Summer 1998
By What Authority
Can Corporations be Accountable? Part 1
An important question facing us today
Richard Grossman (July 1998)
(Originally printed in Rachel's Environment & Health Weekly #609 Providing news and resources for environmental justice — July 30, 1998)
In 1628, King Charles I granted a charter to the Massachusetts Bay Company. In 1664, the King sent his commissioners to see whether this company had been complying with the terms of the charter. The governors of the company objected, declaring that this investigation infringed upon their rights. On behalf of the King, his commissioners responded:
"The King did not grant away his sovereignty over you when he made you a corporation. When His Majesty gave you power to make wholesome laws, and to administer justice by them, he parted not with his right of judging whether justice was administered accordingly or not. When His Majesty gave you authority over such subjects as live within your jurisdiction, he made them not subjects, nor you their supreme authority."1
From childhood, this King had been led to act as a sovereign should. What about us?
By means of the American Revolution, colonists took sovereignty from the English monarchy and invested it in themselves. Emerging triumphant from their struggle with King George and Parliament, they decided they would figure out how to govern themselves. Alas, a minority of colonists were united and wealthy enough to define most of the human beings in the 13 colonies as property—or as non-persons before the law and within the society, with no rights that a legal person was bound to respect.
Ours was a flawed sovereignty from the beginning. Because of its moral failings and structural inequities, whole classes of people had to organize and struggle over centuries to gain recognition as part of the sovereign people—that is, they had to get strong enough as a class to define themselves and not let either people or institutions define them: African Americans, native peoples,women, debtors, indentured servants, immigrants...
To this day, many still must struggle to exercise the rights of persons, to be recognized as persons by law and by society.
Throughout this nation's history, there has always been plenty of genuflecting to democracy and self-governance. But the further each generation gets from the Revolution, the less the majority act like sovereign people. And when it comes to establishing the proper relationship between sovereign people and the corporations we create, recent generations seem to be at a total loss.
Yet, earlier generations were quite clear that a corporation was an artificial, subordinate entity with no inherent rights of its own, and that incorporation was a privilege bestowed by the sovereign. In 1834, for example, the Pennsylvania Legislature declared:
"A corporation in law is just what the incorporation act makes it. It is the creature of the law and may be moulded to any shape or for any purpose the Legislature may deem most conducive for the common good."2
During the 19th century, both law and culture reflected this relationship between sovereign people and their institutions. People understood that they had a civic responsibility not to create artificial entities which could harm the body politic, interfere with the mechanisms of self-governance, assault their sovereignty.
They also understood that they did not elect their agents to positions in government to sell off the sovereignty of the people. In other words, they were human beings who tried to act as sovereign people. One thing they did was to define the nature of the corporate bodies they created. If we look at mechanisms of chartering—and at the language in corporate charters, state general incorporation laws and even state constitutions prior to the 20th century—we find precise, defining language that was often mandatory and prohibitory and self-executory in nature. These mechanisms defined corporations by denying corporations political and civil rights, by limiting their size, capitalization and duration, by specifying their tasks, and by declaring the people's right to remove from the body politic any corporations which dared to rebel.
Here is an example of language which sovereign people—responding to the rise of corporations after the Civil War—placed in the California Constitution of 1879, and which appears in other state constitutions at about that time:
"Article I, section 2: All power is inherent in the people...
"Article I, section 10: The people shall have the right freely to assemble together to consult for the common good, to instruct their representatives...
"Article XII, section 8: The exercise of the right of eminent domain shall never be so abridged or construed as to prevent the Legislature from taking the property and franchises of incorporated companies and subjecting them to public use the same as the property of individuals, and the exercise of the police power of the State shall never be so abridged or construed as to permit corporations to conduct their business in such manner as to infringe the rights of individuals or the general well-being of the State."3
The principal mechanism which sovereign people used during the 19th century to assess whether their corporate creations were of a suitably subordinate nature was called quo warranto. The quo warranto form of action, as attorney Thomas Linzey has noted,4 is one of the most ancient of the prerogative writs. In the words of the Delaware Court of Chancery, "the remedy of quo warranto extends back to time whereof the memory of man runneth not to the contrary.
Quo warranto simply means "by what authority?" All monarchs understood how to use this tool in self-defense. They realized that when a subordinate entity they had created acted "beyond its authority," it was guilty of rebellion and must be terminated.
Sovereignty is in our hands now, but the logic is the same: when the people running a corporation assume rights and powers which the sovereign had not bestowed, or when they assault the sovereign people, this entity becomes an affront to the body politic. And like a cancer ravaging a human body, such a rebellious corporation must be cut out of our body politic.
