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Luigi Cerri

Università di Siena, Dipartimento di Economia Politica

Université de Paris X, Ecole Doctorale “Economie, Organisation, Société”






The political and economic power that big private business has accumulated since the early 20th century poses a serious question to any program aiming at the development of economic democracy.The reason is twofold: the institutional structure of corporate capitalism prevents alternative organizations (such as self-managed firms) from competing with the existing giant firms, that is, it poses a barrier to entry. Besides, the financial accumulation that corporations are able to pursue allows them to occupy a wide range of public spaces. In this paper I analyze the political and economic consequences brought about by the attribution of ‘personhood’ to American incorporated enterprises: since the second half of 19th century, the legal status of person has contributed to make corporations autonomous from public control, and to shield their accountability while retaining the correlative privileges, such as the limited liability of shareholders, the possibility of purchasing other companies’ shares and the possibility of collecting funds on the financial market. Although these features are normally taken as obvious, they are the relatively recent results of a long debate. Furthermore, as the process of ‘personification’ was pushed further, corporations ended up enjoying ‘natural rights’ such as freedom of speech, equal protection and right to privacy. This legal position, stated by the American constitutional amendments and reaffirmed by international trade agreements, plays a crucial role in the emerging debates on Corporate Social Responsibility (CSR). I will discuss the conceptual premises and the historical steps of such transformation, and provide some arguments to show the link between corporate personhood and the abandon of a political discourse.









In this paper I will try to answer the following question: what is the relation between corporate personhood and democracy?

The most striking consequence of corporate personhood is related to the use of constitutional amendments by American business corporations: the first amendment’s protection of freedom of speech has been invoked to legitimate corporate spending in political elections, or to ban limits on advertising activity; the fourth amendment’s protection of privacy has been handled to de-legitimate public control and inspection; the fifth to impede repeated lawsuits, and so on[1].

But corporate personhood is not limited to that. As we will see below, since the second half of the 19th century the attribution of personhood has largely contributed to make corporations autonomous from the public institutions in which they were embedded.

We can split the basic question of this paper in two:


a)   to which extent corporate personhood allows power accumulation (in economic and political terms)

b)   on which concept of democracy lays the theory of corporate personhood


Here I won’t enter in the question of whether big corporations are inefficient, although it may be said so (see for example Fligstein 1990, Roy 1997). Rather, I will try to tackle the question from another perspective: provided that this institution has proved to enlarge its area of influence and its rights, and provided that it has grown more or less continuously, according to different strategies, I wonder what makes this growth possible.

The need of analyzing the corporate revolution from a political point of view is partially due to a certain dissatisfaction with respect to the dominant economic approach. In particular, the recent transformations of big corporations do not seem to give much support to the efficiency-based arguments of Neo-Institutionalist and Property Rights schools. The dis-integration of production toward less developed countries and the gradual abandon of long term employment relations witness the return to pure market transactions. Of course those strategies are “efficient”, provided that Chinese hourly wages are 0.40 euros[2], and that labor flexibility better fits demand swings: but, as a consequence, transaction costs do not seem to play a prominent role with respect to other types of costs. The fact that the enterprises pursue individually efficient strategies is then somehow obvious, given the very nature of their activity. We are thus pushed to take a step backward, and wonder how the political context shapes the efficient strategies. Furthermore, the emergence of the conglomerate form seems to show that corporate expansion is pursued beyond any technical criteria: the integration of very different product lines under a unique control does not give any long term competitive advantage to the single product lines, but enhances the “presence” of the whole conglomerate corporation[3] and provides to it an increased self-sufficiency. The capital market failure’s explanation (Williamson 1975, 1985) does not consider the institutional framework where the conglomerate form has taken shape: as Fligstein (1990) has shown, the major factor contributing to the creation of conglomerates was the introduction of antitrust laws (the Celler-Kefauver Act) that prohibited further concentration within single product lines[4].

The Williamson’s operational hypothesis that “in the beginning there were markets” is thus unacceptable. Corporate institutional tools historically do not arise from former market relations. The use of operational concepts is in some sense the inheritance of a positivist approach to social sciences: we don’t wonder whether those concepts are true, but we assume them in order to formulate a rationalization of the existing arrangement. In other words, the ‘Is’ becomes the source of the ‘Ought’, and the politics disappears. As we will see in section 2, positivist operationalism deeply marks the recent history of corporate personhood (Mayer 1990).

The paper is organized as follows: section 1 provides an historical account of the institutional and theoretical transformations that led to incorporation and corporate personification. In section 2 we will try to interpret the current debate. In section 3 a provisional answer will be given to the double question above, and lastly some provisionary conclusions will follow.



1    The stages of incorporation


When we talk about personhood of corporations, we must distinguish among legal personality, limited liability and joint stock principle. By legal personality of an institution we mean the following set of conditions: a) that the institution has an existence independent of its members, i.e. it does not terminate with the death of its (human) founders or members; b) that it can sue and be sued in tribunal in its own name, with respect to contracts as well as to crimes, even in relation to its members; c) that it may own property in its own name. The legal personality has been entitled since long time to a large number of institutions, from Churches to Universities, from associations to enterprises and banks: in other words, it’s not a specific feature of the modern corporation. By limited liability we mean the principle whereby a member of a company cannot be made personally liable for the debts of the company beyond the capital invested, or, in general, beyond a certain amount. Conversely, by the joint stock principle is intended “the principle whereby small, distinct, contributions of capital may be combined under a single management, to finance a scheme beyond the financial resources of any one contributor, while retaining the advantage that unitary control of the joint fund may be as flexible and efficient (almost) as each contributor might be expected to be in managing its own capital” (Perrot, 1982).

What was a real novelty of mid-19th century was not the possibility of conceiving legal personality beyond physical persons, nor the limited liability itself, nor the finance through bond issuing, but the combination for the first time of these features within a single institution, free from any public control. The dominant liberal ideology throughout the second half of 19th  century conceived the three principles of 1) free incorporation, 2) joint stock and 2) limited liability as naturally and unavoidably tied to each other (Perrot, 1982).

