Corporate Rights and Organizational Neutrality

• Author: Vincent S.J. Buccola
• Position: Assistant Professor, Legal Studies & Business Ethics Department, The Wharton School, University of Pennsylvania
• Pages: 499-541

499

Corporate Rights and Organizational

Neutrality

Vincent S.J. Buccola*

ABSTRACT: Public clamor over the Supreme Court’s recent decisions in

Citizens United and Hobby Lobby can be explained at least in part by the

absence of any consistent rationale in corporate-rights adjudication. As many

scholars have noted, the Court has never supplied a coherent explanation of

corporate rights—where they come from and how to discern their existence and

limits. Group rights derive from individual rights, we are told, but little other

guidance is forthcoming. As a consequence each new judgment is open to the

charge of unprincipled fiat.

This Article contends that, despite its opacity, the case law implies a deep and

tractable logic. In particular, the Article argues that the corporate-rights

jurisprudence reflects an unstated principle of “organizational neutrality.”

Constitutional rights are ascribed to corporations such that entrepreneurs are

neither rewarded nor punished for choosing the corporate form over other

modes of coordination (for example, contract, proprietorship, partnership, or

cooperative). That is, the Constitution is presumed neutral as between the

form of governance through which entrepreneurs organize productive activity.

The same neutrality principle explains the corporate-rights jurisprudence in

statutory cases, albeit as a presumption about Congress’s meaning rather

than a binding constraint on its authority.

Moreover, insights from transaction-cost economics supply a ready

justification of the neutrality principle. Entrepreneurs choose their governance

mechanisms—ranging from the more hierarchical to the more market

mediated—with an eye to minimizing the social costs of production. A group-

rights jurisprudence favoring one or another mode of organization would bias

this choice and encourage marginal enterprises to pick wasteful governance

structures. Critiques of the Court’s corporate-rights jurisprudence ought

* Assistant Professor, Legal Studies & Business Ethics Department, The Wharton School,

University of Pennsylvania. The author thanks Ilya Beylin, Anthony Casey, Nico Cornell, Gwen

Gordon, Todd Henderson, Sarah Light, Eric Orts, Elizabeth Pollman, Amy Sepinwall, Fred Tung,

David Zaring, and participants at the annual meeting of the Canadian Law & Economics

Association and the National Business Law Scholars Conference for their conversation and their

criticism of previous drafts. © 2015 [Vincent S.J. Buccola].

500 IOWA LAW REVIEW [Vol. 101:499

therefore to explain why a non-neutral rule is, in a particular context, worth

the measure of inefficiency it is apt to introduce.

I. INTRODUCTION ............................................................................. 501

II. THE APPARENT INDETERMINACY OF CORPORATE-RIGHTS

JURISPRUDENCE ............................................................................. 506

III. A THEORY OF ORGANIZATIONAL NEUTRALITY .............................. 511

A. AN EFFICIENCY JUSTIFICATION .................................................. 511

B. ORGANIZATION-NEUTRAL ATTRIBUTIONS OF CORPORATE

RIGHTS ................................................................................... 516

1. Rights Against Expropriation ....................................... 516

2. Civil Procedural Rights ................................................. 517

3. Criminal Process Rights ................................................ 518

4. Speech Rights ................................................................ 520

5. Rights Against Racial Discrimination........................... 522

C. ORGANIZATION-NEUTRAL NON-ATTRIBUTIONS OF CORPORATE

RIGHTS ................................................................................... 523

1. Franchise Rights ............................................................ 523

2. Criminal Process Rights ................................................ 524

3. Privacy Rights ................................................................. 525

4. A Note on “Liberty” Rights ........................................... 526

D. “BUT SEE”: POLITICAL SPEECH, PRIVILEGES, AND IMMUNITIES .. 527

1. Political Speech Rights.................................................. 528

2. Privileges and Immunities ............................................ 528

IV. IN DEFENSE OF HOBBY LOBBY’S CORPORATE LAW ......................... 532

A. THE DECISION ......................................................................... 532

B. A SHAREHOLDER-PRIMACY READING ........................................ 534

C. AN ORGANIZATION-NEUTRAL READING .................................... 536

V. ENDURING PUZZLES: RELIGION AND OTHER IMMUTABLE

CHARACTERISTICS ......................................................................... 539

VI. CONCLUSION ................................................................................ 541

2016] CORPORATE RIGHTS & ORGANIZATIONAL NEUTRALITY 501

I. INTRODUCTION

Corporate ontology is back in vogue. The Supreme Court’s recent

decisions in Citizens United v. Federal Elections Commission (“FEC”)1 and Burwell

