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Corporate Personhood and the CSR Myth  

"Some of the most talked about corporate names in recent times, including Enron, Lehman Brothers, or close at home in India, Satyam or Vedanta, have been honoured with CSR awards. But the question is - Why should corporations be socially responsible? In a celebrated New York Times op-ed written in 1970, the high priest of neo-liberalism and Nobel laureate Milton Friedman asserted that “a corporation is an artificial (but legal) person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have (social) responsibilities”. Only individuals can have ethics or morality, while corporations are supposed to follow no more than the ‘rules of the game’ set by society and state, he opined. However the US examples seems to be some lessons for India's not very far future."


Prof Rahul Varman


Why there is an Occupy Wall Street movement protesting corporate personhood? How and why did corporations come to enjoy – and exploit — the legal rights and freedoms granted to individual citizens, even while they are exempt from the social responsibilities that go with those freedoms?

Corporate Social Responsibility (CSR) is the buzzword of the day in all circles. It seems to crop up everywhere from academia to media, politics, conferences etc.; there are awards for CSR indexes or corporate scores on CSR display and so on. Simultaneously, there seems to be a universal view that corporations ought to be anything but ‘socially responsible’! Significantly, some of the most talked about corporate names in recent times, including Enron, Lehman Brothers, or close at home, Satyam or Vedanta, have been honoured with CSR awards.


But the question which legitimately comes up is: Why should corporations be socially responsible? In a celebrated New York Times op-ed written in 1970, the high priest of neo-liberalism and Nobel laureate Milton Friedman asserted that “a corporation is an artificial (but legal) person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have (social) responsibilities”. Only individuals can have ethics or morality, while corporations are supposed to follow no more than the ‘rules of the game’ set by society and state, he opined.  Friedman argued persuasively that “the social responsibility of the business is (solely) to increase its profits”.

On the other hand an enduring demand that has been at the centre of the ongoing Occupy Wall Street movement in the US is to abolish ‘corporate personhood’; for instance, on a websiteI created to vote for the demands of the movement, one demand that is almost at the top is to ‘eliminate personhood legal status for corporations’ (the only demand ahead of this is reinvestigation of 9/11 attacks).

So what is the debate between Friedman, the supporters of CSR and the members of ongoing Occupy movement? Let us try to understand why mighty corporations covet ‘personhood’ - Rights available to every insignificant individual of the society. Let us fill in the space around the ideas of corporate profits, CSR and corporate persona with some real life incidents in the journey of corporations taking clues from some examples of the ‘corporate revolution’ from its very cradle, the United States, where we are told corporations have done wonders for society as a whole. Let us pick out and try to understand the genesis of some of the most significant ‘personhood rights’ of corporations including,

- Right to equality and due process (Fourteenth Amendment)

- Right to free speech (First Amendment)

- Right to protection against unreasonable searches and seizures (Fourth Amendment).

Right to equality and due process (Fourteenth Amendment)

Even a cursory glance at the history of corporations reveals that over the years corporations have acquired, in the eyes of the law, entitlements not only as ‘artificial persons’ but as ‘natural persons’, meaning, rights which are normally associated with humans in a democratic society. The Fourteenth Amendment to the US constitution is the most striking one. It was brought in 1868 in the wake of the Civil War and it declared that all citizens, including blacks, have equal rights; it abolished discrimination and provided protection to every citizen in the due process of law. But a law which came as a consequence of the Civil War to nullify the abhorrent practice of slavery and its deleterious consequences immediately became an instrument in the hands of corporate lawyers and sympathetic judges. Of the 307 cases relating to the fourteenth amendment that were brought to the Supreme Court till 1910, only 19 dealt with African Americans while 288 were brought by corporations seeking claims as natural persons to uphold their ‘equal rights’ as ‘citizens’ – like the right not to be over-taxed, or that courts had no right to regulate the working hours of their employees.