This change took place in Europe as well as in the U.S., but it’s in the U.S. that corporations were shaped in the way we know today. For instance, in France the société anonyme kept for long time its link with the State, so that French 19th century industrial policies were based on the idea that corporations were tools of the government (Dobbin 1994, Freedeman, 1979). In the 20th century French governments actively promoted corporate growth and mergers in order to face the international competition, but only recently big industrial groups have become autonomous from the government (Levy-Leboyer 1991). Therefore, in order to outline the institutional transformations that led to the so-called ‘corporate capitalism’, it is necessary to search them in the recent American history.

The process of ‘incorporation’ went through three main stages:

1) the corporation as a quasi-public agency – 1820s-1840s

2) privatization of control – 1850s-1880s

3) extension of free incorporation and emergence of natural entity theory – 1890-1905

In 1905 the transformation of corporate institution was more or less complete, as well as its definition as natural person. Since that time corporations have been the object of public regulation, which in turn has biased the scope and the criteria of their activity (Fligstein, 1990), but they rarely stopped enjoying the entitlements associated to their ‘naturalness’.


1.1 The corporation as a quasi-public agency (1820s-1840s)


The development of infrastructures in early 19th century United States has been accomplished through the cooperation between public and private organisms. States actively promoted turnpikes, canals, bridges, and eventually railroad constructions as they were unanimously considered projects of public interest. The high costs implied by these activities and the technical difficulties that they presented induced political communities to overcome the market mechanisms, through the creation of a hybrid institution, the “mixed corporation”. The grant of privileges[5], such as the right of monopoly, the limited liability of shareholders, the possibility of issuing bonds, and even the issue of money, was coherent with the exceptional character of companies’ activity, for which common market devices were not sufficient. The role played by the States is remarkable: federal power being still too weak, each State committed itself to infrastructure construction, often in rivalry with each other. “In some of the corporations which [the State] chartered it subscribed and owned as much as the half of the stock. A kind of mixed corporation developed; the Auditor-General appointed State directors to participate in the board of meetings of firms partially owned by the government, and legislative investigating committees were periodically authorized to see that the public treasury received its full share of corporate dividends” (Hartz, 1943). The use of “mixed corporations” and the wide autonomy enjoyed by American states in shaping industrial policy induce Dobbin (1994) to talk about ‘mercantilism’. The local and state governments’ activism went along with the idea of community’s self-determination, which pervaded the recently born American constitution. This communitarian concept of democracy gave to public institutions the legitimacy to undertake projects of public utility trespassing traditional private rights as property.


The anti-corporate movement. In this stage public debates were not focused on the opportunity of governmental intervention itself, rather on the distribution of benefits brought about by infrastructures. Moreover, the corporation was sometimes accused of being an obstacle to the correct development of public works. Following Hartz (1968), the anti-charter movement was articulated into 4 major points: 1) it criticized corporate immortality as a form of inheritance that perpetuated wealth; 2) it criticized the privileges granted to corporations as an abuse toward individual rights: for instance, limited liability was seen as a device that undermined the right of the creditor and worker to just compensation; 3) it underlined the invidious distinctions among individuals brought about by the privileged corporate chartered property; 4) it argued that corporations would end up by ruling the state and gaining political control. On the other side, proponents of corporations underlined the public accountability of chartered companies: “because charters were legislative enactments, the public interest was protected by restrictive clauses and the threat of having a charter revoked” (Roy, 1997). For instance, the charters often specified a minimum number of subscribers, in order to prevent the concentration of power, and sometimes prohibited interlocking directorates. And, “with little question or exception, state constitution makers and legislators developed the practice of including in their grants a standard reservation of legislative authority to amend or repeal what they gave” (Hurst, 1956)[6].


The administrative structure of the Erie Canal, built by the state of New York, became the model for all other public works. The most ancient canal of U.S. (1825) was managed by a council of 5 auditors named by the state, toward which they were responsible. This council was mainly engaged in tariff setting, personnel hiring and in the allocation of funds between construction and repairing activities. The financial council managed the finance and the distribution of dividends, under the budget control of the state (Chandler, 1977). The state of Pennsylvania was particularly active in the domain of infrastructures, often solicited by citizens’ associations: the Pittsburgh-Philadelphia canal had an administrative structure very similar to Erie’s one, but, moreover, the commissaries were not named but elected. The railways too were conceived in the beginning as quasi-public agencies: the first line, the Pennsylvania Main Line, was created in 1847 under the competitive pressure exercised by other states. The company was financed largely by the State (that invested 100 millions dollars), and benefited of several privileges, among which the possibility of issuing quasi-governmental bonds (in other words, guaranteed by the State). In return, its capital stock was capped and its charter lasted twenty years (the State having the right to repeal it). Besides, its direction was supervised by the State’s Canal Commission: according to Ward (1975), the Pennsylvania Railroad Company was created by the legislature as a “miniature republic”, involving large citizens’ participation and endowed of wide public accountability.

Even the State of New Jersey, which was traditionally more inclined than other states to favor private development of infrastructures, granted privileges to chartered companies in return to shares or obligations: for instance, in 1830 the state granted the charter to the Delaware and Raritan Canal Company and to the Camden and Amboy Rail Road and Transportation Company, specifying that a quarter of the stock was at disposal of the State. The spirited debate originated by the (merged) companies’ proposal of monopoly rights for the route between New York and Philadelphia ended up with the concession of the monopoly right, but only after “the company had offered the state an additional thousand shares and pledged to pay no dividends until the state had received at least 30,000 dollars a year in duties” (Roy, 1997). Thus, even though the political accountability of corporations was not very developed in New Jersey, chartered companies were not considered as common enterprises: public debates were not centered, as in Pennsylvania or in Ohio, on the opportunity of a wider public control, but on the legitimacy of corporate rights, first of all the right of monopoly. There existed then two possible paths: either corporate privileges had to be banned, or they had to be given to any enterprise. As we know, the latter alternative ended up prevailing, but it was by no means “the only viable alternative”.


