The Competitiveness of Nations
in a Global Knowledge-Based Economy
March 2006
Ted Nace
Gangs
of America
The
Rise of Corporate Power and the Disabling of Democracy
Berrett-Koeheler
San Fransico, 2005
161-177
Chapter Fourteen
Judicial Yoga
The tangled logic of corporate rights
WHAT LEGAL RATIONALES has the
Supreme Court relied on to establish corporate rights? How well do those rationales stand up to an
audit of their logical coherence?
At first glance, the
Supreme Court’s development of corporate rights has the appearance of an
orderly and careful progression. It
begins with the foundation decision in the 1886 Santa Clara case
declaring corporations to be entitled to the same “equal protection” as persons
under the Fourteenth Amendment. Then,
over the course of the following century, the Court examines first one case and
then another, gradually expanding the set of corporate rights. (The entire corporate bill of rights is shown
in Table 1.1.)
That image of coherence
and care is deceptive. The judicial
reasoning that underlies the creation of corporate rights has cracks - deep
internal inconsistencies. Unfortunately,
the process by which the Supreme Court builds a body of jurisprudence out of
multiple decisions does not serve to expose these sorts of cracks, but rather
to hide them. With the passage of time,
the defective old bricks acquire a sheen of
legitimacy, weathering into handsome, venerable foundations.
ALL LEGAL RATIONALES
about corporate rights, whether supporting or opposing, must start with a basic
question: What is a corporation? From
a legal standpoint, the answer is simple. A corporation is a type of organization in
which a separate legal identity is created from that of the owner or owners. Legally, that separate identity comes into
being when the government issues a charter of incorporation.
A business can exist
without the blessing of the government. A corporation, by definition, cannot. This fundamental distinction lies at the basis
for the oldest theory of the corporation, which was used to deny
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corporations all but a few functional rights from 1789 until 1886,
and which has continued to serve as the primary argument in recent dissenting
opinions in corporate rights cases.
In the 1819 Dartmouth
College decision, Chief Justice John Marshall wrote that a corporation is
an “artificial being, invisible, intangible and existing only in contemplation
of law.” Thus, a corporation can’t
assert rights against its creator, the legislature that issued its charter. The legislature is free to pass laws and
regulations as it sees fit - or even to revoke a corporation’s charter and end
its existence. In the Dartmouth case,
the Supreme Court actually blocked New Hampshire’s bid to radically alter the
charter of Dartmouth College, agreeing with Dartmouth’s contention that its
charter should be considered a preexisting contract
with King George and therefore protected by the Constitution’s contracts
clause. However, in the same decision,
the Court made it clear that as long as a state legislature included a clause
in future charters reserving its right to alter or revoke them, the legislature
could do so with impunity. Although the
case did begin the process of creating a distinct legal status for corporations,
it also established clearly that legislative power trumps corporate authority.
This artificial
entity theory does not deny that corporations can have some rights, but it
limits those rights to the functional ones necessary for the corporate entity
to participate in the legal arena: the right to own property, the right to
enter into contracts, and the right to defend its property and enforce its
contracts in court.
Implicit in the
artificial entity theory is the philosophy that legitimate power can only
emanate from democratic institutions. The theory reflects the wariness toward
corporations inherited from the colonial period, a belief that corporations
will inevitably seek power over their legislative masters. Such fears have even older roots in
traditional English law. For example, mortmain
(“dead hand”) clauses in church charters limited the amount of land that
the congregation could own in order to prevent the accumulation of real
property in immobile corporate hands.
Concerns about runaway
corporate power induced legislatures to use the corporate charter as a
restrictive tool, confining each corporation in a tight legal box. Together, the artificial entity definition and
the charter system provided the justification along with the means for strict
state control of corporations.
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THE FIRST SERIOUS
EFFORT to create a theory of the corporation that would justify giving
corporations constitutional rights was articulated by Justice Stephen Field in
his ninth circuit court opinions in the San Mateo and Santa Clara cases.