During the first hundred years of these United States, people mobilized so that legislatures, attorneys general and judges would summon corporations to appear and answer toquo warranto. In 1890, the highest court in New York State revoked the charter of the North River Sugar Refining Corporation in a unanimous decision:
"The judgment sought against the defendant is one of corporate death. The state which created, asks us to destroy, and the penalty invoked represents the extreme rigor of the law. The life of a corporation is, indeed, less than that of the humblest citizen, and yet it envelopes great accumulations of property, moves and carries in large volume the business and enterprise of the people, and may not be destroyed without clear and abundant reason.... Corporations may, and often do, exceed their authority only where private rights are affected. When these are adjusted, all mischief ends and all harm is averted. But where the transgression has a wider scope, and the abuse of its franchise and the violation of its corporate duty.... The abstract idea of a corporation, the legal entity, the impalpable and intangible creation of human thought, is itself a fiction, and has been appropriately described as a figure of speech.... The state permits in many ways an aggregation of capital, but, mindful of the possible dangers to the people, overbalancing the benefits, keeps upon it a restraining hand, and maintains over it a prudent supervision, where such aggregation depends upon its permission and grows out of its corporate grants.... the state, by the creation of the artificial persons constituting the elements of the combination and failing to limit and restrain their powers, becomes itself the responsible creator, the voluntary cause, of an aggregation of capital... the defendant corporation has violated its charter, and failed in the performance of its corporate duties, and that in respects so material and important as to justify a judgment of dissolution.... Unanimous."5
Such a judgment should not be regarded as punishment of the corporation, but rather a vindication of the sovereign people. When our sovereignty has been harmed, we are the ones who must be made whole. The concept is similar to what Hannah Arendt described in her book Eichmann in Jerusalem (1963), writing about Nazi crimes against humanity.
"The wrongdoer is brought to justice because his act has disturbed and gravely endangered the community as a whole, and not because, as in civil suits, damage has been done to individuals who are entitled to reparation. The reparation effected [here] is of an altogether different nature; it is the body politic itself that stands in need of being 'repaired' and it is the general public order that has been thrown out of gear and must be restored, as it were. It is, in other words, the law, not the plaintiff, that must prevail.6
There is no shortage of court decisions affirming the sovereignty of the American people over corporate fictions, recognizing the need to restore the general public order. In Richardson v. Buhl, the Nebraska Supreme Court in the late 19th century declared:
"Indeed, it is doubtful if free government can long exist in a country where such enormous amounts of money are... accumulated in the vaults of corporations, to be used at discretion in controlling the property and business of the country against the interest of the public and that of the people, for the personal gain and aggrandizement of a few individuals."7
[Continued next week.]
The author is co-director of the Program on Corporations. Law and Democracy (POCLAD), P.O. Box 246, South Yarmouth MA 02664-0246. Phone (508) 398-1145; E-mail: people@poclad.org. For $30.00, POCLAD offers a "contact kit" including a bibliography, articles, a resource list, and a one-year subscription to the quarterly publication, By What Authority.
Neil Berman, "A Short History of Corporations in Massachusetts," written for POCLAD, October 1995, p. 2.
Carter Goodrich, ed., The Government and the Economy, 1783-1861, Indianapolis: Bobbs-Merrill, 1967, p. 44 (Report of the Packer Committee of the Pennsylvania Legislature).
Excerpts from the "California Constitution of 1879," selected by the author, March 1996 (POCLAD memo).
Thomas Linzey, et al.. Brief in Support of Motion for Peremptory Judgment, Community Environmental Legal Defense Fund v. Thomas Corbett, Attorney General of PA et al., Civ. No. 1074 M. D. 1996, p.4, citing Wilmington City Railway Co. v. People's Railway Co., 47A, 245, 248 (Del. Ch. 1900).
People v. North River Sugar Refining Corp., 24 N. E. 834 (1890).
Hannah Arendt, Eichmann in Jerusalem, New York: Viking Penguin, 1977.
Richardson v. Buhl, 43 N. W. Rep. 1102.
Rachel's Environment & Health Weekly (ISSN 1078-103x) is published weekly by Environmental Research Foundation, 612 Third St., Suite 2A, Annapolis, MD 21403-3246. Peter Montague, editor; Maria B. Pellerano, associate editor. RATES: $25 per year for individuals and citizen groups; $45 for universities and libraries; $80 for professionals and government agencies; $15 for students and seniors; $400 for businesses; in Canada and Mexico, add $8.00; in all other countries, add $15.00. AII payments in U.S. funds drawn on U.S. bank; Visa and Mastercard accepted. Telephone (410) 263-1584; fax (410) 263-8944; E-mail: erf@rachel.org. Rachel's Environment & Health Weekly is not copyrighted.