1.2 The privatization of control (1850-1880s)


The rhetoric that led to the privatization of Railroad Companies emphasized the intrinsic inability of political institutions to deal with economic activities. Nowadays a part of historical literature tends to see the privatization process as unavoidable, and the economic laws enunciated by orthodox theories seem to confirm the idea that giant firms are natural and necessary. Nevertheless, a different account may be provided.


Corruption and crises in the railroad business. The effects of the economic crisis of 1837-39 had been exacerbated by the several cases of corruption that appeared in infrastructure sector. Public control on those activities turned out to be insufficient, or rather unable to deal with corruption. “Railway promoters often won public assistance to build lines that had no chance of making money”, or they “disappeared with public funds even before having started the works”; furthermore, railroad companies “often watered the value of existing public stock by printing new stock certificates to distribute to their directors without collecting any capital in return”, or they simply “inflated the cost of production and pocketed the public funds they claimed to have spent” (Dobbin 1994). The reasons of public control inefficacy may have been multiple, and the comparison with other countries shows a key of interpretation:  for instance, in contrast with French ones, the administrative structures of American states were not endowed of a consistent technical knowledge (Shonfield 1965). Nevertheless, corruption and bankruptcies appeared in France too. What is more interesting, therefore, is to observe the different reactions that those crises produced. While in France the public opinion attacked private entrepreneurs, guilty of pursuing their narrow self-interest against the general will, in United States it was the government the object of the dominant critique. The French republican ideology was centered on the rousseauian concept of general will, embodied by the State. Any institution occupying a sort of middle place between the individual and the State was suspected of breaking the social contract. Despite the several political turmoils all along the 19th century, French economic policy showed a certain continuity, as the public administration never lose its prominent role in fashioning the industrial development. In United States, on the contrary, State activism was depicted by the emerging liberal thought as an anti-democratic practice, an unjustified interference into individual freedom.


The emergence of Liberal Thought and the first step toward ‘naturalization’. The anti-corporation movement split in two: one part of public opinion feared the corporations’ gain of political power, and demanded the abolition of privileges; another part pushed toward the withdrawal of public institutions from the private sphere, or, in other terms, from the economy. Both parties made use of ‘natural law’ concepts: “at the same time that the judiciary was using the idea of natural law to rationalize an increasing freedom for business corporations, the same concept, in the literature of labor and Democratic groups, was being widely elaborated to attack the very principle of their formation […] Though the one assailed the regulatory power and the other assailed the chartering power, slogans appealing to natural rights against political interference were freely circulated in both cases” (Hartz, 1943).

With the crisis of 1837 public control over chartered corporations appeared as intrinsically inefficient, and the liberal ideology gained consensus. Between 1847 and 1860 all the states had withdrawn from active control on corporations, and sold railways to private companies.

The rationale of the attack versus public control on railroad companies was no longer based on the effective general usefulness of constructions, as the “responsibility ethic” suggested, but on the efficiency of private enterprises with respect to public ones (Hurst, 1970). The legislative debate over the taxation of Pennsylvania Railroad Company, which was to become the largest enterprise of the world, well shows this new line of reasoning: public involvement in the economic sphere was opposed on the basis of a natural separation between government and private economy, between politics and trade. The individually centered Jacksonian democracy feared any power, private or public, that could restrict individual freedom. The argument against tonnage tax described fiscal imposition as an “artificial political intervention” into the individual Pennsylvania Railroad Company (Hartz, 1968). This was the first step toward the ‘personification’ of private corporations. The definition of individual begins to comprehend enterprises, so that natural rights granted to individual physical persons slowly began to be extended to corporations. At any rate, until the end of 1880s the essence of corporate personality was still rooted in contract law: corporations were seen as free associations among individuals. It will be only during the 1890s, with the emergence of natural entity theory, that the corporate personhood will gain autonomy from human personhood.

The erosion of grant theory in the years 1850-70 had the effect of protecting corporations from public control (Horwitz, 1992): the act of incorporation, it was stated, was a private contract among individuals over which the state had no voice. The evolution of corporate theory perfectly shows the change in legal thought and the emergence of the Orthodox Classic Legal Thought, which was based on a neutral conception of the legal system: reflected in the constitutional doctrine of “vested rights”, such political and economic philosophy postulated the existence of a private realm free from political coercion; the property right and the contract were seen as the ultimate expression of individual freedom, as institutions existing prior to law, into which public law had no interference.

The legal system was thus based on strict dichotomies: public law/private law, State/society, artificial law/natural law, trade/politics, and so on. “All these conceptualizations – says Horwitz (1992) – sought to establish a separate, “natural” realm of non-coercitive and non-political transactions free from the dangers of state interference and redistribution […] An independent realm of private law was thus conceived of as the perfect analogue to an increasingly dominant conception of a self-regulating market, whose “invisible hand” reflected natural and impartial economic laws that needed to remain uncorrupted by political interference” (p. 11). The birth of privately controlled corporations is thus marked by a neutral conception of politics, and, as a consequence, by a particular conception of democracy: no longer based on the “responsibility ethic”, the emerging democratic thought engendered the abandon of politics. As we will see below, in the 20th century legal positivism was going to produce an analogous outcome.


Railroad Companies and economic calculus. The relation between legal theory debates and the expansion of big corporations is thus rather strong. Now, the fact that Railroad Companies are the object of this evolution, and as a consequence the model of contemporary corporations, deserves some attention. Railway construction is not an ordinary economic activity. The technical complexity, the huge costs and the unavoidable coordination required by the network make railways a particular undertaking, necessarily involving the effort of a large number of persons and the utilization of huge material resources. In Europe as well as in U.S. public organisms created institutions with the specific purpose of overwhelming these difficulties, given the extraordinary character of infrastructure construction. The definition of corporation, the financial market, the investment banks take all shape in this period. But what was thought to be as an exceptional arrangement, tailored to an activity of huge dimensions, later became the normality. It’s as if the specific features of railway construction have become universal: for instance, the exploitation of scale economies ended up characterizing any sort of economic activity, even beyond the technical efficiency. Since companies had the possibility of mobilizing a huge amount of resources through the repeated issues of bonds, big size followed under the pressure of competition: economies of scale became then economies of capital.

