We the Corporations Read online

  THE FIRST MEETING OF THE JAMESTOWN ASSEMBLY, JULY 1619.

  Although the Virginia Company failed to turn a profit, it nevsertheless provided a template for future English colonies—if not for the United States itself. Jamestown revealed what one historian called the “ingredients for success,” including “widespread ownership of land,” “the institution of a normal society through the inclusion of women,” and, in tobacco, the “development of a product that could be marketed profitably to sustain the economy.” The corporation’s most historic innovation, however, was the representative assembly instituted at Sandys’s urging. No idea would be more formative of the nation to come. Democracy had come to America in the same way as the nation’s earliest settlers—sent by the Virginia Company in search of profit.28

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  SEVERAL OF THE ENGLISH COLONIES that followed Jamestown were also formed as corporations. In the years after the arrival of the Pilgrims in 1620, what would become New England was largely settled by the Massachusetts Bay Company, Roger Williams’s Rhode Island and Providence Plantations, and the Connecticut Colony, each of which operated under corporate charters. Much of present-day Canada was controlled by the Hudson’s Bay Company, which, although founded in 1670 as a trading company, remains in business today as a global retail giant. As corporations, these colonies followed commonplace corporate norms and practices. Yet because they were also governments, responsible for overseeing the people who lived there, they exerted a considerable influence on American attitudes and understandings about governance. Indeed, while the Founders did not self-consciously invoke the corporation as a model at the Constitutional Convention, the Constitution exhibited telltale signs of America’s corporate origins. After all, the Constitution was designed in part to do what corporate charters had long done in the colonies: establish government offices, set out the procedures for lawmaking, and impose limits on what the government could do.29

  The similarities between the Constitution and the original 1629 charter of the Massachusetts Bay Company, for example, are striking. Just as the Constitution begins with a description of who were the sovereigns who did “ordain and establish” that charter of liberty—We the People—the company’s charter, written over 150 years earlier, begins by identifying that it was “given and granted” by the then-sovereign, King Charles. The company’s charter then sets out, very much like the Constitution, a framework for government, complete with a representative assembly, an elected chief executive, and guarantees of individual rights. The assembly mandated by the charter had the power to enact “orders, laws, statutes, and ordinances” necessary for the colony’s governance. The company had a “governor,” a chief executive who was elected by the residents of the colony and served as commander-in-chief, responsible for repelling “by force of arms” threats to the colony. This corporate officeholder also had the power to issue pardons, was required by oath to “take care” that the laws be properly enforced, and could be impeached for “any misdemeanor or defect.” In the event the governor was unable to serve, the “deputy governor,” like the vice president today, stepped in.30

  THE CHARTERS OF COLONIAL CORPORATIONS, LIKE THE MASSACHUSETTS BAY COMPANY CHARTER OF 1629, INFLUENCED THE DESIGN OF THE US CONSTITUTION.

  The Massachusetts Bay Company’s charter also recognized individual rights. Anyone who moved to the colony or was born there “shall have and enjoy all liberties and immunities of free and natural subjects.” Although the charter did not list what all of those rights were in detail, it did identify a few, including one far more controversial today than back in the 1600s, the right to bear arms. Residents were guaranteed the right “to take, lead, carry, and transport . . . armor, weapons, . . . munitions, powder, [and] shot.” While that right would be reflected in the Constitution as the Second Amendment, other rights specified in the Massachusetts Bay Company’s charter were more attuned to its earlier era, such as “the full and free power and liberty to [engage in the] trade of fishing.” Regardless of the substance of the particular rights, these fundamental liberties functioned similarly to constitutional rights in that they were understood to be limits on the power of those holding office under the charter.

  Although the Constitution would bear resemblance, the Massachusetts Bay Company’s charter was fundamentally a corporate document. Many of the charter’s features that reappear in the Constitution were common among the era’s business corporations. The legislative power vested in the assembly was just the ordinary power of a corporation to enact bylaws, and the popular assembly was a meeting of the stockholders. The governor and the deputy governor were elected because corporate executives were traditionally chosen by the corporation’s members. The duty of the governor to ensure the faithful execution of the colony’s laws represented one of the standard fiduciary duties that corporate officers owe to their companies.31

  Like the Virginia Company, the Massachusetts Bay Company was a business venture pursuing profit. The charter was designed to organize, manage, and govern the business enterprise. Shares were priced at 50 pounds each and came with 200 acres of land, with an additional 50 acres for every laborer sent to the colony. While many stockholders were London investors who planned to send indentured servants to the New World, some, like the Puritan John Winthrop, took their shares and crossed the ocean themselves.32