Field argued that to
deny corporations “equal protection” under the Fourteenth Amendment would have
the effect of denying corporate shareholders their “equal protection” rights. This approach called for looking past the
corporate veil and seeing the rights of the shareholders. On its surface, this approach has a simple
appeal, especially as articulated by Field’s friend Professor Pomeroy, who
wrote that “for purposes of protecting rights, the property of the corporation
IS the property of the corporators.”
But does Pomeroy’s
equation really make sense? The entire
point of the corporate form of organization was to create a category of
property that could be different from individual or partnership
property, both in terms of the privileges it affords and the accountability it
demands. For example, the meaning of
limited liability is that investors in a corporation are safely beyond the
reach of those who sue the corporation.
With ordinary property,
the accountability of the owner is straight-forward. If a horse knocks over your fence, you can sue
the owner for damages, even if the horse is no longer alive. But if sparks from a corporation’s train burn
your barn, you can’t demand compensation from the bank accounts of the stockholders,
only from the bank account of the corporation. In other words, the very aspects of the
corporate institutional form that create flexibility also create gaps in
accountability. So it seems reasonable
for society to address those gaps with regulatory measures.
GIVEN SUCH PROBLEMS WITH
Field’s and Pomeroy’s justification for corporate rights, a new rationale was
eventually developed. Legal scholars
call this second approach the natural entity theory of corporate rights.
The natural entity
theory involved looking not at the shareholders but at the corporation itself
as an upstanding, respectable participant in society. Given its central role in society, the
corporation deserves the same rights as humans beings,
even if the Constitution doesn’t actually say it does.
Unlike Field’s
shareholder-oriented theory, the natural entity theory never had an articulate
advocate on the Supreme Court. Indeed,
as legal
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historian Morton Horwitz has argued,
the natural entity theory did not even exist in America at the time of the Santa
Clara decision. And in later
decisions, it was never presented in a straightforward way as a rationale. Rather, the theory seeped into the Court’s
decisions more indirectly, as a presumption rather than as an explicit argument.
What gave the natural
entity theory a sheen of respectability was a wave of
European scholarship that arrived on the American intellectual and legal scene
during the 1890s. In Germany, an
academic movement known as organicism had
been exploring the social meaning of groups and associations for a long time,
and about a decade after the Santa Clara decision some of the key works
produced by that movement were published in English for the first time. The movement’s central figure was German
medieval law scholar Otto Gierke (1841-1921), whose
writings were translated into English by Frederic William Maitland in 1900 as Political
Theories of the Middle Ages. According to Gierke,
under Pope Innocent IV in the thirteenth century, the church initiated a long
and undesirable process of attempting to monopolize the organization of society,
making every other institution subordinate to itself. When the state replaced the church as the
primary institution in society, it too sought to make its authority universal.
To Gierke,
the democratic revolutions spawned by the Enlightenment were only partial
successes. Although they elevated the
status of individual humans, they failed to elevate the status of the
intermediate institutions that are also organic elements of society. Democracies had worked out the relation
between the individual and the state. But
the rich and lively web of organizations that constitute society - schools,
churches, clubs, businesses, unions, and other entities - also required
legitimacy and protection against the state, and that need remained unmet by political
systems that only granted rights to individuals. According to Gierke’s
historical research, the “collective personality” of organizations was well
established during early medieval times, when communities of various sorts
asserted “organic” rights - that is, rights that reflected the needs of the
community as a whole. He proposed that
such rights be resurrected.
Gierke’s arguments appealed to a diverse audience. Some supporters were traditionalists concerned
about the social fragmentation induced by the Industrial Revolution. Others were socialists and anarchists who saw
communal values buttressing their challenges to the bourgeois power
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structure. As the literature
of the movement permeated the British and American intellectual worlds, legal
scholars, historians, social theorists, and philosophers on both sides of the
Atlantic pondered the question of “group personality.” Initially they focused on premodern
social and economic institutions, seeking to understand how industrialization
had corroded those forms during the transformation of Western society from its
medieval roots into its modern form. Eventually
they included modern organizations, including corporations, in the discussion.
Although Gierke’s ideas may sound appealing, they run into a simple
problem when applied to the American context: the United States Constitution. The natural entity theory holds that shielding
associations from the state should be a fundamental principle of law - a right.
