Business Law Prof Blog

If you love corporations, you might want to start taking the protesters a bit more seriously.

Yesterday, Stephen Bainbridge explained why he loves corporations.  In the course of his post he referenced "The Company," by John Micklethwait and Adrian Wooldridge.  I, too, am a fan of that book--though not because (as Bainbridge notes) the authors identify the corporation as "the best hope for the future of the rest of the world."  (I am at best agnostic on that point.)  Rather, my recollection of the book (which I admit may well be distorted by the passage of years since I last read it) is that the authors did a decent of job of acknowledging that the history of corporations is marked by evil as well as goodness, including "imperialism and speculation, appalling rip-offs and even massacres" (p. xx).  Of course, the authors do note that corporations "pillage the Third World less than they used to" (p. 188).

What I liked about the book is that the authors recognized that "[t]o keep on doing business, the modern company still needs a franchise from society, and the terms of that franchise still matter enormously" (p. 186).  Furthermore, they acknowledged that "[t]here is a widespread feeling that companies have not fulfilled their part of the social contract: people have been sacked or fear that they are about to be sacked; they work longer hours, see less of their families--all for institutions that Edward Coke castigated four hundred years ago for having no souls" (p. 188).  (Note that these are all pre-financial crisis quotes.)

All of which leads me to conclude that if you love corporations you might want to start taking the "Occupy" protesters a little more seriously.  You may think they are "illiterates," silly and absurd--but they are growing in number and they may well end up having something to say about the nature of the franchise corporations need in order to survive.

SJP

Lions, and Tigers, and Bears

As a life-long Detroit sports fan, this has been a good fall.  The historically woeful Detroit Lions are 4-0, and the Detroit Tigers, after ousting the loaded New York Yankees last night, will play for the American League pennant.  These are good things, at least from my perspective.

Bears, on the other hand, less so.  The Wall Street Journal reports: Market Nears Bear Territory: U.S. Stocks Down Almost 17% Since April High on Europe, Economic Concerns.  The report explains:

By midday Tuesday in Asia, Japan's Nikkei average fell 1.6%, South Korea's Kospi fell 4.6% and Hong Kong's Heng Seng slipped 0.2%.

Investors blamed the drop on continuing fears of European debt defaults, which are sowing fears of a global recession. They pointed to a warning from Greece that it would fail to meet its government-deficit targets this year, which reinforced a widespread concern that Greece would default.

A global manufacturing index compiled by J.P. Morgan showed the manufacturing sector contracting for the first time in more than two years as indexes of industrial activity in Europe, Japan and Brazil all showed output falling.

That report trumped somewhat positive U.S. economic news. September manufacturing activity and vehicle sales were slightly better than expected, as was August construction data, although all three remain soft.

What do these "animals" have in common?  Well, the question to me is whether the bear market is paralleling the Lions' struggles, which culminated in the first-ever 0-16 season in 2008 or is more like the Tigers of 2009. In 2009, the Tigers had a epic collapse to end the season (though less epic, perhaps, than this year's Red Sox), when they missed the playoffs, losing to the Twins in a 163rd and deciding game.

The 2008 Lions were just bad.  They lacked the talent and ability to do what was necessary.  The 2009 Tigers had some talent, had the ability, but lacked the belief they could do what was necessary.  My view of the market is that it is closer to the 2009 Tigers.  There's some good things happening, but no one believes in those good things enough to turn the corner.  But maybe I'm wrong; maybe the market is the 2008 Lions.  Either way, as the Journal points out, it looks like it's going to be a Bear.

--JPF

Steve Jobs, The Ultimate Entrepreneur

Today’s blogs and news outlets are filled with eulogies for Steve Jobs. I’m not an Apple acolyte; the only Apple appliance I own is an old iPod my children gave me. But I have a deep appreciation for Jobs as an entrepreneur. He created markets that didn’t exist and gave people products they didn’t realize they needed.

I recently finished the book I Am John Galt, by Donald L. Luskin and Andrew Greta. Luskin and Greta try to find contemporary figures analogous to the characters in Ayn Rand’s fiction. They envision Steve Jobs as Howard Roark, the hero of The Fountainhead. They say about Jobs:

Someday death will come to him, as it must to all of us. What he’s built for the world will make him an immortal figure in the history of technology and business. But he’s immortal in another sense, in the way that all self-motivated and self-consistent people are—that they don’t die a little bit every day by compromising themselves, that during their lifetimes they truly live.

