If corporations are “persons,” do they have a soul? Can they be patriotic (or unpatriotic) citizens?
For a famously taciturn man whose nickname was “Silent Cal,” our 30th President has several famous lines to his credit—succinct, yet resonant. The best known, of course, is the story told by President Calvin Coolidge’s wife, Grace. She recalled that a young woman at a dinner party told him she had made a bet she could get him to say at least three words—to which he quietly replied, “You lose.”
Another Coolidge catchphrase is “the chief business of the American people is business”—often cited as an overconfident ode to unfettered American capitalism, uttered at the height of the Roaring Twenties, shortly before the Great Depression brought said American capitalism to its knees.
Yet his larger message was, in fact, the very opposite of what most would infer from the “business of America” slogan. The line is found in a rather thoughtful speech Coolidge delivered to the American Society of Newspaper Editors on January 17, 1925, an address devoted mainly to extolling the importance of a free press in preserving democracy against despotism and propaganda, in prescient anticipation of our present-day dilemma. And in a nifty juxtaposition to his remark about “business,” he also said, “The chief ideal of the American people is idealism. I can not repeat too often that America is a nation of idealists.”
Coolidge argued that corporations and successful business people in our democracy need to do more than merely make money, that profit and wealth “can not be justified as the chief end of existence.” Rather,
[T]he accumulation of wealth means the multiplication of schools, the increase of knowledge, the dissemination of intelligence, the encouragement of science, the broadening of outlook, the expansion of liberties, the widening of culture.
Nine decades later, in the most prosperous, most innovative, most entrepreneurial society the world has ever seen—one that is, coincidentally, the most privatized, decentralized, and unregulated economy in the contemporary world—we still wrestle with the proper role that corporations should play in our democracy.
Two recent Supreme Court decisions, Citizens United v. Federal Election Commission (in 2010), and Burwell v. Hobby Lobby (in 2014) have reframed some parts of this conversation by enhancing the status of profit-seeking corporations as “persons” and “citizens” with rights. The former ruling bolstered the freedom-of-expression rights of companies by exempting them from the general rule of transparency in the financing of federal political campaigns. The latter endowed certain companies with aspects of religious freedom by exempting them from the general application of the Affordable Care Act. Together, the two rulings more firmly embedded corporations in the First Amendment of the U.S. Constitution. These remain fiercely contested propositions, ensuring that the nature of corporate personhood, or citizenship, will be continuously debated, legislated, and litigated in the years ahead.
Two recent episodes have further catalyzed the national debate about the role of businesses in our social and political affairs. This past summer, when white supremacists fatally clashed in Charlottesville, Virginia with peaceful counter-protesters, the President of the United States could not find it in himself to condemn the racists. In direct reply to that equivocation, several CEOs of major U.S. companies, led by Kenneth C. Frazier of Merck pharmaceuticals, resigned in protest from a presidential business advisory council. There were so many resignations, in fact, the council was soon disbanded altogether.
Recently, the murder of 17 students and teachers at a high school in Parkland, Florida, by a young man who legally purchased a powerful semi-automatic weapon developed for use in combat, prompted a series of corporate replies. Some purveyors of firearms announced more restrictive policies, including raising the age for certain purchases or removing from their shelves the more dangerous weapons. A number of major corporations, including Delta Airlines, cancelled affinity arrangements with the National Rifle Association, a large membership organization and the leading political proponent of the widespread availability of such firearms. This quickly led to a mean-spirited political scrum as state legislators in Georgia punished Delta for its stance by cutting from a pending tax bill some $38 million in tax breaks for the airline.
Washington Post columnist Megan McArdle writes that the social statements made by Delta Airlines and others in shunning the NRA—and, by extension, the gesture made by Ken Frazier and Merck last summer—are the wrong response to social or political controversy. She urges companies to stay out of these debates, else they will accelerate the mounting polarization in America. “If we decide to make every thing in our lives political, we risk becoming so estranged that we can no longer resolve our disputes through politics.” And, she warned, “slighting millions of NRA members isn’t good for business.” But is this only a matter of the bottom line?
