Top Quotes: “We The Corporations: How Corporations Won Their Civil Rights” — Adam Winkler
Introduction
“In December 1882, Roscoe Conkling, a former senator and close confidant of President Arthur, appeared before the Supreme Court justices to argue that corporations like his client, the Southern Pacific Railroad Company, were entitled to equal rights under the 14th Amendment. Although that provision of the Constitution said that no state shall ‘deprive any person of life, liberty, or property without due process of law’ or ‘deny to any person within its jurisdiction the equal protection of the laws,’ Conkling insisted the amendment’s drafters intended to cover business corporations too. Laws that referred to ‘persons’ have ‘by long and constant acceptance…been held to embrace artificial persons as well as natural persons,’ Conkling explains. This long-standing practice was well known to ‘the man who framed, the Congress which proposed, and the people who through their Legislatures ratified the 14th Amendment.
Conkling’s claim was remarkable. The 14th Amendment had been adopted after the Civil War to guarantee the rights of the freed slaves, not to protect corporations. Conkling, however, had unusual credibility with the justices. For 2 decades, he’d been the leader of the Republican Party in Congress and was often said to be the most powerful man in DC. He had twice been nominated to the Supreme Court himself. The Senate voted to confirm him but he declined the position, citing poverty from his last career in public service — becoming the last person to turn down a seat on the Supreme Court after having been confirmed. More than most lawyers then, Conkling was considered by the justices to be their peer. And when it came to the history surrounding the drafting of the 14th Amendment, Conkling’s expertise was unparalleled. As a member of Congress during Reconstruction, Conkling had been on the very committee that wrote the amendment. If anyone could testify to the intent of the 14th Amendment drafters, it was him, who was one himself.
To back up his improbable story, Conkling produced a musty, never-before-published journal that purported to detail his committee’s deliberations. A close look at it, Conkling suggested, would show that while the nation was focused on the rights of the freedmen, he and the other members of Congress had also been worried about laws that unduly burdened business. It was for this very reason that the 14th Amendment used the word person. An early draft had guaranteed the rights of ‘citizens,’ Conkling said, but the language was later changed specifically to include corporations, which were often deemed by the law to be persons for various purposes. As a result, he argued, the 14th Amendment guaranteed the Southern Pacific Railroad the same rights of equal protection and due process as the former slaves.
There was just one small problem with his account of the drafting: it wasn’t true. The drafters of the 14th Amendment didn’t try to secret into the Constitution broad new protections for corporations, nor was the wording of the amendment ever altered in the way Conkling suggested. One of the preeminent figures in American politics had attempted to deceive the justices of the Supreme Court in an effort to win constitutional protections for the Southern Pacific Railroad.
Although a procedural snafu prevented the Supreme Court from issuing a final ruling in Conkling’s case, the justices soon after embraced his argument that corporations had rights protected by the 14th Amendment. In the years that followed, the Supreme Court would invoke those corporate rights to invalidate numerous laws governing how businesses were to be run, supervised, and taxed. Between 1868, when the amendment was ratified, and 1912, when a scholar set out to identify every 14th Amendment case heard by the Supreme Court, the justices decided 28 cases dealing with the rights of black Americans — and an astonishing 312 cases dealing with the rights of corporations. At the same time the court was upholding Jim Crow laws in infamous cases like 1896’s Plessy v. Ferguson, the justices were invalidating minimum-wage laws, curtailing collective bargaining efforts, voiding manufacturing restrictions, and even overturning a law regulating the weight of commercial loaves of broad. The 14th Amendment, adopted to shield the former slaves from discrimination, had been transformed into a sword by corporations to strike at unwanted regulation.”
“While the civil rights movements for women, racial minorities, and other oppressed groups have been thoroughly studied, there’s been another centuries-long push for equal rights that’s remained largely unnoticed: the ‘corporate rights movement.’ Conkling’s case was neither the first nor the last time corporations asked the Supreme Court to recognize their constitutional rights. Despite the fact that corporations have never been subjected to systemic oppression like women and minorities, they too have pushed to gain constitutional protections since America’s earliest days. Indeed, today corporations have nearly all the same rights as individuals: freedom of speech, freedom of the press, religious liberty, due process, equal protection, freedom from unreasonable searches and seizures, the right to counsel, the right against double jeopardy, and the right to trial by jury, among others. Corporations don’t have every right guaranteed by the Constitution; they have no right to vote or right against self-incrimination, and none to date has gone to court asserting a right to keep and bear arms. Yet corporations have won a considerable share of the Constitution’s most fundamental protections. Corporations, too, have fought to become part of We The People.”
“In the past decade, the issue of constitutional rights for corporations was thrust into the public spotlight by 2010’s Citizens United. By a narrow 5–4 majority, the justices ruled that corporations have a 1st Amendment right to spend their money to influence elections. The decision was wildly unpopular, with polls showing an overwhelming majority of both Democrats and Republicans opposed. Citizens United also helped inspire Occupy Wall Street, where protesters carried signs declaring ‘Corporations Are NOT People.’ ‘I don’t care how many times you try to explain it,’ President Obama said. ‘Corporations aren’t people. People are people.’ As of 2016, 16 states and hundreds of municipalities had endorsed a constitutional amendment to overturn Citizens United and clarify that constitutional rights belong to human beings, not corporations.”
“After the Civil War, Justice Stephen Field, undoubtedly the most colorful justice to sit on the nation’s highest court — he remains the only sitting justice ever arrested, for murder no less — saw corporate rights as necessary to stem the rising tide of socialism. As the Supreme Court embraced new, more libertarian understandings of free speech a century ago, the justices also extended 1st Amendment rights to newspaper corporations, without which the freedom of the press would be much less meaningful in a modern society.”
“Corporate personhood has played only a secondary role in the corporate rights movement. While the Supreme Court has on occasion said that corporations are people, the justices have more often relied upon a very different conception of the corporation, one that views it as an association capable of asserting the rights of its members. This alternative way of thinking about the corporation has paved the way for the steady expansion of corporate rights. Indeed, corporate personhood has traditionally — and surprisingly — been used to justify limits on the rights of corporations.”
“Corporations and the Constitution are more intimately linked than one might imagine. Our story will begin in the colonial era, when even before corporations sought individual rights in the Supreme Court, they nonetheless exerted considerable influence on American ideas of government. It was a corporation, after all, that planted the first seeds of democracy in the colonies, and the goal was to secure profit, not promote liberty. Moreover, the Framers built from what they knew, and the colonies had been originally organized as corporations operating under written charters that, like the Constitution, set the rules for lawmaking and imposed limits int he powers of officeholders. As a result, numerous distinctive features of the Constitution can trace their roots to the nation’s corporate origins.”
Colonial Corporations
“The bitter winter of 1609–10 nearly put the Virginia Company out of business. Relations with the local native tribe, the Paspahegh, had already turned violent, largely due to competition for the supplies of food diminished by the drought. The colonists refused to leave their small fort out of fear of ambush; inside, however, they had not nearly enough food. They reported having to eat ‘dogs, cats, rats, and mice,’ and some boiled and ate their own shoes. Eventually, we know now, they turned to cannibalism. Archaeologists studying a trash deposit at the Jamestown site discovered a human skull with scores of knife marks from where the meat was cut away. (‘They were clearly interested in cheek meat, muscles of the face, tongue, and brain,’ reported a researcher who examined the remains.) This period, referred to as the ‘starving time,’ saw only 60 — of the more than 500 settlers who by then had come to Virginia — survive.”
“All the previous English efforts had ended in failure. Explorer Sir Walter Raleigh, for example, organized an expedition that left over 100 settlers on Roanoke Island off NC in 1587. Due to hostilities with Spain, however, the first resupply ship didn't return for 3 years. By then, the settlement was deserted; none of the colonists were ever seen again and their fate remains a mystery.
In spring 1610, West set sail in a fleet of 3 ships with 400 new colonists and a year’s worth of supplies. He also came with new powers. The board believed the colony had suffered from a lack of clear authority. In Jamestown, ‘no man would acknowledge a superior,’ the company admitted.”
“The company expected that the mere presence of an all-powerful boss who hailed from the aristocracy would make the settlers fall into line. Should that fail, however, West brought with him a contingent of military men to enforce discipline. He came to Jamestown to bring order, not liberty.
During his 2-month voyage, conditions in Jamestown continued to deteriorate. Desperate, the surviving settlers decided to disregard the Virginia Company’s orders and return home. They packed up the ships and were about to set fire to the fort until someone objected that it wasn’t really theirs to destroy. The fort and the other structures were the rightful property of the corporation. Leaving behind the Virginia Company’s fixed assets, the settlers departed for England. Jamestown was abandoned.
England’s colonial enterprise might have ended right there had it not been for West’s uncanny timing. As the ships carrying the settlers who’d quit Jamestown made their way down the James River on June 7, 1610, they encountered a longboat from West’s fleet coming in the opposite direction. West immediately ordered the settlers to turn around and return to Jamestown. Had he left England a few days later or been delayed even just a bit longer at sea, the ships would’ve missed each other. West would’ve landed at Jamestown to find a fort but no one left there for him to govern. Instead, the colony and the company, and perhaps even the American experiment itself, were saved.”
“Under West’s rigid system of discipline in the colony, settlers were to rise at 6am and attend morning services at the church. Failure meant the loss of a week’s food allowance for the first offense; for the third, the punishment was death. Indeed, capital punishment was threatened for a variety of misdeeds, including profaning God’s Word, unauthorized trading with the Indians, and fleeing the colony. If someone robbed the common store of food, they’d be bound to a tree to starve. All the settlers’ guns were gathered up and declared to be part of the common arsenal. This was ostensibly to make them available if needed to fight the Indians.”
“During its first decade, the Virginia Company hemorrhaged money. The colony was stable, but the company had yet to find any precious metals or a passage to the South Seas. There had been no profit to distribute to investors, who the company admitted were rewarded so far with only ‘fairy tales and hopes.’ Seeking to turn things around, the board used the one asset it had in abundance: land. Every stockholder was offered 100 acres of land in the colony for each share held, plus additional acres for each settler the stockholder sent to Jamestown. Land was an intriguing lure to successful English merchants who, given the paucity and historical control of land in England by the aristocracy, could never expect to own real property at home. The catch was that the stockholders would also have to finance the development of their parcels themselves — just as someone who buys land today has to build on it herself. Instead of the Virginia Company financing the colonists, the stockholders were to be individually responsible for finding settlers, paying for their transportation, and furnishing their suppliers.
This new system of land ownership fundamentally changed the colony. Instead of everyone working company land on company orders for company profit, landowners now worked primarily for themselves, with the Virginia Company only taking a cut. Almost exclusively, landowners chose to grow tobacco, America’s first marketable crop.”
“The land reform was an unquestioned success, encouraging new settlers to come and enticing new investors for subsequent rounds of financing.”
“The emergence of the first measures of self-government in Jamestown wasn’t a reflection of Sandys’ liberal leanings. It was a corporate necessity, essential to entice men of character disciplined and public-spirited, to move to the Chesapeake. Such men wouldn’t want to live under martial law, even if that had been necessary in the colony’s first years. Settlers would want to have some say over their day-to-day lives. As a result of Sandys’ reforms, the company recruited nearly 4,000 new colonists to come to the New World, including the Pilgrims.
Sandys had begun corresponding with the Pilgrims as early as 1617 because they were precisely the kind of dedicated, devout, and hard-working people needed to make a successful colony. Unlike the original Jamestown settlers, the Pilgrims, who were bound together by religious and kinship ties, could largely be trusted to work unselfishly. By happenstance, the Mayflower landed far to the north of its intended destination, and the Pilgrims decided to make their home in Plymouth.
According to legend, the Pilgrims celebrated their first successful harvest with a day of thanksgiving in 1621. Yet the first official Thanksgiving in America was actually 2 years earlier, and it was a corporate initiative. The Virginia Company had authorized a group of settlers, known as the Berkeley Hundred, to move to the colony. The company ordered them to establish an annual holiday to thank the almighty upon landing. ‘We ordain that the day of our ships arrival at the place assigned for plantation in the land of Virginia shall be yearly and perpetually kept holy as a day of thanksgiving to the Almighty god.’ On December 4, 1619, when the Berkeley Hundred’s ship dropped anchor in the James River, the settlers followed the company’s instructions and Thanksgiving in the New World was born.
The corporation that brought democracy and Thanksgiving to America also brought more nefarious practices, including human trafficking, even before the first African slaves arrived. The Virginia Company board was concerned that men didn’t want to stay long in Virginia because of a lack of women — or what the company called ‘the comforts without which God saw that man couldn’t live contentedly, no not [even] in Paradise.’ To rectify this problem, Sandys launched an extraordinary program to recruit women to emigrate to the colony. Investors in London put together a special fund to subsidize the shipping of young women to Jamestown. Upon arrival in the New World, the women were bartered off by the company to the highest bidder.”
“Faith in the Virginia Company dissolve further when, in 1622, Indians launched a surprise attack on the settlers, killing about a third of them in what came to be known as the Virginia Massacre. The company tried to blame the settlers, but regardless of fault, there was no denying the numbers: nearly 8,000 people had moved to Virginia over the first 15 years and approximately 6,800 of them had died. In 1624, Jamestown took one more life, so to speak, when the Virginia Company itself was finally shut down. With the corporation out of business, the colony was turned over to the Crown.”
“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’ 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 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 didn’t 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.”
“One 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 the reps who could attend in their place and vote on their behalf.”
“As with the popular assembly first instituted in Jamestown by Sir Edwin Sandys, the adoption of proxy voting wasn’t 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 the 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. That's why the English thought it perfectly acceptable for populous cities — including American cities like Philly and Boston — to not have any formal representatives in the House of Commons.
Winthrop couldn’t have known how significant his way of understanding representation would turn out to be. Over the next century and a half, the idea that reps were the voice of their particular constituents would feed the American urge for independence. ‘No taxation without representation,’ the rallying cry of the Revolution, wasn’t 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.”
“Claiming these tax laws violated their colonial charters, the colonists responded angrily. The most dramatic manifestation of their passionate objection took place in December 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’d 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-18th 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 Scottish economic philosopher Adam Smith called this exercise of sovereign power a ‘strange absurdity,’ it was similar to what had happened in VA, MA, 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 pounds he donated to endow a college in CT; leaders of the college, however, were so overwhelmed by his abundant generosity that they renamed the school in Yale’s honor.”
“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 for 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 ’08 financial crisis. When the East India Company’s stock price tumbled, it ‘threw an entire network of heavily leveraged banks into ruin.’
The East India Company, like many corporations, was dependent upon regular infusions of working capital. Yet in the economic downturn, the banks stopped loaning money. With over 1 million pounds 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 2 future wars between Britain and China. It wasn’t 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.”
“North engineered a bailout package of legislation to loan the company over 1.4 million pounds (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 toe 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.
