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The Stakeholder Strategy
Changing corporations, not the Constitution, is the key to a fairer post-Citizens United world.
John Bonifaz is a wiry, bespectacled man with graying temples and a hearty laugh that camouflages his seriousness. He’s fought many progressive fights over the years on issues ranging from voting rights (which won him a MacArthur “genius grant”) to Unocal’s liability for human rights abuses in Myanmar (on which we worked together to draft a lawsuit). We’ve been friends for nearly 30 years, ever since we were student activists at Brown University.
These days, however, we find ourselves differing vociferously on what to do about Citizens United v. Federal Election Commission, the 2010 Supreme Court decision expanding the rights of corporations to engage in political speech and campaign spending. John is a leader in the push to amend the Constitution to restrict constitutional rights to natural persons. His idea has gained quite a bit of traction, mostly because so many Americans are rightly concerned about the power of corporations in our political discourse.
Nevertheless, I believe that the move to amend is a bad, even horrible, idea. I agree that the Constitution is meant to protect people. But people organize themselves into groups, including corporate groups, and sometimes those groups deserve protection. The New York Times, for example, should receive constitutional protection for what it publishes notwithstanding its corporate form. Moreover, the Court’s decision in Citizens United did not depend on the “personhood” of corporations; instead, the Court said that corporations are “associations of citizens” and that protecting corporate speech was a way to protect the rights of those citizens.
John and I recently debated Citizens United on television, and during our exchange he said something particularly revealing. In discussing some of the legal arguments in the case, he described shareholders as “owners.” In this respect, he agrees with the Court and conventional wisdom. Shareholders own companies and management speaks for them.
The reality is different. Shareholders are not really owners, and they exercise little control over corporate political involvement. Employees, communities, consumers, and other stakeholders exercise even less. The reason why corporate political speech is so corrosive to democracy is that the benefits and prerogatives of the corporate form are marshaled to bolster the speech of a tiny sliver of the financial and managerial elite. The fact that corporations speak is not itself a problem; whom they speak for is.
This essay urges progressives to cease their efforts to amend the constitution to weaken corporate “personhood.” Instead, we need to focus on changing corporations themselves so that overturning Citizens United would be unnecessary. We should use this historical moment to nudge corporations closer to what the Supreme Court assumed they are in its Citizens United decision—“associations of citizens.” While the constitutional effort is defensive and palliative, a campaign to redesign the corporation itself would be affirmative and transformative. To cure Citizens United, we don’t have to amend the Constitution—we need to rethink corporations.
The Foundational Nature of Corporate Law
It is not surprising that most opponents of Citizens United have focused on constitutional responses. Policy ideas often start in academia, and it is typical, especially in law schools, for the so-called “public law” topics of constitutional law, regulatory law, election law, and the like to be dominated by professors who are left of the ideological center. The “private law” arenas of tax law, contract law, and corporate law are left to professors who generally fill faculties’ ideological right flank (though there have been exceptions: William O. Douglas, for example, taught corporate law at Yale and served as the chairman of the Securities and Exchange Commission before becoming a Supreme Court justice).
These tendencies end up clustering progressive responses to civil, economic, and social ills around public-law ideas like constitutional amendments or top-down, command-and-control regulations overseen by bureaucracies. Often missed are the progressive possibilities in “private” law, particularly the law of corporate governance. Consider the untapped potential of this area, which provides the governing rules for gigantic economic entities, many of which are international in scope, and some of which rival the economic power of nations. (I often begin my corporate law course by noting that only 57 of the 100 largest economic entities in the world are nations; the other 43 are corporations.) For these businesses, corporate law plays the role of constitutional law—establishing their structure, determining who has the power to make decisions, and limiting the purposes for which that power can be exercised.
The answers to these fundamental questions—How are corporations structured? Who gets to decide what they do? What are they for?—affect all of us. If you care about whether corporations exploit their employees, skirt environmental laws, pay their executives exorbitant salaries, manage only for the short term, or manipulate the political process, you should care about corporate governance.