  Winthrop emigrated because he was seeking religious freedom. The Puritans were being persecuted in England, and to finance their escape Winthrop sold the entire estate he inherited from his father and invested in Massachusetts Bay Company stock. Soon after Winthrop arrived in the New World, he was elected to serve as governor by the stockholders. Once in office, however, Winthrop adopted reforms that made the Massachusetts Bay Company look less like a business corporation and more like a nascent democracy. Early English corporations gave the right to vote for directors to stockholders, typically on a one-stockholder, one-vote basis (compared to modern corporations that usually afford one vote for each share). Winthrop encouraged the company to allow all resident adult male church members to vote in the assembly. Reflecting what today would be considered a capacious understanding of who should have a voice in corporate decision-making, Winthrop believed that all stakeholders, regardless of whether they owned shares, should be enfranchised. In place of a stockholders meeting, Winthrop said his goal was to remake the general assembly “rather in the nature of a parliament.”33

  Another of Winthrop’s innovations would transform elections in both democracies and corporations: proxy voting. Although Winthrop had expanded the franchise, many colonists were still unable to attend the assembly due to winter snow, dispersed settlements, and the threat of Indian attacks. Population growth also made the meetings increasingly unwieldy. Winthrop urged the company to allow the voters of a town to meet in advance of the assembly to select representatives who could attend in their place and vote on their behalf. Today, of course, corporations often employ a similar approach to corporate elections, allowing stockholders to cast their votes for a “proxy” who attends the stockholder meeting in their place. And although American elections do not allow for the exact same sort of proxy voting, they follow a similar principle: voters in a particular district elect a representative who is responsible for attending legislative sessions and voting on behalf of her constituents.34

  As with the popular assembly first instituted in Jamestown by Sir Edwin Sandys, the adoption of proxy voting was not intended to be a progressive step in the advance of democratic ideals. It was instead a more convenient way of managing the affairs of the corporation. Yet proxy voting marked a major difference between American assemblies and the English Parliament. Although Parliament was also made up of delegates sent from towns, the prevailing understanding of the delegates’ role was to represent the entirety of the English people, not the residents of their local communities. As English prime minister George Grenville explained in the run-up to the Revolution, “every Member of Parliament sits in the House, not as a Representa
tive of his own Constituents, but as one of that august Assembly by which all the Commons of Great Britain are represented.” That is why the English thought it perfectly acceptable for populous cities like Birmingham and Manchester—much less Philadelphia and Boston—to not have any formal representatives in the House of Commons.35

  Winthrop could not have known how significant his way of understanding representation would turn out to be. Over the next century and a half, the idea that representatives were the voice of their particular constituents would feed the American urge for independence. “No taxation without representation,” the rallying cry of the Revolution, was not primarily a grievance about British tax policy. It was a complaint about not having a proxy in Parliament who was fighting for the colonists’ interests.

  Another reform adopted by the Massachusetts Bay Company that would influence the Constitution was the enactment in 1641 of the “Body of Liberties.” A precursor to the Constitution’s Bill of Rights, this corporate bylaw contained explicit, written guarantees of fundamental rights that colonial officials were bound to respect. It provided for due process (punishment must be “by virtue . . . of some express law of the country warranting the same”); equal protection of the laws (“Every person within this jurisdiction, whether inhabitant or foreigner, shall enjoy the same justice and law”); just compensation for the taking of property (“No man’s cattle or goods . . . shall be pressed or taken for any public use or service . . . without such reasonable prices”); the right to a speedy trial for criminal defendants (“his cause shall be heard and determined at the next court”); the right against double jeopardy (“No man shall be twice sentenced by civil justice for one and the same crime, offense, or trespass”); and the right against cruel and unusual punishments (“For bodily punishments we allow amongst us none that are inhumane, barbarous, or cruel”). In some ways, the Body of Liberties was more progressive than the Bill of Rights that would mimic it over a century later. For example, the Massachusetts Bay Company prohibited certain forms of spousal abuse and protected children from punishments of “unnatural severity.” (In other ways, however, it was more regressive, allowing, for instance, the torture of witches.)36

  The Body of Liberties was at the time the most extensive listing of explicit individual rights in Anglo-American law. It preceded by forty years the similar English Bill of Rights and offered more detailed individual protections than the Magna Carta. Other colonies followed suit and either by law or by charter guaranteed a broad range of personal liberties. Rhode Island’s charter of 1663 granted protection for religious liberty and freedom of conscience. New York adopted a Charter of Liberties in 1683 that included a right to trial by jury, a right to bail, and a prohibition on quartering of troops in private homes. New Jersey’s 1677 bill of rights explicitly provided that the general assembly could not repeal it, making that colony’s guarantees more durable. Pennsylvania’s Charter of Privileges, adopted in 1701, added protections for the right to counsel and the right of the accused to call witnesses on his own behalf. (The famous Liberty Bell was cast to celebrate the fiftieth anniversary of that document.) As a result of these reforms, American colonists enjoyed a broader set of rights than did their fellow countrymen back in England. They referred to their “charter rights” much as people today refer to their “constitutional rights.”37

  In 1639, some settlers broke off from the Massachusetts Bay Company and set up their own colony in Connecticut. Lacking a charter from the Crown, they wrote their own. What they called the Fundamental Orders established a general assembly authorized to enact laws for the “good of the Commonwealth,” provided for an elected governor, and guaranteed the right of inhabitants of the various towns to choose deputies to represent them in the assembly. According to historians, the Fundamental Orders were “a conscious imitation” of the Massachusetts Bay Company charter. The main difference was the identity of the sovereign. Whereas Massachusetts’s charter was ordained by the king, Connecticut’s charter was established by “we the Inhabitants and Residents” of Connecticut. The Fundamental Orders were America’s first written constitution formally adopted by the people themselves.38

