A New Purpose: Shifting Foundations That May Re-prioritize the Needs of Corporate Stakeholders and Social Movements
Introduction
Kent Greenfield’s book Corporations Are People Too is a thoughtful and timely analysis that sits at the nexus of Constitutional and Corporate Law, and at the heart of a chord that has recently been struck in contemporary American culture.1 As recently as the nineteenth century, the idea of corporations did not exist.2 In modern times, however, corporations are the most common form for business to take and account for the vast majority of business receipts in the United States.3 Greenfield identifies and explores several tensions regarding corporations, including: a simultaneous love and disdain for corporate brands; the virtually unpopulated nexus of corporate and constitutional law; and the degree to which corporations have “personhood” with all its attendant rights and burdens. On the last point, Greenfield explores the genesis and history and evolution of legal personhood and concludes by suggesting (as his subtitle indicates) that corporate entities should be held to more robust standards than profits for shareholders.
I. The Legal Fiction of Corporate Personhood and Associated Constitutional Rights
Legal fictions surround us. In a world that is constantly becoming more digital and less tangible, we are continually trying to fit these new products and services into categories we already know. Telecommunications have undergone a complete revolution in the past fifty years, though we still consider and refer to these small computers and communication devices as “phones” despite barely resembling the first telephones. In the world of electronic commerce, as the line between goods and services gets ever blurrier, many jurisdictions treat digital goods such as software and e-Books as “tangible personal property” though there is nothing tangible relevant to the transaction. Recently, the U.S. Supreme Court even accepted a proxy for “physical presence” in a number of transactions.4
The law has long accepted the fiction of legal personhood, as well. In addition to the personhood of corporations discussed at length by Greenfield, trusts and estates are often availed of the benefits and burdens of legal “personhood” despite, like corporations, being comprised of no flesh and blood. Corporations, and more specifically business corporations, have a particular set of dynamics surrounding them that come with attendant issues. Defining the edges of any legal fiction gives rise to complex legal and cultural questions, and Greenfield engages in a thorough and succinct analysis as it relates to corporate personhood.
Throughout history, the fundamental idea of corporations as people has remained a difficult one for many to accept, as Greenfield points out. From the Lord Chancellor of England to Governor Mitt Romney’s campaign dooming comments, public perception of corporations does not give rise to the same feelings of sympathy and trust that may come between humans.5 Despite the obvious fact that corporations are not actually people, Greenfield points to three reasons why corporate entitles are, despite our instincts, legally persons.
First, corporations are entities that are legally separate from any one person: indeed, legal separateness is an essential part of their reason for being. A corporation may hold property, enter into contracts, and be held accountable in our system of justice (by being sued) in a way that is distinct from any single person.6 Legal separateness is what allows the system of shareholders to invest in enterprises without having to micromanage the details and also allows for an entity to exist beyond the life of any human while continuing to serve its originally intended purpose.7 As Greenfield points out, there is a wide range of dynamics between corporations and their shareholders: from closely held family corporations, to publicly held megaentities, and everything in between. 8 The nuances that exist in the relationship between the shareholders and management, as well as between the corporate entity itself and all of its stakeholders, including customers, employees, and community, work differently on our collective psychology and impact the way we feel about corporate personhood.
Second, Corporations are made up of people. As Greenfield notes: “Corporations are collective bodies in which humans come together as employees, investors, managers, or suppliers to create goods or services to sell for a profit.”9 Though the term “Corporate Purpose” is frequently used in statutes, those statutes often use the term to refer to the business in which a corporate person is engaged. The legal community and common law understanding of the general purpose of a corporation is that the “ultimate purpose of a business corporation is to make profits for its shareholders.”10 As Greenfield will discuss at length, this concept of “shareholder primacy,” which is nuanced in origin, is ultimately flawed and increasingly untenable in our modern society. Historically, corporate law understands the primary purpose of all people involved in a centrally managed corporate business is to maximize profit for shareholders and believes that service to other stakeholders, including employees, community members, and supply chain, will all be well and ethically maintained in service to the larger goal of profit maximization.11 Though the common purpose that unites the people that make up a business corporation is usually understood to be profit maximization, each entity may have an area or theme that also unites the people within it. Greenfield uses the example of the New York Times—and indeed could have included many other publications. Though the purpose of the business corporation is to maximize profits, it also has the purpose to be the principal publication of record in the United States.12 As will be discussed, these purposes, once ancillary or complimentary to the drive for profits, have taken on a new place in modern society.