To imagine the promise of this area of law, one has to understand where we start. Here in the United States, the law of corporate governance is among the most conservative and least democratic in the developed world. For example, U.S. employees have no role in corporate decision-making, and U.S. managers are not required even to gather information on the potential impact of their strategic decisions on communities, employees, the environment, or the public interest, except to the extent those impacts might affect shareholder value. There is no federal law making it a crime to lie to employees—a CEO who lies at a shareholder meeting will go to jail; a CEO who lies to a room full of employees has not done anything unlawful.
The logic of this "paradigm shift" is well laid out in this article. However, like so many opinions expressed by progressives, it avoids dealing with the more contentious obstacle of getting a recalcitrant congress to even consider such a change in perspective. People in general would benefit, but would the 1%? No, and their lobbyists still control the game. The assumption of good will on the part of corporations themselves, and on the part of our government, is what is flawed here, despite the clear and interesting perspective put forth.
Aug 26, 2012, 9:11 PMI disagree with the premise of this article. The actual need is for corporate democracy. Let them stay in Delaware. Just have a 500% Federal income tax surcharge and a maximum salary of $50,000 for publicly traded corporations that don't have free elections. Just do like political elections. If your group has some threshhold of shares, you can petition to put somebody on the ballot. Just like in politics, the petition size should be a small percentage of the electorate.
In addition, at the meeting, the top executive pay contracts are also voted on. Right now the CEOs for practical purposes select the boards. The above would reverse that, unless the selfish clod wants to work for 50k.
And we also need the corporate personhood amendment. The "person" part of corporatedom was originally to allow limited liability. We need something that can limit liability to get investors, but it was a legal fiction. Legal fictions have their place, but they should never be expanded because they are fiction.
Sep 1, 2012, 1:34 PMI disagree with the premise of this article. The actual need is for corporate democracy. Let them stay in Delaware. Just have a 500% Federal income tax surcharge and a maximum salary of $50,000 for publicly traded corporations that don't have free elections. Just do like political elections. If your group has some threshhold of shares, you can petition to put somebody on the ballot. Just like in politics, the petition size should be a small percentage of the electorate.
In addition, at the meeting, the top executive pay contracts are also voted on. Right now the CEOs for practical purposes select the boards. The above would reverse that, unless the selfish clod wants to work for 50k.
And we also need the corporate personhood amendment. The "person" part of corporatedom was originally to allow limited liability. We need something that can limit liability to get investors, but it was a legal fiction. Legal fictions have their place, but they should never be expanded because they are fiction.
Sep 1, 2012, 1:35 PMThis article supports muzzling free speech. So what if big money is behind and spends it on political self interest? You must think American citizens are idiots and cannot be trusted to hear information that may mislead them. Phooey! Free speech for all, regardless of source, money or not.
Sep 1, 2012, 3:54 PMThis article proposes some very good and effective ideas. However, I still feel the evolving notion of corporate personhood presents a danger. As long as the corporate shield stands alongside the notion of corporate personhood, these entities will be able to act without regard for responsibility to their communities. One or the other has to go or be weakened. If corporate personhood must stand, then it must easier to pierce the corporate veil.
Sep 2, 2012, 10:45 AMThe easiest way to deal with the problem is a simple law that restricts the right to make campaign contributions to any candidate to persons who are eligible to vote in the election in which that person is a candidate. Corporations may well be legal people, but they don't have the right to vote.
Sep 11, 2012, 3:51 PMFlawed logic and premise.
Shareholders may be owners but it doesn't follow that management can speak for them or needs to speak for them.
All shareholder are free to speak outside their role as shareholders and, at the very least, their right to speak would not be abridged by preventing corporate campaign donations.
Shareholders own companies as investments, not to have a say in what the corporate management - a dozen people maybe - seeks to say politically. And corporate entities don't exist to exercise speech.