But the Constitution disagrees. Organizations of various stripes, including
corporations, did in fact exist at the time the Constitution and the Bill of
Rights were enacted. If the founding
fathers had wanted to create special rights for groups such as corporations,
they had every opportunity to do so in framing the Constitution. In fact, the Constitution did confer special
protection on two groups - the press and religious institutions - but not on
any others. The history of the East
India Company, the Boston Tea Party, and the Constitutional Convention all reveal
absolutely no desire on behalf of the framers of the American system to afford
any rights whatsoever to corporations. Indeed, they indicate the opposite: a bias
toward restraining corporations. (See
again chapter 5 for a detailed discussion of this subject.) Thus, it is fair to say that those who
supported using Gierke’s theories of group
personality as a rationale for corporate empowerment were essentially
undertaking to transplant a European notion into a constitutional framework
distinctly unsympathetic to it.
YET QUITE BY COINCIDENCE, the terminology of the organicist movement seemed tailor-made for the American
debate over corporate rights. Organicist scholars used the term corporate
personality, which is confusingly similar to the legal notion of corporate
personhood. The relation between the
terms is merely semantic, not substantive, yet it led to confusion. Prior to the 1880s, it had always been clear
that the legal personhood status enjoyed by corporations under English and
American law was merely a functional category that referred to the fact that
corporations can access the courts on matters of property and contracts.
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The term “legal person” had never implied
that corporations were entitled to a broader set of human rights. Indeed, in England, as described in chapter 7,
incorporation had never been a protectable property
right.
As legal historian
Morton Horwitz has pointed out, the ideas of the
European organicists were never raised in the Supreme
Court arguments in the Santa Clara case. Only in the decade following Santa Clara, the
1890s, did these ideas become a justification for corporate rights. From the 1890s until the 1920s, legal
scholars, philosophers and others became caught up in a seemingly endless
series of debates over the meaning of corporate personality and the connection
between corporate personality and legal personhood.
These rarified and
generally pointless debates finally drew to a halt after philosopher John Dewey
argued convincingly in a 1926 essay that the whole discourse about corporate
personality was too abstract to have any practical value. After Dewey, proponents of corporate rights
abandoned any further efforts to produce a coherent justification for granting
corporations an ever-increasing body of rights. In general, Supreme Court decisions have
granted new corporate rights with virtually no supporting argument, or
alternatively have used a strange medley of rationales.
FOR FORTY YEARS - from 1922 to 1962 - the trend by the
Court toward creating a corporate bill of rights came to a halt, and no new
rights were granted to corporations. During
this period two justices, Hugo Black and William O. Douglas, sensed an opening,
and they wrote stinging dissents advocating the reversal of the Santa Clara decision.
In a dissent to the 1938 Connecticut
General Life Insurance Company v. Johnson decision, Justice Black wrote:
Both Congress and the people were familiar with the meaning of the word
“corporation” at the time the Fourteenth Amendment was submitted and adopted. The judicial inclusion of the word
“corporation” in the Fourteenth Amendment has had a revolutionary effect on our
form of government. The states did not
adopt the amendment with knowledge of its sweeping meaning under its present
construction. No section of the
amendment gave notice to the people that, if adopted, it would subject every
state law and municipal ordinance, affecting
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corporations, and all
(administrative actions under them) to censorship of the United States courts. No word in all this amendment gave any hint
that its adoption would deprive the states of their long-recognized power to
regulate corporations.
Similarly,
in a 1949 dissent to Wheeling Steel v. Glander, Justice
Douglas wrote:
It may be most desirable to give corporations this
protection from the operation of the legislative process. But that question is not for us. It is for the people. If they want corporations to be treated as
humans are treated, if they want to grant corporations this large degree of
emancipation from state regulation, they should say so. The Constitution provides a method by which
they may do so. We should not do it for
them through the guise of interpretation.
But Santa
Clara was not reversed. By now, the
concept of corporate rights had become deeply embedded in American law and had
gained a momentum of its own. And
beginning in 1962, the Court resumed expansion of corporate rights, giving
corporations:
·
The Fifth
Amendment right against being tried twice for the same offense (Fong Foo, 1962)
·
The Seventh
Amendment right to a jury trial in a civil case (Ross v. Bernhard, 1970)
·
The First
Amendment right of “commercial free speech” (Virginia Board of Pharmacy v.