Can Corporations be Accountable? Part 2
An important question facing us today
Richard Grossman (August 1998)
(Originally printed in Rachel's Environment & Health Weekly #609 Providing news and resources for environmental justice — July 30, 1998)
In the late 19th century, the Supreme Court of Georgia, in Railroad Co. v. Collins, wrote:
"All experience has shown that large accumulations of property in hands likely to keep it intact for a long period are dangerous to the public weal. Having perpetual succession, any kind of corporation has peculiar facilities for such accumulations, and most governments have found it necessary to exercise caution in their grants of corporate charters. Even religious corporations, professing and in the main, truly, nothing but the general good, have proven obnoxious to this objection, so that in England it was long ago found necessary to restrict them in their powers of acquiring real estate. Freed,as such bodies are, from the sure bounds—the grave—to the schemes of individuals they are able to add field to field, and power to power, until they become entirely too strong for that society which is made of up those whose plans are limited by a single life."1
Justices White, Brennan and Marshall, dissenting in a 1978 case, First National Bank of Boston v. Belotti:
"It has long been recognized, however, that the special status of corporations has placed them in a position to control vast amount of economic power which may, if not regulated, dominate not only the economy but also the very heart of our democracy, the electoral process... The State need not permit its own creation to consume it."2
Chief Justice Rehnquist, dissenting in the same case:
"...the blessing of potentially perpetual life and limited liability, so beneficial [sic-R.G.] in the economic sphere, poses special dangers in the political sphere."3
A great achievement of corporations, as they set out towards the end of the 19th century to transform the law and recreate themselves, was to replace basic tools of sovereign people—chartering, defining incorporation laws, "by what authority" proceedings and charter revocation—with regulatory and administrative law, new legal doctrines and fines as corporate punishment. Many people of that time understood that these changes amounted to a counterrevolution, and so they resisted with great passion and energy.
Farmers and workers were not willing to concede that the corporate form would define work and money and progress and efficiency and productivity and unions and justice and ethical conduct and sustainability and food and harmful and reasonable behaviour. They were not willing to concede that corporations should have the rights and privileges of persons.
So they organized, educated, resisted. They were crushed by giant corporations' ability to use state and federal government to take rights away from people and bestow them upon corporations.
Over time, corporations were able to claim for themselves rights and privileges taken from the sovereign people via violence, with favorable decisions by federal judges. Corporations were conceded personhood, and a long list of civil and political rights such as free speech, and property rights, such as the right to define and control investment, production, and the organization of work.
By the beginning of the 20th century, corporations had become sovereign and they had turned people into consumers, or workers, or whatever the corporation of the moment chose to define humans as.
Without a clear understanding of history, most citizen efforts against corporations in this century have been struggles against the symptoms of corporate domination, which we have waged in regulatory and administrative law arenas.
But these are not arenas of sovereignty. These are stacked-deck proceedings, where people, communities and nature are fundamentally disadvantaged to the constitutional rights of corporations. Here, we cannot demand "by what authority" has corporation X engaged in a pattern of behavior which constitutes an assault upon the sovereign people? Here, we cannot declare a corporation ultra vires, or "beyond its authority." To the contrary, regulatory and administrative law only enables us to question specific corporate behaviors, one at a time, usually after the harm has been done... over and over and over again.
In these regulatory and administrative proceedings, both the law and the culture concede to the corporation rights, privileges and powers, which earlier generations knew were illegitimate for corporations to possess. In addition, in these proceedings, the corporation has the rights of natural persons: a human and a corporation meet head on, in a "fair fight."
Today, our law and culture bestow our sovereignty on corporations. So do most of our own citizen organizations dedicated to justice and environmental protection and worker rights and human rights. Consequently, our organizations use their energy and resources to study each corporation as if it were unique, and to contest corporate acts one at a time, as if that could change the nature of corporations.
Folks relentlessly tally corporate assaults, study the regulatory agencies and try to strengthen them. We try to make corporate toxic chemicals and corporate radiation and corporate energy and corporate banking and corporate agriculture and corporate transportation, corporate buying of elections, and corporate writing of legislation, and corporate education of our judges and corporate distorting of our schools, a little less bad.
Isn't it an old story? People create what looks to be a nifty machine, a robot, called the corporation. Over time the robots get together and overpower the people. They redesign themselves and reconstruct law and culture so that people fail to remember they created the robots in the first place, that the robots are machines and not alive. For a century, the robots propagandize and indoctrinate each generation of people so they grow up believing that robots are people too, gifts of God and Mother Nature; that they are inevitable and the source of all that is good. How odd that we have been so gullible, so docile, so obedient.
Isn't it odd that we don't remember who We the People are? How sovereign people should regard ourselves, how sovereign people should act? We need to realize what power and authority we possess, and how we can use it to define the nature of corporations, so that we do not have to mobilize around each and every corporate decision that affects our communities, our lives, the planet.
In the face of what we experience about corporations, of what we know to be true, why are so many people so obedient? Why do we hang on to the hope that the corporation can be made socially responsible? Isn't this an absurd notion? After all, organizations cannot be responsible. This is just not a relevant concept, because a principal purpose of corporations is to protect the managers, directors and stockholders from responsibility for what their corporations do.