The dynamics of competition among giant firms didn’t lead to the entry of new firms in profitable market niches, but on the contrary pushed toward the continuous expansion of already existing firms. The strategy of unbounded growth pursued by American railroad corporations, made possible by the availability of financial tools, was later imitated by the other enterprises once they got the same tools. But this type of competition produced a socially inefficient outcome: between 1850 and 1870, and later between 1880 and 1900, the railway network grew at a spectacular rate, even beyond the effective need. As Chandler (1977) points out, the railway construction has been pervaded of redundant lines, bankruptcies followed by recapitalizations, gauge incompatibility among different lines, and numerous frauds (see also Roy 1997). The set up of huge systems was not motivated by reasons of efficiency, rather by the attempt to control this type of competition. Or, better, by the attempt to survive within this type of competition. The very goal of railroad companies was the search of self-sufficiency. The possibility of issuing bonds allowed the finance of operations like other firms’ purchase, even if the operation itself was not economically profitable. The logic of economic calculus had changed: since the railroad era the profitability is defined by growth, in size and shares value, and not by the difference between revenues and costs. Also because the very nature of costs had changed. The repayment of bonds was a consistent part of railroad companies’ fixed costs, which amounted to two thirds of total costs. Given this cost structure, the competitive practice of reducing prices until the level of variable costs exposed railroad companies to a high probability of bankruptcy. But if a company went bankrupt, it suddenly gained a competitive advantage as it didn’t have to pay back its debts any longer. It seemed then that the unavoidable outcome of such type of competition was the bankrupt for all (Chandler, 1977).  That’s why I argue that it’s the very structure of the modern private corporation that determines ‘giantism’ in a competitive context.


The Pennsylvania Railroad Company and the Tacit Alliances. The Pennsylvania Railroad Company is commonly considered as the organizational and strategic model for the other firms. During 1850s, the Pennsylvania Railroad had already reached remarkable dimensions. The financing did not come any longer from local merchants and manufacturers, but, for the first time, from foreign investors too, namely European ones. Preoccupied by the political turmoil of 1848, European investors searched places where to secure their capital: initially they bought American state government bonds, and later they directly purchased private railroad companies bonds. The increased availability of capital contributed to the financial self-sufficiency of private companies, which could now strive for being autonomous from public institutions (Hartz 1943, Roy 1997). Edgar J. Thomson, the president of the company since 1852, pursued a strategy of expansion by purchasing other companies’ shares, collecting the necessary funds through the issue of bonds. In order to market its bonds, Thomson called on the services of Jay Cooke: formerly appointed by the national government to market its war bonds, the investment banker created in that occasion the first investment syndicate by which four banks collectively subscribed to the bonds: “coping the practice of Napoleon III to finance the Crimean War by market sales, Cooke created a large organization of 2,500 agents and subagents who took the securities across the country, selling them to patriotic unionist” (Roy 1997, p. 131). The use of the same technique to sell the Pennsylvania Company’s bonds witnesses the strong link between public institutions’ former prerogatives and the expansion of private corporations; and the link between collection of funds for exceptional goals, such as wars, and the ordinary practice of corporations.

The issue of bonds was by far the most common financial tool adopted by railroad companies; often a second issue followed the first, and then a third, as costs had been underestimated. The sale and purchase of shares among companies, as well as direct mergers, were instead a device to control competition. This strategy of “tacit alliances” was explicitly aimed at avoiding a “ruinous competition”, as Thomson himself said (quoted by Chandler 1977). But the economic downswing brought about by the civil war and exacerbated by the crisis of 1873 put an end to the implicit alliances: the difficulty of paying back their debts pushed companies to cut prices in order to attract the demand, thereby violating the informal agreements on tariffs. In 1874 the Pennsylvania, the Erie, the New York Central and other smaller lines tried to give more consistency to their agreements by creating an official federation (the Western Railroad Bureau). But despite the strenuous attempts of committee director A. Fink, the agreements were often violated. Already in 1881 the federation was destabilized by speculators like Jay Gould, and in 1884 it was clear to companies’ directors that even the most efficient cartel was not sustainable (Chandler, 1977). The problem of federations was simply that they did not receive legal acknowledgement, and hence the agreements were not legally enforceable. Fink and his associates repeatedly tried to make pressure on federal Congress to obtain legal legitimacy, with no success. At that time, therefore, two possible regulations could have been adopted by the federal government: either cartels were made enforceable, thereby guaranteeing the protection versus the “ruinous competition”, or they were not. The first option prevailed in Europe, mainly in Germany and France. The latter was embraced by the U.S. government. With the Interstate Commerce Act (1887), the New Jersey law (1899) and the Sherman Act (1890), we pass to another stage of the incorporation’s history.


1.3 General incorporation and acquisition of natural personhood (1890-1905)


If the legal form of ‘trust’ was the most widespread legal device adopted by big industrial enterprises during the 1880s, in the 1890s this form will be replaced by the so called ‘holding company’. The trust device was intended to overwhelm the difficulties of the non-legally enforceable cartels. The centralization of control through the purchase of firms’ shares was not always effective, mainly because many enterprises had still the legal status of partnerships, which did not allow the acquisition of control through simple stock ownership. Furthermore, state corporate laws prohibited one corporation to hold the stock of another without authorization. In order to better control the firms belonging to the pool, a unique juridical entity was needed, owning the majority of shares of every associated firm, and henceforth capable of controlling the whole group. The holding company had exactly this function: since already 1870 the Pennsylvania Company had assumed the form of holding. But this legal form was not available to all. The creation of such purely property firm occurred through a special act of incorporation by the state of Pennsylvania legislature, last reminding of the previously public accountability of railroad companies. Until 1880s, the creation of a holding company was subject to the legislative authorization of governments. That’s why the trust device was implemented: by separating the control rights from shares’ possession it was possible to gather a large number of firms under a unique board of administration, with no extra expenditures and with no need of legislative authorization, as the trust was not even incorporated. Smaller enterprises with the legal status of trade associations were pushed to acquire the form of incorporated companies, which allowed the implementation of trusts. During the ’80s appeared then the largest industrial trusts: Standard Oil (1882), American Cotton Oil (1884), National Linseed Oil (1885), National Lead (1887), Whiskey and Sugar (1889), and so on.