Despite the lower tea prices, taxes more generally had become a source of conflict in the colonies, especially as the economy suffered under the weight of the East India Company’s financial struggles. Since the mid-1760s, colonists like Sam Adams in MA and Patrick Henry tin VA had been organizing protests against taxes imposed by Parliament, arguing that Parliament lacked the authority to tax the colonists.”
“A more peaceful form of protest was the boycott of products subject to taxes, such as tea. Housewives gave up the brew, even though it was at the center of their social lives, and began drinking coffee. Students at Harvard — incorporated in 1650 and today the oldest nonbusiness corporation in America — promised to forsake tea for the duration of their studies.
Paradoxically, one of the main reasons the colonists objected to the Tea Act was that, by lowering the price of tea, it threatened to undermine the tea boycott. Cheaper tea was more likely to attract purchasers. The Tea Act also threatened local merchants, who’d made a good business out of purchasing tea in the London auctions and selling it back home in the colonies. Many of the middlemen whom the East India Company was now allowed to cut out were colonists. Fear spread that Parliament might adopt similar rules for other products, harming any number of local businesses and further deepening the economic downturn in the colonies. Even if the tax on tea was small, it continued to represent the assertion of Parliament’s power to tax the colonies, which was the essence of Adams and Henry’s complaint.
So when the Dartmouth, a ship carrying 114 chests of the East India Company’s tea, arrived in Boston harbor in November 1773, Adams determined to prevent the tea from ever being sold in the colony. The Sons of Liberty, an informal organization of patriots of which Adams was a leader, posted notices around Boston: ‘Friend, brethren, countrymen — The worst of plagues, the detested tea shipped for this port by the East India Company, is now arrived in the harbor. The hour of destruction, or manly opposition to the machinations of tyranny, stares you in the face.’ At a meeting of the townspeople at the Old South Meeting House, it was decided that armed guards would be sent to the wharf and the tea wouldn’t be allowed off the ship. The ship would be forced to return to England. When the king’s men discovered the plan, the royal governor of MA forbade the ship from leaving port. A stalemate ensued, soon ensnaring 2 more ships that arrived carrying East India Company tea.
The ship owners, who were American colonists, had no choice but to keep the ships docked and the tea unloaded. This wasn’t a viable long-term solution, however, as English law only permitted ships to remain in port for 20 days without unloading their cargo; after that, the ships’ goods were subject to seizure by customs officials. Town meetings were held throughout early December as the colonists debated what to do. Finally, the deadline came. Dec 16 marked the Dartmouth’s 20th day in port. If the tea was still on board at midnight, a confrontation between the Sons of Liberty’s armed guards and royal troops, who were sure to come to collect the tea, was inevitable.
After a final meeting, a group of men, many dressed as natives, set off for the wharf at dusk. They were disciplined; there was no rioting or collateral violence. They boarded the 3 ships, hoisted up the tea, broke open the chests, and dumped the leaves overboard. With quiet efficiency, they destroyed more than 18,000 pounds (over $3 million today) worth of the East India Company’s tea in just a few hours. The locally-owned ships were left unharmed, with some reports suggesting that after the tea was dumped, the men even swept the decks clean. The targets of the protest were the East India Company and its tea.
It would be another 50 years before the incident came to be known as the ‘Boston Tea Party,’ but the impact of the event in the colonies was felt right away. All up and down the coast, colonists refused to allow tea ships to unload their cargo. Parliament responded by ordering the closure of Boston Harbor until the colonists repaid the East India Company for all the tea it had lost. Parliament also enacted new legislation abrogating MA’s charter. Assemblies were forbidden without the consent of the royally-appointed governor, and the power to choose members of the executive council (what had once been the company’s board of directors) was transferred to the Crown. To many colonists, Parliament had lawlessly overridden their sacred charters and it was finally time to take up arms.”
“Democracy and constitutionalism were intimately tied up with the corporation from the very beginning. America was founded by the Virginia Company, fundamentally shaped by the colonists’ experience with the Massachusetts Bay Company, and inspired to Independence by the East India Company. Although the Founders at the Constitutional Convention never considered whether corporations should be afforded individual rights under the Constitution, the idea of the corporation nonetheless influenced the constitutional system they established.”
The 19th Century
“The nation’s first great corporation was the Bank of the US. The brainchild of Hamilton, the Bank was chartered by the first Congress in 1791 and carried the name of the new nation, yet was what Americans today would think of as a private business. It was a for-profit corporation with publicly traded stock, managed by execs who were accountable to stockholders. At a time when the handful of existing American corporations were local concerns — operating, say, a toll bridge across the Charles River — the Bank was the first truly national enterprise, with HQ in Philly and branches from Boston to New Orleans.
Like so many of the giant corporations that feature in the history of the corporate rights movement — the Southern Pacific Railroad, Standard Oil, Philip Morris — the Bank of the US provoked considerable controversy in its day. Opponents accused it of having too much political and economic power. Today’s critics of Citizens United would’ve found an ally in fiery Kentucky Whig Henry Clay, who complained of the Bank that ‘our liberties’ were in the hands of ‘a body, who, in derogation of the great principle of all our institutions, responsibility to the people, is amenable only to a few stockholders.’”
“Within 5 years of the Bank’s creation, the US had the highest credit rating in the world. Hamilton, then, was also the Founding Father of surely one of the most important corporations in American history.
Hamilton had been inspired by the success of an earlier bank, the Bank of North America, founded during the Revolutionary War. Washington’s army was short on rations and pay, soldiers were on the verge of mutiny, and the war had depreciated American currency to near worthlessness. The Bank of North America was proposed, like the later Bank of the US, to create more reliable notes and insure liquidity. The plan worked to the benefit of both the nation and investors, who received annual dividends of 13–14%. The Bank of North America was transformed into a private state bank in 1786, and today, after 2+ centuries of mergers and reorganizations, remains a tiny part of Wells Fargo.”
“The corporation became quite successful in Rome. Societas publicoranum were created for shipbuilding, mining, public works projects, temple construction, and tax collection. Even some of these earliest corporations had a global impact. A 1997 study of ice core samples from Greenland found ‘unequivocal evidence of early large-scale atmospheric pollution’ caused by Roman silver and lead mining corporations operating in S. Spain between 366BC and AD 36.”
“Blackstone’s scholarly effort to detail, organize, and explain English law, published under the title Commentaries on the Law of England, would come to be hailed as the ‘most influential law book in Anglo-American history.’
That influence was immediate, and not just in England. Thousands of copies were sold in the American colonies before the Revolution. Jefferson called it’ the most elegant and best digested of our law catalogue.’ Years later, Lincoln advised anyone who wanted to be a lawyer to start by reading it. For decades, lawyers would include Blackstone’s volumes in the background of their portraits. One historian said that ‘no other book — except the Bible — has played so great a role’ in shaping American institutions. Even today, Blackstone’s Commentaries is cited about 10x a year by the US Supreme Court.
The corporation was one of the topics that Blackstone tackled in the Commentaries: how it was formed, how it operated, and what legal rights and duties it had. He began his explanation by describing the corporation as an ‘artificial person.’ By this Blackstone meant 2 things. First, the corporation was an independent legal entity in the eyes of the law, separate and distinct from the people who formed it. Second, as an independent legal entity, it had certain legally enforceable rights similar to those of a natural person.
An individual’s ‘personal rights die with the person,’ Blackstone wrote. So ‘it has been found necessary, when it’s for the advantage of the public to have any particular rights kept on foot and continued, to constitute artificial persons.’ Called ‘bodies corporate, or corporations,’ these artificial persons ‘may maintain a perpetual succession, and enjoy a kind of legal immortality.’ There were, Blackstone noted, ‘a great variety’ of corporations used for such things as ‘the advancement of religion, of learning, and of commerce.’
Blackstone analogized the corporation to a person because the individual human being was the paradigmatic legal actor in the minds of lawyers. Only people, not objects like tables or shrubs, had standing to make a claim in court seeking the law’s protections; only people had rights. Indeed, this remains a common frame of mind today. When proponents of animal rights go to court seeking legal protections for chimps, for example, they claim the animals are ‘legal persons.’ They don’t necessarily mean that chimps are exactly the same as human beings, or that they have all the same rights as people, including the rights to free speech, freedom of religion, or the right to bear arms. They only mean that chimps should have standing before the law, that they have some rights entitling them to the court’s attention.”
“Today, corporations are typically thought of as private enterprises, created by private citizens to pursue profit for themselves. In Blackstone’s day, however, corporations more clearly straddled the divide between public and private. They had unambiguously private aspects, in that they were financed and managed by private parties. Yet they were also inherently public. They could only be formed by charter granted by the government, and the government wouldn’t grant one unless the corporation had a public purpose. ‘The king’s consent is absolutely necessary to the erection of any corporation,’ Blackstone noted. To be a separate, legally recognized entity required special governmental approval, and it wouldn’t be forthcoming if a corporation’s mission were not ‘for the advantage of the public.’ Corporations had to serve the commonweal, whether it was by building a road, maintaining a bridge, or providing insurance. Individual investors took home profits, but the ultimate mission of the corporations had to be in the service of the public. Corporations, in other words, were both public and private enterprises at the same time.”
“These were the 3 core rights of any corporation: the right to own property, the right to make contracts, and the right of access to the courts.”
“Oral argument in Bank of the US vs. Deveaux took place in February 1809, and the justices were no longer holding court in the Royal Exchange but in, all of places, a pub. When the court first moved to DC, the justices were given a committee room in the Capitol Building to hear cases. Beginning in 1808, however, renovations were undertaken on the building and the justices were forced to move into a drafty, frigid room on the second floor. The justices decided to hear their cases instead across the street in the cozier confines of Long’s Tavern. Although one envisions the justices hearing cases while tipsy on port, this location too was appropriate in its own way: Long’s Tavern was apparently located on the same plot of land where the majestic neoclassical Supreme Court Building sits today.”
“Like populist Justice Johnson, Key argued that corporations were people — independent entities with legal rights and obligations separate and apart from the people who make them up. Due to that legal separation, the rights and duties of the members didn’t transfer to the corporation, or vice versa. The question facing the court was whether corporations, as such, were citizens guaranteed the right to sue in federal court. Horace Binney and John Quincy Adams argued conversely that corporations were associations — collectivities that enjoyed the same rights and obligations as their members. According to this more corporationalist perspective, the court should pierce the corporate veil and ask whether the corporation’s members were citizens guaranteed the right to sue in federal court.
These 2 contrasting ways of thinking about corporations were first introduced to American law in the Bank of the US and Hope Insurance cases. Ever since, the history of corporate rights has largely been a struggle between the disparate poles of personhood and piercing, between populists and corporationalists. Today’s critics of Citizens United often blame corporate personhood for the Supreme Court’s expansive protection of corporate rights. Yet historically, the logic of personhood has usually been employed by populists seeking to narrow or limit the rights of corporations. By contrast, expansive constitutional rights for corporations have frequently been a product of the corporationalist logic of piercing. When the Supreme Court has ignored the corporate form and looked to the rights of the individuals who made up the corporation, the rulings naturally tended to give corporations nearly all the same rights as individuals. Expansive constitutional rights for corporations were built into the logic of piercing.”
“To gain these rights, corporations employed the most elite lawyers in the nation. Certainly Webster fit that description. Not only was he the most illustrious lawyer of his time, he was also reportedly the highest paid. His corporate clients were more than willing to pay his inordinately high fees because, for business, hiring the best lawyers to defeat regulation is often well worth the investment. In contrast to dispossessed and subjugated people, who often cannot afford to pay for the best representation, corporations have long used their deep pockets to finance legal challenges to laws burdening their rights. One reason corporations have been so effective in obtaining an ever-greater share of individual rights is that they have the financial means to hire the best lawyers to pursue cutting-edge, push-the-boundaries lawsuits.
Webster charged his clients so much because he desperately needed the money. With extravagant tastes and a notorious inability to manage his finances, Webster lived nearly all his life in debt. Indeed, it’s no exaggeration to say that one reason Webster had such an enormous influence on the Constitution over the course of so many years was that he never had enough money to retire. So he could pay his bills, he was forced to try cases right up until his death, at age 70, in 1852.”
“Dartmouth College has been called ‘one of the most important precedents in the history of the Supreme Court.’ The decision ‘played a key role in the rise of the American business corporation’ and helped pave the way for modern corporate rights cases like Citizens United and Hobby Lobby.
Dartmouth College, Webster’s client, wasn’t a business corporation but a school, run as a nonprofit institution. Dartmouth was, however, formed as a corporation, and the central question in the college’s case had a direct bearing on all corporations, business or otherwise: Are corporations public or private? Are they public entities over which the state has only limited regulatory authority? Today, we take for granted that corporations are private entities. In the early 1800s, however, the question of whether corporations were public or private remained unsettled. Webster’s Dartmouth College case would largely settle it.”
“The controversy arose out of a struggle for control of Dartmouth in the years after Wheelock died in 1779. His son, John, assumed his father’s exec position at the college, to the displeasure of some members of the board, who complained about the ‘family dynasty.’ Eventually, the younger Wheelock’s opponents gained enough seats on the board to marginalize him. John Wheelock fought back by appealing to the press and enlisting the state legislature to investigate the board. This only angered the other trustees, who fired him from the presidency and voted him off the board. NH lawmakers, with Wheelock’s backing, responded by enacting legislation to take control of the college from the trustees. The new laws revised Dartmouth’s corporate charter to expand the board from 12 to 21 people; created a new board of overseers to review the trustees’ decisions; vested the state’s governor with the power to appoint trustees; and changed the name of the educational corporation to ‘Dartmouth University.’
Represented by Webster, the original Dartmouth College trustees filed suit against William Woodward, the man who’d been appointed the secretary-treasurer of the reformed school. Webster argued that NH’s reorganization of the college’s charter violated Article I, section 10 of the Constitution, which provided that ‘No state shall…pass any…Law impairing the Obligation of Contracts.’ Webster claimed that the college’s charter was a contract immune from alteration by the state. To make that argument work, however, he had to convince the courts that corporations were private entities.”
“Webster needed to be very persuasive if he was to win the case on behalf of the college. Momentum was on the side of NH, and Webster’s goal was to convince the justices to accept a principle the law had never previously recognized explicitly: that corporations were private entities immunized by the Constitution’s contract clause from a state takeover.
As Webster stood before the justices, whatever disadvantage he may’ve had in his legal position was overcome by his edge in oratory and prep.”
“Chief Justice John Marshall handed down his opinion in Dartmouth College v. Woodward in February 1819. The court ruled in Webster’s favor — and established that the corporation was, in the eyes of the Constitution, a private entity, which like an individual person had rights. The court held that Dartmouth College’s corporate charter was a binding contract between the state and the incorporators and, therefore, NH’s reorganization of the college was unconstitutional under the Constitution’s contracts clause. To reach that conclusion, Marshall, he corporationalist, insisted that the corporation’s rights were exactly the same as they were prior to the Revolution. ‘It’s too clear to require the support of argument that all contracts and rights respecting property remained unchanged by the revolution,’ he wrote.’ ‘Circumstances have not changed [the charter]. In reason, in justice, and in law, it is now what it was in 1769.
