Corporate Governance

Corporate Governance and Campaign Finance: Citizens United v. FEC (A Bit of History)

By J. Robert Brown

We are discussing Citizens United v. Federal Election Commission, No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance. 

It is a rare case that examines the corporate form with an exegesis that begins with the founding of the United States (or at least the adoption of the First Amendment).  Yet there is considerable history on this opinion, instigated by Justice Stevens and, to some degree, answered by Justice Scalia.  Whatever merits of the discussion for purposes of the case at hand, the discussion does show the significant evolution of corporations over the last 200 years.  

In those early days, corporations were not a creature of state statute but of state legislature.  As Justice Stevens noted: 

• Those few corporations that existed at the founding were authorized by grant of a special legislative charter. Corporate sponsors would petition the legislature, and the legislature, if amenable, would issue a charter that specified the corporation's powers and purposes and 'authoritatively fixed the scope and content of corporate organization,' including 'the internal structure of the Corporation in the Law of the United States 1780–1970,pp. 15–16 (1970) (reprint 2004). Corporations were created, supervised, and conceptualized as quasi-public entities, 'designed to serve a social function for the state.' Handlin & Handlin, Origin of the American BusinessCorporation, 5 J. Econ. Hist. 1, 22 (1945). It was 'assumed that [they] were legally privileged organizations that had to be closely scrutinized by the legislature because their purposes had to be made consistent with public welfare.'

Of course, reliance on charters passed by the legislature also left open the possibility that the decision (including the terms in the charter) were determined by political rather than economic considerations.

He likewise notes that corporations were viewed with some suspicion.  After all, they could have an indeterminate life.  Again as Justice Stevens describes:

• The individualized charter mode of incorporation reflected the 'cloud of disfavor under which corporations labored' in the early years of this Nation. 1 W. Fletcher, Cyclopedia of the Law of Corporations §2, p. 8 (rev. ed. 2006); see also Louis K. Liggett Co. v. Lee, 288 U. S. 517, 548–549 (1933) (Brandeis, J., dissenting) (discussing fears of the 'evils' of business corporations); L. Friedman, A History of American Law 194 (2d ed. 1985) ('The word ‘soulless' constantly recurs in debates over corporations. . . . Corporations, it was feared, could concentrate the worst urges of whole groups of men'). Thomas Jefferson famously fretted that corporations would subvert the Republic. General incorporation statutes, and widespread acceptance of business corporations as socially useful actors, did not emerge until the 1800's.

Justice Scalia doesn't agree ("Despite the corporation-hating quotations the dissent has dredged up, it is far from clear that by the end of the 18th century corporations were despised.").  He notes properly that early suspicion may have arisen through "resentment towards corporations was directed at the state-granted monopoly privileges that individually chartered corporations enjoyed."  Yet these were the types of businesses that sought and received the corporate form.  It is not so easy, therefore, to separate opposition to the corporate form from opposition to the type of business they conducted. 

Finally, he notes that the corporate form in those early days was rare.

• Scholars have found that only a handful of business corporations were issued charters during the colonial period, and only a few hundred during all of the 18th century. See E. Dodd, American Business Corporations Until 1860, p. 197 (1954); L. Friedman, A History of AmericanLaw 188–189 (2d ed. 1985); Baldwin, American Business Corporations Before 1789, 8 Am. Hist. Rev. 449, 450–459 (1903). . . .  More than half of the century's total business charters were issued between 1796 and 1800. Friedman, History of American Law, at 189. 

In short, the corporate form lacked anything close to widespread acceptance and dominant position held today.  Moreover, as discussion arises over increased legislative intervention into corporate affairs (mostly in the form of federal preemption of governance standards), it is important to remember that corporations began as creatures of the legislature.

Full post as published by The Race to the Bottom on February 08, 2010 (boomark / email).