Revoking the Corporation by Richard Grossman

End Corporatocracy: Time Frames & Actions

Revoking the Corporation by Richard Grossman

Program on Corporations, Law & Democracy, January 29, 1996.

So many of the important issues that affect our communities, our health, our children's future, the ability of people to work-issues that define the work people do-seem to be off the political agenda. We, as the sovereign people, don't seem to have any authority over making decisions. To take a specific example, the shifting from glass to plastic bottles, which was a major decision made by goodness knows who, changed a vast manufacturing process from a relatively responsibly recyclable, sustainable one into an incredibly poisonous, disastrous, sickness-and-death-creating industry.

You can cite any equivalent area of our society-from transportation to energy to housing to banking, genetic engineering, what's happening to our seeds, our whole food supply-the real decisions about the nature of the product, how it's made, how work is organized, which communities do well (because money is invested), which communities do badly (because money is taken out by absentee ownership by foreign, distant corporations)-we don't seem to have legal standing in those decisions. And public debate is off to the side. We end up choosing between "paper or plastic" and not about what goes in-there's nothing about the products.

How did this come about? We are supposed to be the sovereign people, right? Even the California Constitution: Article 1, Section 2 states: "All power is inherent in the people." It doesn't say, "All power is inherent in the corporations." So it is important to ask: "What is the Giant Corporation that seems to be exercising so much power today? Where did it come from?" For that we need to go back to the time of the American Revolution.

One of the major accomplishments of the revolution was to kick private corporations out of this country-to kick some out (like the Hudson Bay Company), which were very powerful private corporations of the day, and to transform what had been private stock corporations chartered by the king.

Massachusetts Bay Corporation (which was a colony that founded the commonwealth where I live today), the Virginia Corporation, the Carolina Corporation, the Maryland Corporation, the Pennsylvania Corporation- these were business corporations that settled and created the 13 colonies. They were dictatorships-there was no pretense. The people who ran those companies decided what you could grow, where you had to ship your products, what kind of work you did. They could conscript you into the militia. They were dictatorships.

The revolution fundamentally transformed those companies into constitutional states. Not perfect by any means. But it shifted the source of political power. It shifted the nature of sovereignty so that there became institutional processes for making decisions: legislatures, the courts, separation of powers, terms of office for those holding office. A process and people-and "the people" were defined. Of course that's a political definition of who "we the people" were, because a lot of people-African-Americans, women, men without property, Native Americans, trees, rocks, rivers-had no legal standing, were not included in "we the people." But the people who were "we the people," who had legal standing, then became "the sovereign people."

So in effect, by force of arms, the colonists transferred the sovereignty that had set with the King of England to the people. The king was the sovereign; he got his sovereignty allegedly from God. All his rulers ruled in his name. That sovereignty-with the revolution-passed to "the people."

When you look at all the constitutions of all the 13 colonies and the other states, and the United States Constitution, they say, "we the people"-we the sovereign people. We existed as a people; we came together and wrote our constitutions in order to form a government, in order to figure out how to get together in order to protect the general welfare. Government was a voluntary association of people in order to figure out how we use our resources, how we get along, and all that.

Because of the experience that people had had with crown corporations, understanding the reach of their power-not just ones here, but also companies like the East India Company, the Africa Company, which in the 18th century were truly global corporations of the day, rapacious, dictatorial-if you read the histories of these companies, if they had anything near the kind of technology that we have today, the world would have already been destroyed. They did enormous harm to India, to Africa, to South and Central America-killed huge numbers of people and basically vacuumed out the wealth and the resources and enslaved the rest. So there was a lot of consciousness about that at the end of the 18th century and the beginning of the 19th century. And when it came to institutions of enterprise, people were very cautious and gave the authority to create corporations to the state legislatures. The state legislatures, until after the Civil War, essentially gave out charters one at a time. People applied for a charter, for articles of incorporation. They had to come before the legislature. The legislature decided whether this was something that was in the interest of the people. I'm sure there was a lot of bribery and a lot of corruption, but that was the principle.

The legislatures defined the corporations in the charter. If you go back and look at the corporations up through the Civil War, for the most part they had limited duration, 10 years, 20 years, 30 years. They were not given forever, like corporate charters are given today. The amount of land a corporation could own was limited; the amount of capitalization a corporation could have was limited. The corporation had to be chartered for a specific purpose, not for everything or anything.

The internal governance was very different. Shareholders had a lot more rights than they have today for major decisions, such as mergers. Sometimes they had to have unanimous shareholder consent. In addition, there were no limitations protections on liability. Managers, directors, shareholders were liable for all debts and harms and in some states, doubly liable or triply liable. And the states reserved the right to amend the charters or to revoke them, even for no reason at all.