Virginia Citizens Consumer Council, 1976, and Central Hudson Gas, 1980)
·
The Fourth
Amendment right against unwarranted regulatory searches (Marshall v.
Barlow’s, 1978)
·
The First
Amendment right to spend money to influence a state referendum (Bellotti, 1978)
·
The First
Amendment right of “negative free speech” (Pacific Gas & Electric Co. v.
Public Utilities Commission, 1986)
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In all these cases, the
Supreme Court seemed to carefully avoid citing any of the defective rationales
that had earlier been used. Instead, it
began using two new methods of justification: one based on history, the other
based on the intended purpose of a particular constitutional right.
The Supreme Court used
the historical argument in Marshall v. Barlow (1978). The Court ruled that government safety
inspectors could not enter corporate property without a search warrant, under
the Fourth Amendment’s protection of “the right of the people to be secure in
their persons, houses, papers, and effects.” Though corporate property would seem to fall
under none of those categories, the majority decision in the case relied on the
assertion that at the time of the American Revolution a prime cause of colonial
anger was British searches of colonists’ shops. The dissenting justices in the case objected
that equating major corporations with colonial shops made little sense. (They might have added that a true reading of
history would reveal that colonial attitudes were quite distinctly anticorporate and would hardly have lent
corporations any such constitutional protection.)
The Supreme Court made
the argument based on the intended purpose of a right in extending First
Amendment “free speech” rights to corporations. The Court faced a dilemma. Such rights are intrinsically associated with
human qualities such as “will” and “conscience.” Only in a metaphorical sense can such qualities
be ascribed to business organizations. But
in the Bellotti decision, the Court
found a way to get around this objection by adopting an approach that didn’t
depend at all on the nature of the corporation. Rather than claiming that a corporation has
any intrinsic human qualities that would entitle it to human rights, it came up
with the roundabout rationale that the protections of the First Amendment were
protections of speech, not of the speaker. In the Bellotti
decision, Justice Powell wrote, “The inherent worth of the speech in terms
of its capacity for informing the public does not depend upon the identity of
its source, whether corporation, association, union, or individual.”
Similarly, in striking
down a state law that sought to limit corporate advertisements promoting
electrical consumption during a period of energy shortages (Central Hudson
Gas, 1980), the majority decision stated that its purpose was not to
protect the rights of the corporation, but rather to protect the right of the
public to receive the maximum amount of information possible on a given issue.
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But if the goal is to maximize
speech rather than to protect a particular speaker, what happens when the
rights of two different speakers come into conflict? The answer, of course, is: “Management
decides.” This became clear in the case
of Pacific Gas & Electric v. Public Utilities Commission.
In Pacific Gas &
Electric (1986), the Court established a novel new corporate right, that of
“negative free speech.” In this case,
the management of an electrical utility company had a newsletter expressing one
set of political views on energy policy, but the state regulatory body, wishing
to increase the diversity of opinions, passed a rule requiring the utility company
to enclose the newsletter of a consumer group four times each year in its
billing envelopes. The utility company
objected to the newsletter, and the U.S. Supreme Court ruled in favor of the
company.
Under the principle of
protecting “speech” rather than the rights of the corporate “speaker’ one would
have expected the Supreme Court to support the Public Utilities Commission’s
rule. After all, the effect of the rule
was to increase the amount of information available to the public by
forcing the company to disseminate a newsletter with views different from those
of the management. But the Court ruled
in favor of management, contradicting its own rationale in the Central
Hudson decision. In the majority
opinion, written by Justice Powell, the Court concluded that forcing an
electric utility to enclose a message from a ratepayer group in its billing
envelope violated the utility’s First Amendment free speech right not to
be associated with statements it disagreed with. According to the Court’s decision, being
required to enclose such a message would violate the corporation’s rights,
because it would implicitly force Pacific Gas & Electric “to respond to
views that others may hold.”