It all started with  the momentous Santa Clara County vs Southern Pacific Railroad Company case where the Supreme Court ruled in 1886 that “the defendant corporations are persons within the intent of the... Fourteenth Amendment” and thus have a right to equal protection of the laws. The railroads were some of the largest and most influential corporations in post-Civil War USA (and perhaps in the world) and have been much celebrated as path-breaking by corporate historians. The specific dispute appeared innocuous as it was only regarding the assessment and payment of a small tax to the Santa Clara county of California. On a property of $ 30 million, the corporation refused to pay taxes of $ 30,000 (1/10th of a percent) on grounds that the county was not authorised to assess tax on the fence of the property (the fence was to be assessed by the state government, though the complete tax was due to the county) and to make its point the railroad withheld all its taxes. Perhaps other counties were charging tax at a different rate, and the corporate lawyers added a plea under the Fourteenth Amendment. But the court not only passed a judgment in favour of the railroad on the tax dispute but also made a historic pronouncement declaring corporations to be natural persons, a pronouncement repeatedly used by corporate lawyers, which gradually expanded into the notion of corporate personhood.

For instance, quite relevant for us in the ongoing Retail FDI debate, in 1933, retail chain JC Penny filed a case against Florida state for charging it different license fees than the locally owned small stores and won it under the Fourteenth Amendment.

Right to free speech (First Amendment)

No less eventful is the process of gradual acquisition of the right to free speech by corporations. Free speech was included as part of the bill of rights in the First Amendment to the American constitution almost immediately after its adoption in the late-18th century as it was realised that sufficient guarantee was not extended to civil liberties. There is a long history of corporate attempts at appropriating rights under the First Amendment and acquiring natural person entitlements. One of the landmarks is the First National Bank of Boston case in 1978 where the court ruled that the bank had the First Amendment right to political speech like any person. But, more interestingly, the bank argued that since the corporation did not have a tongue it should be allowed to speak through its pocket and thus for a corporation. So, spending money and making political contributions was the same as free speech! The bank won the case in the Supreme Court based on the precedent set by the 1886 Santa Clara case.

The corporation’s right to influence elections was taken several degrees further by the momentous Citizen’s United vs Federal Election Committee case last year where the Supreme Court overturned a 1907 Act giving corporations a free hand for as much commercial spending as they would like during elections, again as a ‘natural person’ under the First Amendment free speech right.  In the Citizen’s United 2010 case Supreme Court Judge Kennedy remarked, “The government has muffled the voices (of corporations) that best represent the most significant segments of the economy. And the electorate has been deprived of information, knowledge and opinion vital to its function (emphasis added).”

Now, what kind of ‘essential information’ has the electorate been, thus, far ‘deprived of’ which was corrected by the Supreme Court of the United States in 2010? This takes a very interesting turn if we read the 2010 judgment with another landmark Nike vs Kasky case. Against a barrage of reports on slave-like conditions in which Nike shoes were being manufactured in Vietnam and elsewhere, Nike went on a public relations overdrive and in 1997 its sports marketing director pledged in a letter to athletic programme directors and presidents of US universities that Nike’s manufacturers complied with “government regulations regarding minimum wages and overtime as well as occupational health and safety, environment regulations, workers’ insurance, and equal opportunity provisions.” When Mark Kasky discovered that this was all a fabrication and filed a case, a US Court of Appeals ruled in 2000 that Nike was only promoting its products, as any company would, could and should, and telling untruths was “within the core area of expression protected by the First Amendment”, thus implying that a corporation has a right to lie, quite like any of us in our personal talks, as part of the right to free speech. The judgment was overturned by the California Supreme Court but the case went all the way to the US Supreme Court in 2003 where the who’s who of big business and media, like Microsoft, Pfizer, Exxon, Bank of America, Fox, New York Times and a large number of other corporations and surprisingly, the American Civil Liberties Union and even AFL-CIO (the largest federation of unions in the US), all stood in solidarity with Nike supposedly for the corporation’s right to ‘free speech’. Nike claimed, “To say that we have to only say things that are accurate violates our First Amendment rights to free speech (emphasis added).” Most amazingly, after the arguments began, at some point the court decided to send it back to the California court and Nike settled it out of court with complainants for a trivial sum! So the corporate ‘right to lie’ stands as it is under the First Amendment and when read with the Citizens United case gives an interesting turn to the meaning of free speech and elections in the ‘world’s oldest democracy’.