The effects of the New Jersey Law. In 1889 the trust device became unnecessary. The well-known New Jersey law permitted the incorporation “for any lawful purpose”, and allowed one corporation to hold the stock of another. In other words, it legalized the holding company and extended the free incorporation to all firms[7]. Such a permissive law attracted a large number of big enterprises, which established their legal headquarters in New Jersey: as a consequence, the “entire expenses of the State of New Jersey were paid out of corporations fees” (Horwitz, 1992). The other states had to introduce the same reform in the following years, threatened as they were to lose fiscal and productive resources. We can say, therefore, that for the first time the capital flight threat ruled the political sphere. If the state mercantilist policy of early 19th century was pursued through the direct influence of public institutions on corporations, as Dobbin (1994) and Hartz (1943) suggest, the analogous principle of economic competition among states was now implemented through the withdrawal from political control. The same logic is applied nowadays worldwide: South-East Asian countries compete in reducing labor rights in order to attract foreign capital, and in Europe the imperative of “competitiveness” is leading to the dismantling of social protection systems.

The New Jersey law, as well as the Sherman Act (1890), was not aimed at fighting the economic concentration brought about by trusts. Their goal was rather its institutionalization in the form of market relations: pools were illegal, sale contracts were not. As a consequence, since then consolidation took the form of outright purchase of other business. The two merger movements of 1890-93 and 1898-1902 are commonly interpreted as the business world’s reaction to the policy of legal enforcement of property relations (Chandler 1977, Fligstein 1990).


The emergence of the Natural Entity Theory. In order to conceive intercorporate stock ownership, legal theory had to take a step further toward corporate personification. Property rights were traditionally assigned to individuals, as natural rights of natural persons. Although corporations were legal individuals, they did not enjoy the same set of rights of physical persons. As we have seen, during 1850s corporate personification shielded them from “unnatural” public control. Nevertheless, property rights were still vested in shareholders. In the ’90s the personification went hand in hand with a wider definition of corporate property rights, thereby bringing companies closer to the status of natural persons. If the rationale of the Sherman Act was the enforcement of natural market relations and the de-legitimization of artificial horizontal agreements, the New Jersey law witnesses the emergence of the natural entity theory of corporation. According to this theory, the corporation is neither a legal fiction created by the state, nor a contract among individuals, but a natural person whose existence is prior to law. Introduced by the German legal theorist Otto Gierke (1881), the idea of a naturalness embedded in groups (Genossenschaften) was later imported to Anglo-Saxon countries by Maitland (1900) and Freund (1897). The debate on group personality in Europe and U.S. lasted more than 30 years, from 1890 to 1920s, giving rise to an endless doctrinal dispute. The relevance of this philosophical debate has later been underestimated, as it seemed pervaded by terminological ambiguities and misunderstandings (Rossi 1967)[8].

In United States, however, by 1900 the natural entity theory had already triumphed (Horwitz, 1992)[9]. Its success was also due to the emergence of legal positivism in American social thought. Legal positivism tended to apply a rigid determinism to social phenomena, thereby withdrawing from any judgment of value. Thus, at the end of 19th century, the old conservatism based on the idea of a natural decentralized market system was giving way to a new conservatism, which claimed the inevitability and efficiency of big industrial organizations. The institutionalization of corporate personhood marks this ambiguous passage: the impressive expansion of private corporations at the turn of the century was depicted as an unavoidable law of trade over which the public legislation had no right to rule, but at the same time policies still aimed at guaranteeing free market competition. The “theory of inevitability” of industrial concentration was actually expressed in many different ways, from the technical explanation in terms of increasing returns to scale to the marxist prediction of the inevitability of monopoly capitalism. Until the ’80s the Supreme Court, still rooted in classical legal reasoning, did not embrace the inevitability thesis, and allowed states to revoke the charters of corporations that had joined the trusts (see Standard Oil Trust and Sugar Trust cases). The New Jersey law boosted the inevitability thesis, in legal as well as in economic writings: “the laws of trade are stronger than the laws of men”, wrote Cook in 1903. The natural entity theory provided a basis to economic determinism: the idea of the spontaneous emergence of collective activities within the society could be used to claim that the law is simply required to formalize already existing social institutions. Anticipating the Legal Realism, A. Eddy (1901) claimed that “since the law is simply the application of common sense and reason to existing conditions […] the law will follow the economic tendency, […] the collective bodies would be recognized, [and] there would inevitably spring up in a progressive community organizations in form similar to the modern corporation” (quoted in Horwitz, 1992).


Generalization of Limited Liability. The personification of corporations was reflected in several institutional reforms, other than the intercorporate stock ownership. An example is the extension of the limited liability principle. All along the 19th century shareholders generally did not benefit of limited liability: according to the contractual view of the corporation, expressed by the trust fund doctrine, shareholders were the ultimate principal in the agency relation with the corporation. Limited liability was a particular feature of public utilities, and it required a conception of the corporation as a separate (though artificial) entity, distinct from shareholders. The Supreme Court, holding an individually-based contractualist view, tended to reject this principle until the ’80s, thereby piercing the corporate veil and equating the corporation with its stockholders. It’s in 1891 that the idea of general limited liability is introduced: although aiming at reaffirming the trust fund doctrine, the Supreme Court in the Handley v Stutz case distinguished between liable and non-liable shareholders (respectively the original and the subsequent subscribers); furthermore, with the impressive growth of the market for shares during the second merger movement, it became unrealistic to look at shareholders as something more than simple investors, so that by 1900 original subscribers too were leveled to the status of non-liable investors. The same principle led to the shift of corporate responsibility from shareholders to professional directors. According to this view, the managerial revolution is not to be seen as arising from a conflict between directors and owners of the corporation, but rather as a process of self-sufficiency of the corporate entity itself. Original founders could keep the control even of a huge corporation, as they did in several cases, provided that they renounced to the principle of stock majority rule[10].