-Steve Bradford

Occupy Wall Street

Writing from Atlanta, New York as a city seems more like a familiar scene from a movie or a television show than reality.  New York as the home of a now three-week long protest against the policies of and concentration of wealth on Wall Street is really something that I was incapable of imagining.  Until I watched several YouTube videos of peaceful protests, interviews with students, police brutality, and the footage of the Brooklyn Bridge march last weekend that resulted in over 700 arrests.  The movement, protest, rally, or riot (pick whichever noun conveys the connotation you find compelling) that is Occupy Wall Street began on September 17, 2011 and has been building momentum  in terms of numbers of protesters and the 52 cities that are now host to sister protests.   A piece of the Occupy Wall Street format, self-described as an “open source” protest, is the 99% Percent Project, which provides a forum for individuals to describe their economic struggles which are a part of their individual basis for support of or participation in the protest.  The 99% Project argues that the 99% of Americans not on Wall Street bear the burden of financial policies.  Whether or not the individual economic situations are traceable to specific financial policies, the human element of the story is compelling and frightening to think about the financial fragility of so many citizens.  Occupy Wall Street has been criticized rather widely for not having a specific focus, set of demands, or proposed reforms.  This criticism, however, is likely to soften with the involvement of the major labor unions yesterday (Download Union March From Foley Square on Wall Streets) in an organized march as the unions are expected to bring some focus to the debate.

I have never been able to make up my mind quickly, particularly about complex issues….so I don’t quite know what to think about Occupy Wall Street.  Free-form responses and questions are listed below….please feel free to post your comments.  I will likely revisit this issue later this month and would love for my post to be informed, in part, by reader comments.

• Interrelated issues.  A common story thread from the 99% Project is that people are saddled with (a) student loans, and/or (b) medical debt.  Even though it is being done through the lens of banking and financial policy reform, a backdrop to this story is one on access to affordable healthcare and how a medical emergency can contribute to a financial one.  Scroll through the 99% Project pictures and you will also see education debt amounts repeatedly listed at over $100,000.  That debt burden isn’t dissimilar to the ones carried by many of our law students.  And down we go through the rabbit hole of examining the cost of education and whether our students are expanding or limiting their opportunities by continuing their education, especially with the associated pricetag.
• Change follows consensus.  While the criticism that the protest is unfocused is probably a factually true assertion, I wonder if at the beginning of all movements of social change  there were clearly defined goals…or at least concrete, measurable changes requested that could be conceptualized in legislation?  My instincts tell me no.  The Civil Rights movement began with a request for equality and personal dignity and access to basic structures of society…. The resulting legislation was specific and conceived of only after a long-fought process of building public support and engaging in lots of dialogue about how to achieve those goals.  The fact that Occupy Wall Street has a stated goal of reforming financial policy may, in fact, be enough to get media attention, build public support and be a part of the political dialogue heading into the 2012 election.  Or perhaps it will just be further occasion for the movement to be passed off as “class warfare” ( for a list of news results characterising the movement as such, click here: Download Class warfare)
• Intersections.  A discussion of financial policy reform cannot ignore the individual element of choice inherent in each possible transaction.  Each individual has some ability to control or at least shape their financial future; however, perhaps the default rules set in place encourage irresponsible choices with unforeseen consequences and drawing from yesterday’s post—perhaps the principles of Nudge can be applied to these questions?

-Anne Tucker

What's Wrong With Picard v. Katz? Just About Everything.

Editor’s Note: The following post comes to us from Dr. Anthony Michael Sabino, a Professor in the Department of Law at The Peter J. Tobin College of Business at St. John’s University. (SJP)

WHAT’S WRONG WITH PICARD V. KATZ? JUST ABOUT EVERYTHING.

By

Anthony Michael Sabino, Professor of Law, St. John’s University, Tobin College of Business; Partner, Sabino & Sabino, P.C. 

    I have long been an admirer of Judge Jed Rakoff of New York’s Southern District.  Like many, I have long considered him to be the dean of the federal securities bar, at least as to its judicial contingent.  However, I found his latest decision, entitled Picard v. Katz,[1] to be so deeply mistaken, particularly as to its usurpation of settled bankruptcy law doctrine, that I can scant believe this is the same jurist.  Since an appeal is a near certainty, I can only look forward to the Second Circuit righting this wrong. 