Third, Greenfield argues that the rights of corporations to constitutional protections are another indicator of their personhood.13 Of the three reasons Greenfield presents, this one is the most nuanced, fluid, and the subject of a great deal of judicial review and legal scholarship. If there exists an opposite of a constitutional right, Greenfield argues, it is governmental power. In this dichotomy, the argument that corporations have no constitutional rights is not supported by history, jurisprudence, or public perceptions.14 Beginning with the Supreme Court ruling that permitted the New York Times and Washington Post to lawfully publish the Pentagon papers, 15 Greenfield identifies points in United States history when the assertion of constitutional rights by corporate entities was widely accepted. Considering the dichotomy between constitutional rights and governmental powers, if the New York Times and Washington Post had not been allowed to assert the constitutional rights related to personhood, then government intervention would have led to a result in that case that set the entire democratic framework of the United States on a different course.
Professor Greenfield engages in a cogent review of constitutional rights as they pertain to corporations, beginning with “The Easy Cases” of Eminent Domain, Due Process, and guarding against government overreach.16 These rights ascribed to corporations are in line with the role that corporations have in our society of creating social wealth. The more difficult cases Greenfield discusses relate to criminal law and procedure.17 The bulk of his review and analysis, however, is saved for the very interesting questions surrounding the protections of corporate speech. Building on an understanding of the myriad ways that corporate entities influence the marketplace and engage the public in debate, Greenfield examines the different ways in which corporate “speech” may be protected or impacted by constitutional rights and protections.
After an examination of the complexities in defining and categorizing corporate speech, Greenfield focuses on the nuanced and fraught question of corporate political speech. From Buckley v. Valeo to Citizens United, the American electorate is paying more attention to corporate spending on elections than ever before because corporate contributions to politics have never been more influential. Recognizing that corporations are collective enterprises that are dominated by a management team seeking an economic advantage in line with their goals to maximize profits for shareholders, Greenfield sets the stage for setting out where we currently stand with regard to what First Amendment jurisprudence may insist on from corporations.18 Veracity and transparency of statements by corporations, whether on commercial or political topics, is the foundation of what the First Amendment demands from corporate speech.19 Greenfield builds on those responsibilities and expectations by considering the place of the corporation in our culture and insisting on protections of the whole rather than special interests. 20 Greenfield helpfully establishes that First Amendment jurisprudence will not permit corporations to benefit a subset of their stakeholders (such as shareholders or management), and that political activity is limited to items that are related to the business of the corporation.21
II. Shaking the Foundations of Law and Economics
Greenfield predicates his analysis of constitutional and speech rights of corporations on a foundation of law and economics. Starting with a pronouncement from the magnate William Henry Vanderbilt in 1882 that revealed a truth about the relationship between those making decisions impacting the public interest and the public at large, Greenfield summarizes the evolution of social welfare concern on the part of businesses.22 After detailing the ebbs and flows of the extent to which business enterprises have been beholden to the public, whether by government regulation or public influence, Greenfield outlines some of the highlights of our corporate history through the lens of law and economics.
