Just because corporations are “legal persons” doesn’t mean that they should get all of the same rights as human persons. Yet over the past century, business corporations have grown bolder with claims for liberty and expressive rights such as freedom of speech. And the Supreme Court has broadly given corporations greater power to push back against campaign finance restrictions and other areas of regulation.
Editor’s note: This piece is part of our series on Corporations and Democracy, designed to continue the conversation initiated at a December 2020 conference by the same name sponsored by the Corporations and Society Initiative at Stanford GSB, and eight other schools and centers, including the Stigler Center at the University of Chicago Booth School of Business. See the conference’s website for the program, full videos, and other links.
Since the Supreme Court’s decision in Citizens United over a decade ago, many people have wondered if “corporate personhood” is to blame for corporate money in politics. Understanding the basics of corporate personhood can help us see that the concept is indeed relevant, but the answer instead lies in the great power wielded by the Supreme Court in deciding what rights corporations have under the US Constitution.
To start with the basics, “corporate personhood” can refer to three different types of issues: (1) the legal personality of corporations, (2) statutory issues, and (3) the treatment of corporations under the US Constitution.
When a corporate charter is granted, the law immediately recognizes the existence of a new legal entity that is separate from the organizers and investors, an entity that can carry out certain activities as a “legal person.” This concept was established long before the question arose as to how to treat corporations under the Constitution. The separate legal personality of a corporation evolved out of laws and practices in Europe centuries ago for municipalities, churches, universities, charitable organizations, colonies, and trade companies.
Separate legal personality allows a corporation to contract, own property, and sue and be sued in its own name. A corporation can also have perpetual existence. These characteristics were crucial to establishing the usefulness of the corporate form for raising capital from a broad group of investors and building lasting institutions.
Given the legal personality of corporations, statutory laws have often included corporations in their “definitions” sections, either expressly referring to corporations in the relevant statutory text or defining the term “person” to include corporations, to make clear that the statute applies to corporations.
Statutes that do not expressly include corporations, or define “person” to include corporations, can give rise to ambiguity that is eventually interpreted by courts. For example, in FCC v. AT&T, the Supreme Court interpreted whether corporations have a right of “personal privacy” for purposes of the Freedom of Information Act’s exemption 7(C) and concluded that they do not. In denying the protection, Chief Justice Roberts’ opinion for the Court wryly quipped, “We trust that AT&T will not take it personally.” And in Burwell v. Hobby Lobby Stores, Inc., the Supreme Court interpreted whether a business corporation constitutes a “person” that can “exercise religion” under the Religious Freedom Restoration Act of 1993 and concluded that it can.
Finally, there is the issue of the treatment of corporations under the US Constitution, which does not expressly mention them. As a matter of constitutional text, no explanation is provided regarding whether a corporation constitutes a “person” or should be counted among “the people” and in what capacity. Despite the lack of explicit reference to corporations, the Supreme Court has long recognized—for over 200 years—that they can be the subject of constitutional protection, or holders of constitutional rights, and this longstanding notion has become known as the doctrine of corporate personhood.
The corporate personhood doctrine does not itself establish which rights corporations hold, or even how to determine which rights they should hold. It recognizes corporations as legal entities that can have a particular constitutional right or protection. And although the Supreme Court has recognized that corporations can hold rights, it has never broadly ruled that corporations are entitled to all of the constitutional rights and protections that individuals enjoy, coextensive with individual rights and protections. In short, just because corporations are “legal persons” doesn’t mean that they get all of the same rights as human persons.
The “easy” questions about corporate rights were decided over a century ago—or so it appears in hindsight. The Supreme Court granted rights that enabled corporations to benefit from their key features of legal personality (the ability to contract, hold property, and sue and be sued). The Court also made clear that corporations are subject to state authority and are not themselves “citizens” from whom power is derived.
Sometimes scholars, advocates, and courts have tried to answer questions of corporate rights by inquiring into the nature of corporations. These inquiries ask whether corporations are the kinds of entities, or beings, that can or should have rights. Answers have often focused on notions of corporations as artificial persons or concessions of the state, aggregations or associations of persons, or real entities capable of exercising rights separate and apart from those of their members. These varied concepts or descriptions appear in many opinions determining corporate rights, but they have never provided a consistent and clear path forward for deciding which rights corporations have or the scope of those rights.
The Supreme Court didn’t develop better ways at answering these questions over time—it just became less apt to reject claims for corporate rights and seemingly more willing to extend them, even as the size and complexity of business corporations grew. Over the twentieth century, business corporations grew bolder with claims for liberty and expressive rights such as freedom of speech. In groundbreaking cases recognizing commercial speech and political spending rights, the Court relied on cases involving nonprofit corporations and earlier cases that had not posed the same type of issues. This trend culminated in 2010 with Citizens United, in which the Court granted corporate political spending rights to all corporations, not only political advocacy organizations like the one that brought the case.
Where does this leave us? The history of the corporate personhood doctrine reveals that courts have acknowledged that corporations are not the same thing as the people behind them—so corporate personhood isn’t to “blame.” At the same time, however, courts and advocates have often pushed for a conception that treats the corporation as invisible, asserts the “corporate identity” of the actor doesn’t matter, or maintains that in reality corporations represent aggregates or associations of persons. Once a court disregards the corporate nature of the claimant, it tends to grant protection.
Some observers have been quick to argue that corporate rights should be broadly abolished. But if corporations did not enjoy basic contract and property protections, their utility to society would be sharply reduced. And corporations come in a wide variety of sizes and types, from nonprofits to business corporations. The problem is not with all corporate rights. It is instead the trend of recent decades, in which much harder questions of corporate rights have come before the Supreme Court and it has broadly given corporations greater power to push back against campaign finance restrictions and other areas of regulation.
The Supreme Court could re-visit decisions like Citizens United in the future. Of course, instead of reducing the scope of corporate rights, it might continue to expand them. We can certainly expect corporations to continue pushing in this direction. And so, the importance of other actors and internal governance checks grows.
Corporate law and governance is under more pressure to take into account the social concerns of shareholders and the impacts imposed by corporations on other stakeholders. It could also do more to address corporate political spending. One proposal after Citizens United suggested that lawmakers should design special corporate governance rules about political spending decisions so that they are not treated as ordinary business decisions. For example, the law could allow shareholders to enact binding resolutions about corporate political spending, require shareholder approval of political spending budgets, or mandate oversight of such spending by independent directors, subject to opt-out arrangements so that corporations can customize their choices. Reasonable corporate governance regulation could pass constitutional muster.
Further, the SEC could—at long last—mandate corporate political spending disclosures to promote transparency and accountability. Voluntary disclosures have increased, but such disclosures are not universal and they may be incomplete and exclude spending to intermediaries. Even Justice Anthony Kennedy, who authored the majority opinion in Citizens United, observed just a few years later that disclosure is “not working the way it should.” A variety of proposals have been raised, strong investor and public support exists, and the time is ripe.