Despite Marshall’s claims of continuity, his Dartmouth College opinion was itself revolutionary. While the property rights of Dartmouth’s members may’ve been the same, the rights of the other party to the contract, the government, were radically different. In 1769, when Dartmouth received its charter, Parliament had the right to alter, amend, or vacate a corporate charter — as British lawmakers had repeatedly argued in the run-up to the Revolution. Marshall admitted as much: ‘According to the theory of the British Constitution, their Parliament is omnipotent. To annual corporate rights might give a shock to public opinion, which that the government has chosen to avoid, but its power isn’t questioned.’ Yet while Marshall recognized that ‘by the revolution, the duties as well as the powers, of government devolved on the people of NH,’ the state didn’t retain Parliament’s power to alter corporate charters. The Constitution has ‘imposed this additional limitation — that the legislature of a State shall pass no act ‘impairing the obligation of contracts,’ Circumstances had changed since 1769, and drastically so. The Revolution, in Marshall’s view, had significantly reduced the government’s power over existing corporations.
Marshall’s opinion also reflected adaptation and change with regard to the nature of the corporation. While Blackstone emphasized the corporation’s public aspects — only the sovereign could create one, and only if there was a public purpose — Marshall viewed the corporation as a private entity. Dartmouth wasn’t created by the government; it was, the chief justice wrote: ‘really endowed by private individuals, who’ve bestowed their funds for the propagation of the Christian religion among the Indians and for the promotion of piety and learning generally.’ The government, Marshall claimed, hadn’t given any money or assets to fund the college. Although Marshall placed the emphasis on Dartmouth’s source of financing, this hardly distinguished it from the Virginia Company, the MA Bay Company, or any of the corporations Blackstone had written about; all were privately financed. Nonetheless, Marshall declared Dartmouth College to be for this reason ‘a private corporation.’
Marshall also downplayed Dartmouth’s public purposes. Although the promotion of religion and education were ‘beneficial to the country,’ that didn’t make the corporation public in nature. Corporations served their public ends by fulfilling their missions, not by being controlled or regulated by the state. ‘The objects for which a corporation is created are universally such sa the government wishes to promote,’ Marshall wrote. Yet the ‘benefit to the public is considered as an ample compensation for the faculty [incorporation] confers.’
Marshall’s opinion fundamentally reconceived the the nature of the American corporation. The government didn’t create corporations, people did. And they did so to pursue private purposes, not public ones. The Dartmouth College case, says scholar David Ciepy, transformed the corporation into ‘a pure creature of the market rather than a creature of the government, exempting it from any duty to the public, or accountability to the public.’ Yet Marshall’s view, however incongruous from the perspective of traditional corporate law, nonetheless resonated with the claims colonists made about the limits on parliamentary power during the debates over independence. Colonists had insisted back then that charter rights had been bargained for and were subsequently secure from legislative overreach. Dartmouth College broke from the traditions of corporate law but in this sense at least adhered to the rhetoric of the Revolution.
Marshall’s opinion flirted with corporate personhood, and it has occasionally been misunderstood to support the idea that corporations are people in the eyes of the law. Corporations, he wrote, were a means ‘by which a perpetual succession of many persons are considered as the same, and may act as a single individual.’ A corporation was a legal person. At the same time, Marshall explained, the corporation ‘possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.’ As legal persons, corporations had rights — but only those granted by charter or inherent in that type of corporation.
Yet Marshall then abruptly reversed course and, as in the Bank of the US case, pierced the corporate veil. He embraced Webster’s argument that this was a case about the property rights of the corporation’s members. The ‘corporation is the assignee of [the donors’] rights and ‘stands in their place.’ The trustees were responsible for carrying out the corporation’s mission and, according to Marshall, the charter gave those trustees a property right to mange the corporation’s affairs. The rights of the corporation were defined by the rights of the individual members — here, the trustees.”
“The impact of the Dartmouth case was felt well beyond NH. The decision established the principle that corporations were creatures of private initiative formed in the marketplace over which states had only limited regulatory authority. They were accountable to their members but not necessarily to the larger public. Although Parliament had the power to alter corporate charters, the American states didn’t. And while an educational corporation may have been the instigator, the diminished regulatory authority of states over corporations had the greatest impact on business. Because the ruling applied to all types of corporations, Dartmouth made business investment more secure by limiting the government’s power to interfere with corporate property. The decade following the decision saw astonishing growth in the number of corporations, which were quickly becoming the preferred form of business enterprise in the American economy. Equally significant, the decision became, according to historian R. Kent Newmyer, ‘a potent legal and ideological weapon for corporations who sought to defeat regulation and establish the ideological primacy of laissez-faire capitalism.’”
“Taney’s opinion in Bank of Augusta v. Earle was the first time the Supreme Court ruled explicitly against extending a constitutional right to corporations. And unlike the Marshall court’s corporate rights cases, Earle embraced corporate personhood. Because a corporation was its own legal person, its rights and duties were separate and distinct from those of its members. Corporations had only those rights appropriate for this unique and special type of legal entity, one that already enjoyed special legal privileges, such as limited liability. Corporate personhood served as a limit on the rights of corporations and a basis for distinguishing corporations from ordinary people.”
“The railroads transformed the stock market. The capital demands of buying land, grazing and laying tracks, and operating the line couldn’t be met by the personal wealth of a handful of partners. Banks, scared by the cutthroat competition that often led to new railway lines being sited right next to existing ones, saw the roads as risky investments. To raise money, railroad corporations turned instead to the stock market. In 1830, before the exponential growth of the railroads, the NY Stock Exchange had days when fewer than 50 shares were traded. By the outbreak of the Civil War in 1861, however, when railroad stocks were pervasive, tens of thousands of shares were traded daily.”
“Taney, who wrote the infamous line about black Americans having ‘no rights which the white man was bound to respect,’ thought blacks weren’t legal persons but corporations were.
Taney’s decision in Dred Scott would go down as one of the worst decisions in Supreme Court history. Taney imagined it would have precisely the opposite legacy, that it would calm the growing tensions over slavery and put the country on a sound foundation going forward. If anything, it hastened the resort to arms and a conflict that would take the lives of over 600k Americans. The Civil War, however, also led to broad new protections being added the Constitution to protect the rights of racial minorities. Yet for several decades, the intended beneficiaries would have little to show for their newfound consititutional guarantees. Corporations, by contrast, would use those same provisions to greatly expand the civil rights of business. And the story of how they did is one of the most bizarre and disturbing in the history of the Supreme Court.”
“By 1882, Conkling was the last surviving member of the Joint Committee on Reconstruction which drafted the 14th Amendment. With no one to refute him, Conkling told the justices that he and the other drafters intended to protect business corporations in addition to the freed slaves. The amendment was designed to protect not just the weakest and most subjugated people in the nation but also the most powerful and wealthy corporations. Even the Southern Pacific, whose grip on politics in the West earned it the nickname ‘the Octopus,’ was entitled to the protections of the 14th Amendment — and could use those protections to overturn laws burdening the railroads.”
“Conkling told the justices that an early version had used the word ‘citizen’ instead of ‘person.’ The latter was ultimately chosen, however, because the drafting committee had received many complaints from businesses about discriminatory state laws, such as the type of restrictions on interstate commerce endorsed by the Taney court in Bank of Augusta v. Earle. To protect those businesses, the drafters used the word person because corporations, according to Blackstone, had been recognized to be legal persons.
Conkling’s extraordinary argument was an admission of a conspiracy of constitutional dimensions. He was saying that there had been a concerted effort by the men who drafted the 14th Amendment, working at the highest levels of the government, to protect corporations under the guise of protecting the freedmen. The drafters had inserted the word persons instead of citizens with the goal of covering corporations but had never told anyone of their purpose or the effort of word choice. As a result, the constitutional rights of corporations weren’t mentioned in any of the ratification debates over the amendment. Nevertheless, corporations now had rights of equal protection and due process.
Conkling’s account of the drafting history was fanciful. There was no conspiracy by the 14th Amendment drafters to sneak broad new protections for corporations into the Constitution. Congress hadn’t hoodwinked the American people. Rather, the fraud was Conkling, who purposefully misled the justices about the original meaning and intent of the 14th Amendment.”
“After the Civil War, the American economy, fueled by industrialization and urbanization, experienced unprecedented growth, nearly doubling in size between 1877 and 1893. American workers moved from farms to factories, and their increasing employment by corporations meant fewer working hours, more leisure time, and more dependable — and disposable — income than could be found in agriculture. Leisure activities, once the exclusive province of the wealthy, were now beginning to become available to the emerging middle class, which eagerly embraced spectator sports, like baseball and boxing; amusement parks, circuses, and dime museums; and the ribald comedy of burlesque shows. The novel forms of entertainment were all born of, or quickly transformed into, commercial enterprises. Entertainment became a product to sell to the masses.”
“Conkling was claiming that CA’s ban on railroads deducting mortgages, which didn’t apply to other landowners, including individuals and other businesses, was a violation of the Southern Pacific’s right to equal protection and due process under the 14th Amendment. San Mateo County admitted that the law treated railroads differently but insisted there was a good reason for the disparity. By necessity, the railroads owned enormous amounts of real estate, much of it mortgaged for more than the market value of the land itself. If the S. Pacific and its sister line, the C. Pacific, were allowed to deduct their mortgages like other landowners, the companies — the state’s most high-profile and profitable big businesses — would pay no real estate taxes. Californians thought the special tax rule was necessary to avoid such profound unfairness. In the eyes of the S. Pacific and C. Pacific railroads, however, the tax discriminated against railroad corporations.
CA’s 2 leading railroads were both founded by the robber barons Leland Stanford and Collis Huntington, who together with their partners dominated transportation in the West — and gained a stranglehold on politics in the West too, as the S. Pacific’s nickname reminded. Yet even an Octopus loses its grip sometimes, and in 1879, with CA temporarily in the hands of populist reformers — intellectual heirs of the Jeffersonian and Jacksonian opponents of concentrated corporate power — a new state constitution put the railroad tax in place. The companies’ tax bills soared.
To fight the tax increase, the S. Pacific and C. Pacific undertook a litigation campaign that could’ve served as a template for future civil rights movements. First, the railroads engaged in civil disobedience. They simply refused to pay the taxes and launched a PR campaign in the newspapers against hte law. The counties, which were responsible for collecting the tax, were forced to go to court seeking redress. The courts, however, were exactly where the railroads wanted the controversy to be decided. Judges, especially the ones in federal court, weren’t likely to share the anticorporate populism of CA voters.
The railroad corporations were constitutional first movers who employed innovative tactics to secure new rights. They envisioned the lawsuits as a form of strategic litigation, or what their lawyers called ‘test cases,’ to determine whether corporations had the same rights as ordinary people to equal protection and due process under the 14th Amendment. The railroads didn’t want merely to lower their tax bills in CA. They wanted to establish broad new protections against burdensome regulations of all sorts. Their remarkable series of cases — more than 60 in all — would become landmarks in American constitutional history and an important turning point in our social and economic development. The outcome of these cases expanded corporate constitutional rights, but the railroads’ strategy of civil disobedience backed by strategic test cases a method for pursuing equal rights was a landmark as well.”
“Railroad innovations in the Gilded Age would transform the corporation’s internal organization and size, giving rise to the first modern corporations.
With some exceptions, traditional business enterprises of early 19th-century America tended to be owned by an individual, a family, or a small number of partners. Businesses were specialized to focus on 1 aspect of commerce, such as production, sale, or distribution of particular types of goods, and they were largely local. They hired, sold to, and served primarily people in the vicinity, and the owners supervised a relatively small number of employees. The railroads created a new model. Employees were far more numerous and scattered along the lines. Business functions were separated into multiple divisions, and a hierarchical org structure was created to control them. Within each unit, managers managed not only laborers but also other managers. This was the beginning of ‘managerial capitalism.’ Prior to 1840, no American corporation had these features. By 1920, this kind of corporation, with layers of hierarchical organization ruling over multiple divisions, had become the dominant type of business firm in the major sectors of the American economy.
Railroads, which had already experienced explosive growth before the Civil War, built more than 100k miles of additional tracks in the 2 decades following it. As before the war, graft remained popular with politicians and the railroads seeking to persuade them for rights of way, eminent domain power, and other privileges. When Congress was deciding whether to subsidize the building of the first transcontinental railroad in 1861, Leland Stanford sent 1 of his men to DC with a suitcase full of C. Pacific stock certificates to dole out liberally to lawmakers. According to the best estimates, the C. Pacific Railroad alone distributed to lawmakers and lobbyists $500k annually — equal to roughly $13 million today. As congressional leader James Blaine explained, ‘to make the wheels revolve we must have grease.’
When bribes weren’t enough to prevent unfavorable legislation, railroads like the S. Pacific hired the nation’s top lawyers — men like Roscoe Conkling — and mounted their attack in the courts.”
“After the Civil War, Campbell became a leader of the movement to fight Reconstruction and reassert white supremacy. In LA, where Campbell then resided, a popular saying among reactionaries was, “Leave it to God, and Mr. Campbell.’ In a series of cases in the early 1870s, he represented a group of New Orleans butchers who sought to overturn a law enacted by LA’s Reconstruction government requiring the city’s butchers to slaughter their meat in a centralized facility. Previously, local butchers carved up livestock anywhere they liked and dumped the entrails and waste from more than 300k animals slaughtered annually into the Mississippi, which was also the city’s main source of drinking water. The result was repeated epidemics of yellow fever and cholera. An outbreak in 1853 took the lives of 40k residents — 20x more than were lost in the 2005 Katrina devastation. The new law gave a monopoly to a single slaughterhouse downriver, on the outskirts of the town, and mandated that it provide equal access to all butchers at a reasonable rate. Given the public health hazards of the old slaughtering process, one might’ve expected the new law to win broad popular support among New Orleans residents. Instead, the law was seen through the filters of race and Reconstruction, and public opinion sided with the butchers.
Campbell challenged the LA law as an infringement of the butchers’ constitutional right under the 14th Amendment to the ‘unrestricted exercise of the business of butchering.’ Although the MA Bay Company’s charter included the right to fish, the right to be a butcher was nowhere mentioned in the 14th Amendment. Instead, Campbell relied on a provision of the amendment that required states to respect the ‘privileges or immunities’ of citizens. One of those privileges, Campbell claimed, was the right to ply one’s trade, free from undue government influence.
Campbell’s suits came before the Supreme Court in what were together called the Slaughter-House Cases of 1873. The court ruled against Campbell and the butchers in an opinion by Justice Samuel Miller.”
