We the Corporations Read online

  The Supreme Court recognized corporations to have property rights because the companies could not function without them. Liberty rights, however, which oriented around physical and spiritual freedom, had no application to corporations. Corporations had constitutional rights but not the same constitutional rights as individuals.

  * * *

  WHEN THE SUPREME COURT issued its decision in MacAndrews & Forbes’s case, Hale v. Henkel, the New York Times announced that American Tobacco and the Tobacco Trust had been “beaten” in a “sweeping” decision. On “every issue they have lost,” the paper reported, “and apparently there is no refuge for a trust.” In fact, however, the court’s opinion, written by Justice Henry Billings Brown, was, like the Lochner court jurisprudence itself, more complicated than it might initially have appeared. By and large, the newspaper was correct that DeLancey Nicoll and MacAndrews & Forbes had lost; Brown’s decision ruled against the company on its Fifth Amendment claim, for example, holding that corporations do not have a right against self-incrimination and that Edwin Hale would have to testify. Nonetheless, the court at the same time held that corporations did have the Fourth Amendment right to be free from unreasonable searches and seizures. Moreover, the court held that Henry Taft’s subpoena for documents was an overbroad infringement of that right.38

  In fairness to the New York Times, Brown’s opinion was hardly a model of clarity and has confused readers ever since. Brown himself had an undistinguished tenure—or, rather, a tenure of only undesired distinction, as he remains known today solely as the author of Plessy v. Ferguson, the discredited decision establishing separate but equal. He was unpredictable when it came to business regulation, voting in the Lochner case to strike down ten-hour workday limits for bakers but then voting in another case to uphold eight-hour workday limits for miners. Even Brown’s own biographer wrote that the justice’s career showed “how a man without perhaps extraordinary abilities” could rise to “the highest judicial position by industry, by good character, pleasant manners and some aid from fortune.” Brown’s opinion in the Hale case has never prompted anyone to argue he was underrated.39

  When viewed in light of the distinction drawn that same year in the Riggs case between property rights and liberty rights, however, Brown’s opinion begins to make more sense. By denying corporations the right against self-incrimination, the court was excluding them from a right associated with personal liberty and bodily autonomy, or what Brown called “a purely personal privilege.” Henry Taft had argued in his brief that the right against self-incrimination was designed to protect people from being tortured; “the mischief” the Framers sought to prevent was “the demoralizing effect on the administration of justice of a possible resort to brow-beating and abuse.” Corporations, however, unlike people, were not subject to torture or physical abuse.40

  JUSTICE HENRY BILLINGS BROWN WROTE THE SUPREME COURT OPINION RECOGNIZING CORPORATIONS TO HAVE SOME, THOUGH NOT ALL, OF THE CONSTITUTION’S PROTECTIONS FOR CRIMINAL SUSPECTS.

  The Fourth Amendment, however, was more like a property right. It protected “persons, houses, papers, and effects” from being unreasonably searched or seized by the government. This was largely protection for tangible property, and corporations had long enjoyed the same property rights as individuals. Taft’s subpoena illustrated why corporations needed this type of protection, according to Brown. Taft had not required “the production of a single contract, or of contracts with a particular corporation, or a limited number of documents, but all understandings, contracts, or correspondence” between MacAndrews & Forbes and all its major business partners—“as well as all letters received by that company since its organization from more than a dozen different companies.” In an era before photocopying, complying with such a subpoena was more than a minor inconvenience. “Indeed, it is difficult to say how its business could be carried on after it had been denuded” of all the documents Taft requested, Brown wrote. Without some constitutional protection for corporate property, the government could, under the guise of a mere investigation, “completely put a stop to the business.”41

  Although Hale reached different outcomes with regard to corporations’ Fourth and Fifth Amendment rights, Brown’s reasoning in both instances relied on a similar understanding of the nature of the corporation. Again, however, Brown’s opinion was opaque. Brown began by stating that the “question of whether a corporation is a ‘person’ . . . really does not arise,” and then repeated the language of Horace Binney, Daniel Webster, and Stephen Field by referring to corporations as “associations of people.” Amidst his confusing and inconsistent language, however, Brown’s logic rested on corporate personhood; that is, like the Taney court, he approached the corporation as an independent legal actor, separate and distinct from the members who composed it. Edwin Hale, for instance, was not able to assert the privilege against self-incrimination because, Brown explained, his testimony would not incriminate him but might instead incriminate someone else: MacAndrews & Forbes. Although Hale was called as an agent of the corporation, Brown saw a strict separation between the corporate entity and its members—including, in this case, its employees.