    For the (few that remain) unacquainted, the plaintiff is Irving Picard, the trustee of the defunct investment advisory business of the infamous Bernard Madoff, now about two years into his 150 year prison sentence for masterminding the greatest Ponzi scheme of the new century.  Defendant “Katz” is Saul Katz, business partner of Fred Wilpon, and, along with Wilpon, an owner of Major League Baseball’s New York Mets.  All are defendants in the instant case.    

    The Wilpons and various of their enterprises were heavy investors with Madoff, and reaped many millions in profits over the years, some of those profits going to fund the Mets’ cash flow.  With the vast majority of those profits now proven to be fictitious, and the discovery that said “profits” were paid from monies deposited by subsequent Madoff victims, at bottom this litigation is all about Trustee Picard’s efforts to recover anywhere from $ 300 million to $ 1 billion from the Mets’ owners, based upon various theories, the paramount ones being “fraudulent conveyances,” as set forth in the Bankruptcy Code[2] and New York state law.[3]

    In addition to the above preface, let me be clear that, in this limited space, I am not addressing Judge Rakoff’s earlier decisions, both as to these parties and similarly situated Madoff defendants, where the court discarded somewhat “novel” theories that the Trustee claimed entitled him to recover up to a billion dollars from the Wilpons alone.  Rather, I am strictly confining myself to the new Katz decision, wherein Judge Rakoff tossed out causes of action so fundamental and traditional to litigation of this kind, that I was frankly aghast at the outcome.  My consternation is focused upon three key points.

    First, Judge Rakoff dismissed the “constructive fraud” count of the fraudulent conveyance claim.  Briefly, constructive fraud is proven by a straightforward and purely objective test, to wit, a simple arithmetical calculation of what you received as compared to what you paid.  By its nature, the early beneficiaries of a Ponzi scheme receive more than they paid in, and so easily fail the test.  Case law, including that of the Second Circuit, is clear that Ponzi beneficiaries unfailingly are liable to return false profits, since those monies came from subsequently defrauded investors.  Indeed, the Second Circuit’s most recent decision in the Madoff case, in validating Trustee Picard’s methodology for calculating the actual losses of Madoff’s victims, reflects that jurisprudence.[4]  Then how can Judge Rakoff’s decision be so at odds with those clear precedents?  Not for long, I hope.

    In addition, constructive fraud, because it is an objective test, will survive where the “actual fraud” allegation, dependent upon subjective proof, will oft times fail.  Yet Katz is permitting the actual fraud allegations, the ones far more susceptible of being tossed for a lack of proof of the defendants’ state of mind, to proceed, while the more durable allegations, based upon simple math, are dismissed.  This makes no sense.  Lastly, Katz limits the fraudulent conveyance claims to the two year statute of limitations found under the Bankruptcy Code.  Wrong---Trustee Picard sued in parallel under New York’s fraudulent conveyance statutes, which provide a more liberal six year limitary period to reach back to recover fraudulent conveyances.  This misapplication of the correct statutory periods is sure to be corrected by the appellate court. 

    My second point of contention is Katz’s complete confusion of “settlement payments,” as defined in Title 11, with the ill gotten goods the Defendants allegedly received here.  The court immunizes the Defendants’ receipts from the Trustee’s allegations, by characterizing them as settlement payments from a broker.  That misses the mark by a country mile.  First, while the statutory definition of settlement payment is admittedly lucid, both the text and its history make clear as crystal that monies so paid are protected because they represent payments by brokers to customers as part of actual securities transactions. 

    That is not what happened here.  These defendants allegedly took out far more than they invested, based upon fictitious profits produced by Madoff’s fertile and devious imagination.  As we learned to our sorrow, Bernie Madoff never actually bought or sold any securities.  As such, monies received by these defendants are inapposite to the settlement payments (and the underlying transactions) the law is designed to protect.  Put another way, Congress wrote statutory protections for settlement payments into the Bankruptcy Code, at the behest of the legitimate securities industry, in order to protect the orderly flow of actual business.  Money paid out in a Ponzi scheme is light years away from that, and thus wholly undeserving and unintended for such protections.[5]

    Moreover, Katz is internally inconsistent in this regard.  It notes that Ponzi schemes such as Madoff’s transpire “without any actual securities trades taking place.”  Yet in the next paragraph it bestows statutory protection upon those same non-existent transactions.  If the transaction is a sham, how can it be deserving of the law’s “safe harbor”? 

