The derivative nature of corporate constitutional rights.

• Author: Blair, Margaret M.
• Position: III. The Supreme Court's Twentieth Century Corporate Rights Jurisprudence and Approach to the Rise of Modern Corporations through Conclusion, with footnotes, p. 1708-1743

3. THE SUPREME COURT'S TWENTIETH-CENTURY CORPORATE RIGHTS JURISPRUDENCE AND APPROACH TO THE RISE OF MODERN CORPORATIONS

   In this Part, we bring our examination of corporate history and the Supreme Court's corporate rights jurisprudence through the twentieth century and to recent cases. How did the rise of the modern business corporation undermine the idea that corporations were just associations of people? Did the Court address in its constitutional rights jurisprudence the transformation that occurred in the types of corporations in existence? Did the Court characterize or treat corporations in a way that reflects the role and function they have come to play in the contemporary era?

   1. Giant Corporations Emerge

      By 1910, the U.S. economy had come to be dominated by hundreds of very large corporations. The transition was extraordinary. As of 1898, historian David Bunting estimates, only about 300 business corporations in the United States had more than $1 million in capital. (169) By 1904, he estimates that some 3000 corporations could meet this size test. (170) Most of these corporations had been formed through the industry-by-industry combinations of dozens of smaller corporations during the great merger movement, so these corporations were not just large, they also had near monopoly control, or at least oligopoly control, over their industries. (171) The one hundred largest industrial corporations together accounted for about 30 percent of all industrial capital in the United States in the early twentieth century, according to Bunting's calculations. (172) These corporations included names we still recognize today: U.S. Steel, Standard Oil of New Jersey (now Exxon), National Biscuit Co. (Nabisco), E. I. DuPont de Nemours Powder (DuPont), and General Electric. (173) By 1901, "the nation's railroads had been combined into seven large rail systems." (174)

      The new giant corporations were not just larger than corporations had been in the nineteenth century, they were in many ways, qualitatively different. They were no longer likely to be controlled by the founder or family of the founder, but were likely to have hundreds, or even thousands of shareholders, who traded their shares in public securities markets, (175) and hundreds or thousands of employees. (176) They also increasingly had professional management. (177) The leaders of these modern corporations were consciously creating bureaucratic structures so that the management systems could operate more or less independently of who filled what roles in the system. (178) "Bureaucracies place emphasis on impersonal decisions made by a staff of experts filling positions which, theoretically at least, do not change when the personnel does," Galambos observed. (179) "Men fill these positions on the basis of explicit technical qualifications, and in a normal career they advance in regular steps within the organization." (180)

      The managers of these corporations were also working to establish branded identities that were deliberately separate from, and not tied to, any particular director, founder, manager, or other leader in the organization. These managers gave the corporations names that were less likely to be linked to individual founders, and more likely to suggest that they had a dominant position in their markets: American Can, Standard Oil, Continental Tobacco, General Chemical, and Atlantic and Pacific Tea Company. (181)

      The size and impersonal nature of modern corporations made them, to some extent, objects of fear and suspicion on the part of the consumers of their products, as well as by other business people. Thomas W. Lawson, a "broker, banker, and corporation man" by his own description, said in 1906:

      During the last twenty years there has grown up in this country a set of colossal corporations in which unmeasured success and continued immunity from punishment have bred an insolent disregard of law, of common morality, and of public and private right, together with a grim determination to hold on to, at all hazards, the great possessions they have gulped or captured. (182) Although modern corporations often had the ability to manipulate markets and prices, squeeze out competitors, cheat their investors, and oppress their workers, they also, as they do today, help bring the benefits of efficiencies in production and distribution to the masses. As a consequence, public attitudes toward corporations adapted and softened over the first few decades of the twentieth century. (183) Middle-class people became the managers and workers in these corporations, the consumers of their goods, and the investors in their shares. (184) Herman Thomas Warshow reported that the number of individuals who owned corporate stock rose from 4.4 million in 1900 to 14.4 million in 1922. (185) His analysis of income tax returns from 1916 through 1922 also showed that a growing share of individuals of relatively modest income reported income from dividends during this period. (186) "The largest and most significant increase in dividends received has taken place in the class of incomes below $5,000 per annum [equivalent to about $71,000 in 2014 dollars], in the group which includes the 'wage-earning class,'" Warshow reports. (187)