From the Lochner case, which struck down New York’s requirement of a maximum sixty hour work week, to its cultural fall out, Greenfield moves through the ever evolving ideology of the United States with regard to expectations of corporations.23 From the academic skepticism of corporate influence in the 1960s and 1970s, to the change in tide that came with the election of Ronald Regan, which included a newfound adherence to belief in free market systems, the history of the push and pull of law and economics informs our analysis of corporate personhood and responsibility.24
In the section of his book titled “Three Shocks and a Pushback,” Greenfield identifies three moments that shaped the continually evolving relationship between corporations and citizens. First, the Financial Crisis of 2008. Second, the Deepwater Horizon oil spill in the Gulf of Mexico. And finally, the U.S. Supreme Court’s decision in Citizens United.25 The response to these three events was rapid and profound. Scholars and public citizens were calling into question the validity of the essential stated purpose of corporations: to maximize shareholder value. Quickly, the concept of “shareholder primacy” began to slide out of popularity, or rather, be reframed as a long term goal. As some remarked:
There’s a growing body of evidence . . . that the companies that are most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing shareholder value. Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do.26
There are two additional factors that support Greenfield’s conclusion in this section. The first is the change in the way the general public receives and consumes information, and the second is the promulgation of concepts in the area of Behavioral Economics.
In addition to the moments in history that Greenfield highlights, the past few decades and a new generation of consumers have a completely novel relationship with information. Advances in technology have made all sorts of information instantly available, heightening the public’s ability to demand accountability from corporations. Although in the Regan era, a corporate enterprise may have been able to paint a longer term picture of their plans and impacts, in today’s information-sharing age, snippets of short term action get more attention than ever before, resulting in more transparency in every aspect of our commercial lives. This constant review of corporate activity has forced a change in behavior. Instead of a longer term sum of good corporate behavior, entities are head accountable for each individual action with less regard to how a long term strategy may fit together.
Related to this is the popular field of Behavioral Economics, which has been applied to many different disciplines and become a popular lens through which to re-view many established concepts. Where traditionally the field of economics is based on the idea that a rational person will act in a way that will maximize value, the field of Behavioral Economics upends that notion by marrying concepts of psychology into economics and realizing that people rarely act in a way that rational economists would expect.27 Among other things, this field recognizes various heuristics to explain the most common ways people respond to their choices that do not maximize value. In line with some of these heuristics that account for human nature is the concept “value” that may not always be best measured in shareholder profits.28
Recent application of principles from behavioral economics have become commonly considered and used by business entities and policy makers alike.29 A new focus on this field has changed the way we can consider basic principles of economics and may have contributed to a recent shift in the essential purpose of business corporations.
III. A Response to the Call: Realignment of Priorities
Greenfield’s work is timely because it comes at the confluence of all of these forces-shifting attitudes about business corporations, continuously evolving jurisprudence and public opinion about the scope of constitutional rights available to corporations, continuously available and publicized information, and changing ideas of what is value for stakeholders. At the end of his book, Greenfield identifies some of the flaws in the traditional tenet of corporate law that calls for the protection of shareholder primacy, as well as the Regan-esque, free market reasons for protecting it.
Given the recent exacerbation of income inequality on a global scale and the attention paid to those individuals and entities that create it, 30 Greenfield’s pleas for the end of shareholder primacy are timely. Accordingly, in August of 2019, the Business Roundtable, comprised of Chief Executive Officers of some of the world’s largest corporations, promulgated a “Statement on the Purpose of a Corporation” that was signed by 181 member CEOs.31 Carefully crafted over the course of about a year (coincidently, shortly after the publication of Greenfield’s book), this document is a recognition in the form of a policy shift away from shareholder primacy and toward a system that serves all stakeholders, including customers, employees, suppliers, communities and shareholders.32 While this policy statement is certainly a response to the position of Professor Greenfield and others who agree with his perspective, a certain skepticism will remain.33 There is a fear that the income elite are savvy about their position and aim to appease the concerns of the many with policy changes and even small concessions.34
The march of time and progress is strong, and whether forces of the free market work or principles of fairness, justice, and equity demand it, there is hope in the signs that considerations more valuable to society as a whole are supplanting the desire for shareholder primacy, thanks to the thoughtful work of authors like Professor Greenfield.