How can the Pacific
Gas & Electric decision be explained? Since it clearly contradicts the Supreme
Court’s own previous rationale for extending First Amendment rights to
corporations - the notion of increasing the amount of information available to
the public - some other rationale must be sought. Evidently, the Supreme Court concluded that
corporate managers deserved a higher level of constitutional protection than
other corporate stakeholders, such as ratepayers or employees. To give First Amendment protection to an
official newsletter while denying it to a rate-payer newsletter, an employee
newsletter, or a stockholder newsletter is in effect to grant constitutional
protection to management over and above other groups involved with the
corporation.
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A few members of the
Supreme Court recognized the fundamental flaw in the Pacific Gas &
Electric decision. Justice William
Rehnquist dissented forcefully from the decision:
Extension of the individual’s freedom of conscience decisions to business
corporations strains the rationale of those cases beyond the breaking point. To ascribe to such artificial entities an
“intellect” or “mind” for freedom of conscience purposes is to confuse metaphor
with reality.
What appears to have
happened is that the Court came to a gradual acceptance of the privileged
status that corporations had gained in American society. And that rise in status was created, at least
in part, through Court decisions that had created the “corporate bill of
rights.” Ironically, the justices who
might have been expected to be the philosophical heirs to the dissenting
tradition of Black and Douglas, liberals like Justice Brennan and Justice
Marshall, had now emerged as leading advocates, along-side avid pro-corporate
advocates such as Lewis Powell, of granting First Amendment rights to
corporations.
Like a myopic Dr.
Frankenstein, the Court had worked piecemeal and haphazardly, grafting a finger
here, an eyebrow there, until the result was a full-fledged legal superperson. Only sporadically,
in dissents interspersed across the decades, was there an explicit recognition
that the cumulative impact of the growing body of corporate rights was to tie
the hands of legislative bodies seeking to control corporate power. In general, the justices displayed no
awareness that the Supreme Court’s creation of a corporate bill of rights
amounted to an immense transfer of power from democratic institutions to
private ones. The process was not driven
by any overarching theory - to this day, the Court has yet to sustain any
consistent rationale to support its creation of the corporate bill of rights. On the contrary, the process has been a
perfect illustration of the Orwellian ability of large, unaccountable
institutions to bend even ordinary language into a tool to serve their own
needs - the gravitational force exerted by power. Far from laying orderly tracks,
that force of power seemed to operate between the cracks of reason,
leaving in its wake only muddied, blurry traces.
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ONE OF THE MOST disappointing aspects of
the dramatic expansion of corporate rights since 1970 has been the acquiescence
and even support for that process by the leading advocate for an expansive
interpretation of constitutional rights: the American Civil Liberties Union. Generally, the role of the ACLU in the
judicial process is to seek the protection and expansion of human freedoms. But on the issue of corporate rights, its
position has actually served to diminish human rights by expanding corporate
ones.
Take the example of Pacific
Gas & Electric v. Public Utilities Commission. The ACLU has cited this Supreme Court
decision approvingly as an example of the Court blocking “compelled speech.” According to the ACLU, compelled speech is
speech in which “the government has compelled someone to support a particular
message through word or action.” Such
compulsion, according to the ACLU, “violates the principle of individual
conscience that is central to the First Amendment.” To the ACLU, a utility company that objected
to being required to insert a consumer group newsletter in its billing
statement has the right to block such a newsletter - just as a student has a
right to refuse to say the pledge of allegiance.
But isn’t a corporation
different from a student? After all, a
student really does have a conscience. But where is the conscience of a corporation?
As Adolph Berle and Gardiner Means pointed out in their landmark work
The Modern Corporation and Private Property, the essence of a corporation
is the fragmentation of accountability among various internal groups. Those who occupy the key leadership position
(the professional managers) aren’t necessarily its owners; those who are owners
(the stockholders) are generally neither in charge nor legally liable; and
those who are supposed to be exercising strategic direction on behalf of the
owners the board of directors) are rarely sufficiently informed nor
sufficiently empowered to actually fulfill their theoretical function.
With such intrinsic
fragmentation, a core feature of the corporation is the absence of any discernable
mind or conscience. That void makes the
theories of corporate rights that rely on the qualities of individuals meaningless.
