Citizens United And The Foolish Attack On Corporate Personhood

A new set of proposed Constitutional Amendments reveals that many people still don't understand what Citizens United was about.

Doug Mataconis · · 63 comments

The controversy on the left over the Supreme Court’s 2010 decision in Citizens United v. FEC has never really gone away. It became a cause for controversy between the Executive and Judicial Branches when President Obama openly criticized the decision during his State Of The Union Address in 2010, with most of the Court in attendance. It was a campaign theme for Democrats during the 2010 midterms, although not a very successful ones. The Occupy movement seems to have picked it out as one of the things that they claim is destroying American politics. And, several Democratic Congressmen have introduced proposed Constitutional Amendments that would purport to overrule the Court’s decision, and some would even go further than that. There are several versions of such an Amendment floating around Capitol Hill, btu the most prominent version seems to be the one introduced by a group of Democratic Congressmen and Senator Bernie Sanders, and it reads like this:

Section 1. The rights protected by the Constitution of the United States are the rights of natural persons and do not extend to for-profit corporations, limited liability companies, or other private entities established for business purposes or to promote business interests under the laws of any state, the United States, or any foreign state. Section 2. Such corporate and other private entities established under law are subject to regulation by the people through the legislative process so long as such regulations are consistent with the powers of Congress and the States and do not limit the freedom of the press. Section 3. Such corporate and other private entities shall be prohibited from making contributions or expenditures in any election of any candidate for public office or the vote upon any ballot measure submitted to the people. Section 4. Congress and the States shall have the power to regulate and set limits on all election contributions and expenditures, including a candidate’s own spending, and to authorize the establishment of political committees to receive, spend, and publicly disclose the sources of those contributions and expenditures.

Eugene Volokh points out the most obvious problem with the proposed Amendment, namely that it would essentially mean that The New York Times has no First Amendment rights:

Nearly all newspapers, TV stations, cable networks, and radio stations (except of course for nonprofits such as NPR) are organized as corporations or other entities established for business purposes. Under section 3, they “shall be prohibited” from making expenditures “in any election of any candidate … or the vote upon any ballot measure.” Since to write or print or broadcast anything, newspapers, networks, and broadcasters must spend money, this would ban — not just authorize Congress to ban, but itself ban — editorials supporting or opposing a candidate or a ballot measure. (“Shall be” in the Constitution is generally language that indicates that something becomes the law without further Congressional action, e.g., “This Constitution … shall be the supreme Law of the Land” and “The executive Power shall be vested in a President of the United States of America.”) To be sure, section 2 does say that such entities are “subject to regulation … through the legislative process so long as such regulations … do not limit the freedom of the press.” But section 1 tells us that business entities do not have constitutional rights; presumably, then, the freedom of the press (one of “the rights protected by the Constitution”) doesn’t extend to them. And since section 2 applies “the freedom of the press” just to regulations “through the legislative process,” and section 3 prohibits expenditures through the constitution itself, it appears that section 2’s supposed protection for the liberty of the press doesn’t even purport to limit section 3’s prohibition. Certainly nothing in section 3’s flat ban has any proviso saving the “freedom of the press.”

It goes beyond First Amendment rights, of course. If corporations don’t have the rights of “natural persons,” then that means that the states and Federal Government can seize corporate property without the either due process or just compensation required by the Fifth Amendment, that Federal and State law enforcement could conduct searches of corporate property without having probable cause that a crime had been committed, or that corporations would not be entitled to a jury trial in civil lawsuits against him. Volokh points out in a later post that the proposed Amendment also would provide that non-profit entities have more rights than for-profit entities, a distinction that the law has never once recognized in this country. In other words, an anti-business non-profit would be free to contribute to candidates, advocate on their behalf, and take positions on public issues but the Wall Street Journal would not.

There’s no chance that this Amendment will ever make it through Congress, which is fortunate, but it nonetheless reveals a fundamental misunderstanding about the entire idea of Corporate Personhood that has become pervasive in the wake of Citizens United, the criticism of which usually devolves down into the trite, easy to remember, but ultimately incomplete idea that “Corporations don’t have rights, people do.” The problem, as Ilya Somin wrote in the wake of the decision itself, is that this misunderstands the nature of corporations and individual liberty:

Corporate participation in public discourse has long been a controversial issue, one that was reignited by the Supreme Court’s decision in Citizens United v. FEC, 130 S. Ct. 876 (2010). Much of the criticism of Citizens United stems from the claim that the Constitution does not protect corporations because they are not “real” people. While it’s true that corporations aren’t human beings, that truism is constitutionally irrelevant because corporations are formed by individuals as a means of exercising their constitutionally protected rights. When individuals pool their resources and speak under the legal fiction of a corporation, they do not lose their rights. It cannot be any other way; in a world where corporations are not entitled to constitutional protections, the police would be free to storm office buildings and seize computers or documents. The mayor of New York City could exercise eminent domain over Rockefeller Center by fiat and without compensation if he decides he’d like to move his office there. Moreover, the government would be able to censor all corporate speech, including that of so-called media corporations. In short, rights-bearing individuals do not forfeit those rights when they associate in groups. This essay will demonstrate why the common argument that corporations lack rights because they aren’t people demonstrates a fundamental misunderstanding of both the nature of corporations and the First Amendment.

