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
SUMMARY

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... (see full summary)

 
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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 LOBBYS 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”).

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