    Third, Katz purportedly seeks to reconcile important provisions of the Bankruptcy Code with the federal securities laws, foremost from the latter body the Securities Investor Protection Act, called “SIPA.”  Having extensively litigated and written about the intersection of bankruptcy law with the federal securities statutes,[6]    I agree this is no small task.  But Katz does not provide an intersection; it gives us a train wreck.  For instance, Katz asserts that in this context “bankruptcy law is to be informed by federal securities law.”[7]  Yet what this opinion provides instead is an annihilation of the Bankruptcy Code in favor of misconstrued concepts of the securities laws.    

    Katz ignores that a SIPA liquidation of an investment firm (as is the case here with Madoff’s investment advisory business) is to be conducted in harmony and in conjunction with the Bankruptcy Code.  That is why the Code contains specific provisos for stockbroker liquidations, and SIPA cases are administered in bankruptcy courts by bankruptcy trustees.  Trustee Picard was not stripped of his traditional powers to recover fraudulent conveyances under bankruptcy or state law.  Nor are the securities laws to be construed to artificially restrict his powers.  This has long been the law of the Second Circuit, and things will surely be put to rights on the appeal (Trustee Picard’s attorneys have already indicated that an interlocutory appeal will be sought).[8]   

    In closing, Katz perpetrates a great wrong: first by utterly misunderstanding fraudulent conveyance law, particularly the aspect of “constructive fraud;” second, by misconstruing portions of the federal securities laws to immunize fraudulent conveyances from rightful recovery; and third, by crushing established bankruptcy and SIPA provisos via the misapplication of the federal securities laws. 

    The fortunate news is that the cases are legion, especially in the Second Circuit, in proof of the errors of Katz.  Surely a swift appeal will put this misbegotten decision to rest, and these defendants will find their exposure on the “constructive fraud” fraudulent conveyance counts will amount to nearly $300 million.[9]  We should yet see legitimate victims benefiting by recoveries from the recipients of fictitious profits paid out with their money. 

AMS/dal      

______________________________________

 

[1] ___ F.Supp.2d ___ (S.D.N.Y. Sept. 27, 2011) (11 Civ. 3605) (JSR). 

[2] 11 U.S.C. § 548.  The Bankruptcy Code is often referred to as “Title 11,” per its ordination in the U.S. Code.

[3] New York Debtor and Creditor Law (“D.C.L.”) § 270, et seq. 

[4] In re Bernard L. Madoff Investment Securities LLC, ___ F.3d ___ (2d Cir. August 16, 2011) (Jacobs, C.J.). 

[5] Compare Sabino, “Applying the Law of Fraudulent Conveyances to Bankrupt Leveraged Buyouts: The Bankruptcy Code’s Increasing Leverage Over Failed LBOs,” 69 North Dakota Law Review 15 (1993). 

[6] Sabino, “Failed Stockbrokers and the Bankruptcy Courts in the 21^st Century: Bringing Order to Chaos,” Annual Survey of Bankruptcy Law 2002 317 (West 2002). 

[7] Katz, slip op. at 14. 

[8] Parenthetically, Judge Rakoff claimed that he declined the defendants’ request to convert their Rule 12(b)(6) motion to dismiss to a motion for summary judgment pursuant to Rule 56.  Katz, slip op. at 13 n.8.  Yet I find that contradictory, as in pertinent part it appears to me the court is more according summary judgment on these claims than merely dismissing them. 

[9] Katz, slip op. at 11 n.6. 

Painter on Investment Bankers

Richard W. Painter has posted The Moral Responsibilities of Investment Bankers on SSRN with the following abstract:

This paper, presented as the annual law review lecture at St. Thomas University Law School, explores the moral obligations of investment bankers in light of the 2008 financial crisis. Topics such as disclosure to investors, the safety and soundness of investment banks, excessive risk taking, responsible use of derivative instruments, and banks’ responsibility to the community and to the financial system as a whole are discussed as issues of personal responsibility for investment bankers rather than only as subject matter for regulation directed at banking institutions. The particular perspective discussed in depth is grounded in Christian social teaching but the paper also offers insights on how the moral responsibility of investment bankers can and should be approached from a range of religious and secular philosophical perspectives.

-- Eric C. Chaffee

The History of an Industry, Nudge and Other Ways to Crowd Your Nightstand

After a summer hiatus, I am back at the Business Law Prof Blog, and excited to be rejoining the conversation.