“Miller reminded Campbell that, when it came to economic matters, ‘private interests must be made subservient to the general interests of the community.’ The 14th Amendment was not intended to protect white butchers unhappy with economic regulation. It was designed to protect black Americans.
‘We doubt very much,’ Miller predicted with startling inaccuracy, ‘whether any action of a State not directed by way of discrimination against the negroes as a class, on account of their race, will ever be held to come within the purview of this provision.”
“If anyone could persuade Justice Miller and the other members of the court to read the 14th Amendment more broadly, it was Conkling. He spoke from his own experience about what was on the mind of the drafters — what was on his mind — when the amendment was written.
By the time San Mateo v. S. Pacific Railroad came before the justices in 1882, the law was changing in ways that would help Conkling’s argument for expansive corporate rights. Reconstruction had ended, and Congress’ decision to turn a blind eye to southern racial discrimination after the disputed 1876 election was matched by crimped readings of the 14th Amendment by the Supreme Court. Although Miller’s court wasn’t willing in the 1870s to broadly read the amendment to give rights to businessmen like the New Orleans butchers, it also refused to read it broadly to protect the rights of racial minorities in cases like 1876’s US v. Cruikshank and US v. Reese. The same year Conkling appeared before the justices, the court struck down the Civil Rights Act of 1875, which like the the Civil Rights Act of 1965 outlawed racial discrimination in theaters, restaurants, and other places of public accommodation. With race minimized in the jurisprudence of the 14th Amendment, the time was ripe for another effort to establish protections for economic rights.”
“Riding circuit in 1888, Field presided over a case involving Terry, who was then no longer a judge, and his new young wife, Sarah Althea Hill. The couple sought a share of the estate of a wealthy former senator to whom Hill claimed to have been secretly married. As proof, Hill produced a marriage contract purportedly signed by the deceased. Field’s court, however, deemed the contract to be a forgery, and Field from the bench questioned Hill’s virtue, the lack of which stood out even in as rough and ready a state as CA in the late 19th century. Soon after, Terry swore publicly that he’d enact revenge if Field dared to return to CA. The threats were sufficiently serious — Terry was reputed to have killed 2 other men — that the attorney general of the US ordered extra security for Field.
On the justice’s next trip to CA, Field and his bodyguard were having breakfast at a train stop in Lathrop, when Terry snuck up behind the justice and struck him. The bodyguard jumped up and shot Terry twice, one in the head and once in the heart, killing the former judge instantly. It was then discovered, however, that Terry was unarmed, and CA authorities arrested by both Field and his bodyguard for murder. To this day, Field remains the only justice ever arrested while serving on the Supreme Court, much less for a crime as serious as murder.
On account of his position, Field was quickly released, but CA prosecutors charged the hapless bodyguard with murder. Before trial, he sought relief from the federal courts and his writ went to the Supreme Court. Writing for the court, Justice Miller held that CA couldn’t hold a federal officer in custody for acts the officer was authorized to take under federal law.”
“The Home Insurance Building in Chicago, the nation’s first skyscraper, was completed in 1885, and at 10 stories it became the tallest man-made structure in the world. Homes were being outfitted with running water and cooled by electric fans, the first home appliance.”
“In fact, the justices never issued a final decision on the merits in San Mateo County v. S. Pacific Railroad. 2 years later, the court having yet to rule, the case was suddenly settled. The S. Pacific surprisingly agreed to pay the taxes owed to San Mateo County.
Why Stanford agreed to settle the San Mateo case remains something of a mystery, but it may have had something to do with Conkling’s deception. Test cases don’t typically settle. The lawsuit had been designed solely to spur a Supreme Court decision. Graham, the librarian who rebutted Conkling’s 14th Amendment conspiracy theory, speculated that the justices might’ve been troubled by certain factual discrepancies in the record and, with other test cases challenging the CA tax law wending their way up through the courts, Stanford cut his losses. Yet the supposed discrepancies were exceedingly minor, and hardly enough to prevent the justices from ruling on the case had they so desired. One is left to wonder whether the justices had, in fact, realized the larger discrepancy in Conkling’s account of the 14th Amendment drafting. Or perhaps the other lawyers on the S. Pacific’s legal team, who were all men of public repute, uncovered their colleague’s deception and made it known that the case should be dropped.”
The 20th Century
“Anyone who read the syllabus and headnotes without carefully reading the opinion itself would mistakenly conclude that the court in Santa Clara decided that corporations were people entitled to the protections of the 14th Amendment.”
“While Davis, who’d once served as president of the Newburgh and NY Railway Company, was prone to error, his inaccurate syllabus and headnote in Santa Clara County v. S. Pacific Railroad were not thoughtless mistakes. Before the decision was published, what he recalled to be the chief justice’s statement to the lawyers at the beginning of oral argument. Waite replied, ‘I leave it with you to determine whether anything need be said about it in the report inasmuch as we avoided the constitutional question in the decision.’ Davis, in other words, had been explicitly reminded by the chief justice that the Supreme Court in the S. Pacific’s case hadn’t decided the corporate rights question. Yet there it was in the official US Reports in Santa Clara County v. S. Pacific, the Supreme Court had ruled that corporations were entitled to the protections of the 14th Amendment.
Stephen Field quickly saw the opportunity presented by JC Bancroft Davis’ misleading syllabus and headnote. Even if they didn’t faithfully describe the Supreme Court’s decision, they could be used to advance the cause of corporate rights.”
“While Webster had argued in Dartmouth that the state couldn’t revise previously formed contractual agreements, Field’s ‘liberty of contract’ protected an individual’s right to practice the trade or profession of one’s choice without undue state interference. This is what Field had advocated for in his Slaughter-House Cases dissent. Beginning in 1897, the Supreme Court would embrace Field’s understanding of economic liberty and read this unenumerated principle of laissez-faire into the due process clause of the 14th Amendment. A 1905 decision striking down a NY law that prohibited bakery employees from working more than 60 hours a week, Lochner v. New York, would give the jurisprudential period its name. Although Field had retired from the Supreme Court by the time of the Lochner era, the justice would nonetheless be credited as the intellectual ‘pioneer and prophet’ of the court’s jurisprudence. His 30-year battle to expand economic rights had proven victorious, and the Supreme Court in the Lochner era became known for striking down dozens of laws regulating business activities.
In Field’s view, corporate rights were a necessary component of economic liberty — and by March 1888, the ranks of Fields’ opponents on the court were thinning. Justice Woods, who wrote the lower court opinion rejecting corporate rights in the Continental Insurance case, had passed away the year before. Fields’ nemesis, Chief Justice Waite, was on his deathbed from pneumonia. Field took advantage of the lack of oversight to insert into a Supreme Court majority opinion an affirmation that corporations had 14th Amendment rights.”
“To Field, Iowa’s law was a justifiable regulation. Although it imposed a burden on the railroad, it served the interests of another group of businessmen: ranchers, who raised pigs, cattle, and other livestock for market. And although the railroad in this case would be disappointed with the immediate results, Field embedded in his majority opinion language that would go far to serve the interests of railroads and other corporations for generations to come. ‘It’s contended by counsel as the basis of his argument, and we admit the soundness of his position, that corporations are persons within the meaning of the clause in question,’ Field wrote. Then the fearless justice stated, ‘It was so held in Santa Clara County v. S. Pacific Railroad.’
Of course, that statement was patently false — but it couldn’t have been inadvertent. Field, who 3 years earlier had written an opinion in the companion case to Santa Clara excoriating the other justices for failing to address the constitutional rights of corporations, surely hadn’t forgotten. Field, like Conkling, was willing to resort to deception when it came to the cause of corporate rights, and was able to get away with this sleight of hand in part because of the publication process of Supreme Court opinions back then. Today, all justices see drafts of the opinions before they’re released, but in the 1880s the justices typically didn’t. The justice authoring an opinion was given the latitude to write up the opinion as he felt best captured the justices’ decision, and the other justices often didn’t view the opinion until after it was published. Field was thus able to secure 14th Amendment protections for corporations, possibly without any of the other justices knowing about it beforehand.”
“A Supreme Court law librarian collected and analyzed every 14th Amendment case decided by the justices in the nearly half-century since the provision’s unorthodox ratification. The court, he found, had heard 604 14th Amendment cases between 1868 and 1912. A mere 28 of those cases (less than 5%) involved black Americans, the group whose plight motivated the adoption of the amendment, and in nearly all of those cases the racial minorities lost. More than half of all the Supreme Court 14th Amendment cases — 312 in total — involved corporations, which succeeded in striking down numerous laws regulating business, including minimum wage laws, zoning laws, and child labor laws.”
“These laws — named after ‘Jump Jim Crow,’ a popular song and dance routine performed by T.D. Rice, a white comedian in blackface — were upheld in nearly every case.”
“The Lochner court drew a new boundary on the scope of corporate rights, ruling that corporations were entitled to the rights of property but not rights of liberty.”
“During the Crusades, English knights would be abroad for years at a time fighting for Christendom. Men of property, knights needed someone to take care of their affairs during their long absences. Because their wives had an inferior legal status, knights couldn’t leave the decision-making to them. Instead, a knight would select a kinsman to manage his property and see to his family. Yet the rules were strict: the kinsman wasn’t allowed to use the knight’s money or assets for his own personal gain. He was obligated to manage the property in the interests of the absent knight. This medieval practice evolved into a legally authorized device, the trust, which today still allows one person to hold and manage property exclusively for the benefit of another.
Dodd realized that, like the knights of old, the major stockholders of the different oil companies could tender their property (i.e., their stock) to a modern group of ‘kinsmen’ (the trustees), who would manage the assets on the stockholders’ behalf. The stockholders became beneficiaries of the trust, entitled to a share of the trust’s income and the right to vote for trustees. And the trustees would control multiple companies. Because the trust wasn’t incorporated, it wasn’t technically a corporation — and, as a result, wouldn’t be governed by OH’s restrictive corporate law rules. Implementing Dodd’s plan, Rockefeller soon controlled 80% of the country’s oil refining and 90% of the nation’s oil pipelines. Standard Oil became the largest business enterprise in the world.”
“Beginning in 1888, NJ became the first state to allow 1 corporation to own stock in another, which was precisely what Rockefeller was looking to do. Over the course of the next decade, NJ would also allow corporations to freely form for any business purpose whatsoever and eliminate traditional limits on the size of firms. Corporations weren’t required to base their operations in J to take advantage of the new corporate laws, so long as they paid the state’s mandatory corporate fees. Other states soon followed, and the wave of reform was said to have ‘turned corporate law inside out’; after hundreds of years, no longer would the body of rules governing the formation and governance of corporations be used in any significant way to regulate corporations.”
“Decades later, long after the trusts had been defeated, some corporate law scholars would argue that NJ’s reforms were the beginning of a ‘race to the bottom.’ States seeking the revenue from incorporation fees continually made corporate law more permissive, which attracted corporate execs freed up by the new rules. Over time, the traditional corporate law doctrines limiting the power of corporate officers were rendered largely meaningless; corporate law became mainly a template that private parties could use to organize their affairs. After NJ’s windfall, DE was one of several states to follow suit. Although populists in NJ would eventually strengthen that state’s corporate code, DE continued to make its laws more permissive. Today, the tiny state named after one of America’s forgotten founders is home to less than 1% of the American population but more than 60% of Fortune 500 companies.”
“In the grand jury room, prosecutors have enormous, unchecked power. Mandated by the 5th Amendment, grand juries are the vehicle by which the federal government brings criminal charges against someone. Distinct from the more familiar trial jury, which presides over public trials to render final verdicts of guilt, the grand jury’s role is to determine if charges should be brought in the first place. The Framers saw the grand jury as a check on governmental power, yet given the prosecutor’s nearly complete authority over the proceedings, it hasn’t worked out that way. The grand jury meets in secret, hearing evidence and testimony brought to the jurors’ attention by the prosecutor alone. There’s no judge, and the normal rules of evidence that limit what jurors see in an ordinary trial don’t apply. According to an old courthouse saying, the grand jury would indict a ham sandwich if the prosecutor asked it to.”
“When DeLancey Nicoll brought MacAndrews & Forbes’ case to the Supreme Court in 1905, however, the jurisprudence of these 2 amendments was still in its infancy. Crime control was traditionally the province of the state governments, which under the original Constitution weren’t required to follow the 4th & 5th Amendments. Nor were they required to respect the freedom of speech, religious liberty, the right to keep and bear arms, or any other right listed in the Bill of Rights. For the first 100+ years of US history, the Supreme Court held that the Bill of Rights was only a limitation on the federal government, not on state and local governments. Over the course of the 20th century, the Supreme Court would reverse course and gradually extend most of the provisions of the Bill of Rights to the state and local governments.”
“Nicoll was forced to address the question the justices skirted in Boyd: whether business entities, as such, even had 4th & 5th Amendment rights at all. For Nicoll, the answer was straightforward — if corporations could face penalties similar to those faced by individuals, they should have similar protections: ‘For if corporations may suffer the judgment of death by dissolution, if they may be condemned to forfeit the corporate property, if they may be indicted, convicted and sentenced to pay a fine as individuals may, what excuse can be made for denying to them the beneficient protection of these amendments? Nicoll cited Santa Clara for support.
Corporations were once again on the cutting edge of constitutional law. The Bank of the US had been an early pioneer of the right to sue in federal court. Dartmouth’s case breathed life into the contract clause. The S. Pacific Railroad brought the lawsuits that transformed the 14th Amendment into a vibrant guarantee of equality and due process for business. Now it was businesses like the partnership in Boyd and the MacAndrews & Forbes corporation that fought the first cases in the Supreme Court to establish 4th & 5th Amendment rights. It was only subsequent to these cases involving businesses that individuals would obtain judicial protections for those rights. Rather than corporations building on the established rights of individuals, individuals would instead build on the rights established by corporations.”
“One of the last cases decided by the Supreme Court before the colorful Field was forced by senility to retire was E. Allgeyer & Company v. LA, in 1897, which is often thought to be the beginning of the Lochner era. E. Allgeyer & Co was a partnership, not a corporation, but like Daniel Webster and the Second Bank of the US in Bank of Augusta v. Earle, the company claimed to have a right to do business across state lines. The Taney court declined to extend that right to corporations, but as we’ve seen, businessmen persistently continued to bring new cases, raising essentially the same claim under any provision of the Constitution that might sound plausible: the comity clause, the commerce clause, and in Allgeyer, the 14th Amendment’s due process clause. The Lochner court ruled in favor of the partnership, holding that unduly protectionist state laws violated the ‘liberty of contract.’
The liberty of contract, as such, appears nowhere in the text of the due process clause — which is partly why Justice Peckham’s opinion in Allgeyer became one of the most important in Supreme Court history. Peckham’s opinion established a groundbreaking precedent for reading the promise of ‘liberty’ in the due process clause broadly to protect unwritten rights. For Peckham, a confidant of Gould, Vanderbilt, and Morgan, those rights were largely economic, including the right to form contracts and pursue any lawful calling free from undue government interference. Yet Allgeyer was such an important precedent because, long after the Lochner era had ended, the Supreme Court continued to read the due process clause to protect unwritten rights, including the right to privacy, the right to choose abortion, and the right to same-sex marriage. Not only did Allgeyer launch the Lochner era, the decision — another landmark case in constitutional history brought and argued by a business — fundamentally reshaped American constitutional law.”