      These developments likely changed the image that most people had about what corporations were, and what they did. Galambos's extensive study of opinions about large corporations and their role in the economy among the middle classes shows a very complex evolution of public opinion, but concludes that by 1919:

      [M]iddle-class Americans found new ways to talk and think about corporate enterprise. Increasingly, they bought goods from companies, not octopuses; they worked for firms, not trusts. By 1919 they viewed these businesses in a relatively impersonal light. In the previous generation many citizens had been upset not just with big business but with Gould and Vanderbilt. After 1902, they focused on J. P. Morgan, Andrew Carnegie, and John D. Rockefeller, but they still felt that behind the office doors of the largest companies there were real, live men who were, for better or for worse, deciding what should be produced, where it should be manufactured, and how much it should be sold for. If Americans were upset with the trusts, they could locate their enemy and perhaps (via the Clayton Act) even punish him for his wrongdoing. During the First World War, however, public attention drifted away from the plutocrats and empire builders who had personalized the corporation.... From the First World War on, Americans increasingly looked upon the corporation as an impersonal bureaucracy beyond the control of any one man. (188) By the middle of the twentieth century, what had emerged to dominate the U.S. economy and imagination was, as Galambos tells us, "a new culture, a corporate culture, which included,... a new public image of the giant corporation." (189) Although people were generally concerned about the possibility of abuse of power, they also found that "the bureaucratized corporation shared many values with the middle-class reformers who led the progressive movement in state and national politics." (190)

      It is important to keep in mind, however, that discussions about the nature and function of corporations, and concerns about the impact of corporations on public policy, often treat "corporations" as synonymous with "big business." To be sure, the new entities that emerged at the end of the nineteenth century and shaped thinking about corporations through most of the twentieth century were indeed very big businesses, (191) as we have discussed. But in addition to big corporations, there have always been small, closely held business corporations, and numerous other types of organizations, such as nonprofits, cooperatives, and membership organizations, all organized using the corporate form. Our discussion is intended to underscore this diversity of uses of the corporate form, which increased with the rise of large, modern business corporations.

   2. Corporate Criminal Liability, Related Protections, and Other Early Twentieth-Century Legal Developments

      While the early twentieth century brought the emergence of large, widely held business corporations in many industries, in the legal world the early twentieth century ushered in Progressive Era regulation, (192) and a period in American legal history known as the Lochner Era. (193) During this period, the Court used the due process clauses of the Fifth and Fourteenth Amendments as the basis for protecting substantive economic liberty and struck down regulations that it viewed as interfering with this liberty. (194) Two notable developments arose in this time concerning the history of corporate rights: Congress enacted the first federal campaign finance law with the Tillman Act of 1907, and the Court recognized corporations as subject to corporate criminal liability and as holders of certain related protections.

      The Tillman Act, which banned corporations from spending money "in connection with" any federal election, came in response to a public call for reform. (195) Public concern arose in the 1890s when corporations began contributing significant amounts to political candidates and parties. (196) Momentum for reform gained steam when President Theodore Roosevelt was charged with accepting large corporate contributions in his 1904 presidential election, and shortly after, when newspaper headlines exposed life insurance company executives who had used corporate funds for self-serving political contributions. (197) Rhetoric concerning this scandal and the need for campaign finance regulation relied, in part, on an associational view of the corporation, seeing the harm as one not only to the public and democracy generally, (198) but also to shareholders of the corporation in particular. (199) In calling for the Tillman Act, President Theodore Roosevelt told Congress: "All contributions by corporations to...