(mis)conceptions of the Corporation

• Citation: Vol. 29 No. 3
• Publication year: 2013

(Mis)Conceptions of the Corporation

Reza Dibadj

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(MIS)CONCEPTIONS OF THE CORPORATION

Reza Dibadj^*

Abstract

Common conceptions of the corporation are wrong. Contrary to contemporary jurisprudence, a corporation—a piece of paper that is given legal legitimacy by a state—is not a person worthy of constitutional rights. A corporation, as a legislative creature, should only enjoy those rights bestowed upon it by its creator.

This Article is structured into three principal sections. Part I argues that the only appropriate theoretical construct with which to conceptualize a corporation is one that posits that the corporation is an artificial creation of the state. First, it outlines three competing theories—artificial, associational, and real entity—as well as the apparently increasingly popular notion that theory simply does not matter. It argues that as supreme Court precedent evolved, it became sadly muddled and that today the Court has essentially given up on theorizing the corporation. second, it argues for the artificial entity theory on the bases of common sense, constitutional history, and the continuing role of the state in chartering corporations.

Why has the artificial entity theory fallen deeply out of favor? Part II, which explores the political economy of corporate theory, argues that instrumental reasons explain the decline of artificial entity theory: anti-regulatory fervor and a desire to privilege a managerial class. Next, it addresses some concerns that might emerge to my conceptualization; notably, that not offering constitutional rights to corporations is too stark and reductionist an approach, as well as the notion that such a restrictive conception of corporate personhood might jeopardize attempts to find corporations liable under criminal or international law.

Finally, Part III discusses whether the law has been headed in precisely the wrong direction: rather than asking whether

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corporations deserve constitutional rights, should the real question be whether constitutional rights should be asserted against corporations?

table of contents

Introduction.................................................................................733

I. Toward a Theory of the Corporation...................................735

A. Competing Conceptions.......................................................735
B. Coherence Of Artificial Entity Theory.................................750

II. Political Economy of Corporate Theory............................758

A. Decline Of Artificial Entity Theory......................................759
B. Some Misplaced Concerns...................................................765

III. Reframing the Debate: Constitutional Rights Against Corporations?.......................................................................773

Conclusion....................................................................................780

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The emperor marched in the procession under the beautiful canopy, and all who saw him in the street and out of the windows exclaimed: "Indeed, the emperor's new suit is incomparable! What a long train he has! How well it fits him!" Nobody wished to let others know he saw nothing, for then he would have been unfit for his office or too stupid. Never emperor's clothes were more admired. "But he has nothing on at all," said a little child at last.¹

Introduction

Common conceptions of the corporation are wrong. Contrary to contemporary jurisprudence, a corporation—a piece of paper that is given legal legitimacy by a state—is not a person worthy of constitutional rights. On the one hand, this argument may appear so banal that it seems absurd to devote an entire law review article to it; on the other, no matter how simple and intuitive this point of view might be, I am fighting a discouraging uphill battle. The opposing point of view—namely, that corporations are worthy of constitutional protection—is so entrenched that all I can do is expose its fallacies and offer a small hope for future reform.

In an area of law that has become unnecessarily muddled, I argue for simplicity and intellectual consistency.² My thesis is simple: a corporation, as a legislative creature, should only enjoy those rights bestowed upon it by its creator.

The argument is structured into three principal sections. Part I argues that the only appropriate theoretical construct for conceptualizing a corporation is one that posits that the corporation is an artificial creation of the state.³ First, it outlines three competing theories—artificial, associational, and real entity—as well as the

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apparently increasingly popular notion that theory simply does not matter.⁴ It argues that as Supreme Court precedent evolved, it became sadly muddled and that today the Court has essentially given up on theorizing the corporation.⁵ Second, it argues for the artificial entity theory on the bases of common sense, constitutional history, and the continuing role of the state in chartering corporations.⁶