“Those reforms, which heralded the birth of campaign finance law, were challenged in the first decades of the 20th century by corporations. Foreshadowing Citizens United by nearly 100 years, corporations argued that they enjoyed the same right as individuals to try to influence elections. Back then, however, the corporations lost.”
“The unprecedented corruption of the Grant administration of the 1870s, along with growing frustration with machine politics, helped spur a series of reforms to clean up elections and government bureaucracy. In 1883, Congres passed the landmark Pendleton Act, which curtailed patronage and reduced partisan appointments to federal office. Civil service reform at the federal level was coupled with ballot reform in the states. In the past, voters had brought to the polls their own ballots, often in bright colors so that partisan poll watchers could be sure they were voting correctly. In the 1880s, however, laws requiring an official, government-printed ballot that could be cast in secret, behind the curtains of the polling place, swept the nation. The result of these and other election reforms reduced the ability of political machines to control who won on Election Day. Increasingly, candidates needed to earn their support in the marketplace of public opinion, much like a business selling a product.”
“When one Wall Street firm sent in $10k along with suggestion of some service in return, Marcus Hanna promptly returned the check. He had a different and seemingly more benign vision: if businesses placed their money in McKinley’s campaign, they would profit from this wise economic policies.
Hanna’s fundraising efforts generated $7 million for McKinley, more than 10x the amount spent by Bryan and the most ever at the time for a presidential candidate. While election campaign costs tended to increase steadily every cycle, Hanna’s 1896 haul was so huge that no presidential campaign would equal it for nearly half a century. ‘Dollar Mark,’ as he came to be known, revolutionized political campaigns by adopting the methods of business and by relying for the first time on significant amounts of corporate money. When McKinley took the oath of office, the leaders of America’s richest corporations knew they had made his victory possible.
Most other Americans, however, didn’t know it. While many people today worry that gaps in campaign disclosure laws permit too much ‘dark money,’ or funds from unidentified donors, the 1896 election took place with no disclosure laws whatsoever. The first federal law requiring any campaigns to disclose their funders wasn’t enacted until 1910 — in part a reaction to Dollar Mark’s voracious fundraising. Before then, candidates raised and spent their money in secret.”
“Rumors of corporate money flowing into the Republican presidential campaigns continued to swirl around the 1900 and 1904 elections. During the 1904 campaign, Democratic nominee Alton Parker charged Roosevelt, the incumbent after McKinley’s 1901 assassination, with taking contributions from big business in exchange for promises of political favoritism. ‘Political contributions by corporations and trusts mean corruption,’ Parker said. ‘A corporation will subscribe to a political party only because the corporation expects that party…to do something for the benefit of the corporation or to refrain from doing something to its injury. No other motive can be imagined.’
Roosevelt bristled at the charges. Parker had impugned his integrity by suggesting he could be bought, and also threatened to undermine Roosevelt’s carefully constructed public image as a trustbuster. Although the McKinley administration was strongly pro-business, Roosevelt cast himself as a populist once he assumed the White House. From his first State of the Union, in which he promised to break up the large corporations that were crushing competition, to his unprecedented prosecutions of trusts like Standard Oil and American Tobacco under the Sherman Act, Roosevelt sought to harness the growing public sentiment for reform. Roosevelt’s transformation prompted steel magnate Henry Frick to complain, ‘We bought the son of a bitch and he didn’t stay bought.’
Roosevelt, however, cared more about what the public thought of him. More than any previous president, Roosevelt purposefully managed his public image. Back when he was NY’s governor, he had learned that meeting with reporters regularly helped to promote his agenda. As president, Roosevelt brought his press secretary into his cabinet and created the White House press corps, establishing the first formal press room in the West Wing and issuing credentials to reporters. Seeking to stem the PR damage from Parker’s accusations, Roosevelt issued a ‘direct and fierce’ denial.”
“More than 10 million people had life insurance policies and, if beneficiaries are factored in, about half the nation’s population of 76 million had a stake in the companies. In an era before pensions, life insurance was the preferred retirement plan of most Americans who could afford it. If the policymaker died, life insurance would provide for the policyholder’s family. If the policyholder survived to retire, the policy would provide cash value.”
“The turn of the century saw an unprecedented rise in stock ownership by the public. The aggregate value of stocks and bonds of corporations listed on the country’s major stock exchanges went from under $1 billion in 1898 to over $7 billion only 4 years later. The number of companies listed on the exchanges increased just as dramatically. Nearly everyone with money to invest wanted to share in the gains. Taking advantage of this growing demand for stock were 2 reporters, Charles Dow and Edward Jones, who in 1889 launched a daily newsletter of stock prices and info about public companies they called the Wall Street Journal.”
“Although the discovery of corporate campaign contributions to Teddy Roosevelt threatened to undermine the trustbuster’s legacy, the controversy is mentioned only passing, if at all, in many of his biographies. Roosevelt saved his image, in part by proposing groundbreaking legislation to ban corporate money in federal elections. His success in that effort was highlighted by the very fact that, despite his reelection campaign’s reliance on sizable corporate gifts, he’s still remembered today as a crusader against big business and the trusts.”
1st Amendment Rights
“Although Stone may have had racial minorities and socialist radicals in mind, corporations too would claim to be victims of political persecution. The most important early illustration of this came in the 1930s, and the corporations involved were political dissenters — newspaper companies that Huey Long, the infamous ‘Kingfish’ of Louisiana, tried to silence for opposing him. The newspapers challenged Long’s efforts by asserting a constitutional right to freedom of speech and of the press. Although this right had been held to be a ‘liberty’ right, the newspapers’ case arrived at the Supreme Court at an advantageous time. For the first time, the justices were reading the 1st Amendment vibrantly and calling into question laws designed to silence political radicals. The newspapers’ case became wrapped up in the court’s larger commitment to fighting government censorship, and the court abandoned the distinction made in the Lochner years between property and liberty rights. Nearly 75 years before Citizens United, the Supreme Court held that newspaper corporations had 1st Amendment rights.”
“In fact, the Supreme Court was only first breathing life into the Constitution’s guarantees of freedom of speech and freedom of the press in the 1930s. And corporations would play an influential role in the rise of judicial protection of these fundamental rights.
Although the 1st Amendment is central to America’s legal identity, the Supreme Court didn’t vibrantly protect the freedom of speech or of the press until the 20th century. While there had long been considerable debate about freedom of expression — including the brewing companies’ challenges to the Tillman Act and similar state bans on corporate campaign contributions — WWI was a turning point. In response to the silencing and persecution of political dissenters, the court began to invigorate the 1st Amendment. Among the dissidents who inspired the court were the LA newspaper corporations.
1 reason for the long delay between the adoption of the 1st Amendment in 1791 and the court’s embrace of the freedom of expression in the early 20th century was the text of the Constitution. It says, ‘Congress shall pass no law,’ suggesting that it applies only to federal laws, not to laws passed by the state or local governments. For much of American history, the federal government didn’t regulate speech very often, and when it did the courts usually refused to interfere. First in 1798 and then again during WWI, with the Espionage Act of 1917 and the Sedition Act of 1918, Congress did enact laws making ‘disloyal’ speech a crime.
President Wilson aggressively enforced the law, rounding up socialists, radicals, and pacifists, especially in immigrant communities. More than 1,500 people were prosecuted, including labor leader and 4-time presidential candidate Eugene Debs; he ran his 5th campaign from a prison cell after the Supreme Court upheld his 10-year sentence for making a speech against the draft. A movie producer was even sentenced to 10 years for a film abou the American Revolution because it portrayed Britain, now an ally, in a negative light. The federal prosecution of political dissenters also justified similar regression by state and local governments, by industry, and even by universities — as Harlan Stone discovered as dean of Columbia law school. Historians remember the WWI crackdown on dissent as ‘one of the greatest restrictions on civil liberties in American history.’”
“Another case involving political persecution led the Supreme Court to say, for the first time, that freedom of speech was a ‘liberty’ right under the 14th Amendment. The question arose not in the context of corporate rights but rather in the context of a doctrine with a similar name, ‘incorporation.’ That is the constitutional doctrine that determines which provisions of the Bill of Rights apply to the states. Although the Supreme Court traditionally read the Bill of Rights to apply only to the federal government, the court began to require states to adhere to those rights too around the turn of the 20th century. The court held that certain fundamental rights among the first 8 amendments were ‘incorporated’ through the due process clause of the 14th Amendment to apply to the states.”
“The named defendant in the lawsuit was Alice Grosjean, the supervisor of public accounts. From one perspective, Grosjean was something of a political pioneer. At the tender age of 24, she was appointed LA’s secretary of state, the only woman in the country of any age to hold such a high government post. Her rise to power, however, wasn’t due to education; the high-school dropout was Long’s mistress. The Kingfish was so smitten with her that he once moved her into the Governor’s Mansion over the predictably vociferous objections of his wife, who promptly moved out. Long relied on Grosjean for more than companionship, however. He appointed her, along with other allies, to important positions in state government to solidify his iron-fisted control.”
Corporate “Responsibility”
“If the transformation of the corporation from public to private began in 1819 with Dartmouth, it was completed exactly a century later with a case involving Henry Ford.
Ford, the visionary carmaker behind the Model T and the assembly line production process, was sued in 1916 by 2 business partners, James and Horace Dodge. The Dodge brothers, who built Ford’s engines and owned 10% of Ford stock, had been made immensely wealthy from their relationship with the company; their $10k investment netted them more than $32 million. Yet the brothers were unhappy that Ford refused to maximize profits even more, running the company in ways designed to benefit employees and the larger community instead of stockholders. In 1914, for example, Ford announced that he would begin paying workers $5/day, double their previous wages, even though job applicants were plentiful. Every year the company lowered the price of cars even as significant improvements were introduced and inventory sold out. Ford had decided the stockholders were earning enough, explaining that he did ‘not believe that we should make such an awful profit on our cars.’
In 1916, Ford announced that his company wouldn’t distribute a special dividend to stockholders despite having on hand an extraordinary surplus of $60 million. With Europe at war, Ford justified the decision as necessary to prevent the ‘discharge of a large number of employees in case there should be a sudden depression of business.’ Ford also detailed a plan to use some of the surplus to build the largest manufacturing plant in the world at River Rouge outside Detroit, which would allow him to lower prices for consumers even more.
The Dodge brothers, who would go on to build quite a successful car company of their own, condemned Ford for running his corporation ‘as a semi-eleemosynary institution and not as a business institution.’ Helping employees and the larger public were goals ‘worthy in themselves but not within the scope of an ordinary business corporation.’ Ford was obligated to run the company in the interests of stockholders, which meant distributing to them the cash surplus. The brothers’ lawsuit raised an important question: Can corporations be run in the interest of stakeholders like employees, customers, and the larger community — or must they be managed to maximize profits?
During the trial, the outspoken Ford insisted that his company had the right to make business decisions in the interests of the public even if the stockholders had to sacrifice. The Ford Motor Company was organized ‘to do as much good as we can, everywhere, for everybody concerned,’ Ford testified, and only ‘incidentally to make money.’ He could’ve claimed htat his corporation would benefit in the long run from these policies, as execs often do today when pressed to defend socially responsible policies, but Ford stubbornly refused on principle. ‘My ambition,’ Ford said, is ‘to spread the benefits of this industrial system to the greatest possible number, to help them build their lives and their homes.’”
“Citing Ford’s testimony, the MI Supreme Court ruled against him and his public-spirited view of the corporation. While corporations might lawfully make ‘an incidental humanitarian expenditure of corporate funds,’ the court held, they couldn’t commit to ‘a general purpose and plan to benefit mankind at the expense’ of stockholders. Although judges typically defer to corporate execs under the ‘business judgment rule,’ which says that courts won’t second-guess business decisions made in good faith, here Ford had offered no valid business reason to refuse to distribute a special dividend. Even if the company kept enough money to build the River Rogue plant — which was a legitimate business move — there would still be $30 million in cash reserves on hand and a steady flow of additional revenue from ever-increasing car sales. ‘A business corporation is organized and carried on primarily for the profit of the stockholders,’ the court explained. ‘The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and doesn’t extend to a change in the end itself.’
Dodge Brothers vs. Ford Motor Company has become ‘an iconic statement that corporations have no obligations beyond the bottom line,’ according to corporate law scholars. Economist Milton Friedman captured this view: ‘The Social Responsibility of Business is to Increase Its Profits.’ Of course corporations can take measures that also benefit other stakeholders, yet the majority view is that such activity must ultimately be in the long-term interests of the company and its stockholders. Genuine corporate social responsibility — done purely to serve employees, customers, or society, at the long-term expense of stockholders — would be a breach of management’s fiduciary duties.”
The Power of Consumers
“Nader became America’s most famous anticorporate crusader thanks to the bumbling way that General Motors, America’s biggest car company, tried to silence him. Nader had first written about auto safety in a Harvard Law student paper, which he expanded into a book after graduation. Published by a startup publisher in 1962, Unsafe at Any Speed was a wonky policy book filled with data about what Nader called the ‘designed-in dangers’ of American cars. The book was an exhaustive muckracking critique of one of the nation’s iconic commercial products. It showed that carmakers spent millions of dollars on comfort and styling but did little to improve car safety, despite nearly 40k fatalities and 1.5 million injuries per year. Most damning was Nader’s accusation that execs and engineers of the car companies knew of their cars’ design flaws and yet, driven by profit, failed to correct them.
One of Nader’s featured examples was the Corvair, a popular sports car manufactured in the 60s by Chevy. After Nader’s book was published, the carmaker hired a private detective agency headed by Vincent Gillen, a former FBI agent, to find dirt on Nader, who was preparing to testify before a Senate subcommittee on auto safety. In 1966, Gillen sent out agents to look into Nader’s personal life, to see if the crusader was into ‘women, boys, etc.’ and to determine if he liked ‘drinking, dope’ or anything else scandalous. When Morton Mints of the Washington Post reported that Nader was being tailed, Senator Abraham Ribicoff, the chair of the Senate subcommittee, was outraged at the apparent harassment of a congressional witness. He demanded GM president James Roche appear before the Senate, where the humiliated car exec was forced to apologize repeatedly.