When asked recently about managing tensions between obligations to shareholders and to the public interest, Mr. Frazier told The New York Times,
I actually don’t see that big a conflict between meeting the needs of shareholders and meeting the needs of society.… There are lots of companies that have lost their way because they’ve sort of lost their souls, which is a funny word to use, but companies do have souls.
Coincidentally (or not), the interview with Ken Frazier appeared in The New York Times business section alongside a long report about the French conglomerate Lafarge. Its leadership decided to continue to produce cement in Syria while ISIS descended on the area where its plant was located, and ended up paying millions of dollars in protection money to ISIS and other terrorist enterprises, violating UN Security Council sanctions against the group, French law, and common decency. So Frazier is right: A company can lose its soul. This amorality—Lafarge made an earlier bundle pouring concrete for the massive coastal wall of bunkers for the Nazis that we see in movies about the Normandy invasion (think Saving Private Ryan)—may end up costing the company more than they earned from the cement sales.
Should CEOs, on behalf of their boards, shareholders, employees, and customers, partake in the culture wars that abound in the United States today? Should they do anything more than manufacture and sell their wares? Eight months after his stand against the President, Mr. Frazier said recently that he had felt compelled to act. “In that moment, the president’s response was one that I felt was not in concordance with my views,” Mr. Frazier said. “And I didn’t think they were in concordance with the views that we claim to hold as a country.” This sounds different than choosing sides in an everyday political debate. He appears to be speaking to something larger, living the values we profess, defining American patriotism. But how can one discern when a firmly held viewpoint is about fundamental values and not “just” a policy question of tax rates or environmental regulation? And where does the gun-rights versus child-safety conundrum fall? Is this a difference of opinion, or right versus wrong? Dollars and cents, or something more?
In a fascinating historical review of the origins of the limited liability corporation, the legal scholar Yishai Schwartz reminds us that the corporation, as originally conceived in Roman law and later refined in English and U.S. law, was designed to serve public interests. So a legal fiction was developed that gave to an abstraction a kind of personhood, the ability to build, own, maintain, and sell major utilities (like stadiums, roads, and ports), as well as to sign contracts, hold money, and even commit to relationships (with employees and customers) and be sued in court for breach of promise.
Over time this changed, and most definitely in the United States. Corporations evolved from benevolent public interests, empowered by the governments to do big things, as in the case of the British East India Company, into avaricious enterprises. The pivotal 20th-century case in American corporate jurisprudence came in 1919 in Dodge v. Ford Motor Company. Then, the Michigan Supreme Court ruled in favor of minority shareholders in Henry Ford’s company, declaring that “a business corporation is organized and carried on primarily for the profit of the stockholders,”and ruled Mr. Ford could not use the proceeds of the company for the benefit of customers and workers at the expense of shareholders.
While this eventually prompted Ford and his son Edsel to create the Ford Foundation in 1936 with their considerable personal wealth, the decision had a chilling effect on corporations undertaking social welfare initiatives directly—that is, until the rise of social activism among shareholders who wanted their companies to take positions and spend money in pursuit of something other than profit maximization. Campaigns for “corporate social responsibility” have been waged over the past three decades, at shareholder meetings, in the media, through boycotts, and through the development of “Multi-Stakeholder Initiatives.” These MSIs draw corporations into partnerships with human rights groups or governments to monitor (in order to improve) specific aspects of corporate behavior, such as working conditions of those employed in the supply chain or the environmental impacts of extractive industries. These voluntary pacts seek to make corporations act as if they possess a moral sensibility, and to enforce their better instincts with positive publicity, along with the threat of negative publicity or shunning if they stray.