  The budding democratic ethos bred by the colonial charters was matched by a growing spirit of independence, much to the displeasure of Charles II. After being exiled by Oliver Cromwell in 1651, Charles, once restored to the throne seven years later, had little appetite for dissent. In the 1680s, he began to convert most of the American colonial corporations into royal colonies governed by the Crown rather than by the company’s members. The Massachusetts Bay Company’s charter was revoked in 1684, a half-century after it was issued, and royal administrators were appointed to serve in the executive positions from then on. Nevertheless, the Massachusetts Bay Company’s corporate structure—along with its corporate reforms, such as proxy voting and the Body of Liberties—continued to impact the shape of colonial government up and down the eastern seaboard.

  During the colonial era, Americans came to see their colonial charters as legal documents that provided a model for government and established limits on what the government could do. That is to say, in the years after John Winthrop and the Massachusetts Bay Company immigrated to the New World, Americans began to regard their corporate charters as constitutions.

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  IN THE YEARS LEADING UP to the Revolution, the colonists came to believe that the rights guaranteed to them by their charters were under attack. The British Parliament, seeking to pay down war debts and assert authority over the increasingly independent-minded colonists, imposed taxes on a number of staples in the colonies: glass, paper, lead, paint, tea, and even printed materials. Claiming these tax laws violated their colonial charters, the colonists responded angrily. The most dramatic manifestation of their passionate objection took place in December of 1773, when scores of Bostonians boarded ships docked in the local harbor and dumped 342 crates of tea overboard. The tea belonged to a corporation, the East India Company. And what became known as the Boston Tea Party occurred because the East India Company, as they would later say about American financial institutions in the Great Recession of 2008, was “too big to fail.”

  Founded several years before the Virginia Company, the East India Company by the mid-eighteenth century had grown into the most powerful corporation in the world. In 1757, the company effectively took control of India, which it ruled for the next century. Although the Scottish economic philosopher Adam Smith called this exercise of sovereign power by a joint-stock company a “strange absurdity,” it was similar to what had happened in Virginia, Massachusetts, and several other American colonies, just on a far grander scale. The corporation had become a government, with all the power that entails. Exporting silk, salt, tea, and cotton, the East India Company was immensely profitable at first. One of its governors, Elihu Yale, made such a fortune that he thought little of the £500 he donated to endow a college in Connecticut; leaders of the college, however, were so overwhelmed by his abundant generosity they renamed the school in Yale’s honor.39

  Soon after the takeover of India, the company ran into serious financial trouble. Fueled by investors’ expectations of windfall profits, the company’s stock price had risen dramatically in a flurry of frenzied speculation. Yet 50 percent of the company’s income came from tea, and it was stuck with an oversupply of inventory. Because the tea was subject to numerous levies and duties in England, a black market had emerged; smugglers were importing tea illegally into England from Holland and selling it at a significant discount. The company was left with a glut of inventory, with tons of tea wasting away in warehouses. This, coupled with military setbacks in the Bengal region, caused the stock bubble to burst in 1769. A recession spread like a contagion across Europe, where banks had overconfidently purchased far more stock in the East India Company than they could afford—again, not unlike the banks that overinvested in mortgage-backed securities and triggered the 2008 financial crisis. When the East India Company’s stock price tumbled, it “
threw an entire network of heavily leveraged banks into ruin.”40

  The East India Company, like many business corporations, was dependent upon regular infusions of working capital. Yet in the economic downturn, the banks stopped loaning money. With over £1 million in payments due to the government, the company sought a loan from the Bank of England, which refused. The company was so desperate for revenue that it took to smuggling itself, importing valuable opium illegally into China—planting the seeds of two future wars between Britain and China. It was not nearly enough to save the company, which was forced to go to Parliament for a bailout. Lord North, the British prime minister, thought he had little choice but to rescue the teetering company. The English economy, too, was on the brink of disaster. As one contemporary warned, the East India Company was a “great money engine of state” whose credit was “inseparably connected with government and the Bank of England.” Indeed, the company had become so important to the English economy that, one historian wrote, “No minister could ever let the East India Company go to the wall.”41

  North engineered a bailout package of legislation to loan the company over £1.4 million (roughly $270 million in 2017 dollars). So that the company could unload its crippling surplus of tea, North also won passage of the Tea Act of 1773, which allowed the company to sell directly to the colonies instead of, as before, shipping the tea to England and selling it to middlemen in the London tea auctions who alone were authorized to import the tea into the colonies. The Tea Act also provided for a rebate on duties imposed on tea intended for sale abroad. Although the colonists still continued to have to pay a small tax on tea, as they had for years, the overall effect of the Tea Act was to reduce the price of tea in the colonies.42