Part II delves into the political economy of corporate theory. If, as Part I argues, the artificial theory makes so much sense, then why has it fallen deeply out of favor? Part II argues that instrumental reasons explain the decline of artificial entity theory: anti-regulatory fervor and a desire to privilege a managerial class. Next, I address some concerns that might emerge from my conceptualization: notably, that not offering constitutional rights to corporations is too stark and reductionist an approach as well as the notion that such a restrictive conception of corporate personhood might jeopardize attempts to find corporations liable under criminal or international law.⁷ Finally, Part III addresses whether the law has been headed in precisely the wrong direction: rather than asking whether corporations deserve constitutional rights, should the real question be whether constitutional rights should be asserted against corporations?⁸

One point cannot be overemphasized before beginning: my argument is not that either corporations or corporate insiders are somehow inherently bad; it is merely that recent constitutional jurisprudence has given too much power to corporations and those who run them in a way that might be detrimental to the broader interests of society.⁹

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I. Toward a Theory of the Corporation

CORPORATE ENTITY
The Oklahoma Ligno and Lithograph Co
Of Maine doing business in Delaware Tennessee
Missouri Montana Ohio and Idaho
With a corporate existence distinct from that of the
Secretary Treasurer President Directors or
Majority stockholder being empowered to acquire
As principal agent trustee licensee licensor
Any or all in part or in parts or entire
Etchings impressions engravings engravures prints
Paintings oil-paintings canvases portraits vignettes
Tableaux ceramics relievos insculptures tints
Art-treasures or masterpieces complete or in sets
The Oklahoma Ligno and Lithograph Co
Weeps at a nude by Michael Angelo.
— Archibald MacLeish¹⁰

There are three competing conceptions of the corporation: the artificial entity theory, the associational theory, and the real entity theory. Additionally, there is the view that theory does not matter. First, I outline each of these four perspectives and highlight examples from Supreme Court jurisprudence. Next, I argue—contrary to current conventional wisdom—that the only coherent conceptualization of the corporation is the artificial entity theory.

A. Competing Conceptions

The original theory of the corporation was the artificial entity theory where the corporation is "regarded as an 'artificial being' created by the state with powers strictly limited by its charter of incorporation."¹¹ Most importantly for our purposes, "[u]nder this

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view, corporations cannot assert constitutional rights against the state, their creator."¹² Courts have occasionally used this theory¹³ in older cases, but it is currently out of vogue.¹⁴ For instance, in Bank of Augusta, the Supreme Court relied on the theory to deny corporations citizenship under the Article IV Privileges and Immunities Clause.¹⁵

The second theory sees the corporation as an aggregate or association of the shareholders comprising it.¹⁶ Through this metaphor, rights that individuals qua individuals might have are magically transferred to the corporation:¹⁷ to the extent the aggregate theory emphasizes shareholders and not the state it provides a conceptual framework with which to oppose governmental regulation.¹⁸

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Two interesting points are worth noting with regard to the aggregate theory. First, the corporate lawyers espousing this theory did so by claiming an analogy to partnership and contract.¹⁹ As Morton Horwitz notes, "[i]n reaction to the grant [artificial entity] theory, some legal writers during the 1880s began to put forth a polar opposite conception of the corporation as a creature of free contract among individual shareholders, no different, in effect, from a partnership."²⁰ While early theorists emphasized the partnership analogy, the more recent focus—as epitomized by modern contractualists—is to argue that corporations are merely "a set of contracts created through private ordering that should be protected from government interference."²¹ As leading contractual theorist Larry Rib stein puts it, "[t]he corporate contract theory . . . characterizes corporations like any other contracts. Under this theory, any government regulation that constrains the exercise of constitutional rights would have to be justified to the same extent as it would with respect to other types of contracts."²²

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Second, the original emphasis of the associational theory was on protecting the property rights of shareholders.²³ As Herbert Hovenkamp observes in his analysis of Santa Clara:

The constitutional doctrine of "personhood" was the Supreme Court's solution to two problems. The first problem was guaranteeing that the owners of property

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