  Hale v. Henkel also reflected the view that corporations were fundamentally different from ordinary individuals in ways that mattered to constitutional law. There was, Brown wrote for the majority, a “clear distinction” between “an individual and a corporation.” Unlike an individual, who “owes no duty to the State or to his neighbors to divulge his business,” the corporation was “a creature of the State” who “receives certain special privileges and franchises.”42

  Although the court held that corporations enjoyed the Fourth Amendment right against unreasonable searches and seizures, corporate rights in this regard were more limited than those of individuals. Brown recognized that, when it came to government investigation of corporations, there was “a reserved right in the legislature to investigate [a corporation’s] contracts and find out whether it has exceeded its powers.” Brown was referring to what Blackstone in his Commentaries had called the “visitatorial power,” which authorized the government to inspect the books and records of corporations to ferret out wrongdoing. As the court explained a few years after Hale, “The reserved power of visitation would seriously be embarrassed, if not wholly defeated in its effective exercise, if guilty officers could refuse inspection of the records and papers of the corporation.”43

  Although the visitatorial power meant that corporations had a diminished expectation of privacy, the Hale court nonetheless held that corporations had a right against unreasonable searches and seizures. The government could not, as Henry Taft had attempted to do, seize so many of a company’s documents that the business could no longer function. Such a blunderbuss approach to a criminal investigation violated MacAndrews & Forbes’s Fourth Amendment rights.

  * * *

  ALTHOUGH THE NEW YORK TIMES failed to notice that DeLancey Nicoll and MacAndrews & Forbes had won an important victory for corporate rights in Hale v. Henkel, the newspaper’s exaggerated claims of the government’s sweeping victory were nonetheless prescient. The case was returned to the lower courts, where Henry Taft immediately continued the Roosevelt administration’s aggressive push to break up the Tobacco Trust. MacAndrews & Forbes’s corporate officers could now be forced to testify about the company’s business dealings. And Taft followed the Supreme Court’s guidance and issued more narrow, targeted demands for specific documents. In June of 1906, a mere three months after Hale was decided, American Tobacco, MacAndrews & Forbes, and over sixty affiliated companies were indicted for violating the Sherman Act.44

  Although Taft had wasted no time bringing his case, the prosecution would bog down in the federal courts for years. The litigation finally came to an end in 1911 when the justices of the Lochner era Supreme Court upheld the breakup of American Tobacco and James Duke’s trust. Duke, said to be left “morose and drinking heavily,” found some solace in gifting a substantial portion of his wea
lth to a small college near his birthplace in Durham, North Carolina, that was subsequently renamed in his honor. His pain would also be felt by John D. Rockefeller, the father of the trusts. In 1911, the Supreme Court upheld the breakup of Standard Oil too. Duke’s and Rockefeller’s trusts, which had been created with the help of New Jersey’s corporate law reforms, were finally defeated.45

  The Supreme Court has not as of this writing reconsidered its holding in Hale that corporations do not have the Fifth Amendment right against self-incrimination. And while corporations continue to enjoy Fourth Amendment rights, the scope of those rights remains more limited than for individuals. In a series of cases in the 1970s, the court held that the Fourth Amendment permits the government far more leeway to search corporate workplaces than to search the homes of individuals. Because of the historical tradition of close governmental supervision over the sale of alcohol and guns, for example, the government does not need a warrant at all to search businesses involving those areas of commerce. While warrants are generally required for inspections of ordinary workplaces, even here corporations have less protection than individuals. For an individual, the government must show probable cause to obtain a warrant; for corporations, the government need only show that the inspection was part of a regular policy of inspections, with no individualized suspicion of wrongdoing required. As the court explained, “corporations can claim no equality with individuals in the enjoyment” of Fourth Amendment rights.46