But only people can be responsible. How? By defining ourselves as sovereign people so that we then can define all the corporate bodies that we create (governmental, business, educational, charitable, and civic).
We the People are the ones who must be accountable. We are not accountable when we create monster robots which run rampant in our communities and which, in our names, sally forth across the world to wreak havoc upon other places and upon other people's self-governance.
We are not being socially responsible or civically accountable when we don't act like sovereign people.
We are not being socially responsible or civically accountable when we play in corporate arenas by corporate rules.
We are not being socially responsible or civically accountable when we permit our agents in government to bestow our sovereignty upon machines.
We are not being socially responsible or civically accountable when we organize our communities and then go to corporate executives and to the hacks who run corporate front groups and ask them to please cause a little less harm; or when we offer them even more rewards for being a little less dominating.
Sovereign people do not beg of, or negotiate with, subordinate entities which we created. Sovereign people instruct subordinate entities. Sovereign people define all entities we create. And when a subordinate entity violates the terms of its creation, and undermines our ability to govern ourselves, we are required to move in swiftly and accountably to cut this cancer out of the body politic.
With such deeds do we honor the millions of people who struggled before us to wrest power from tyrants, to define themselves in the face of terror and violence. And we make all struggles for justice and democracy easier by weakening the ability of corporations to make the rules, and to rule over us.
Some might say this is not a practical way to think and act. Why? Because corporations will take away our jobs? Our food? Our toilet paper? Our hospitals? Because we don't know how to run our towns and cities and nations without global corporations? Because they will run away to another state, to another country? Because the Supreme Court has spoken? Because philanthropic corporations won't give us money? Because it's scary? Because it's too late to learn to act as sovereign people?
Because in 1997 it is not realistic for people across the nation and around the world to take away the civil and political rights of all corporations, to take the property rights and real property corporations have seized from human beings and from the Earth?
Yeah, and it is realistic to keep conceding sovereign powers to corporations, to keep fighting industrial corporations and banking corporations and telemedia corporations and resource extraction corporations and public relations corporations and transportation corporations and educational corporations and insurance corporations and agribusiness corporations and energy corporations and stock market corporations, one at a time forever and ever?
On January 10, 1997, President William Jefferson Clinton sent a letter to the mayor of Toledo, Ohio. The mayor had asked the president for help in getting the Chrysler Corporation to build a new Jeep factory within Toledo city limits to replace the ancient one which Chrysler Corporation was closing. The President of the United States, leader of the most powerful nation the world has ever known, elected head of a government always eager to celebrate the uniqueness of its democracy to the point of forcing it upon other nations, wrote:
"...As I am sure you know, my Administration cannot endorse any potential location for the new production site. My Intergovernmental Affairs staff will be happy to work with you once the Chrysler Board of Directors has made its decision..."4
Our President may not have a clue, but We the People did not grant away our sovereignty when we made Chrysler into a corporation. When we gave the Chrysler Corporation authority to manufacture automobiles, we made the people of Toledo not its subjects, nor Chrysler Corporation their supreme authority.
How long shall We the People, the sovereign people, stand hat in hand outside corporate boardrooms waiting to be told our fate? How long until we instruct our representatives to do their constitutional duty? How long until we become responsible....until we become accountable, to our forebears, to ourselves, to our children, to other peoples and species and to the Earth?
* The author is co-director of the Program on Corporations. Law and Democracy (POCLAD). P.O. Box 246, South Yarmouth. MA 02664-0246. Phone(508) 398-1145; E-mail: people@poclad.org. For $30.00 POCLAD offers a "contact kit" including a bibliography, articles, a resource list, and a one-year subscription to the publication "By What Authority."
Railroad v. Collins, 40 GA 582.
First National Bank of Boston v. Belotti 435 US 765 (1978).
The same source as Note 2, above.
Letter from Bill Clinton to the Honorable Carleton S. Finkbiner, January 10, 1997, printed in the Toledo Blade, 25 January 1997.
Rachel's Environment & Health Weekly (ISSN 1078-103x) is published weekly by Environmental Research Foundation, 612 Third St., Suite 2A, Annapolis, MD 21403-3246. Peter Montague, editor; Maria B. Pellerano, associate editor. RATES: $25 per year for individuals and citizen groups; $45 for universities and libraries; $80 for professionals and government agencies; $15 for students and seniors; $400 for businesses; in Canada and Mexico, add $8.00; in all other countries, add $15.00. AII payments in U.S. funds drawn on U.S. bank; Visa and Mastercard accepted. Telephone (410) 263-1584; fax (410) 263-8944; E-mail: erf@rachel.org. Rachel's Environment & Health Weekly is not copyrighted.