v. Hobby Lobby Stores, Inc.,2 have reinvigorated a century-old academic debate

about the nature of the firm.3 At the same time, public reaction to the cases

has underscored the practical importance of perennial questions about the

attribution of rights to corporations, including the source as well as the

content and limits of such rights.4

The Court’s pronouncements have done little to resolve doubts about

the extent of the corporation’s legal entitlements, much less its enduring

essence. Over the course of 200 years, the Court has articulated inconsistent

theories of the corporation—theories which seem to yield predictably

unpredictable judgments about the existence of a corporate right.5 When the

Justices conclude that a regulation burdening incorporated firms is valid, they

tend to emphasize the “artificial” nature of corporations. Because

corporations come into being only by virtue of the State’s affirmative charter,

the State may regulate them in a way it could not regulate natural persons.

The power to create implies the power to regulate. When, on the other hand,

the Justices conclude that a corporation is entitled to object to government

1. Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010).

2. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014).

3. Speculation about the nature of the corporation, as well as its implications for the potency

of reformist regulatory efforts, was at the center of much academic scholarship early in the 20th

century. For a history of this literature, see ERIC W. ORTS, BUSINESS PERSONS: A LEGAL THEORY OF

THE FIRM 21–51 (2013); William W. Bratton, Jr., The New Economic Theory of the Firm: Critical

Perspectives from History, 41 STAN. L. REV. 1471, 1517–27 (1989); Morton J. Horwitz, Santa Clara

Revisited: The Development of Corporate Theory, 88 W. VA. L. REV. 173, 179–83, 203–07, 216–22 (1985);

and Gregory A. Mark, Comment, The Personification of the Business Corporation in American Law, 54 U.

CHI. L. REV. 1441, 1467–78 (1987). See generally John Dewey, The Historic Background of Corpora te Legal

Personality, 35 YALE L.J. 655, 667–69 (1926) (describing the debate and arguing its fruitlessness).

4. By “right” I mean a power to object to government regulation, including indirect

regulation through the creation of private rights of action, on constitutional or statutory grounds.

For reasons of economy, this Article sets aside correlative questions of corporate obligation,

except in passing. As the reader might anticipate, the analysis here suggests a symmetric approach

there, but one which this Article will not seek to demonstrate.

5. See, e.g., Brandon L. Garrett, The Constitutional Standing of Corporations, 163 U. PA. L. REV.

95, 98 (2014) (“What theory explains why corporations have some constitutional rights and not

others? The Supreme Court has not offered a general theory.”); Elizabeth Pollman, A Corporate

Right to Privacy, 99 MINN. L. REV. 27, 32 (2014) (arguing that “the Court has not developed a

coherent method or test for” determining which rights corporations hold); see also Margaret M.

Blair & Elizabeth Pollman, The Derivative Nature of Corporate Constitutional Rig hts, 56 WM. & MARY

L. REV. 1673, 1679 (2015) (“[T]he Court has not carefully analyzed its legal theory of corporate

rights, nor has it expressly articulated a framework for thinking about corporations that could

guide its decision making in a consistent way.”); Bratton, supra note 3, at 1503 (describing the

Court’s approach to recognizing corporate constitutional rights as a “situational practice”);

Darrell A.H. Miller, Guns, Inc.: Citizens United, McDonald, and the Future of Corporate Constitutional

Rights, 86 N.Y.U. L. REV. 887, 908 (2011) (describing the Court’s corporate-rights jurisprudence

as “incoherent”).