The status of foreign corporations. Another important transformation brought about by corporate personification concerns the treatment of foreign corporations: according to the view expressed by the artificial entity theory, Justice Taney’s decision in Bank of Augusta v Earle (1839) had established the submission of corporations to the state that enacted their charter, thus allowing any state to forbid foreign corporations to do business within its boundaries[11]. With the reform of free incorporation and the emergence of the natural entity theory such a position could no longer be held. The extension of Fourteenth Amendment protective clause to corporations, inaugurated by the Santa Clara case (1886), posed serious constraints to the states’ discretion. Any fiscal policy measure that might favor local enterprises, or even humans, with respect to foreign enterprises was labeled as an “unjustified discrimination”. It’s worth noticing that the identical line of reasoning is applied nowadays at the world’s scale since the constitution of GATT[12], and even more effectively through the WTO[13]. As we have seen, for this to happen it was necessary to conceive corporations as natural entities, endowed of natural rights.



2    The abandon of politics


The affirmation of corporate personhood is then the synthesis of legal positivism and natural rights’ theory. Although the Classical Legal Thought had fallen under the attack of Progressives, which sought to demonstrate that there exist no natural rights, and that any legal entitlement is nothing but a social creation[14], Legal Positivism gradually obscured the insights of Progressive Thought. By the end of World War II, the Progressive message had been lost, and Legal Realism had turned into Positivism (Horwitz, 1992).

Positivist determinism and natural rights are intrinsically incompatible with a political discourse over market and corporations. The former looks at corporations as inevitable and efficient outcomes; the latter provides for them a sphere of autonomy deprived of public accountability. Corporations are thus judged only from an economic point of view. Political responsibility amounts to the adherence to the principles of market competition, and even political rights, such as the freedom of speech, are quantified in economic terms and translated into property rights. Such a ‘marketization’ of the political discourse hence goes hand in hand with the expansion of business corporations, which, after all, are market institutions[15].

The centrality of the market in this context arises from the combination of ethical positivism and natural rights’ theory. As it has been argued, the positivism/natural rights combination is somehow contradictory: “natural law represents those forms of objectivist morality that rest on a style of teleological reasoning about the goodness of nature which are alien to the more utilitarian tradition from which ethical positivism emerges” (Campbell, 1999). The contradiction is then solved into the economic sphere, through the market mechanism. Market mechanisms are thought to assure a fair procedure, an efficient arrangement independently of distribution; in other words, free competition sets the rules of a neutral and impartial game. At the same time market transactions, necessarily involving an exchange of property, demand the exercise of natural property rights. The normative content of this program is translated into the enforcement of competition and property rights. The Schumpeterian concept of ‘competitive’ democracy, entailing a minimalist procedural approach, as well as the bulk of anti-trust legislation, well represents the tendency to subsume the political discourse under the economic one.


Legal Positivism and Constitutional Operationalism. Also the more recent attitude of the Supreme Court toward corporate personhood witnesses the abandon of political debates. If before the Court “only considered corporations’ constitutional guarantees within the structures of corporate personhood theory […], after 1960 the Court abandoned theorizing about corporate personhood” (Mayer 1990); constitutional rights have been granted to corporations without wondering whether such rights should concern non-human persons too, but relying on market notions. With respect to intangible rights such as freedom of speech and privacy, even the natural entity theory may be problematic: to avoid the question of whether a corporation may actually be considered a natural person, the Court considers the amendments only as operational concepts, referring them to a market framework: the right to privacy, free from regulatory inspections, becomes then a property right attaching to commercial premises, and the freedom of speech is turned into a free market of ideas[16]. The Court thus turned to an anti-theoretical approach, following a positivist approach that Mayer (1990) calls Constitutional Operationalism: “the Court engages in Constitutional Operationalism by suggesting that a corporation is only entitled to the guarantees of a certain amendment if, by so awarding the protection, the amendment’s purposes are furthered. Therefore, the corporation is defined by the operation it performs. This pragmatic methodology obscures the antecedent, and theoretical, question of what is the nature and purpose of a corporation. Behind doctrines of commercial property and the free market of ideas is hidden the tacit acceptance of the corporation as a person, entitled to all the rights of real humans. Under this methodology of constitutional operationalism, the rationale for equating corporations and persons is not stated specifically, however, so it cannot be rebutted. There is no opportunity for denial; sub silentio the corporation is legitimated as a constitutional actor” (Mayer 1990).

Such a tendency is particularly preoccupying, given the delicate character of constitutional rights such as privacy and freedom of speech. Furthermore, the recourse to political rights seems to be more crucial in the contemporary framework. If the first attempts to use constitutional protection in order to bar public control mainly relied on the 14th amendment, that prevents states from discriminating among persons within their jurisdiction (equal protection clause) and from depriving “any person of life, liberty, or property without due process of law” (due process clause), in the ’60s corporations began to make large use of Bill of Rights protection[17]. The uprising of corporate political rights occurs when Modern Regulation and Modern Property came to define the political economy (Mayer 1990). Modern Regulation differs from previous regulations such as the Progressive or the New Deal in 4 points: 1) it strives to attain social goals, such as environmental protection, consumerism, minority employment, women’s rights, and health and safety[18]; 2) it is conducted at federal level; 3) it is more intrusive, systematic and routinized; 4) it governs many industrial sectors at the same time. Modern Property includes government-created wealth (such as government jobs, occupational licenses, franchises, contracts, subsidies, and the use of public resources), as well as “the intangible currency of post-industrial society: knowledge and information” (Mayer 1990). The protection of this kind of Property against Modern Regulation has been pursued by corporations through the use of the Bill of Rights: the political content of information, reflected in Modern Regulation tools such as inspections, mirrors the political content of the Bill of Rights.


The corporation beyond the separation between private and public sphere. The corporation has thus become a political institution, a citizen endowed of natural rights, and it has turned political rights, such as the freedom of speech, into economic property rights. But, contrarily to other political institutions, corporations are not subject to democratic accountability. The reason is simply that they still fall within the realm of private law: as public law does not impose democratic decision making within families, similarly it can’t interfere with private enterprises’ organization. The legal status of business corporations, therefore, is still tied to the private/public law distinction.

