Feb 17, 2011

Are Corporations People, or Not?

   Stephen Bainbridge is a Professor of Corporate Law and a relatively popular law blogger. In a recent blog post he made the statement that
“The social obligation of business is to sustainably maximize long-term profits for shareholders. Nothing more. Nothing less.”
This is a fascinating statement, especially in light of what Mr. Bainbridge writes elsewhere in his blog. In articles like this he states, quite vehemently, that 'corporations, under the law, persons'; this is because under American law corporations, LLCs, etc. are, in fact, persons just like you and me. Corporations can enter into contracts, be sued in civil court, etc. But they also have the right to free speech of the First Amendment and have been able to use the Equal Protection clause of the Fourteenth Amendment to avoid governmental regulation of businesses (since, after all, they are no different than you or I, under the law). Indeed, there are those who point out the Fourteenth Amendment is used much more often to shield corporations from regulation than to protect actual people from discrimination.
Of course, the legal fiction that sorporations are persons is just that – fiction. Corporations are intended to shield their owners from legal and financial risk – this concept is why Mr. bainbridge can feel comfortable saying some variation of 'the only purpose of a corporation is to make money'. Yet a corporation is no longer a pile of money under certain protections, it is (in the eyes of the courts) a person; a corporation has the 'right' to free speech, assembly, political speech and donations, and equal protection as any other citizen.
But corporations are not the equal of actual citizens, are they? Being effectively immortal, they do not face the estate tax and are not required to plan for their death. In many areas they have different taxes (typically lower) than actual people who make the same amount of money. As a matter of fact, 'business friendly' states, counties, and towns often are called 'business friendly' because they offer lower taxes, even no taxes, on corporations and on the property owned by corporations. Why? Because these regions expect to have a net gain in revenue from the (never lowered) taxes they will extract from the wages and property of the real people who work for the legal person they have favored.
In the end, corporations are legal persons of privilege – they are favored by the law and government over real people and enjoy legal protection of their elite status.
And now we are back to Mr. Bainbridge's quote, the heartfelt belief of Libertarians that corporations have no social responsibilities. This is just an extension of the elite status of corporations. After all, only the most extremem of Objectivists would claim that a real person has absolutely no obligations of social responsibility. It appears that to Mr. Bainbridge the concept of social contract ends where business contracts begin.
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