Arriving in 1607, the colonists sent by the Virginia Company were not seeking to exercise their fundamental rights or live free of the monarchy. They were primarily employees of, and investors in, the business, and they came with King James’s blessing (hence the colony’s name). The purpose of their journey was to make money—for themselves, for the stockholders, and for James, who planned to take a cut of everything they made. Even before the Pilgrims brought the idea of personal liberty to colonial America, the profit-seeking business corporation was already established on its shores.5
Founded originally in 1606, the Virginia Company of London was one of the earliest business corporations in England. Started by a group of wealthy investors who sought new business opportunities in overseas trade, it was soon granted a corporate charter by King James. Along with a short-lived sister firm, the Virigina Company of Plymouth, the corporation enjoyed exclusive trading rights for the area stretching roughly from modern-day North Carolina to Maine. The company’s charter specified that one-fifth of the revenue from trade was to be delivered to the Crown. Indeed, James, who ruled England from 1603 to 1625, was desperate for the money.
England at the turn of the seventeenth century was a weak international power, an island nation with few resour
ces. The era was one of intense competition between England and Spain, which was then the most successful colonial power in the New World. By the late 1500s, Spain had conquered Mexico and Peru, where mines abundant in gold and silver supplied the riches that transformed Spain from a poor, divided country into the strongest nation in Europe if not the world. Every year, fleets of up to seventy ships were transporting hundreds of tons of precious metals back to Spain. In England, meanwhile, the government could barely afford to maintain the Royal Navy, the most important tool for exercising international influence. English sea power had to be outsourced. The Crown granted ship owners and groups of merchants “letters of marque and reprisal,” which authorized them to attack Spanish vessels, capture the ships, and take their cargo in the name of England. The government would receive one-fifth of the bounty.6
Privateering, as a result, became an integral part of the English economy, accounting for 10 percent of imports in the 1590s. In 1603, however, the flow of money abruptly stopped. That was the year James ascended to the throne and, in an effort to reconcile with Spain, he put an end to the practice. Nonetheless, the experience provided a model for how England could compete with the other colonial powers, especially Spain, without significant government spending: have private citizens, driven by the profit motive, do it instead. That lesson would help inspire the formation of the Virginia Company, which was also funded by private citizens and promised to generate revenue for the Crown.
To raise the funds necessary to organize an expedition, the Virginia Company did exactly what corporations do today: turn to the capital markets. The company sold shares of stock to investors, who were lured by the promise of dividends expected to come from exploitation of New World resources and trade. Offered at a face value of 12 pounds, 10 shillings, the shares attracted more than 700 “adventurers,” as they were then called. Anything but persecuted dissenters, the stockholders included 96 knights, 21 lords, and numerous doctors, ministers, lawyers, and merchants. Sir Francis Bacon, the philosopher who popularized the scientific method, held shares, as did eventually Sir Thomas Hobbes, the father of modern political philosophy. A bit like the similarly named venture capitalists of the future, these investors were willing to gamble on a highly risky startup.7