If the Berle
and Means analysis of the corporation makes sense, then none of the
views of the corporation out of which constitutional rights precedents have
developed stand up to scrutiny, because all of them turn on the assumption that
a corporation is capable of behaving within
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the same moral and legal framework as a person or a
community of people. All of them assume
that some group inside the corporation - generally either the owners or the
managers - is ultimately in charge and can be used as a morally accountable
proxy for the corporation as a whole. Without
a someone, or at least a coherent group
of someones, in charge of the corporation, it becomes
a phenomenon without any moral agency - like a hurricane or a beehive. Thus, to dignify a profoundly non-human entity
by awarding it rights was to confuse basic categories - like trying to control
the behavior of animals by handing them pamphlets, or trying to make a machine
operate more reliably by promising it a ticket to the movies.
In practice, the ACLU’s
protection of corporate free speech rights actually boils down to protection of
management speech. But it is questionable
whether even management speech is the expression of a human conscience. After all, fiduciary responsibility requires
managers to pursue a course of advocacy on behalf of the corporation that
maximizes the corporation’s profits - and it is not infrequently the case that
such advocacy violates a manager’s own conscience.
Such realities are all
ignored by the “can’t see the forest for the trees” nature of the ACLU’s
approach to corporate rights. The forest
is the reality that the structure of American society limits the opportunity to
communicate in the public arena to those with sufficient resources. Day in and day out, corporations use their
financial resources to drown out other points of view. Thus the institutions of democratic government
may attempt at times to carve out zones in which noncorporate
voices can be heard. For example, in the
case of Pacific Gas & Electric, the fact that a single corporation
monopolizes all electrical and gas supplies to a large region containing
millions of people, as well as monopolizes all communications with electrical
customers within that region, was believed by the Public Utilities Commission
to create an unhealthy bias in the information available to customers. The Public Utilities Commission took the reasonable
step of requiring the company to occasionally enclose a consumer newsletter in
its monthly billing statement.
Instead of focusing on
the “trees’ the ACLU would serve the goals of the Constitution better if it
considered the constitutionality of actions by the government that have ceded
vast tracts of the public’s media to corporate interests. Perhaps the most crucial example of that sort
of concession to corporations has been in the area of telecommunications
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policy. In his
seminal book Rich Media, Poor Democracy, University of Illinois
professor Robert McChesney recounts the respective
histories of the United States and Canada during the 1920s and 1930s in
allocating control of the radio spectrum. In the United States, federal regulatory
agencies quickly marginalized public broadcasting channels, resulting in an
overwhelming domination of the airwaves by corporate interests. In Canada, the government carefully reserved a
portion of the spectrum for noncommercial broadcasting.
Were the ACLU to
consider broadly the goals of the First Amendment, it might apply its resources
to challenging the overall structure of telecommunications policy, toward the
goal of providing access to as broad an array of voices as possible.
The ACLU’s position on
First Amendment issues has led it to oppose a number of attempts to institute
campaign finance reform. Here, the
issues of “forest and trees” are similar to those in the Pacific Gas &
Electric decision. In its decision
in Buckley v. Valeo, the Supreme Court
appeared to open one eye - to see at least one part of the forest of contemporary
reality. Thus, the Buckley decision
recognized that the expenditure of money is intrinsically intertwined in modern
society with the ability to disseminate a political message through the
commercial media. But the Supreme Court
avoided the obvious corollary to its own “speech money” insight: if the
expenditure of money is intrinsic to disseminating a political message, then
doesn’t that leave those without financial resources essentially speechless?
Doesn’t this imply the need to make
the First Amendment meaningful by increasing noncommercial channels for those
whose financial resources don’t rise to the level of the threshold needed to
“play ball” in the commercial system?
IN EFFECT, THE SUPREME COURT,
with the blessing of the ACLU, has accepted the ground rules of a system where
corporations can dominate the airing of issues - the control of media by a
limited number of large corporations, as established by federal telecommunications
policies. Once it has accepted the
underlying setup, where most of society is rendered speechless and invisible,
the ACLU falls into the trap of seeing only the actors who remain in the game. Thus it is the rights of these actors - corporations
and the relatively few wealthy individuals who can match the resources of
corporations - that the ACLU ends up defending.