But such a separation is somehow anachronistic: big business corporations actually produce a social sphere which is “neutral” with respect to the separation between public and private sphere. The abandon of this separation is witnessed by the evolution of the outmost private law institutions, property rights and the contract: “big corporations […] clearly show how the [shareholders’] direct exercise of property rights has been put aside to the profit of top management and some big stockholders. These enterprises often gain a certain independency with respect to the capital market thanks to the practice of self-financing; analogously, they gain autonomy with respect to the mass of their shareholders. Whatever the effects may be on the economic ground, they represent, from a sociological point of view, an evolution that deprives the enterprise […] of its character of private and individual sphere of autonomy” (Habermas 1962). A similar evolution has characterized the contract: dropped the legal fiction which accorded to employer and employees a condition of formal equality, the labor contract acquires a public character with the labor collective agreements. But despite this implicit acknowledgement of the public nature of the employment relations, its legal definition still lies within the realm of private law.

Also typically ‘public’ corporate activities such as advertising and public relations are formally treated as private activities: furthermore, commercial speech is being granted of the 1st amendment protection, as if it were a personal sphere of autonomy not conflicting with the other persons’ sphere. In the era of public relations the idea of a private character of corporate activity is hardly sustainable: companies engage in the sponsorship of a wide array of events, sometimes until ‘signing’ whole neighborhoods or towns[19]; and in the field of communication the privatization of intangible public spaces is even more common.

The persistence of the pretended separation between private and public sphere denies the public role acquired by corporations. The public sphere is thus ‘privatized’, in the sense that it is occupied by a market-like discourse. Habermas (1962) defines this process as “re-feudalization”:


We must then talk about a re-feudalization of the public sphere […]. The integration culture which merges mass entertainment and advertising and which, under the form of public relations, already reveals a “political” character, subdues to its laws the State as well. Since private enterprises give to their customers the conscience that they will act as citizens once their decisions are those of consumers, the State is induced to appeal to its citizens as if they were consumers. […] The public sphere becomes a court where a marvel is performed in front of its public – instead of developing a critique within this public.

3    Conclusions: the corporation between the state and the market


Corporations are hybrid institutions: they ‘act’ in the market, but their financial tools derive from, and hence provide, a State dimension. Therefore, if from one side they entertain commercial relations pertaining to a private economic domain, from the other business corporations work somehow like States, intensively shaping the public sphere.

The public/private ambiguity, as well as the political-economic double action, is reflected in the status of natural person: the corporate persons enjoy of liberal political rights, which define a protected realm of private sphere, but at the same time thanks to these rights they actively fashion the public domain in a way beyond any individual’s possibilities.


We can now try to give an answer to the questions posed in the Introduction:


a)      natural personhood of corporations entails the conjunction of three principles of free incorporation, joint stock accumulation and limited liability; furthermore, it legitimates the intercorporate stock ownership. If these principles are commonly seen as devices to shift corporate control from shareholders to managers, they actually allow the accumulation of huge amounts of resources under a circumscribed control, may it be in the hands of managers or of some influent shareholders

b)      corporate personhood is inscribed in the neutral concept of democracy implied by the politics/trade and public/private separations, mixed with a positivist withdrawal from the judgment over the scientific laws of trade: as a consequence, corporate personhood fits a conceptual world entailing the abandon of political discourse


Although the recent public debates on corporate social responsibility (CSR) witness an increasing interest in non-market corporate activities, their actual implementation has followed so far a non-political pattern. CSR is defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. The aim of CSR policy makers is thus to make it attractive for enterprises, which “generally agree that CSR helps them in managing their risks, their intangible assets, their internal processes, and their relation with internal and external stakeholders. It has also been argued that opportunities and advantages for enterprises stemming from complying with international social and environmental conventions, norms or “soft law” instruments can outweigh costs. Although most businesses support the assumption of a positive impact of CSR on competitiveness, particularly in the long term, they are however not able to quantify this effect”[20].

The voluntary basis of CSR might lead to the absorption of political responsibility within the corporate boundaries, enhancing the autonomy of corporations and turning them into self-referent legal orderings[21]. Environmental and social issues thus face the risk of becoming another marketing tool available to corporations, thereby re-inscribing political and social matters into the costs/benefits economic calculus. As the anti-trust laws are based on a “consumers’ surplus” vision of society, the CSR current trend is the affirmation of corporate transparency to the only benefit of economic actors such as shareholders and consumers.

A political discourse over corporations’ activities instead would imply the introduction of democratic accountability of the whole organism, enlarging the multiple stakeholdership to workers and local communities.










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[1] Corporations began to have access to the Bill of Rights in 1906: in the Hale v Henkel case the Supreme Court ruled that an overboard subpoena for corporate documents constituted an “unreasonable” search, thus granting to the corporation the 4th amendment “search and seizure” protection. More recently, see the following cases : 1st amendment (freedom of speech) : Buckley v Valeo (1976), First National Bank of Boston v Bellotti (1978) and Austin v Michigan Chamber of Commerce (1990) (right to spend money to influence political elections or referenda), Central Hudson Gas & Elec. Corp. v Public Utilities Commission (1980) (corporations right to commercial speech protected), Pacific Gas & Elec. Corp. v Public Utilities Commission (1986) and International Dairy Foods Association v Amestoy (1996) (negative free speech); 4th amendment (right to privacy): See v City of Seattle (1976), Marshall v Barlow’s Inc. (1978); 5th amendment: Fong Foo v United States (1962) and United States v Martin Linen Supply (1976) (double jeopardy clause), Pennsylvania Coal Co. v Mahon (1922) (takings clause)

[2] Enjeux Les Echos, Mai 2003

[3] See for instance the case of Virgin Corporation: as its president R. Branson declared, the point is not to create a brand out of a product line, but to associate it to a name, to a set of values (Report on Business Magazine, World in 1997; quoted in Klein 2000)