I thought I would start with a warm-up post about reading lists to share with you two recent additions to mine and to solicit feedback on what you are reading, want to read, or wish your students would read.

While not yet on my nightstand, a book that is going into my Amazon “wishlist” is Bill Vlasic’s Once Upon a Car:  The Fall & Resurrection of America’s Big Three Auto Makers—GM, Ford, and Chrysler.  Raised in an automotive town (not Detroit, but Kokomo, Indiana where cars were also king), I grew up in the shadow of large manufacturing plants and next door to factory workers so the drama offered inside this book is particularly interesting to me.  The author’s perspective as the Detroit Bureau chief for the New York Times contributes a unique component to the story of near-financial collapse by GM and the long standing Ford/GM/Chryslers rivalries which unfolds in a retrospective on the financial crisis.  The reviews of the book praise it for weaving together a story that is both business and politics as it describes the race for green technology, the courting of a new President, and the tensions between the manufacturers, the unions, and the labors resulting from burgeoning labor costs.  The book was released yesterday, and featured in the New York Times and the Washington Independent Review of Books on Monday.

Only a year and a half late to the party, I am finally starting to read Nudge, Improving Decisions About Health, Wealth, and Happiness written by Richard Thaler and Cass Sunstein.  While I was recently attended the Midwestern Law & Economics Association conference someone finally mentioned a book during their talk that I had (a) heard of, and (b) was relatively confident that I could finish, so I ordered Nudge and will be reading it this month along with blogging.    The premise of Nudge is that no decision setting is neutral, thus the environment and context in which we make decisions influence the outcome of that decision.  In my business classes I talk about how the uniform rules or default statutes set a statutory preference for a certain outcome because changing the default requires positive action and incurring transaction costs.   Thaler and Sunstein make a similar argument regarding legal preferences in many areas of the law, particularly in the context of social issues, arguing that our laws predict outcomes in many respects through mechanisms like opt-out versus opt-in regimes and should be used to encourage socially-beneficial behavior.

I welcome your comments on what you are reading, want to read, or wish your students were reading.

Anne Tucker

Ribstein on Energy Law and Corporate Structure

Larry Ribstein has posted the abstract for Energy Infrastructure Investment and the Rise of the Uncorporation.  I haven't yet been able to get a copy of the paper (though I should have it this week), but the abstract is particularly intriguing:

While most large U.S. businesses have long been organized as corporations, a significant portion of our economy, including major parts of our energy infrastructure, are organized as other types of legal entities. These “uncorporations” include such business forms as Master Limited Partnerships (MLPs) and Limited Liability Companies (LLCs). Many practitioners have dismissed these alternative entities as merely tax devices and only peripherally important to mainstream business. But this view misses important features of the uncorporation that make it an important alternative in dealing with the “agency” costs that arise in public companies from separating managerial control from equity ownership. Corporate governance relies heavily on agents such as auditors, class action lawyers, judges, and independent directors to protect shareholders from managerial self‐interest. The obvious costs and defects of relying on these governance mechanisms have generally been seen as a reasonable price to pay for the benefits of the corporate form. But this conclusion depends on the availability and effectiveness of the alternative mechanisms for addressing agency costs. Uncorporations provide such an alternative by tying managers’ economic well‐being so closely to that of their firms that corporate monitoring devices become less necessary. Uncorporate governance mechanisms include managerial compensation that is based largely (if not entirely) on the firm’s profits or cash distributions, and restrictions on managers’ control of corporate cash through liquidation rights and requirements for cash distributions. Business people and policy makers should evaluate the potential benefits of uncorporations before concluding that the costs of corporate governance are an inevitable price of separating ownership and control in modern firms.

Most of my research and scholarship is in the energy law area (and related fields), and I'm particularly interested in how business and business structures impact the energy industry. I've been working on a piece arguing that large public energy companies would be more appropriate as private entities because the interests of management and shareholders lead to improper risk analysis and thus risk taking (leading to less efficiency and less profit), with BP's Deepwater Horizon blow out as a prime example  I look forward to reading the piece, but I fear that I have been, as they say, SSRN'd. Maybe I can build off this piece, but if my piece has been mooted, I take a little comfort in that fact that it was by a leader in the field like Larry Ribstein.  

