Cross-posted from Columbia Law School's Blue Sky Blog.

The Supreme Court's protection of corporate political expenditures in Citizens United v. FEC and corporate religious exercise in Burwell v. Hobby Lobby has rekindled perennial fears about the influence of corporations in U.S. politics and policy. One popular response has been to argue for stripping corporations of constitutional rights. For example, the proposed "People's Rights Amendment" would exclude corporations from the categories of "people, person, or citizen as used in this Constitution,"[1] thus denying corporations the constitutional rights of human individuals.

Unfortunately, denying corporate constitutional rights is unlikely to have much effect. Insofar as the Supreme Court has protected corporations under the Constitution, that protection does not expressly rely on the notion that a corporation per se has constitutional rights. To the contrary, a central strategy of the Court's corporate constitutional jurisprudence has been to avoid deciding whether corporations are the holders of constitutional rights. Constitutional decisions protecting corporations have not been based on the rights of corporate "persons," but on the less controversial rights of human persons. That is, "corporate" constitutional rights are actually based on the rights of others.

The Court does this in two ways. First, it sometimes treats a corporation as no more, and no less, than an "aggregation" of human individuals whose rights are the real rights implicated in corporate constitutional questions. Hobby Lobby expressly states the Court's reasoning: the corporate "person" is merely "a familiar legal fiction" created to protect the rights of "the people (including shareholders, officers, and employees) who are associated with the corporation." Thus the Fourth Amendment prohibits unreasonable search and seizure of corporate papers because such papers implicate the property and privacy rights of individuals. By contrast, a corporate entity cannot invoke the Fifth Amendment's protection against self-incrimination, because no individual's rights are compromised when a corporation (in contrast to, say, a CEO) is compelled to incriminate itself.

In the First Amendment free speech context, the Court bases corporate protection on individuals' rights in a second, very different way. The so-called "listeners' rights" theory of the First Amendment protects the public's right to hear messages, and thus requires neither a corporate nor an individual "right" to speak. Thus in Citizens United (and earlier, in First National Bank v. Bellotti (1978)) the Court held that corporate political spending must be protected in order to protect voters' First Amendment rights to receive diverse sources of political information.

The Court, then, has avoided the mistake of equating corporations with human individuals for constitutional purposes. However, its "rights of others" approach suffers from a different error: a fundamental misunderstanding of the corporate decisionmaking process. In the "aggregation" cases, the Court purports to protect the individuals associated with the corporation, but this erroneously assumes that the corporation's acts are in effect the acts of those individuals. The Court makes a similar error with respect to corporate political spending. Even if listeners have an interest in hearing corporate messages, that may conflict with the rights of the corporation's constituent individuals if they disagree with those messages. Citizens United dismissed this concern on the ground that shareholders control a corporation's messages through "corporate democracy."

Small, family-run corporations, such as that involved in Hobby Lobby, may accurately represent the wishes of their constituents.  The same is not true of larger corporations, however.  Corporate law does not, and is not intended to, run corporations in a "democratic" way. Rather, in the interests of money-making efficiency, the law concentrates power in professional managers. They enjoy nearly unreviewable discretion to control the resources of the corporation with negligible input from shareholders.

As intended, this arrangement is likely to benefit shareholders financially. But it does not protect them from corporate political spending or other speech acts they disagree with. Shareholders can sue management only for deliberate malfeasance, and political spending has been treated as a proper matter for management discretion. Furthermore, the Court itself has stated that corporate rights are meant to protect not only shareholders, but also other corporate constituents, such as employees. Those individuals, however, have even less power than shareholders with respect to corporate decisionmaking. Employees cannot vote in corporate elections and can be fired for disagreeing with management.