Right to protection against unreasonable searches and seizures (Fourth Amendment)

One would think that a corporate entity which has acquired all kinds of basic rights like free speech in the due process and yet has no responsibility, as Friedman decreed, ought to be subject to some accountability by state and society, given its massive size and financial muscle. But here again, corporations have successfully sought the protection that individuals could claim and attained the personhood rights. For instance, the Fourth Amendment was brought in to protect citizens “against unreasonable searches and seizures” by the state, but has been regularly deployed by corporations as a defence against any kind of checks since the Santa Clara 1886 case. US courts have regularly ruled that corporations have a right to protection under the Fourth Amendment and thus they have successfully blocked surprise inspections by occupational safety and health administrations as well as environment protection agencies. In 1998 when one of the largest meat packing companies in the US detected deadly bacteria called Listeria in its meat, it simply stopped testing, kept producing (and selling) and blocked surprise inspections under the Fourth Amendment. After a month the Centre for Disease Control could trace the disease Listeriosis to the plant through DNA fingerprinting but by then 21 persons, mostly children, had died.

Corporate personhood: Where does it leave us?

Thus mammoth corporations have a legal right to lie, stop attempts at inspection, to treat their employees as they wish, participate in elections, and demand treatment like any other person on the street. And yet they are not burdened by any social conscience or norms. Such a notion of a corporate persona becomes even more intriguing when it is juxtaposed with the rulings made in the cases of individual citizens. Consider, for instance, the celebrated Plessy vs Fergusan case of 1896. Homer Plessy, who was classified a ‘black’ (he was 7/8th ‘white’ it seems) under a Louisiana law and thus required to sit in the ‘coloured’ car, sat in a ‘white only’ rail car and was jailed. When a remedy was sought under the Fourteenth Amendment, the Supreme Court ruled that the amendment “could not have been intended to abolish distinctions based upon colour, or to enforce social, as distinguished from political, equality….” Thus while the US Supreme Court was willing to transcend the species and grant human rights to corporations, a full 10 years later it was very keen to preserve ‘distinctions’ based on colour!

If we feel that all of this happens only in the US and India is quite distant from us, it might be important to remember that if this is not already a legal reality, it is en route to becoming legal in the garb of the ‘level playing field’ for corporations  under the supra-government of the World Trade Organisation. For instance when a new constitution was adopted in South Africa after a long anti-apartheid struggle in 1996, corporate personhood rights were enshrined in the constitution itself, the Santa Clara case being repeated all over again after 100 years.

It will be fitting to end this article with a recent account of Wal-Mart, which has been subject to the world’s largest class action suit for systematic discrimination involving its 1.6 million female employees (present as well as past). In the Supreme Court last year, the corporation came up with a disingenuous defence that with “7 divisions, 41 regions, 3,400 stores and over 1 million employees” (in the US, as of 2004), it was “impossible” for any small group of plaintiffs to adequately represent a “class” in the legal sense. Thus with all those regions, divisions and stores, the experiences of individual employees were just too variable to allow for a meaningful ‘class’ to arise. In other words, Wal-Mart was too large for its management to know what some of its parts were doing and thus the corporation was “too big to be sued” for the actions of any particular division. This is for a corporation where it is documented that even temperatures in far-flung stores are monitored from the Orwellian headquarters in Bentonville! Now this gives the most alarming turn to the corporate creature – on the one hand it has attained all the rights of a human in spite of its gigantic proportions, and yet it is devoid of any responsible central nervous system to control the parts and hence can conveniently act (actually wreak havoc) without being troubled by any conscience! Now what kind of monster is this? Analogically it is akin to a mammoth road roller being unleashed on a busy city street, where the road roller has all the rights of any ordinary pedestrian but is unencumbered by any ethics or morality with the driver claiming that he is not responsible for what the wheels do! In fact the whole traffic control system seems to be geared to assisting freer access to this irresponsible monster instead of getting it off the road! And our state, elected representatives and corporate elite are trying to convince us that these monsters are the answer to all our ills. Perhaps the time has come to take a closer look at their assurances.

People News Network (PNN)

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