*✕Natasha N. Varyani is an Associate Professor of Law at New England Law | Boston. She comes to academia after roughly a decade of practice where she represented large corporate clients on a number of multi-jurisdictional tax issues. She is grateful to Professor Greenfield and the New England Law Review for this thoughtful symposium and scholarship, particularly Brie Mainiero, and all students in her Critical Race Theory seminar who have been a constant source of inspiration.
1✕KENT GREENFIELD, CORPORATIONS ARE PEOPLE TOO: AND THEY SHOULD ACT LIKE IT (2018).
2✕ROBERT CLARK, CORPORATE LAW ch. 1 (1986).
3✕Id.
4✕See South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2087–88 (2018).
5✕GREENFIELD, supra note 1, at 1.
6✕GREENFIELD, supra note 1, at 2, 9–12.
7✕GREENFIELD, supra note 1, at 10.
8✕See GREENFIELD, supra note 1, at 10.
9✕GREENFIELD, supra note 1, at 2.
10✕CLARK, supra note 2, at 17, 18 n.46.
11✕See GREENFIELD, supra note 1, at 20–21.
12✕See, e.g., GREENFIELD, supra note 1, at 3.
13✕GREENFIELD, supra note 1, at 3.
14✕See GREENFIELD, supra note 1, at 3.
15✕New York Times Co. v. United States, 403 U.S. 713, 714 (1971)..
16✕GREENFIELD, supra note 1, at 70–74.
17✕GREENFIELD, supra note 1, at 74–81.
18✕GREENFIELD, supra note 1, at 155–67.
19✕GREENFIELD, supra note 1, at 168.
20✕GREENFIELD, supra note 1, at 169–70.
21✕GREENFIELD, supra note 1, at 169–70.
22✕GREENFIELD, supra note 1, at 29–30.
23✕GREENFIELD, supra note 1, at 31–33.
24✕GREENFIELD, supra note 1, at 44–45.
25✕GREENFIELD, supra note 1, at 51–54.
26✕GREENFIELD, supra note 1, at 53 (quoting Justin Fox & Jay W. Lorsch, What Good Are Shareholders?, HARV. BUS. REV. (2012), https://perma.cc/HK6J-QW8S).
27✕Richard H. Thaler, THE NOBEL PRIZE, https://perma.cc/5WS4-RZT7 (last visited May 9, 2021) (stating that the 2017 Nobel Memorial Prize in Economic Science was awarded to Richard Thaler for his contributions to the field of Behavioral Economics); Psychological Science Underlies Nobel Prize-Winning Work, ASS’N FOR PSYCHOL. SCI. (Oct. 11, 2017), https://perma.cc/KL36-9DKX (noting that Thaler’s work was largely shaped by the work of Daniel Kahneman, who received the Nobel Prize in Economics in 2002, and Amos Tversky).
28✕RICHARD THALER, MISBEHAVING: THE MAKING OF BEHAVIORAL ECONOMICS 25–34 (2016) (explaining “Value Theory”).
29✕See Tim Harford, Behavioural Economics and Public Policy, FIN. TIMES (Mar. 21, 2014), https://perma.cc/VL2R-RVVH.
30✕See generally ANAND GIRIDHARADAS, WINNERS TAKE ALL: THE ELITE CHARADE OF CHANGING THE WORLD 3–7 (2018).
31✕Business Roundtable Redefines the Purpose of a Corporation to Promote ‘an Economy that Serves All Americans,’ BUS. ROUNDTABLE (Aug. 19, 2019), https://perma.cc/V5F5-LZB9.
32✕Statement on the Purpose of a Corporation, BUS. ROUNDTABLE (Aug. 19, 2019), https://perma.cc/N3DE-YNSX (reflecting signatures added as recently as February 2021).
33✕See Jay Coen Gilbert et al., Don’t Believe the Business Roundtable Has Changed Until Its CEOs’ Actions Match Their Words, FAST COMPANY (Aug. 22, 2019), https://perma.cc/6938-HDVX.
34✕See generally GIRIDHARADAS, supra note 30, at 226.