The protection of corporate constituents may present a compelling state interest justifying the regulation of corporate speech. Corporate political spending in particular could compromise the speech and property interests of corporate constituents who may disagree with the political message. This argument questions the reasoning of Citizens United, and is consistent with the proposed "Democracy for All Amendment," which would expressly permit campaign finance law to regulate corporations and natural persons differently.[2]

ENDNOTES

^[1] See S.J. Res. 18 & H.J. Res. 21, 113th Cong. (1st Sess. 2013). I should disclose that I am a member of the Legal Advisory Committee of Free Speech for People, an advocacy group that supports this amendment, as well as the "Democracy for All Amendment," discussed below. See Free Speech for People, www.freespeechforpeople.org.

^[2] See S.J. Res. 19 & H.J. Res. 119, 113th Cong. (2nd Sess. 2014).

The post is adapted from the recent article, Corporations and the Rights of Others, 30 Const. Comment. 335 (2015), which is available here.

(cross-post from TheConglomerate forum: Legislative Agenda for the 112th Congress)

Next Monday, the Supreme Court hears oral arguments in U.S. v. Skilling (yes, the Enron guy).  This is like the Winter Olympics for white-collar crime, because it challenges the constitutionality of  an important and controversial prosecutorial tool.  The Court is clearly interested in this statute, as it's the subject of not one, but two other cases this term. 

The statute at issue, part of federal mail fraud law, is the so-called  “honest services” statute (18 USC 1346). Congress passed it in 1988 to overrule McNally v. U.S., a 1987 Supreme Court’s decision that the mail fraud statute (18 USC 1341) punished only frauds that deprived the victim of money or property.  Prior to that case, many lower federal courts had accepted prosecutors’ argument that mail fraud included the denial of “honest services.”    

By writing the statute, Congress didn’t really clarify much, however.  1346 only says mail fraud includes the theft of “honest services”--it doesn’t define “honest services.”  Unfortunately, the pre-1987 courts that accepted the “honest services” theory didn’t clearly define it either.

The law of theft has historically evolved from covering only violent takings of property to covering deceptive takings of property to covering deception that has intangible and abstract effects—this last category is of course hard to define.  On the one hand, that shows law has become more flexible and attuned to reality.  On the other, the government may be unfairly expanding its power to punish.

Of the three "honest services" cases this term, Skilling is the big one because a. he's the Enron guy; and b. the other two cases present more specific challenges to the statute. 

Kind of.

Actually, Skilling’s original petition to the Supreme Court also made a more narrowly focused challenge to the statute.  So if the Court uses Skilling to decide the broader question of whether the statute is unconstitutionally vague, it may come in for criticism of being --gasp!-- an “activist” Court—something it was accused of when it invalidated the corporate campaign finance statute in its recent Citizens United v. FEC decision (my thoughts on other matters in that case are here). 

As you probably know by now, the U.S. Supreme Court recently invalidated certain restrictions on corporations’ participation in campaign finance in Citizens United v. Federal Election Commission. Because I focus on corporate law, a colleague told me I should write an article about this, to which I replied, I did—ten years ago.

I argued there that the Court’s campaign-finance jurisprudence has consistently failed to consider a large business corporation as a complex hierarchical entity.  A decade later, the Court continues to treat a corporation as the equivalent of an individual human speaker under the First Amendment. The Court imagines a corporation as an organization that reflects the will of its constituent individuals.

Citizen United, like past opinions, states in don't-blink-or-you'll-miss-it  fashion that shareholders control corporate speech through “corporate democracy."  But the Court has never tried to describe how “corporate democracy” works.  In fact, while shareholders can cast votes in director elections, directors typically run unopposed and it is very difficult for shareholders to nominate alternate candidates. Moreover, directors do not run corporations-CEOs do, and they are appointed by directors, not elected by shareholders.  While shareholders can express discontent with corporate political spending by selling their shares, this is only a kind of after-the-fact punishment, not a method of participation in making political spending choices.

There are certainly some arguments to be made in favor of the petitioners in Citizens United, but “corporate democracy” is not one of them.

If you are interested in hearing more about this issue, Professor Chris Elmendorf and I will participate in a panel discussion on Citizens United in [CORRECTION] King Hall ROOM 2008 at noon on Tuesday, February 9.