The incident made Nader famous overnight. Sales of his book skyrocketed, and Congress soon after passed 2 major auto safety laws. The Washington Post called Nader the ‘one-man lobby for the public’ who had ‘prevailed over the nation’s most powerful industry.’ Nader, however, would soon have help: this being the apex of political activism in the 60s, young adults from around the world volunteered to work for him. Called ‘Nader’s Raiders,’ they were charged with exposing the harm and corruption of other industries as Nader had done for autos: collect reams of data, write detailed investigative reports, and advocate for reform. In the ensuing years, Nader’s acolytes published devastating indictments of the corporations that polluted the air, dirtied the water, and exposed people to deadly chemicals. Not surprisingly, then, Powell’s Memorandum identified Nader as ‘the single most effective antagonist of American business.’”
“A natural showman, Francis Chrestensen owned a decommissioned US Navy submarine that he would dock in ports along the Atlantic, charging visitors 25 cents a tour. When war broke out in Europe, he sought to capitalize on the news by docking his submarine, dubbed the Fighting Monster, at a city-owned pier in lower Manhattan within sight of the Statue of Liberty. The city refused to grant him permission to use its pier, forcing him to dock at an out-of-the-way spot. Without views of Lady Liberty, Chrestensen needed to stir up business, so he printed out handbills touting his Fighting Monster and offering visitors the chance to see ‘the only submarine used for exhibition purposes in the world.’ The handbills, however, were illegal. NY police informed Chrestensen that distributing commercial handbills was prohibited by the city’s antilitter laws.
Chrestensen wasn’t one to be easily deterred, as his ex-wife discovered a few years before the dispute with NY police. Along with a local constable in Montreal, she’d tried to serve Chrestensen with legal papers relating to their divorce, only to see the crafty captain retreat to his submarine, raise the Stars and Stripes, and warn the constable that any trespass would amount to a hostile invasion of American territory. As the fluttered constable tried to figure out what to do, Chrestensen set back out to sea on the Flying Monster, leaving his wife ashore to complain to reporters, ‘Never let your husband buy a submarine.’”
“At the top of Morrison’s agenda when he joined Public Citizen was to free up competition in the professions. Lawyers, doctors, opticians, accounts, and other professionals operated under long-standing rules that restricted their ability to advertise, limited how they could solicit clients, or required them to charge minimum fees. Although the rules were justified as measures to protect consumers, Morrison believed they did the opposite. Adopted by state licensing authorities and professional associations, such rules resulted in artificially high prices and made it harder for the poor to find adequate services. Instead of helping consumers, the rules, according to Morrison, served the interests of ‘lawyers who already had clients and who were probably the ones who wrote the rules.’
Lynn Jordan was one of the consumers hurt by the rules. A middle-class woman in suburban Virginia, she suffered long-term health problems that eventually resulted in a hysterectomy. Her diet of prescriptions was expensive, so she set out to find the best prices from the local pharmacies. The info was difficult to come by. Pharmacists in VA, like those of 33 other states, were prohibited from advertising the prices of prescription drugs. Many refused even to give customers prices over the phone for fear of having their licenses revoked for ‘unprofessional conduct.’ Jordan wasn’t deterred. It was the age of Nader and everywhere around her the law was bending toward the protection of consumers and away from corporate interests. Together with a group of like-minded amateur consumer activists, she organized a survey of prescription drug prices in N. Virginia and Richmond. They found that prices for the same dosage of medicine varied wildly. For 40 tetracycline tablets, a patient could pay $1 in one pharmacy and $9 in another — a difference of almost 650%. Without going from pharmacy to pharmacy, patietns would never know there was a cheaper alternative.”
“Commercial speech — the advertising of drug prices — was precisely what Alan Morrison wanted the court to protect. And even if the court back in 1942 hadn’t offered a thorough justification for excluding commercial speech from the 1st Amendment, Valentine remained good law and sound arguments could be made to support it. One of the traditional justifications for free speech, for example, was that it served democracy by enabling people to become informed citizens through the open discussion of ideas; advertising for commercial products, however, didn’t promote political self-governance in any obvious way. Another justification for free speech rested on self-realization, positing that individual expression helped people to develop their faculties and their identities. Most commercial speakers, however, were corporations or businesses for which advertising was simply about maximizing profit. Nevertheless, Nader had told Morrison ‘to test the outer limits of the law,’ so in July 1973 the Public Citizen Litigation Group filed suit in federal court against the VA Board of Pharmacy on behalf of Lynn Jordan and others.
There was one aspect of Morrison’s case that would prove especially fateful: his plaintiffs were pharmacy customers, not pharmacists. Public Citizen’s mission was to help consumers, not the businesses that sold to them. Yet this posted a dilemma for Morrison. Consumers like Jordan weren’t being denied the right to speak in any way. The law did nothing to stop Jordan from paying to take out an and in the newspaper listing the price of drugs. It was a professional regulation that applied only to licensed pharmacists, and none of Morrison’s plaintiffs were pharmacists.
Like the crafty Captain Chrestensen, Morrison came up with an innovative solution. He would frame the case around the rights of listeners. Instead of focusing on how censorship harmed the speaker who was silenced, he’d focus on the harm to the audience deprived of the info. The ad ban, he’d argue, restricted the right of the listeners to hear what pharmacist might say. The recipients of speech had their own, independent constitutional ‘right to know’ that was equally entitled to 1st Amendment protection, regardless of any rights of the pharmacists. The drug ban was a perfect vehicle for such an argument because the primary injury from VA’s law wasn’t felt by pharmacists, who wrote the law and benefited from it. The people hurt the most were consumers, the would-be recipients of the censored speech.”
“The second half of Redish’s article illustrated how this way of thinking about the 1st Amendment would apply to a number of current controversies, including the recently enacted federal law prohibiting tobacco advertising on TV. Redish admitted that, under his approach to the 1st Amendment, the question was close. While recognizing the public health justifications behind the law, Redish also argued that consumers had a right to hear any truthful info the tobacco companies had to share. If so, then perhaps that ban on tobacco ads was unconstitutional. Redish’s article provided an ominous sign of how the law might develop — and who exactly would benefit — if the Supreme Court accepted the listeners’ rights theory.”
“When the court issued its opinion in VA Pharmacy Board v. VA Citizens Consumer Council in May 1976, the vote was 7–1 in favor of Morrison.”
“Blackmun’s opinion in VA Pharmacy appeared, like Roe, to be a liberal decision, one that would help consumer rights activists like Nader. Blackmun heartily embraced Morrison’s novel listeners’ rights theory of the 1st Amendment. Even without a pharmacist whose own speech was restricted, the 1st Amendment ‘protection afforded is to the communication, to its source and to its recipients both.’ A consumer like Lynn Jordan had an ‘interest in the free flow of commercial info that ‘may be as keen, if not keener by far, than [her] interest in the day’s most urgent political debate.’ This was especially so for ‘the poor, the sick and particularly the aged,’ who spent a disproportionate amount of their income on prescriptions. The 1st Amendment’s guarantee of free speech is ‘enjoyed by the appellees as recipients of the info, and not solely, if at all, by the advertisers themselves.’ The court held that commercial advertising was constitutionally protected — and in doing so, insisted that the identity of the speaker was irrelevant.
Following Morrisons’ leader, Blackmun characterized the ruling as narrow. Although the court was overturning Valentine and adopting a potentially expansive new theory of the 1st Amendment, Blackmun took pains to point out that some ‘forms of commercial speech regulation are surely permissible.’ False and deceptive commercial speech could be limited.”
“‘The logical consequences of the court’s decision in this case are far-reaching indeed,’ warned Rehnquist. Not only would the court’s ruling inevitably ‘extend to lawyers, doctors, and all other professions,’ it would also lead to ‘active promotion of prescription drugs, liquor, cigarettes, and other products.’ In a prescient passage, Rehnquist predicted that pharmaceutical companies would soon be hawking their drugs directly to consumers. ‘Don’t spend another sleepless night,’ he predicted the ad might say. ‘Ask your doctor to prescribe Seconal without delay.’”
“Over the next 2 decades, the doctrine created by VA Pharmacy would rarely be used to help consumers like Lynn Jordan but would be invoked instead by tobacco companies challenging restrictions on tobacco advertising; gaming industries seeking to overturn restrictions on TV and radio ads for casinos; the liquor industry in an effort to invalidate laws limiting alcohol advertising; and dairy producers hoping to defeat requirements to disclose the use of synthetic growth hormones. And the decision was also used to justify the extension of political speech rights to corporations even before Citizens United. By 2011, the impact of Public Citizen’s drug advertising lawsuit was recognized to be so contrary to consumer interests that Robert Weisman, the president of Public Citizen, called for the entire line of commercial speech cases to be overturned. It was a poignant, 1st Amendment version of buyer’s remorse.”
Campaign Finance
“From his seat on the Supreme Court, Powell thought it would be inappropriate of him to promote the memorandum even as it gained fame and influence. Yet when people wrote to him asking for a copy, he unfailingly directed them to the Chamber. And although a Supreme Court justice couldn’t engage in the sort of advocacy proposed in the memorandum, Powell’s position gave him other unique opportunities to shape the law and to promote the memorandum’s goals. One case in particular, a dispute over the referendum policies in MA, enabled him to write his vision of politically active business corporations into the 1st Amendment. And Ralph Nader and Alan Morrison’s VA Pharmacy victory would help him do it.”
“The controversy over MA’s referendum process had begun years earlier, in 1962, when reformers sought a statewide vote on an amendment to the commonwealth’s constitution to allow for a progressive income tax. At the time, MA’s constitution required a flat income tax, but liberal reform groups argued that a graduated tax that imposed higher rates on those who earned the most was more equitable. Richard Hill, chair of the First National Bank of Boston and ‘New England’s most influential banker,’ was among the top earners in the region, and he was committed to stopping the graduated tax amendment.”
“Under MA law, corporations like First National Bank were prohibited from making political expenditures. In 1907, MA was one of the many states that, like Congress, barred corporate spending on campaigns in the wake of Charles Hughes’ discoveries in the Wall Street Scandal. Nonetheless, the MA law contained a loophole. It didn’t apply to companies that wished to spend on ballot measures ‘materially affecting any of the property, business, or asset of the corporation.’ Taking advantage of this exception, Hill and execs from several other MA corps, including Digital Equipment Corporation and Gillette, forged a successful campaign to defeat the graduated tax amendment. 6 years later, in 1968, the graduated tax proposal went before the voters a second time, only to lose once more in the face of significant corporate spending by Hill’s company and others.
In 1972, MA lawmakers decided to try a third time to pass the graduated tax amendment, even if it meant changing the rules of the political game. They revised the corporate political spending law to narrow the loophole Hill’s corp has used to defeat the earlier referendums. Under the new law, corps could still finance expenditures in ballot props that materially affected their businesses, with one exception: any measure ‘concerning the taxation of the income, property or transactions of individuals’ was to be deemed automatically immaterial to business interests. In legalese, taxes on individuals were ‘conclusively presumed’ to be irrelevant to any business.
At Hill’s direction, First National filed suit to protect its rights and MA’s highest court ruled in the bank’s favor. The court held that the graduated tax measure on the 1972 ballot would authorize lawmakers to impose graduated taxes on both individuals and corporations, and thus the measure wasn’t immaterial to First National. The court didn’t say that First National had a 1st Amendment right to participate in ballot measure elections. It only held that the law, as written, permitted political expenditures in these circumstances. With financing from First National, opponents of the graduated tax outspent supporters 6–1 and the proposal was defeated once again.
In 1975, MA lawmakers sought a 4th vote on a graduated tax and changed the rules again. Now corps were prohibited from spending on any measure related ‘solely’ to individual taxation — and, this time, the measure placed on the ballot was explicitly linked to individuals.
Hill remained undaunted. Like an increasing number of businesspeople in the years after the Powell Memorandum, he was convinced of the need to defend the interests of business, and his resolve had only been fortified by the stagnating economy of the mid-70s. Beginning in 1973, a deep 2-year recession brought on by the international oil crisis was eating into corporate profits. Many business execs, who were already questioning the dominant philosophy of active government intervention to manage the economy, blamed the recent wave of Nader-inspired regulation. Their companies faced billions of dollars in new compliance costs and ‘the government,’ a 1975 Fortune issue complained, ‘is now present in disturbing spirit at every major business meeting.’ The marketplace, in many businessmen’s view, needed an exorcism to get rid of burdensome regulation.
Certain that a progressive income tax on individuals would further inhibit economic growth and make it harder to recruit top-notch talent to MA, Hill and other businessmen had first lobbied to stop the legislature from putting the measure on the ballot. When that failed, they outspent opponents and defeated the measure on Election Day — several times. When lawmakers threw up new hurdles, the businessmen went to court to protect their interests. It was precisely the type of relentless, assertive mobilization of business envisioned by Powell. And the final word on whether MA could prohibit corps from spending money to influence ballot campaigns would rest with the court on which sat the memorandum’s author.”
“In the mid-70s, as the battle in MA between lawmakers and Richard Hill raged, the Supreme Court disregarded Frankfurter’s advice and issued some of the most important, controversial, and in the eyes of some, wrongheaded decisions in recent memory. One case stood out above the others, Buckley v. Valeo, decided in 1976. In Buckley, the court held that campaign finance laws could restrict the size of contributions to candidates but not the amount of spending by candidates and others. Buckley’s split-the-baby compromise, which had the unfortunate effect of forcing candidates to engage in an endless cycle of fundraising, has been roundly criticized by Democrats, Republicans, federal and state regulators, politicians, contributors, and political fundraisers — in short, nearly everyone involved in the financing of elections.
One reason Buckley was so problematic was the court’s rejection of equality as a guiding principle in campaign finance law. The court said that lawmakers could seek to prevent bribery or the appearance of corruption, but they couldn’t try to enhance the equality of voters in the political community. The court applied this principle to strike down limits on ‘independent expenditures’ — money spent to support candidates but without prior coordination with the campaigns. As a result, individuals could spend unlimited sums on ads promoting their favored candidates, so long as they did so ‘independently.’ Citizens United would extend to corporations the same right to make unlimited independent expenditures, and cite Buckley for support.”
“In the typical case, the justices meet, vote, and assign someone to write the majority opinion. Although the justices are permitted to change their minds until the day the final, written opinion is released to the public months after the private conference, the votes usually don’t change. One justice will write the opinion for the court and the justices who supported that position in the conference will sign on, perhaps making a few suggestions about wording or emphasis. Every once in a while, however, the tidy decision-making process turns tumultuous, and a case is completely transformed once the writing begins. That’s what happened in the First National case, making what would be a minor decision written by the court’s most liberal justice, William Brennan, into a groundbreaking one written by Lewis Powell.
Although the conference and the justices’ deliberations are all conducted in secret, the story of the First National case can be pieced together by examining the papers of the justices who’ve since retired or passed. Powell’s notes from the conference reveal initially that most of the justices, whether liberal or conservative, agreed that MA had gone too far. Brennan argued that the court didn’t need to rule broadly that corps had free speech rights. Instead, the court could rule narrowly, striking down only the ‘conclusive presumption’ that individual tax measures were immaterial to any corporation’s business. MA had already decided to allow corps to spend on ballot measures that were material to their businesses. There was no valid reason for denying them the opportunity to show that individual taxes were material too. The problem with MA’s law, in Brennan’s view, was not that it restricted corporate spending on politics but that it was a bald-faced effort to manipulate the outcome of a particular election.”