More importantly, though, as The Economist’s Schumpeter pointed out in an essay earlier this year, it is the legal concept of corporate personhood that makes the modern economy possible:

The legal conceit that companies are natural persons is vital to capitalism. It simplifies litigation greatly: companies can act like individuals when it comes to owning property or making contracts. Timur Kuran of Duke University argues that the idea of corporate personhood goes a long way to explaining why the West pulled ahead of the Muslim world from the 16th century onwards. Muslim business groups were nothing more than temporary agglomerations which dissolved when any partner died or withdrew. Legal personhood gave Western firms longevity. The concept of companies as people became ever more vital as capitalism developed. Until the mid-19th century companies (as opposed to partnerships) were regulated by corporate charters which laid down tight rules about what they could do. But reformers used the idea that companies, like people, should be captains of their own souls, to free them from these restrictions. The result of this liberation was an explosion of energy: Western companies turbocharged the industrial revolution and laid the foundations for mass prosperity

Finally, as Stephen Bainbridge noted yesterday, corporate personhood protects consumers, creditors, and individuals who have legal claims against a corporate entity by ensuring that business assets are not depleted by the personal financial difficulties of the business owners:

An even more useful feature of the corporation’s legal personality, however, is that it allows partitioning of business assets from the personal assets of shareholders, managers, and other corporate constituents. This partitioning has two important aspects. On the one hand, asset partitioning creates a distinct pool of assets belonging to the firm on which the firm’s creditors have a claim that is prior to the claims of personal creditors of the corporation’s constituencies. By eliminating the risk that the firm will be affected by the financial difficulties of its constituencies, asset partitioning reduces the risks borne by creditors and thus enables the firm to raise capital at a lower cost. On the other hand, asset partitioning also protects the personal assets of the corporation’s constituencies from the vicissitudes of corporate life. The doctrine of limited liability means that creditors of the firm may not reach the personal assets of shareholders or other corporate constituents. Just how do the brilliant legal minds behind this movement propose to preserve this feature of corporate personhood if they succeed?

I doubt they’ve really thought it through. As Professor Bainbridge goes on to note, most of the attacks on corporate personhood have little to do with an in depth understanding of the nature of the complex legal relationships that make the modern economy possible and everything to do with a visceral reaction to a Supreme Court decision that the critics clearly don’t really understand. For one thing, one wonders if any of them have given any thought to the fact that Citizens United doesn’t just apply to the Koch Brothers, it applies to the AFL-CIO too, not to mention the innumerable advocacy groups on the left that are organized as corporations and limited liability companies. Are they really blind enough not to see that what the Court did in that case was to expand the right to speak in the face of a Federal Law that imposed an outright ban on speech within a certain amount of time before an election. How, exactly, does it protect the political process to restrict the marketplace of ideas? As with most campaign finance laws, the restrictions in Citizens United were clearly designed mostly to protect incumbents from criticism and further disadvantage challengers, who already face an uphill battle in an era when 90% of Congressmen are re-elected.

The entire conservation over Citizens United, then, reveals a fundamental misunderstanding of what corporate personhood is and what purpose it serves. When you do something to a corporation, you are, in the end, doing something to the individuals who own that corporation. American law has recognized corporate personhood for corporations in part because of the recognition that the interests of corporate directors and officers may not necessarily coincide with those of the corporation itself. Thus, the law has creates fiduciary duties that bind these officers and directors, provides opportunities for shareholders to challenge the decisions of the board, and requires corporations to retain legal counsel separate and distinct from that representing the interests of officers and directors. The law considers the corporation a de jure person for these purposes in order to protect the interests of the individuals who make up the corporation. When we speak of a corporation having rights, those rights exist because corporations are made up of individuals who have Constitutional, and natural, rights. Rejecting corporate personhood and accepting the argument that corporations have no rights means you are also accepting that individuals lose their rights any time they act as a group toward a common purpose. One would think that this would have come as something of a shock to Martin Luther King, Jr and the Southern Christian Leadership Conference, or the members of the American Civil Liberties Union. On some level the critics are right, corporations don’t have rights. The people that make up those corporations do, however, and they don’t lose those rights just because they’re part of a larger group of people.