Monday, 8 February 2010
The US Supreme Court decision in Citzens United has been heavily discussed in the blogsphere in the last few weeks. I look at it opportunistically: as a non-US company lawyer I’m not interested in the core question of the case, namely whether
public law can differentiate between natural and legal persons. However, there are also a number of interesting general statements on the nature and functioning of corporations. In this lengthy post I copy/paste the most interesting parts for further use (highlights in bold).
L. Rev.1105 (2009), which makes it more difficult both to monitor and to alter particular holdings. Studies show that a majority of individual investors make no trades at all during a given year. Va. , at 1117.... If and when shareholders learn that a corporation has been spending general treasury money on objectionable electioneering, they can divest. Even assuming that they reliably learn as much, however, this solution is only partial. The injury to the shareholders’ expressive rights has already occurred; they might have preferred to keep that corporation’s stock in their portfolio for any number of economic reasons; and they may incur a capital gains tax or other penalty from selling their shares, changing their pension plan, or the like.... Id.
Kennedy J. for the majority:
p. 46: The Government contends further that corporate independent expenditures can be limited because of its interest in protecting dissenting shareholders from being compelled to fund corporate political speech. .... There is [furthermore] little evidence of abuse that cannot be corrected by shareholders “through the procedures of corporate democracy.” Bellotti, 435
, at 794; see id., at 794, n. 34. U. S.
p. 55: Shareholder objections raised through the procedures of corporate democracy, see Bellotti, supra, at 794, and n. 34, can be more effective today because modern technology makes disclosures rapid and informative. ....With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits ...
Stevens for the minority:
pp. 36-38: The individualized charter mode of incorporation reflected the “cloud of disfavor under which corporations labored” in the early years of this Nation. ... Thomas Jefferson famously fretted that corporations would subvert the Republic. 54 General incorporation statutes, and widespread acceptance of business corporations as socially useful actors, did not emerge until the 1800’s. ... Shelledy, Autonomy, Debate, and Corporate Speech, 18
Const. L. Q. 541, 578 (1991); cf. Trustees of Hastings v. Woodward, 4 Wheat. 518, 636 (1819) (Marshall, C. J.) (“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it”) ... Dartmouth College
pp. 75-80: The fact that corporations are different from human beings might seem to need no elaboration, except that the majority opinion almost completely elides it.pp. 86-89: When corporations use general treasury funds to praise or attack a particular candidate for office, it is the shareholders, as the residual claimants, who are effectively footing the bill. Those shareholders who disagree with the corporation’s electoral message may find their financial investments being used to undermine their political convictions.... The Court dismisses this interest on the ground that abuses of shareholder money can be corrected “through the procedures of corporate democracy,” ante, at 46 (internal quotation marks omitted), and, it seems, through Internet-based disclosures, ante, at 55.76 I fail to understand how this addresses the concerns of dissenting union members, who will also be affected by today’s ruling, and I fail to understand why the Court is so confident in these mechanisms. By “corporate democracy,” presumably the Court means the rights of shareholders to vote and to bring derivative suits for breach of fiduciary duty. In practice, however, many corporate lawyers will tell you that “these rights are so limited as to be almost nonexistent,” given the internal authority wielded by boards and managers and the expansive protections afforded by the business judgment rule. Blair & Stout 320; see also id., at 298–315; Winkler, 32 Loyola (LA) L. Rev., at 165–166, 199–200. Modern technology may help make it easier to track corporate activity, including electoral advocacy, but it is utopian to believe that it solves the problem. Most American households that own stock do so through intermediaries such as mutual funds and pension plans, see Evans, A Requiem for the Retail Investor? 95
set forth some of the basic differences. Unlike natural persons, corporations have “limited liability” for their owners and managers, “perpetual life,” separation of ownership and control, “and favorable treatment of the accumulation and distribution of assets . . . that enhance their ability to attract capital and to deploy their resources in ways that maximize the return on their shareholders’ investments.” 494 Austin , at 658–659. ... Unlike other interest groups, business corporations have been “effectively delegated responsibility for ensuring society’s economic welfare”;71 they inescapably structure the life of every citizen. ... It might also be added that corporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their “personhood” often serves as a useful legal fiction.... It is an interesting question “who” is even speaking when a business corporation places an advertisement that endorses or attacks a particular candidate. Presumably it is not the customers or employees, who typically have no say in such matters. It cannot realistically be said to be the shareholders, who tend to be far removed from the day-to-day decisions of the firm and whose political preferences may be opaque to management. Perhaps the officers or directors of the corporation have the best claim to be the ones speaking, except their fiduciary duties generally prohibit them from using corporate funds for personal ends..... The legal structure of corporations allows them to amass and deploy financial resources on a scale few natural persons can match.... see also ALI, Principles of Corporate Governance: Analysis and Recommendations §2.01(a), p. 55 (1992) (“[A] corporation . . . should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain”). U. S.