  In the context of criminal rights, corporations have been recognized to have some but not all of the same rights the Constitution guarantees to individuals. And even the rights they do have are somewhat narrower than those rights are for individuals. Corporate rights in the criminal context are not the same as the rights of the people who make up the corporation; they are the corporation’s rights, separate and distinct from the rights of members. Here, at least, the court has approached the corporation as if it were a person—but one with more limited rights than real people.

  As corporations would soon discover, one of the rights they did not enjoy was the right to influence elections. Although they would gain that right a century later in Citizens United, when the first cases arose in the early twentieth century, even the business-friendly courts of the Lochner era would rule against the corporations.

  CHAPTER 6

  Property, Not Politics

  FOUR MONTHS AFTER EDWIN HALE WALKED INTO THE GRAND jury room as part of the investigation of the Tobacco Trust, George W. Perkins walked into New York City Hall in lower Manhattan, just blocks from where Hale had testified, to offer testimony of his own. Perkins, too, had been asked to testify as part of a high-profile investigation into corporate wrongdoing. Unlike Hale, the scheming gambler from Kentucky, Perkins was an influential member of New York’s business and social elite. His titular position was vice president of the successful New York Life Insurance Company, but he was also known to be the right-hand man of financier J. P. Morgan and a confidant of President Theodore Roosevelt. In contrast to the secrecy of the grand-jury room, this hearing was open to the public. Indeed, the ornate and cavernous Aldermanic Chamber in City Hall, with its rich mahogany paneling and forty-foot-high ceilings, was packed with hundreds of reporters, spectators, and elected officials eager to hear what Perkins had to say.1

  Although Perkins was entitled to have with him a lawyer, he chose to appear without one. Perkins was sure he had done nothing improper and, unlike the nervous Hale, who hoped to say as little as possible on the stand, Perkins, with the supreme confidence of an upstanding member of New York society, planned to speak frankly. But just like Hale, Perkins did have a secret, and once it was revealed, Perkins too would find himself facing criminal charges.

  Perkins’s revelations would dramatically impact the careers of three of the most important men of the era: Teddy Roosevelt, Louis Brandeis, and Charles Evans Hughes. Each man’s reputation would be catapulted, shaped, or challenged by what eventually would be called the Great Wall Street Scandal of 1905. Perkins’s testimony would also transform how Americans understood the emerging corporations of the modern era—especially the growing number of large, publicly held companies of the sort that would come to dominate the US economy in the twentieth century—and the potential they posed for corrupting democracy. The result would be a wave of reform that, for the first time in American history, explicitly limited corporate money in politics.

  Those reforms, which heralded the birth of campaign finance law, were challenged in the first decades of the twentieth century by corporations. Foreshadowing Citizens United by nearly a hundred years, corporations argued that they enjoyed the same right as individuals to try to influence elections. Back then, however, the corporations lost. Adhering to the distinction drawn in corporate rights cases like Hale v. Henkel and Northwestern National Life Insurance Company v. Riggs, which held that corporations had rights of property but not rights more closely associated with personal liberty, courts refused to extend political speech rights to corporations. Once again, the courts of the Lochner era, so well known for ruling in favor of business, drew a firm boundary on the rights of corporations.

  * * *

  AS HE TOOK THE STAND in the Aldermanic Chamber of City Hall, the slender George Perkins, with his youthful, innocent face and hair neatly parted in the middle like a schoolboy, appeared no match for the tall, broad-shouldered, stern-looking lead investigator for the Armstrong Committee, Charles Evans Hughes. A future governor of New York, two-time Supreme Court justice, Republican presidential nominee, and secretary of state for two presidents, Hughes was destined to have one of the most distinguished careers of any American in history. Back in September of 1905, however, when Perkins appeared before the committee, the insurance man was by far the more influential of the two. Yet reputations can change in an instant, and here they would.