Because of the principle that we're the sovereign people and these are subordinate entities, a lot of people wrote pamphlets and discussed all these issues, people without fancy educations, who understood that there was a danger, that once wealth became concentrated in private entities, these private entities could then begin to affect the political process, could start affecting elections, could start shaping the laws, could start shaping public education in general on issues of public policy, could start shaping the values and the culture to become a commercial culture, to turn people into consumers rather than citizens. The literature on this is pretty exhaustive.

So folks were very conscious of all these things and they tried their best to keep the corporations defined through the charters and then through general state incorporation laws, in a very clear and limited way.

I want to make the distinction here between the state and the people, through the legislators, defining the corporation, defining its limits, expressly giving only certain powers, privileges, rights, in exchange for the privilege of incorporation. I want to distinguish that defining process from a regulatory process, which is basically about preventing excess, preventing the worst kinds of harms, but giving the entity an enormous authority to make all kinds of decisions. They are two very different concepts, one defining the nature of this entity, this fiction, this subordinate entity, versus giving this entity enormous political powers and then trying to curb it around the edges and saying that the role of the state is to perfect the market, to have "fair competition" (whatever that might be) in some vague way.

The Civil War, given the tremendous amount of government expenditures, poured billions and billions of dollars into the creation of new corporations in munitions, clothing, food, whatever-and the railroads. And it was at this point that we started getting giant (for the day) conglomerations of capital, particularly the railroads, banking and insurance companies, and industrial corporations. After the Civil War-in the 1870s-they began not only to grow in size and wealth, but to use that wealth in order to fundamentally recreate the circumstances of their own existence.

From 1870 to about 1905, we had what scholars call the Transformation of American Law, basically around the nature of corporations. The situation in law and culture prior to the Civil War was totally turned on its head so that by 1905, corporations were generally chartered forever; the shareholder rights were trampled on, limitations on capital thrown out, limitation on land-holding thrown out, charters given for any legal purpose. No longer was there a single purpose for the corporation.

So the nature of the entity was transformed, the entity itself transformed its own nature. In addition, by decisions of the Supreme Court, the corporation was given political rights and powers. One of the most relative, given where we are sitting here today, is that the Supreme Court in 1886 declared that the corporation is a person, a legal person for the purposes of 14th Amendment, which is about guaranteed equal protection of the laws and due process. The 14th Amendment was passed in 1868 in order to protect the rights of freed slaves. It was not passed to protect the rights of corporations-a fundamental misuse of this constitutional amendment.

Corporations became persons, which means over the years that is one of the sources of their political rights. If they're persons, then eventually they got First Amendment protections: free speech. And because corporations have free speech, the full power of the United States government is behind them as they can participate in elections, contribute and engage in the public policy debate. They can lobby lawmakers because they are persons, and what the court has held is that to deny them the ability to contribute money or lobby is to deny them free speech, and to deny the civil society of the benefit of a broader public debate. That's the logic.

We must examine what are the decisions for the civil society that need to be conducted in an open way through the constitutionalized process, and what are the decisions that are the private domain of the corporation.

Another whole set of decisions that the Supreme Court made was to make the intangible rights of decisions about investment, production, and the organization of work be the property rights of corporations. The constitution is a very property-protective document. Once these intangible rights were declared "property rights" of corporations, combined with "personhood," that was an incredible one-two punch.

So now the subordinate entity called the corporation-the legal fiction-has more rights and privileges than flesh-and-blood people. So much of the important decision-making that affects our very lives and our future is off the public agenda. We have very little legal standing, and that means more actually in the hands of anonymous corporate leaders behind closed doors. In most states a lot of the language from the early days that reflected the subordinate nature of corporations is still on the books (including California). We still have the authority, in California and other states, to define the corporations through their charters; we still have the authority to amend the charters; we still have the authority to revoke the charters. The language is still there. We still have the authority to rewrite the state corporation codes in order to order corporate executives to do what the sovereign people want to do.

A sovereign people do not negotiate with subordinate legal fictions. We instruct them. We define them. We don't regulate them about the edges so they can poison here and poison there-but not more than the acceptable amount. We say, "You can't operate if you poison!" That is what a sovereign people should do.

If we are going to have pretense to a democracy, we cannot give political rights and powers to a private entity. We cannot let that private entity get so strong that it rewrites the laws, that it shapes the culture, that it shapes the education. It may be difficult to imagine a country that's not dominated by giant corporations, but other people before us have imagined that, and they've taken big steps toward that, and there is no reason why we can't continue that struggle because they also left us many important mechanisms that we can use.