Are Corporations People?

Last month Mitt Romney aroused a lot of controversy by asserting that “corporations are people,” and added “Of course they are! Everything corporations earn ultimately goes to people. Where do you think it goes?” (quoted in the Washington Post, August 11, 2011).

Progressives had a good time making fun of Romney for these remarks, but much of the criticism missed the point — it was basically about how corporations are rich and powerful entitites, while most people are not. That’s true, but it’s simply part of the general problem of growing economic inequality – lots of individuals are also rich and powerful, and get privileges the rest of us don’t.

The real problem is that corporations are not people, but organizations of people, operating under a particular set of rules. Because of those rules, people organized as corporations do things and make decisions that are different from what they would do and decide if they were organized some other way.

We may think of a corporations as made up of employees. Legally, however, the people who make up a corporation are its stockholders. But the people who control the corporation are its officers and board. Those officers and board members have what is called a “fiduciary duty” – that is, a duty to be faithful servants – to the stockholders. This duty could be many things, but in essence it is financial: the corporation is legally required to act to maximize the value of the stockholders shares and/or dividends.

From time to time, something goes wrong in a business operation, sometimes horribly wrong, with deaths and injuries as a result. In such cases, a common first reaction from the leaders of the corporation involved is to want to take responsibility, to apologize if appropriate, and to do what they can to help mitigage the damage.

Then the legal department steps in. It is explained to them that their duty is to avoid making any damaging admissions that might lead to a liability finding against the company, and that any other course of action would violate their duty to the stockholders. So they end up stonewalling and digging in their heels instead of doing what is right and just.

Most people (not all) would be different. Suppose you are driving down a street late at night and sideswipe a parked car. Most people would leave a note on the windshield with a phone number, offering to pay for the repair. Few corporations would do that.

Unfortunately, it is not just Mitt Romney. More and more, the law is treating corporations as having the same rights as people – including the right of free expression (a ridiculous concept, since corporations don’t have opinions or ideas to express – only the people in them do), which is used to justify anti-union campaigns, for example. For a corporation to tell its employees they should not join a labor union used to be an unfair labor practice; now it is a legal right.

Corporate personhood – giving individual human rights to corporations – has seriously distorted American democracy. For more details, see the excellent website of POCLAD, the Program on Corporations, Law, and Democracy.