If Corporations are Persons...
David Brin
2010-07-14 00:00:00
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This legal contruct was established for basic, pragmatic reasons, in order to allow the limited liability corporation to attract investors whose potential losses would amount only to what they invested. That was the original purpose, and any expansion upon that purpose, creeping decade-by-decade toward investing corporations with the full rights of corporeal citizens, would be carefully considered.

Now the invention of the corporation should not be under-rated. This was a major innovation at the time, as many earlier forms of co-ownership exposed the partners and shareholders to liability for all company losses and debts, even at risk to their own homes. (Notably, the big insurance firm, Lloyds of London, follows the older format of deep-pocket shared risk - in good years there is big profit, but in some hard times, creditors have been known to swoop in and seize the shareholders’ cars.)

The limited liability corporation offered a “floor” for any investor losses; you risked only as much as the stock purchase price. Hence, more people especially small and middle class citizens, became willing to venture -- or gamble -- in stocks. And this involvement of the masses has been generally a good thing. Capital flowed into small and large collaborative enterprises. This allowed capital to flow into a myriad endeavors, like computers, TV stations, book publication and moonshots... but it also started us down a road toward some pretty bizarre procedural, legal and ethical quirks.

Like the fact that -- in a throwback to feudalism -- governance of a corporation is based solely on numbers of shares owned. Or that some kinds of “owners” get voting shares while others get preferred access to profits but no voice in company operations. By allowing companies to own shares in other companies, we get weird schizo-like motivations, conflict of interest, interlocking directorates, and the weirdest phenomenon of all...

...that a quasi-”living” entity that is potentially immortal can all-too often have the shortest of short-term planning horizons, less caring of long term health than a drug-hopped teenager.

Which brings us to the recent Supreme Court decisions that have taken this trend all the way to crazy town. By ruling that corporations have almost the same civil rights as organic citizens, the Court opens up many wonderful options of a science fiction author to explore...

... and also for delicious satire. For example, consider how a new corporation might be set up in order to run for political office. Why not? It’s implicit in the court’s ruling. Hey, and let’s incorporate new voters! In theory, you could inexpensively set up enough Delaware corporated “citizens” to swamp the number of living people in that Inc-friendly state. Get a couple of senators for Wall Street. Or, would two be enough? Heck, go for all of it. http://www.washingtonpost.com/wp dyn/content/article/2010/03/12/AR2010031204127.html?wpisrc=nl_headline

Some more bizarre aspects the Court ignored? I’ve already mentioned that, unlike living citizens, corporations are potentially immortal and hence are inherently able to accumulate without the routine recycling system of death and inheritance. on the other hand, they can be “executed” - their life extinguished and assets dispersed - by the vote of a few company directors, or the ruling of a bankruptcy judge, or the whim of a civil trial jury.

One outgrowth is more disturbing than any other, when it comes to the current status of corporate “persons.” The decisions made by the CEO and directors of Big Megacorp can be controlled by hidden entities and shell holding companies, held by other shell companies, culminating at a single individual, somewhere hidden from view, whose actual ownership share of BM may be minuscule, but whose clever set of shells and puppet strings allows him to control vast enterprises, against the interests of much larger numbers of actual, living shareholders, or the public good.

Moreover, that hidden ownership may be foreign, even hostile to the nation where most of the corporation’s employees, stockholders, creditors and customers live, while ordering the corporation to “speak” or behave in ways inimical to the republic. If there were any reform that merits topmost attention, it is this utter failure of transparency about ownership and control... a failure that has no justification, even in conservative or libertarian terms.

Nothing illustrates this point more forcefully than the way ships and drilling rigs are now “registered” with “flags of convenience” such as Liberia or the Maldives, allowing their real owners to conceal their responsibility for the vessels and evade regulation. Some years ago, when an oil tanker befouled the coast of Brittany, all efforts to discover the secret owners of the ship failed. This sort of thing has simply got to stop...

...or else the awakening world citizenship may start demanding far more fierce reforms, perhaps even of the “helvetian” variety that I describe in my novel, EARTH.

Getting even more philosophical, one of my interlocutors recently added this:

“Slavery involves one natural person being owned by another. It is never mentioned explicitly in the Constitution, but was tolerated for >70 years. The weird thing is that the evermore successful tendency to regard corporations (or "juridical persons") as having the rights of natural persons seems to have ignored something important: juridical persons can (and must) be owned by other persons, either natural or juridical. The main purpose of corporate law theory as I understand it is to allow limiting the liability of the natural person owners to the current value of their investment in that juridical person.

But allowing one juridical person to be owned by another doesn't seem necessary--and may be the source of most of the mischief involved resulting from corporate law, by allowing sophisticated shell games. Somewhere you have to draw a line between the rights of natural and juridical persons, if you want juridical persons to be ownable. To date, that line has been drawn by allowing/requiring ownership of juridical persons, and precluding it for natural persons. But what happens if the line is drawn by saying that natural persons can own juridical persons, but juridical persons can't own other juridical persons, just as natural persons can't own other natural persons? I'm not sure it's a good idea, but it would obviously have lots of serious implications, many of which would be quite unexpected.”


This seems a radical shakeup. But it would certainly have prevented Goldman-Sachs from erecting a wholly-owned dummy company to “sell” derivatives to!

A simpler and less radical reform to push for, right now, is this. Those corporations who want to exercise unbridled “free speech” must open their ownership files and require full disclosure of all real persons who own them.

If they wish to “speak” as fully corporate citizens, they must exchange the voting stock of either foreign or hidden real owners into non-voting shares. Or else... they can choose to continue to stay out of politics.


Oh... and I would extend this to politically active organizations on the left, as well. The teachers’ unions are gonna have to budge.