Much of the energy in these efforts has come from the progressive side of the U.S. political spectrum. What appears new is that the driving force in some of the recent high-profile cases that have enhanced the personification of corporations—so they may be accorded a conscience and even religious sensibilities—has come from the political Right. Thus it was Justice Samuel Alito who wrote in the majority opinion in Hobby Lobby: “While it is certainly true that the central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so.” According to Schwartz, this marks a “seismic shift” in the legal principles governing corporate identity and purpose since the Dodge decision:
Hobby Lobby announces a shift from a conception of the corporation as a single-minded pursuer of profit to an entity that—like any other person—can balance and aspire to multiple ends.
So, corporations are “like any other person…” They, too, can embody the “practical idealism” that Calvin Coolidge said characterizes our country. They can be good citizens, patriotic even. Then corporations can probably also, “like any other person,” be bad citizens—ungrateful, uncaring, or unpatriotic. Tim Cook’s Apple Corporation comes to mind—like many others, only more so, Apple hoards hundreds of billions of dollars offshore, to avoid paying taxes for the upkeep and defense of the country that gave birth to the company and its fortune (while also refusing to help the FBI investigate the San Bernardino killers’ iPhones). Compare this to what Jerome L. Dodson said about this month’s scuttling of Broadcom’s $117 billion hostile takeover bid for the chipmaker Qualcomm. Dodson is founder and CEO of the hedge fund Parnassus Investments, which owns 8.3 million shares of Qualcomm and would have profited handsomely from the buyout by Broadcom—that’s 8.3 million times the $24 premium being offered on the share price. As James B. Stewart of The New York Times recounts his conversation with Dodson:
“There is no doubt I would have made a quick profit if the Broadcom deal had gone through,” he said. “But as a shareholder, I voted against it.”
That’s partly because, “as a citizen, I didn’t like the deal,” he said. Broadcom typically slashes costs, especially research and development, and the company said it would do exactly that if it acquired Qualcomm. “In the long run, that’s not good for the country or for society,” Mr. Dodson said.
This view is shared by the Treasury Department’s Committee on Foreign Investment, which persuaded the President to block Broadcom’s bid on grounds of “national security.” They concluded that Broadcom likely would curtail Qualcomm’s research and development efforts in building the next generation of cellular connectivity, the 5G technology that will enable driverless cars, virtual reality, and other innovations. This matters for national security because China is the main rival in this research area. Broadcom—based in Singapore but intertwined with Chinese enterprises—could be seeking to weaken American capacity in this area at the behest of (or at least to the benefit of) China and its own mega tech corporation, Huawei. Whether Broadcom would do this just for short-term profit-maximization, or to advance the strategic position of China, the result would be the same. While some American investors and executives would simply take the money and run, Jerome Dodson thought something more important was in play here. One can believe in free trade, including cross border mergers, and still conclude that certain deals represent a danger to U.S. security, as appears to be the case here, and should be stopped. The action by the Administration, so rare that it has been taken only five times in three decades, does not seem to be motivated by protectionist instincts, but rather by a thorough review of technology, industrial capacity and investment, and national security. The brief letter the Treasury panel issued to explain the decision is compelling—and chilling.
The widening resentment of corporate (and other) elites is partly due to the evident ease with which multinational corporations glide across borders, moving facilities and jobs along with them. This animates the populism and nationalism that is driving the politics of so many democracies, and nudging governments (including our own) toward tariff wars that could imperil global prosperity. If the corporations that were born and bred in the United States, that benefited so clearly from the legal, educational, and entrepreneurial infrastructure of the United States, feel no loyalty to the country that gave rise to them, then why should we continue to give these corporations more and more aspects of the rights of American citizenship?
The answer, I suggest, depends on what kind of citizens they choose to be. And by “they” I mean the people who make decisions on behalf of these limited liability corporations. Companies are not bots or algorithms. They may create bots and algorithms, but they are run by women and men with discerning minds. So they should speak up, and act on principle when the moment calls for it. Not to fall into camps of Left and Right, but to demonstrate that they know right from wrong, that they are patriots, too, as well as business executives and investors.
Bravo, Ken Frazier. Bravo, Jerome Dodson.