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Not surprisingly,
corporate America was delighted with the ACLU position on free speech. According to one document released by the U.S.
House of Representatives’ Commerce Committee, “Strategy to Combat Advertising
Content Restrictions and Counter-Advertising Requirements” the tobacco industry
considered the ACLU to be the “most prominent and valuable of our
constitutional ad ban allies.”
Why did the ACLU
capitulate so easily to the corporate framing of First Amendment issues? It seems that the ACLU is motivated by a “slippery
slope” notion, believing that restricting the First Amendment rights for one
segment of society will inevitably undermine the protection for other segments.
Speech should be protected, no matter
what the source. After all, if the
speech of pariahs such as porno graphers or Nazis
deserves protection, then why should not the speech of a mainstream element
such as the corporation?
The problem with the
ACLU position is that it bases its rationale on the wrong metaphor. Protecting corporations is not a way of
avoiding the slippery slope, analogous to protecting the speech of an unpopular
speaker. After all, a corporation is not
a speaker at all - speaker is entirely the wrong metaphor. More aptly, the corporation might be compared
to a megaphone. Suppose you go to a PTA
meeting, and you notice that one of the other parents has brought along a
megaphone that allows him to drown out everyone else. By asking that person to put the megaphone
down, you’re not depriving him of the opportunity to speak. You’re merely protecting the ability of other
speakers to be heard.
Similarly, campaign
finance laws that restrict corporate political expenditures have the effect of
protecting First Amendment rights. How? They prevent the corporate megaphone from
drowning out other points of view. When
such regulations are not in place, a large corporation is often capable of
using its superior financial resources to overwhelm other opinions. With regulations in place, corporate managers
remain free to express their own opinions, either personally or on behalf of
the company. But other points of view
are protected too, including those of employees, stockholders, dissenting
managers, and the public at large.
THE FALLACY OF SEEING THE CORPORATION as a speaker is
illustrated by a recent case involving Nike, Inc. In 1996, Nike began to face serious charges of
sweatshop conditions in the Asian factories operated by its
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subcontractors. Three hundred
thousand to five hundred thousand people, mostly young women, work in those
factories, located primarily in Vietnam, China, Indonesia, and Thailand. Reports in the news program 48 Hours and
in the New York Times, Financial Times, San Francisco Chronicle, Kansas City
Star, Oregonian, Buffalo News, and Sporting News contained a wide
range of allegations. The Times reported
“grim conditions” and widespread human rights abuses in factories where Nike
shoes were made. A spot audit of one
Vietnamese factory found 77 percent of workers suffering respiratory problems. An investigator for Vietnam Labor Watch found
a pervasive “sense of desperation” based on interviews with the young women
making Nike shoes there. In China, the
Hong Kong Christian Industrial Committee found workers subjected to eleven- to
twelve-hour days, compulsory overtime, and violation of minimum wage laws. Other reports described physical, verbal, and
sexual abuse, and exposure of young workers to toxic chemicals, noise, heat,
and dust without adequate safety equipment.
In response to the
allegations, Nike mounted a publicity blitz in which it denied the charges and
asserted that its workers were paid double the minimum wage, on average; its
workers received free meals and health care; its workers were not subjected to
corporal punishment or sexual abuse; and its products were made in accordance
with health and safety regulations.
Marc Kasky, a San Francisco resident, became convinced that much
of the information being used by Nike in its publicity campaign was false. Kasky decided to
take action, and coming to the conclusion that Nike’s statements did not even
agree with the company’s own internal audits, he flied a false advertising
lawsuit in state court under California’s Business and Professions Code.
In response to Kasky’s lawsuit, Nike’s lawyers used an interesting legal
strategy. Rather than argue that the
company’s advertisements were factual, the lawyers asserted that factuality was
irrelevant in the case because Nike was protected by the First Amendment. Thus, the company could publicize any sort of
information it wanted - even “facts” that it knew to be completely false.