  GEORGE PERKINS (LEFT) OF NEW YORK LIFE INSURANCE AND CHARLES EVANS HUGHES (RIGHT), LEAD INVESTIGATOR FOR THE ARMSTRONG COMMITTEE.

  The Armstrong Committee was charged by the New York state legislature to investigate financial mismanagement in the life insurance industry, and the 43-year-old Hughes was a surprising choice to head up the inquiry. A “scarcely known” corporate lawyer and part-time law professor, Hughes’s only prosecutorial experience had come earlier that same year when he served as counsel to a legislative investigation into gas utility rates. Although Hughes had impressed lawmakers in that earlier investigation with his methodical questioning, it was paradoxically his then-middling career that proved decisive in his appointment to lead the life insurance hearings. Unlike the more successful corporate lawyers of the city, Hughes was unaffiliated with any of the major law firms and investment banks that regularly did business with the insurance companies. Hughes’s unexceptional practice meant he could lead the inquiry without any conflicted interests.2

  Hughes certainly was not fooled by Perkins’s diminutive appearance. Perkins had begun at New York Life Insurance as an office boy but worked his way up to become the company’s vice president. His work there earned him wide respect in business circles and in 1898, J. P. Morgan, the nation’s leading investment banker, asked Perkins to join his firm as a partner. Satisfied with his current position, Perkins did what few men ever did and turned Morgan down. That, of course, only made Morgan want him more. The next year, when Perkins was named by then-governor of New York Theodore Roosevelt to head up a commission to save the majestic palisades of the Hudson River, Morgan offered to pay for the entire project on one condition: that Perkins join his firm. This time Perkins agreed but on a condition of his own. He insisted on continuing his job at the New York Life, working in the mornings there and the afternoons at Morgan’s firm. That the legendary financier agreed to this half a loaf told Hughes everything he needed to know about how shrewd and capable Perkins really was.3

  Hughes sought Perkins’s testimony on a number of matters, but one ambiguous entry in the New York Life’s accounts was especially curious. It was an expendit
ure paid out to Morgan’s investment firm in the amount of $48,000 (about $1.2 million in 2017 dollars). Was this a payment for services rendered—and, if so, what services? Was it an investment—and, if so, why was it not listed on the company’s balance sheet? There seemed to be no other mention of this expense anywhere else in New York Life’s accounts.

  Neither Hughes nor Perkins would have been in this situation had it not been for a lavish Versailles-themed costume ball. The party was thrown by James Hazen Hyde, the vice president and son of the founder of the Equitable Life Insurance Company. The 29-year-old Hyde was known as a “spectacular dilettante,” a socialite whose exploits were often covered in the gossip rags of the day. In January of 1905, he threw a coming out costume party for his niece at the swank Sherry’s Hotel on Fifth Avenue. While most newspapers gushed over the outré decorations and glamorous celebrities on the guest list, Joseph Pulitzer’s New York World turned its readers’ attention to the cost of the party. Who, the World asked, had paid the estimated $200,000 (or approximately $5 million in 2017 dollars) to host this ball?4

  Pulitzer, the Hungarian-born newspaper publisher who perfected the art of yellow journalism, often ran eye-catching headlines atop reports of supposed scandals that, in the end, had little truth to them. His insurance stories, however, had substance. Tipped off by one of Hyde’s opponents in an ongoing battle for control of the insurance giant, Pulitzer claimed the bill for the costume party had been paid for by the insurance company. Throughout the spring and summer of 1905, Pulitzer’s papers relentlessly went after Hyde and his company, publishing stories daily under the banner “Equitable Corruption.” Pulitzer sought to expose the many other ways beyond the party that the executives were enriching themselves at the expense of the company’s policyholders. Charges of self-dealing included startlingly high salaries for executives and speculative investments certain only to benefit company insiders. Hyde’s expensive, and alledgedly expensed, party was just the most egregious example of how the company’s policyholders—the “widows and orphans,” according to the World—were taken advantage of by unscrupulous management.