“The corporationalist Powell disagreed with Brennan; he thought the court should rule broadly that corporations had the same freedom of speech as individuals. The problem in Powell’s view wasn’t just the ‘conclusive presumption’ that individual taxes were immaterial to any business; MA had no authority to restrict corporate spending at all, whether the law was material to a company’s business or not. Like individuals, corps should be free to determine for themselves when to speak about politics. As he wrote on the margins of a document in his case file, the MA law had to be struck down ‘unless the court is willing to say that corporations have inferior 1st [Amendment] rights.’”
“None of the other justices, however, thought it necessary to make such a broad declaration of equal speech rights for corps. This case could be decided on the narrower grounds suggested by Brennan, and each side could claim a small victory. First National would be the nominal victor, and MA’s legal decree that individual tax measures were immaterial would be invalidated. Yet MA could still require the bank to prove in court that a graduated tax on individuals was material to its business. If First National failed to make such a showing, it could still be prohibited from making political expenditures to defeat the referendum.
The chief justice assigned the opinion to Brennan. It appeared as if Powell had lost the opportunity to issue an expansive ruling giving business the political speech rights he thought necessary to fight back against reformers. Yet the case was about to take an unexpected turn.”
“As Brennan began drafting the opinion, he found himself in a quandary. He’d originally proposed a narrow ruling, yet as he thought through the issue, he became increasingly convinced that such a limited ruling would be an abdication of the court’s duty to provide a clear and final resolution to the controversy. First National would win this case but still remain uncertain if it could spend money to defeat the graduated tax measure. The two sides would soon be right back in court arguing over whether the measure was, in fact, material to First National’s business. In all likelihood, the case was going to return to the Supreme Court, where the justices would eventually have to decide whether and how states could restrict corporate spending on ballot measures.
A few weeks after the conference, Brennan sent around a note to the other justices expressing his view that the ‘constitutionality of the general ban’ on corporate political expenditures ‘must also be decided.’ Powell had been right at the conference to suggest the court reach that broader question. Yet unlike Powell, Brennan said he would go along with Justice White and vote to uphold MA’s ban in its entirety.”
“As the justices in conference had agreed to decide the case on the narrower issue of the ‘conclusive presumption,’ Brennan suggested that he was no longer the best person to write the opinion.
Powell was incredulous, writing ‘Wow!’ in the margins of his copy of Brennan’s memo. Yet Brennan had also provided Powell with an opportunity. Several days later, Powell circulated a note of his own. He agreed with Brennan that the justices should address the larger question of corporate speech rights but argued again for striking down the entire law. Powell’s note set out his view of the merits in detail and served as a none-too-subtle invite to Chief Justice Burger to reassign the opinion to him.
Burger complied and offered Powell the chance to write the court’s opinion. Powell, however, faced immediate challenges. Now that they were focused on the broad question of the political speech rights of corporations, justices began to peel off and side with Brennan and White.”
“Powell allayed the chief justice’s fears about undermining the Tillman Act and similar laws by adding language to his draft opinion that distinguished ballot measures from candidate elections. In a candidate election, outside spending might be corrupting because the candidate who benefited might feel indebted to the spenders. A ballot measure campaign, Powell said, ‘presents no comparable problem’ because there’s no candidate involved. Although Powell’s distinction was questionable — ballot measure campaigns are often closely associated with particular candidates and elected officials — raising similar threats of indebtedness to funders — Burger was satisfied.”
“Powell found a way to secure Blackman’s vote by constitutional leveraging: he would exploit Blackman’s earlier opinion in VA Pharmacy to keep him in the majority. From the beginning, Powell had seen this case as one about whether corps had the same free speech rights as individuals. Yet it had become clear that such an argument wouldn’t likely command a majority. VA Pharmacy offered an alternative pathway to victory. Powell could make this case about the rights of listeners, not the rights of corporations. Just as VA’s drug price advertising ban interfered with the flow of commercial info to consumers, MA’s corporate spending ban interfered with the flow of political info to voters. Although corporations had long been limited in making political expenditures, under VA Pharmacy the identity of the speaker was irrelevant. Despite the fact that Powell had indicated in the VA Pharmacy deliberations that he didn’t believe that listeners had a ‘right to know,’ he could nonetheless use Alan Morrison and Ralph Nader’s theory, developed in the context of individuals, to keep Blackman’s vote and win broader rights for corporations.”
“Bregstein’s argument was grounded in VA Pharmacy: ignore the identity of the speaker and focus on the substance of the speech and its potential benefits to the people who hear it.
Powell wrote the court’s opinion in First National Bank of Boston v. Bellotti precisely along those lines. He left out any mention of corporations having the same free speech rights as individuals. In contrast to his personal notes, which identified the issue in the case as the ‘1st Amend rts of corps,’ his opinion said the opposite: ‘The proper question therefore is not whether corporations ‘have’ 1st Amendment rights and, if so, whether they’re coextensive with those of natural persons. Instead, the question must be whether [MA’s law] abridges expression that the 1st Amendment was meant to protect.’ Because the law restricted political speech valuable to the public at large, it was unconstitutional regardless of the identity of the speaker. ‘It’s the type of speech indispensable to decisionmaking in a democracy, and this is no less true because the speech comes from a corporation rather than an individual.’ The speech itself was protected: absent compelling reasons, the government couldn’t deprive ‘this proposed speech of what would be its clear entitlement to protection.’ Blackmun’s vote held — and Powell maintained his majority in the closely divided 5–4 opinion.
Powell’s opinion admitted that the right involved in the case, the freedom of speech, was a liberty right — exactly the sort of right the court in the Lochner era had said was inapplicable to corporations. Back then, the justices recognized corporations to have property but not liberty rights, and turned away the brewing companies who claimed they had a free speech right to spend their money to influence referendum elections. In the years since, however, corporations had won a growing share of liberty rights. Indeed, as Powell observed in his opinion, the justices had affirmatively rejected the idea that corporations were limited to property rights 40 years earlier when they extended free speech protections to the LA newspaper corporations in the Huey Long case.”
“J.W. Sullivan was a crusading late 19th-century journalist who introduced Americans to the initiative and referendum process. Sullivan, a populist, thought that having citizens vote directly on proposed laws would diminish the power of the ‘great trusts and railroad corporations’ that often dominated state legislatures. His 1892 book, Direct Legislation by the Citizenship, proposed ballot measures as the way ‘the American plutocracy might be destroyed,’ and captured the attention of progressive activists — especially after the 1896 election, when McKinley used corporate money raised by Mark Hanna to hand a crushing defeat to William Bryan and the reform movement. Animated by the same desire to shield democratic politics from the influence of corporations that inspired the wave of laws banning corporate contributions to candidates in the wake of Charles Hughes’ insurance investigation, direct democracy was adopted in 20 states before WWI. Ballot measures became popular as a way of skirting corrupted officials in order to further reforms like women’s suffrage, the 8-hour workday, and the breakup of monopolies.
In the years after Powell led the Supreme Court to rule that corporations had a 1st Amendment right to speak and spend freely on ballot measures, this type of lawmaking became even more popular, with an average of 40 referendums per year nationwide. Corporations, empowered with the same legal right to finance ads on ballot measure campaigns as individuals — yet benefiting from the special privileges that enabled them to raise unusually large amounts of capital — have become the loudest voices. In 2014, the top dozen contributors to ballot measure campaigns nationwide were corps and business trade groups. Outspending opponents by margins as high as 16–1, as Monsanto did to defeat at CO measure requiring labeling of products with genetically modified organisms, business won 96% of its campaigns that year. The device that J.W. Sullivan imagined as the cure for corporate political influence had been transformed by Powell and the Supreme Court into another arena for corporations to dominate.”
Citizens United
“Citizens United’s proposed lawsuit to challenge the federal law restricting corporate spending on election ads was a long shot. Since the early 20th century, when courts turned away the brewing companies that challenged the Tillman Act and similar state bans, courts had consistently ruled that corporations could be subject to special restrictions in funding campaigns to public office. Although Powell’s Bellotti decision had carved out an exception for ballot measure campaigns, the Supreme Court had subsequently affirmed the constitutionality of bans in campaigns for candidates — most recently in 2003, when the justices upheld the very same provisions Citizens United would ultimately challenge. Olson and the several other lawyers who turned Citizens United’s case down knew that the court rarely reconsidered its own decisions after only 4 short years.”
“In this age of hyper-partisanship, the DC-based advocacy group Citizens United thrived. Originally started in 1988 by the political consultant behind the notorious Willie Horton ad that derailed Michael Dukakis’ campaign, the org set out in 2007 to bring down another Democratic presidential candidate, Hillary Clinton.”
“Back in 2007, Bossie and his org decided to make a hard-hitting, feature-length documentary about Clinton, the presumptive ’08 front-runner. Bossie had first been inspired to turn his partisan attentions to filmmaking by Michael Moore and his successful ’04 documentary, Fahrenheit 9/11, a harshly critical expose of President Bush and his family ‘s connections to Saudi-funded terrorist networks. Moore’s film was a box-office success — and the ads for it served, in Bossie’s view, as effective campaign ads for John Kerry. Citizens United’s movie was unimaginatively titled Hillary: The Movie, and the substance was no more nuanced. it featured a litany of pundits deriding her as corrupt, deceitful, and driven by a desire for power.”
“It was perfectly lawful for Bossie to make his documentary, regardless of how one-sided it might’ve been. The problem was that Citizens United, which intended to broadcast the documentary on TV through video-on-demand, had used corporate money to finance the project. Under the terms of the Bipartisan Campaign Reform Act of 2002, corporate money couldn’t be used to finance what the law called ‘electioneering communications’ — basically, ads about candidates broadcast on TV or radio in the weeks prior to an election. The most significant regulation of money in politics since Watergate, the Bipartisan Campaign Reform Act effectively expanded the Roosevelt-era prohibition on corporate contributions to candidates to apply also to ads featuring candidates. While the law allowed corporations to finance ads through their PACs, which raised money from employees and shareholders through voluntary donations, companies were prohibited from using general treasury funds, their main pot of money.
Citizens United had accepted some contributions from businesses and used that money to finance a small portion of Hillary: The Movie. Because of that corporate financing, however, Citizens United was likely to run into trouble at the Federal Election Commission. The commissioners had previously indicated that a documentary about a candidate produced by a political advocacy group like Citizens United might well be deemed an ‘electioneering communication’ under the Bipartisan Campaign Reform Act. Michael Moore was able to air his film because it had been made by a reputable and experienced production company that was regularly in the business of making commercial films. An election-year biopic of one of the major candidates by an explicitly political group like Citizens United, by contrast, would be seen as motivated by partisanship, not profit. If so, then Bossie wouldn’t be able to air Hillary: The Movie or ads for it in the weeks just before the election — precisely when it might have the most impact. Rather than abandon his movie, Bossie decided to hire a lawyer and fight.”
“The lawsuit in Citizens United threatened to open up a loophole to allow corporate money in candidate elections much as Bellotti had allowed corporate money in ballot measure campaigns. Yet despite the long-standing prohibitions on corporate contributions passed in the wake of Charles Hughes’ investigation of life insurance company corruption, corps had already gained a toehold in candidate races — through PACs. Labor unions had invented the PAC as a way to skirt laws prohibiting unions from contributing to candidates. Corporations, however, were astute legal leveragers and once again were able to exploit progressive reforms to enhance the power of business.”
“In the 1940s, the CIO decided to experiment by setting up a committee distinct from the CIO itself to do political advocacy work. Even though the CIO funded and managed the Congress of Industrial Organizations PAC, the latter was technically a separate entity from the union. As a result of that separation, CIO-PAC wasn’t a labor union covered by the ban, even though the union exercised complete control over the PAC. Using the union’s funds, CIO-PAC paid for publicity, pamphlets, and radio ads to help elect pro-labor candidates. CIO-PAC also instituted a ‘dollar drive’ to raise funds from union members to contribute directly to candidates. Other unions soon followed suit and formed their own PACs.
Over the next 30 years, union PACs flourished, despite operating in a legal gray area. Nothing in the law explicitly allowed them, and the wink-and-a-nod separation between a union and its PAC led to accusations that unions were simply flouting the law. There were occasional prosecutions, a few of which made it to the Supreme Court. Although the justices danced around the legal questions surrounding PACs, without ever clarifying entirely their legal basis, a few guiding principles were established. One was the distinction between a union’s general treasury funds, which Congress was entitled to prohibit from being used for electioneering, and funds from members ‘fairly said to have been obtained on a voluntary basis.’ In 1972, for instance, the court in Pipefitters Local v. US held that the ban on union contributions didn’t apply to ‘political funds financed in some sense by…voluntary contributions.’ The ‘dominant concern’ behind the law, the court explained, was ‘to protect the dissenting shareholder or union member,’ which wasn’t implicated if the money was given willingly for political purposes.’ A union’s PAC was like the NAACP in NAACP v. Alabama: a voluntary membership org that people join specifically to exercise 1st Amendment rights.
Pipefitters included a curious phrasing of the dominant concern behind the ban: ‘to protect the dissenting shareholder or union member.’ There were, however, no shareholders or corporations involved in the case, which dealt with a labor union. Nevertheless, the court suggested that corporations could form PACs too. Even without any effort whatsoever, corporations had gained new legal rights to influence democratic elections.
Unlike unions, however, corporations showed little interest in forming PACs prior to the 1971 Powell Memorandum.”
“In 1972, execs at Goodyear, Phillips Petroleum, and a dozen other corporations weren’t as risk-averse as most of their peers and simply broke the law banning corporate contributions in order to help President Nixon’s reelection campaign. Revealed in Watergate, this illicit corporate giving was one of the inspirations for Congress to overhaul the campaign finance system in 1974 and 1976. The Federal Election Campaign Act amendments of those years imposed strict new limits on money in politics. At the heart of the reforms were limits on contributions to candidates and limits on expenditures by candidates. Although supporters expected the law to minimize the pressure to raise money, it was never very effective. Part of the blame can be ascribed to the Supreme Court, which in Buckley v. Valeo (1976) upheld the limits on contributions but struck down those on expenditures. The result, ironically, was that candidates had to spend even more time raising ever more money, as the contributions they could accept were capped but expenditures were unlimited. Labor unions also shared the blame for the law’s ultimate ineffectiveness in limiting money in politics. Due to a strong push by organized labor, Congress inserted into the amendments clear rules explicitly allowing PACs.
Unions wanted the PAC rules but corporations exploited the legal reforms with remarkable effectiveness. Once PACs were given the imprimatur of Congress and the clarity of federal legislation, the number of corporate PACs surged. By 2002, when Congress enacted the Bipartisan Campaign Reform Act and adopted new limits on corporate and union money in elections, there were over 1,670 PACs affiliated with corporations, compared to just over 325 affiliated with labor unions. The union effort to avoid the contribution ban served ultimately to legitimate, for the first time, corporate spending to influence the election of candidates.”