As the case worked its
way to the Supreme Court (which ultimately refused to hear the case, leading
the parties to settle out of court), the legal arguments became complex. Kasky’s attorneys
argued that Nike’s statements constituted “commercial speech’ which is subject
to a lower
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level of First Amendment protection because of the need to
ensure public safety from misrepresentations about product safety and
ingredients. Nike’s lawyers, on the
other hand, argued that the sweatshop issue was a political debate, and that
the entire purpose of the First Amendment was to ensure that no one in such a
debate could be subjected to governmental restriction.
Once the debate was set
in these terms, Nike enjoyed a tremendous advantage. The ACLU rushed to defend the company’s
freedom of speech, as did a number of corporations, editorials in major
newspapers, and even the AFL-CIO. Typical
of the arguments was that of the ACLU’s amicus brief, which cited “the
fundamental First Amendment principles that protect the rights of those on both
sides of a debate to speak their minds freely.”
Here is the crux of the
issue: the corporate mind. When a
corporation issues a press release or runs an advertising blitz, who is
actually speaking its mind? Obviously, a
corporation itself does not have a mind. It is merely a collection of papers - the name
on a financial statement. There are, of
course, managers, directors, employees, lawyers, and public relations firms
involved in such campaigns. But do the
statements issued by a corporation actually reflect the personal opinions of
any of those people? Perhaps,
perhaps not. But what is certain
is that holding a company accountable for the accuracy of its advertisements
and official statements about safety conditions, worker pay, incidents of
verbal or sexual abuse by factory supervisors, or other such information hardly
seems a restriction on anyone’s freedom of speech. Kasky’s suit was not
directed at after-hours statements made by human beings who happened to work
for Nike - rather, the suit aimed at official statements of the company.
The situation might be
compared to the responsibilities of a corporation in the financial arena. In official representations about its financial
status, a corporation is accountable for the truthfulness of all
representations. On the other hand, if
an executive wants to go to a cocktail party or a family reunion and brag about
how successful her company is, she should have every right to do so.
Ultimately, society
must be able to make a distinction between the rights and prerogatives of a $10
billion corporation such as Nike and an ordinary human being like you or me. No one would ever propose that a machine that
emits words is entitled to free speech. It is human speakers
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that the First Amendment protects, not machines. Contrary to the fears of the ACLU that
requiring corporate statements to be truthful puts society on a slippery slope
toward restricting human speech, the actual slippery slope is different. The real slippery slope is the ever-increasing
tendency to treat corporations as though they were human beings.
But what about the
other rationale for extending First Amendment rights to corporations - the notion
that protecting corporate speech is not so much about protecting the corporation
as a speaker as about protecting society as a listener? According to this listener-oriented rationale,
society depends on the lively, unimpeded flow of information, the “free market
of ideas.” Truth and falsehood, it is
thought, can best be sorted out if all providers of information, no matter who
or what they might happen to be, are afforded the maximum leeway to say
whatever they want, whether truthful or not.
The problem with
applying this rationale to corporate speech is that in many cases only the
corporation is in a position to know the facts about its own operations. For that reason, few people would argue
against requirements that corporate representations about finances and product
ingredients be truthful. But why should
the truthfulness of corporate statements about the treatment of workers in
Third World factories be any less important?
It must be remembered
that in China and other countries where many companies, including Nike,
manufacture their products, it remains difficult and even dangerous to
independently ascertain what goes on inside the workplace. Thus, the “free market of ideas” can’t be
relied upon to reveal the truth. The
only way society will know how the workers who make Nike shoes are paid and
treated is if Nike, Inc. is required to report such matters truthfully.
As the following
chapter shows, the pressures on corporations to paint a false picture to the
outside world are significant and pervasive. For that reason, the idea that giving
corporations “the right to lie” under the First Amendment is a way of
maintaining the “free market of ideas” is wrongly conceived. Indeed, just as laws against fraud and
monopoly are needed to maintain the integrity of markets for goods and
services, so likewise laws against deliberate corporate deception are actually
quite vital to protect the “free market of ideas.”
177
The Competitiveness of Nations
in a Global Knowledge-Based Economy
March 2006