Sep 13, 2012, 3:36 AMi would rather see an amendment stating that only VOTERS FROM THE DISTRICT can contribute to a campaign for an elected office in that district. Therefore if only a human person can submit a ballot to be counted, it eliminates corporate/cpac money. If it restricts that donation from coming from outside any given district there can be no outside influence. The office of President would be the only national office where money could only be donated by VOTERS across the country. Seems pretty straight forward to me. Issue ads are a different matter, FCC regulations could address these and almost assuredly shut them dowm with taxation, must have identification of group responsible, and equal time back in the mix.
Sep 13, 2012, 7:50 AMWouldn't it be MUCH easier to LIMIT contributions to $100 per 'INDIVIDUAL"?!
Sep 13, 2012, 7:50 AMExcellent article. Our system of corporate governance is abysmally anti-democratic. The recommended changes in corporate governance would be a great first step. Ultimately, it seems to me that the only kind of corporate governance consistent with democracy is for the default firm to be a worker cooperative with statutory obligations to stakeholders other than employees (e.g. the local community). We know from the cases of Mondragon and John Lewis Partners that such a model is viable in a free market economy.
Sep 13, 2012, 10:03 AMInteresting perspective. But "a CEO who lies at a shareholder meeting will go to jail" WAY overstates the situation. In my experience as a lawyer who represents socially concerned shareholders, CEOs lie at shareholder meetings all the time, and seldom face any accountability.
Sep 16, 2012, 11:26 AMEnding corporate personhood will absolutely NOT end America's own worse enemy, her corpocracy, or collusion between powerful corporations along with their allies and "our" government. There are numerous other ways in which corporations can influence politicians. Moreover, even if corporate personhood were ended (and a Cconstituional amendment is only but also the most difficult means to do so), corporations and their lawyers would easily find loopholes (most likely ones inserted by crafty lawyers).
Mr. Greenfield and readers, the corpocracy is ruining America. It must be ended. The only way to do so is to know it out with "two-fisted democracy power." It's a metaphor that carries quite a punch. To see what I mean go to www.uschamberofdemocracy.com
Sep 22, 2012, 9:18 AMOne thing that would need to happen for a paradigm shift to occur is for the news media to cover the other stakeholders as intently as they cover the numbers going up and down in the Dow. Right now business journalism is nearly synonymous with writing from the perspective of management and capitalists. Some sort of dow-like measurement of how decisions affect other stakeholders that news people could follow and easily report on would be a good start.
Dec 7, 2012, 11:12 AMMr. Greenfield makes an excellent point regarding the need for corporate governance reform. In fact, 13 states have already taken action and passed Benefit Corp Legislation.
Benefit corporations are a new kind of corporation legally required to: 1) have a corporate purpose to create a material positive impact on society and the environment; 2) expand fiduciary duty to require consideration of the interests of workers, community and the environment; and 3) publicly report annually on its overall social and environmental performance using a comprehensive, credible, independent, and transparent third party standard. This offers business more freedom in defining success and provides legal protection for those looking to pursue a corporate purpose other than maximizing profits for shareholders.
While 15 other states are moving forward with similar legislation in 2013, the real question is what will happen in Delaware. As Mr. Greenfield correctly points out, "the only jurisdiction that matters for most companies is Delaware". It is up to this state, and us as consumers, entrepreneurs and investors, to see that the governance of corporations evolves and takes account of the interests of stakeholders. This way all businesses will have the freedom to compete to be not only the best in the world, but the best for the world.
The idea is really quite simple. If corporations do not have the same rights a persons, to vote (though they do have the right to enter into contracts, and to buy and sell property)...
then neither should unions have the right to "engage in political speech and campaign spending."
I would be more than happy to curtail the right of corporations, just so long as an equal curtailment applies to unions.
Then perhaps more of their dues income could go to what the unions claim is their primary effort: making things better for their memebers, rather than being funneled into Democrat coffers.
"... We can redistribute financial wealth ..."
"Redistribution: is nothing more than legalized theft; an imposition of communism (communal wealth)
Jul 20, 2013, 8:24 PMPost a Comment
Kent Greenfield teaches corporate and constitutional law at Boston College. He clerked for Supreme Court Justice David H. Souter and is the author of The Failure of Corporate Law and The Myth of Choice: Personal Responsibility on a World of Limits.
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