[4] As a consequence, after the 1954-59 merger movement, aggregate concentration increased, but not market concentration (Fligstein, 1990)

[5] The term « privilege » is ambiguous: some authors (Rossi 1967) argue that the stockholders, owning only the shares and not the assets, are not comparable to entrepreneurs, and thus are not “privileged”; limited liability therefore shouldn’t be seen as a privilege. Nevertheless, here we refer to the status of the enterprise itself, rather than to the legal position of shareholders: by saying that corporations were granted of privileges we mean that, with respect to non-incorporated enterprises, they were inscribed in a public policy framework, in terms of the available tools as well as in terms of responsibility. In this sense it would be more appropriate to talk about “duty” rather than “privilege”: “municipal corporations are said to have a “duty” to enforce traffic laws; it would be unusual to hear of a policeman’s privilege to carry a firearm or make arrests. It is only after the appearance of a private sphere, separate from government, in which individuals are presumed to have the same rights, that the concepts of monopoly or privilege gain potency” (Roy 1997, p. 52)

[6] This practice was also determined by the Supreme Court’s decision in the Darthmouth College case (1819), which established a difference between public and private corporations, and granted to the latter the contract clause protection. State governments were then induced to include in the statute a special clause of repeal, thereby avoiding the interdiction of unilateral termination of the charter.

[7] Besides, the often cited New York v North River Sugar Refining Co. case (1890) ruled that the trust was illegal per se, thereby making clear to the business world what kinds of legal relations between the individuals and the corporation were enforceable: property rights of individual or corporate ownership were enforced, the hybrid form of trusts was not (Roy 1997)

[8] In particular, group personality was often intended in Germany and France as including associations and trade unions, and the struggle for the legal acknowledgement of group personality accompanied in fact social movements of opposite nature. The naturalness of group personality derived from the German historical school, which considered legal systems as spontaneous orderings emerging not only at the State level, but within several sub-communities. However, the relevance of this argument for corporate personhood is doubtful, since corporations are not like any other human group: a family, an association or a trade union cannot issue bonds in the financial market, nor trade memberships of each other. Here I’m not concerned with group personality in general, nor with legal personality of enterprises, but rather with the conjunction of three elements -free incorporation, limited liability and joint stock principle- within one organization

[9] To be precise, the common wisdom assigns the fatherhood of corporate personhood to the Santa Clara v Southern Pacific Railroad case (1886), in which the Supreme Court held that a corporation was a person under the Fourteenth Amendment (Mayer 1990, Hartmann 2002). Other thinkers, such as Horwitz, assign a minor role to the Santa Clara case, and find in the Hale v Henkel case (1905) the first Supreme Court’s natural entity opinion. At any rate, it is within this period that the transformation occurred

[10] See for example Duke, with the American tobacco Company, or the Du Pont family with General Motors (Chandler, 1977)

[11] This position was confirmed as late as 1877 in the Munn v Illinois case, in which the Supreme Court ruled that the 14th amendment couldn’t be used to protect  corporations from state law

[12] See Article I (General Most-Favoured-Nation Treatment), Article II, Article III (National Treatment on Internal Taxation and Regulation)

[13] In the Communication of the European Community of 26 June 2002 (World Trade Organization – Working Group on the Relation between Trade and Investment; WT/WGTI/W/122 26/06/2002) it was stated as follows: “all countries have realized that in order to attract foreign investors they need to provide, as a pre-condition, a predictable, transparent and non-discriminatory regulatory framework, beyond macroeconomic and political stability, infrastructure, labour skills, etc”; the two “fundamental elements of international investment agreements and of the WTO system” are the Most Favored Nation (MFN)  and the National Treatment (NT) principle: “under the MFN rule host countries must extend to investors from one foreign country treatment no less favourable than they accord to investors from any other foreign country”; analogously, “according to the NT principle, the host country is required to treat the foreign investor and his investment operating in its territory in the same or comparable way as a domestic investor or investment.”

[14] See for instance the works of Hohfeld (1913), M. Cohen (1927), Hale (1923)

[15] From this point of view, we may overcome the classic distinction between market and hierarchies. Hierarchies have not substituted the market; they have simply carried it with them during their expansion. The common wisdom describes the corporate capitalism as “the visible hand” (Chandler 1977), in contrast with the 19th century “invisible hand” market. Although hierarchical integrated relations have sometimes substituted former market transactions, they have not substituted the market system as a whole, because they live in the market; conversely, because of the increased size, market relations have become more and more hierarchical.

[16] In the Bellotti case (1979), the Supreme Court invalidated the Massachusetts Court’s decision, which, relying on the artificial entity theory, had denied to a corporation the first amendment protection of free speech: “The Court below framed the principal question in this case as whether and to what extent corporations have first amendment rights. We believe that the Court posed the wrong question. […] The proper question is not whether corporations “have” first amendment rights, and, if so, whether they are coextensive with those of natural persons. Instead, the question must be whether [the statute] abridges expression that the first amendment was meant to protect”

[17] Although the 14th amendment (1868) was originally conceived to affirm the full citizenship of Blacks, it has more often deployed to invalidate states’ regulation of business corporations: of the 14th amendment cases brought before the Supreme Court between 1890 and 1910, 19 dealt with African Americans, 288 dealt with corporations

[18] For example the Clean Air Act (1970), the Consumer Product Safety Act (1972), the Occupational Safety and Health Administration Act (1970)

[19] Examples of “private” cities are Celebration (Florida), property of the Disney Co., and Cashmere, in Washington D.C., where the sweets and candies’ company Liberty Ochards demanded the transformation of the city centre in “a tri-dimensional tourist attraction” for its brand, under the threat of leaving the town (Klein 2000).  In general, the malls follow to some extent the same logic: occupying a wide surface, those ‘public’ spaces are in fact private property.

[20] Both references have been taken from the Communication of European Commission concerning Corporate Social Responsibility, 2nd July 2002

[21] This is actually the trend shown by the creation of a Corporate Code of Conduct, a self-redacted document aiming at showing to the public-consumers the good intention of corporate behavior

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