“Although the Bipartisan Campaign Reform Act allowed a corporation to fund election ads if the money were raised through a PAC, Hillary: the Movie had been partially financed with ordinary, general treasury funds from business.”
“In June 2007, as Citizens United was completing its Hillary documentary, Bopp represented an antiabortion group in FEC v. Wisconsin Right to Life. In that case, Bopp argued that, under the 1st Amendment, the FEC could only enforce the law against corporate-financed ads that unambiguously endorsed or opposed a candidate; merely mentioning a candidate by name wasn’t enough. The Supreme Court, in a 5–4 opinion, agreed. Without calling into question the constitutionality of the basic provisions of the Bipartisan Campaign Reform Act restricting corporate money, the justices nonetheless opened up a significant loophole in the law. Now corporations could finance ads that featured candidates if the ads could be plausibly said to be about issues. So long as the ad didn’t expressly advocate for or against particular candidates, it wouldn’t be deemed an ‘electioneering communication’ subject to the legal limits on corporate cash.”
“Alito witnessed firsthand how the tumult of the era took a heavy toll on the once prosperous Trenton. More than 200 businesses were ransacked during a week of riots in April 1968, touched off by MLK’s assassination. The department stores, furniture shops, and markets that had populated downtown never returned. Without those businesses, Trenton descended into poverty and blight. By 2016, the per capita income of residents was less than $18k, well below the national average.”
“After Olson sat down, Deputy Solicitor General Malcolm Stewart, a veteran lawyer, rose to defend the FEC’s determination that Hillary: The Movie was the equivalent of an election ad. Alito had a question: if Congress could prohibit an ad mentioning the name of a candidate because it was financed with corporate money, could Congress also prohibit the publication of a book mentioning a candidate if it were financed with corporate money?
Yes, Stewart replied. Restrictions on corporate spending, such as those in the Bipartisan Campaign Reform Act, ‘could have been applied to other media as well.’ There was an audible gasp in the courtroom. ‘That’s pretty incredible,’ replied Alito. ‘The government’s position is that the 1st Amendment allows the banning of a book if it’s published by a corporation?” Suffice it to say, it’s never the right answer in the Supreme Court to say the government can ban books.
Stewart realized he’d been caught in Alito’s trap and immediately tried to clarify that all he meant was that the government could regulate how campaign material was financed. ‘I’m not saying it could be banned. I’m saying that Congress could prohibit the use of corporate treasury funds and could require a corporate to publish it using’ PAC funds. That is, after all, what the Biapartisan Campaign Reform Act did. The law didn’t ban election ads by corporations so much as dictate such ads be financed through a PAC. And, Stewart noted, the act explicitly exempted book publishers and other media outlets, applying only to a narrow class of ‘electioneering communications’ broadcast over TV or radio in the weeks before an election. Alito’s hypothetical, no matter how dramatic, was far removed from the case at hand.
The damage, however, had been done. One justice after another pushed Stewart to explain how the 1st Amendment could allow the government to ban books simply because those books were published by a corporation.”
“Suddenly, Citizens United was no longer a case about the applicability of the Bipartisan Campaign Reform Act to Hillary: The Movie. Now the issue was whether the government could ban books. Olson had tried to narrow the issues as much as possible, willing to eke out a victory. Alito opened the case back up, making it instead about broad, foundational questions of free speech and censorship.”
“Kennedy, Alito, and others wanted to go broad and declare that the Bipartisan Campaign Reform Act’s corporate money provisions violated the 1st Amendment. The court, they believed, shouldn’t focus on the narrow question of whether the act applied to this one movie but on the bigger question of whether corporate political expenditures could be limited at all. They shared the libertarian theory of campaign finance and wanted Roberts to join them in overturning Austin and McConnell. Their draft opinion was a bold corporationalist statement on the expansive rights of corporations that blew well past anything Olson had requested. After some deliberation, Roberts, whose narrow opinion hadn’t built the type of consensus he might’ve hoped, decided to go along with his less compromising colleagues. He withdrew his narrow opinion and signed on to their precedent-shattering one, which promised to fundamentally revamp the laws regulating money in politics.”
“There were now 5 votes to overturn Austin and McConnell and invalidate the Bipartisan Campaign Reform Act’s restrictions on corporate funding of campaign ads. Justice Stevens would later write woefully, ‘Essentially, 5 justices were unhappy with the limited nature of the case before us, so they changed the case to give themselves an opportunity to change the law.’”
“The return of Citizens United was a sign of how much progress had been made by a lesser-known civil rights movement — the corporations. It was exactly 200 years after Horace Binney and the Bank of the US brought the first corporate rights case to the Supreme Court in 1809. In those years, corporations had gained the protections of nearly all the most significant individual rights provisions in the Constitution: rights of property, contract, and access to court; the right to be free from unreasonable searches and seizures; equal protection and due process; the right against double jeopardy and the right to counsel; the right to trial by jury; freedom of the press and freedom of association; commercial speech rights and even a limited right to speak on electoral politics under Bellotti and the union PAC cases. Although corporations hadn’t won the right to vote, with Citizens United they were on the precipice of winning the right to use their amassed resources to influence candidate elections.”
“Justice Kennedy began to summarize the court’s ruling. The breadth of Kennedy’s corporationalist decision quickly became clear. Corporations and unions, Kennedy explained, had a 1st Amendment right to make expenditures in elections for candidates of political office. The corporate spending restrictions of the Bipartisan Campaign Reform Act, by burdening this right, were unconstitutional in their entirety. Kennedy also revealed that the court had overturned Austin and McConnell, the 2 most important precedents for restricting political speech by corporations.”
“By treating corporations as associations, Citizens United echoed the two-centuries-old argument of Horace Binney, the young, creative lawyer who argued the earliest corporate rights case, Bank of the US v. Deveaux. Calling a corporation ‘a mere collection of men,’ Binney had persuaded the Supreme Court back then to look past the corporate entity, to pierce the corporate veil and focus on the rights of the corporation’s members. Rather than treating the corporation as a legal person with rights of its own, both Deveaux and Citizens United — and many cases decided in the interim — allowed corporations to assume the rights of other people, namely the corporations’ members.
Not only were corporations associations of citizens rather than independent legal persons, the Supreme Court in Citizens United suggested these associations were being persecuted. The court described corporations as ‘disfavored speakers’ and criticized the Bipartisan Campaign Reform Act for threatening to penalize ‘disfavored associations of citizens — those that have taken on the corporate form’ for making political expenditures. This portrayal of corporations as sort of a discrete and insular minority subjected to discriminatory and hostile legislation had its roots in the corporate rights cases of the mid-20th century. The Supreme Court had recognized the right of LA’s newspaper corporations to freedom of the press after the companies had been singled out for punitive, censorial taxes by Huey Long. The court subsequently responded to southern efforts to shut down the NAACP because of its ideology by recognizing the org’s right to freedom of association. Justice Kennedy’s opinion in Citizens United similarly imagined corporations, even big business, to be victims. Although corporations are usually thought to be among the most powerful and influential players in American politics, Citizens United’s view that corporations shouldn’t be subject to political persecution by a hostile government wasn’t entirely new.
Citizens United also reflected the listeners’ rights theory of free speech Justice Lewis Powell had used to justify extending political speech rights to corporations in Bellotti. As the Citizens United decision explained, ‘The 1st Amendment protects speech and speaker, and the ideas that flow from each.’ The Bipartisan Campaign Reform Act restricted political speech, the most valuable form of expression under the 1st Amendment, and thus was unconstitutional. ‘Political speech is indispensable to decision-making in a democracy and this is no less true because the speech comes from a corporation rather than an individual.’ Here the Supreme Court was following the listeners’ rights theory of the 1st Amendment first proposed by Ralph Nader’s Public Citizen Litigation Group in the VA Pharmacy case and then applied to corporate speech in ballot measure campaigns by Powell. If the speech was valuable, then it was protected regardless of the identity of the speaker. The Constitution, according to Citizens United, forbade the government from ‘distinguishing among different speakers, allowing speech by some but not others.’”
“It would be a mistake to view Citizens United as a novelty, as an ungrounded invention of the Roberts court with little basis in law or history. Citizens United was in fact the culmination of 200-year struggle for constitutional rights for corporations. The decision was built upon foundations first laid in the early 1800s. Ever since, corporations have fought to win a greater share of the individual rights guaranteed by the Constitution. First they won constitutional protection for the core rights of corporations identified by Blackstone in his Commentaries: the right of property, contract, and access to court. Then they won the rights of due process and equal protection under the 14th Amendment and the protections of the criminal procedure provisions of the Constitution. In the early 20th century, the court said that there were nonetheless limits to the constitutional rights of corporations: they had property but not liberty rights. Eventually, however, the court broke down that distinction and began to recognize corporations to have liberty rights such as freedom of the press and freedom of association.”
“The court had held that the corporate identity of the speaker wasn’t grounds for limiting political speech, even though that had been the justification for over a century of campaign finance limits on corporate money.
Obama predicted that the Citizens United decision would open the floodgates for America’s wealthiest interests to exert even more influence over elections, and spending in the next presidential cycle of 2012 rose dramatically. Corporations were now allowed to spend general treasury funds to finance independent expenditures in favor of, or against, candidates for office. They also gained the right to contribute to ‘Super PACs’ — a special type of PAC that, unlike ordinary ones, was able to accept unlimited contributions from corporations and individuals so long as their independent expenditures weren’t coordinated with any federal candidate. In 2012, businesses publicly gave over $70 million to Super PACs, led by Chevron, which contributed $2.5 million to House Speaker John Boehner’s Congressional Leadership Fund. Some analysts speculated that corporations would have given more if Super PAC contributions didn’t have to be disclosed. As one corporate lobbyist noted, given the possibility of political donations offending customers and clients with different views, ‘nondisclosure is always preferred.’
Corporations eager to assert themselves in politics but fearful of exposure directed their money instead to other types of political advocacy groups that weren’t required to disclose their contributors. Trade associations, nonprofit 501(c)s, and so-called ‘527 committees’ were responsible for most of the $300 million in ‘dark,’ or undisclosed, money flowing into the 2012 races.”
“Corporations haven’t been the only ones to increase their political spending in the wake of Citizens United; wealthy individuals and unions have also embraced the new ability to spend unlimited sums on independent ads. The Center for Public Integrity, a campaign finance watchdog, estimated that in 2012 there was nearly $1 billion in new political spending traceable to Citizens United. And that number only reflects spending on federal races, where there’s already an overwhelming amount of money. Although the data are hard to come by, there’s evidence of significant spending increases at the state and local level too. In races for judges, mayors, district attorneys, and county commissioners, campaign expenses are historically quite small. As a result, corporations and others can have a much greater impact on the outcome with far less money than would be possible in federal races.
Corporations gained new means of influencing American elections from Citizens United, despite the fact that the case wasn’t brought by a business like so many other of the most important corporate rights cases of the past. Citizens United was the handiwork of a small nonprofit group — and thus follows the handful of cases that involved corporations that were not themselves business firms, including Dartmouth v. Woodward and NAACP v. Alabama. The victories of these nonbusiness corps nonetheless often redounded to the benefit of business firms, which were able to leverage them in the pursuit of their own profit.
Citizens United also triggered a public backlash. Polls showed that 8 in 10 Americans were opposed to the Supreme Court’s decision. The opposition crossed party lines, with 85% of Democrats, 76% of Republicans, and 81% of independents saying Citizens United was wrongly decided. Even 5 years after the ruling, 78% of Americans polled said the decision should be overturned. Clinton and Sanders both said that overturning Citizens United would be a litmus test for their Supreme Court nominees — a level of opposition known to only a handful of notorious cases like Roe v. Wade.
Perhaps the most visible manifestation of the public reaction to Citizens United came in 2011 with Occupy Wall Street. The original Occupy protesters displayed signs testifying to the role they believed cases like Citizens United played in distorting democracy: ‘Corporations Are Not People,’ ‘Democracy Not Corporationalism,’ ‘Revoke Corporate Personhood.’”
“Support for a constitutional amendment to eliminate constitutional rights for corporations was widespread, and stretched across the usual partisan lines. One of the leading proposals in Congress was sponsored by Rep. Walter Jones Jr., a conservative Republican from NC. ‘The status quo is dominated by deep-pocketed special interests,’ he explained, ‘and that’s simply unacceptable to the American people.’ By 2016, 16 states, including MT & WV, and hundreds of municipalities had passed resolutions of support for a 28th Amendment to clarity that constitutional rights belong to human beings, not corporations.”
“Given the remote chances, a constitutional amendment to overturn Citizens United was exactly what a vigorous opponent of campaign finance law like Bopp wanted reformers to spend their time on. ‘I hope that is all they do for the next several centuries. Because it will be that long.’
Better to fight in court, where Bopp had discovered it was far easier to change how the Constitution was interpreted. That was, at least, the approach taken by corporations since the earliest days of the nation.”
“In a 2012 decision that surprised many, the court upheld the health insurance mandate in a narrow 5–4 decision in which Chief Justice Roberts sided with the court’s 4 liberal justices, only the second time he’d sided with them — and one possible explanation was Citizens United. As in that case, the 4 conservative justices argued for a broad ruling that went much further than necessary to resolve the dispute; they were prepared to strike down not only the individual mandate but the entire 2,700 page law, which included hundreds of provisions completely unrelated to the mandate. Perhaps Roberts wasn’t willing to go along again with such an aggressive approach in another highly politically charged case that threatened to undermine his stated desire for a legacy as a minimalist who kept the court out of politics.”
“In June 2014, the Surpeme Court, in another 5–4 ruling, sided with the company in Burwell v. Hobby Lobby. Justice Alito wrote the majority opinion, holding that Hobby Lobby and Conestoga Wood Specialties, even though they were for-profit companies, had religious liberty rights under RFRA and were entitled to an exemption from the birth control coverage requirement. The Supreme Court had held for the first time that business corporations had religious freedom.
The Hobby Lobby decision was a near perfect embodiment of the 200+ year history of corporate rights jurisprudence. Although the case was formally about a federal statute, not the Constitution, the decision hewed closely to the reasoning and logic of so many previous corporate rights cases. Like the late 19th-century rulings that extended due process and equal protection rights to corps, Hobby Lobby said that corporations were people. Under RFRA, the federal government was prohibited from substantially burdening ‘a person’s exercise of religion.’ The court held that business corps were included, largely because of the Dictionary Act, another federal law that officially defined the terms used in federal statutes. This act provided that ‘unless the context indicates otherwise,’ the word person should be ready to apply to ‘corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.’ As a result, the court expansively read the law to protect the rights of corporations, which deployed those rights to overturn a regulation of their business practices.”