--JPF

Michael Lewis Returns with Boomerang

Michael Lewis, the author of Moneyball and The Blind Side, among other things, has a new book about the cheap credit crisis.  An interview with National Public Radio is here.  There is also an excerpt of the book available here.  Rather than paraphrase Mr. Lewis, here is an excerpt of the excerpt, to give you an idea of where this book is headed:   

In Kyle Bass's opinion, the financial crisis wasn't over. It was simply being smothered by the full faith and credit of rich Western governments. I spent a day listening to him and his colleagues discuss, almost giddily, where this might lead. They were no longer talking about the collapse of a few bonds. They were talking about the collapse of entire countries.

And they had a shiny new investment thesis. It ran, roughly, as follows. From 2002 there had been something like a false boom in much of the rich, developed world. What appeared to be economic growth was activity fueled by people borrowing money they probably couldn't afford to repay: by their rough count, worldwide debts, public and private, had more than doubled since 2002, from $84 trillion to $195 trillion. "We've never had this kind of accumulation of debt in world history," said Bass. Critically, the big banks that had extended much of this credit were no longer treated as private enterprises but as extensions of their local governments, sure to be bailed out in a crisis. The public debt of rich countries already stood at what appeared to be dangerously high levels and, in response to the crisis, was rapidly growing. But the public debt of these countries was no longer the official public debt. As a practical matter it included the debts inside each country's banking system, which, in another crisis, would be transferred to the government. "The first thing we tried to figure out," said Bass, "was how big these banking systems were, especially in relation to government revenues. We took about four months to gather the data. No one had it."

I haven't read all of his books, but I always enjoy Mr. Lewis's writing.  I hope to get to this, as soon as I work my way through the two books I am currently reading: (1) Predictably Irrational: The Hidden Forces That Shape Our Decisions, by Dan Ariely, and (2) Straight Man: A Novel, by Richard Russo.  

--JPF

Campbell on Preemption of State Securities Law

Rutheford B Campbell, Jr. has written an interesting essay, Federalism Gone Amuck: the Case for Reallocating Governmental Authority over the Capital Formation Activities of Businesses. He argues that state authority over the registration of securities offerings should be eliminated and states should reallocate their resources to antifraud enforcement. According to Campbell, Congress’s failure to preempt state law when it adopted the Securities Act of 1933 was “a serious mistake.” The dual system of federal-state registration “throttles capital formation with no significant enhancement of investor protection.” Campbell points out that, due to economies of scale in compliance, state registration requirements are particularly troublesome for small businesses.

In my recent paper on crowdfunding, I make a much more limited argument: that state registration requirements should be preempted for offerings complying with my proposed crowdfunding exemption. But I’m inclined to agree with Campbell’s call for broader preemption. It’s hard to see much value added in state registration requirements and, unless those requirements are eliminated, it’s impossible to create sensible small business exemptions at the federal level. I also think the states could get more bang for the buck if they took the money currently spent enforcing the registration requirements and pursued small-business securities fraud.

-Steve Bradford

Smythe on The Rise of the Corporation

Donald J. Smythe has posted “The Rise of the Corporation, the Birth of Public Relations, and the Foundations of Modern Political Economy” on SSRN.  Here is the abstract:

The rise of the modern corporation was an integral part the Second Industrial Revolution. This important economic and social transformation would not have occurred if business entrepreneurs had been unwilling to make the large investments necessary to implement the new technologies that drove the industrial growth and development, and entrepreneurs would have been reluctant to make the investments without the shield of limited liability and the opportunity to spread their risks across diversified portfolios of corporate stocks. Nonetheless, the rise of the modern corporation created problems. The most successful corporations grew to unprecedented proportions, and the public’s concerns about their growing economic and political power contributed to the Progressive Movement and pressures for social and political reform. There were no federal or state constitutional protections for corporate speech in the early twentieth century. Indeed, corporations were regarded as creatures of state law, whose powers were usually defined by their charters under state incorporation statutes. The federal and state governments could have enacted sweeping regulations on corporations’ speech and related behavior. But they did not. Corporations thus began to make sustained attempts to alter public attitudes and improve their public images through systematic public relations campaigns and corporate welfare programs. The public never came to think of the corporation as a person or anything other than a business entity, but the public relations campaigns succeeded in humanizing the corporation and integrating it into the American public’s sense of community. More importantly, perhaps, they succeeded in rationalizing the role of the corporation in the American economy and legitimizing its role in modern American life. This has had profound implications for the way that American business law and public policy have evolved during the twentieth century.

SJP