Before America’s colonists declared themselves independent from British domination in 1776, the motherland’s corporations dominated their trade. It took a revolution to end British control and the settlers’ fear of corporate power. Ever since, corporations have played a major role in business, but they could not influence elections.
As the states began curbing big government, the privilege of incorporation was granted selectively for activities that benefited the public, such as construction of roads or canals. Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly if laws were violated.
Corporations could pursue only the activities needed to fulfill their chartered purpose. They could not own stock in other corporations or own property not essential to their chartered purpose. Corporations were often terminated if they exceeded their authority or caused public harm. Owners and managers of corporations were held responsible for criminal acts they committed on the job. Corporations were not allowed to make political or charitable contributions nor could they spend money to influence legislation.
For a century after the American Revolution, legislatures maintained tight control of the process of chartering corporations. Early on, lawmakers granted few corporate charters, and that only after extensive debate. Not only Congress but also state law set rules governing corporations. Incorporated businesses were not allowed to take any action that legislators had not specifically allowed.
The rules for incorporation limited capitalization, debts, land holdings, and sometimes even profits. They also limited the number of years corporate charters could be held. Unless a legislature renewed an expiring charter, the corporation was dissolved, and its assets were divided among shareholders. Some state laws provided that a company had to turn over its accounting books to the legislature upon its request.
In Europe, charters protected corporate directors and stockholders from liability for debts they may have caused. American legislators explicitly rejected this corporate shield. In the case of Dartmouth College versus Woodward in 1819, the U.S. Supreme Court tried to strip states of their sovereignty by overruling a lower court’s decision that allowed New Hampshire to revoke a charter granted to Dartmouth College by King George III. The court claimed that since the charter contained no revocation clause, it could not be withdrawn.
This decision so outraged the public that new amendments were passed in state constitutions to circumvent the Dartmouth College ruling. Starting in 1844, nineteen states amended their constitutions to make corporate charters subject to alteration or revocation by their legislatures. By1855, the Supreme Court ruled in Dodge versus Woolsey to reaffirm state power over “artificial bodies.” The leaders of corporations, however, pressed on. Arguments over the content of charters turned into battles to control labor and resources, and political power began flowing to absentee owners.
The industrial age forced many Americans — heretofore a nation of farmers—to become wage earners. Becoming unemployed turned into a new fear that corporations quickly learned to exploit. Company towns arose, and blacklisting of labor organizers and workers who spoke up for their rights became common. When workers began to organize, industrialists and bankers hired organizers to keep employees in line. They bought newspapers to paint businessmen as heroes and shape public opinion in their favor. Corporations began buying state legislators and sometimes denounced them as corrupt.
Government spending during the Civil War brought corporations immense wealth. Corporate executives paid “operators” to bribe elected and appointed officials alike. They managed to obtain large amounts of funding from all levels of government. Legislators also gave corporations limited liability, decreased their authority over them, and extended the length of their charters.
The courts made the protection of corporations a part of constitutional law. While corporations grew in strength, legislators and the courts succumbed to the wishes of corporations. They freely reinterpreted common and constitutional law to give them more power.
One of the strongest reversals to the authority of voters and legislators arose out of the 1886 Supreme Court case of Santa Clara County versus Southern Pacific Railroad. While the court did not employ the phrase “corporate personhood,” its decision was used to consider a corporation a “natural person.” From that point on, the 14th Amendment, enacted after the Civil War to protect the rights of freed slaves, was used to grant corporations constitutional “personhood.” Armed with this “right,” corporations have since increased their influence over resources, labor, politicians, even judges and the law.
A Congressional committee concluded in 1941 that “The principal instrument of the concentration of economic power and wealth has been the corporate charter.”
Many U.S.-based corporations are now transnational, but the powers in their charters remain the legal basis for their existence.
Wolf Fuhrig of Jacksonvill has a doctorate in public law and government from Columbia University.