Tuesday, April 15, 2014

Corporations and Governments Don't Actually Do Anything

They really don't. 

To be clear, this is not a post bashing corporations (or government). It's not really extolling the virtues of corporations, either. Instead, it's just to make the point that, notwithstanding Citizens United or Hobby Lobby and other cases of their ilk, the idea that corporations are people is still a legal fiction.  A useful and important one, but a fiction nonetheless.  

On April 11, Corey Booker posted the following on Facebook:

In awful years past, corporations polluted the Passaic river to the point that it ended the days where people could eat from it, swim in it, and use it as a thriving recreation source. Today we announced a massive initiative to clean the Passaic river and bring it back to life again. The tremendous clean up effort will create hundreds of jobs and slowly over time restore one of New Jersey's great rivers to its past strength and glory.

The river needs the clean-up, and I applaud the effort. Still, the reality is corporations did not pollute the Passaic River, at least not literally.  People working for the corporation did. It is agency law that allows a corporation to act in the first place, because the fictional corporate person needs a natural person to act.  (For a simple explanation, see here.) The corporation is liable for the harm caused by its agents. (And, in certain cases, the individuals would also be liable directly if their actions were, for example, illegal.)

Government doesn't really do anything, either.  The clean-up proposal that Booker was referencing is a $1.7 billion Superfund river remediation project that was proposed by the EPA.  Of course, government works through agents, too, and there are real people behind the proposal.  Real people, through concerted action between corporations and government will actually do the clean up, too.  

This is a point I have made before, but I think it's an important one.  We need to remember that people are at the root of all corporate and government actions.  This is important in two directions. First, for those criticizing a corporate or government action, it is critical for them to remember that there are people carrying out the action.  A corporation or a government may act in an inappropriate manner, but it is also likely that the person carrying out the action is doing so with the intent to do well in the capacity in which they were fired.

Second, for people working for corporations or governments it is equally critical that they recognize that the their employer doesn't carry out actions without their help.  That is, people who work for corporations or governments must recognize that they are carrying out the will of the entity they represent (and they should hold themselves responsible for doing do).  Perhaps it is their boss who gave them the order (also a natural person), or even the board of directors (a group of natural people), but the charge is in fact, if not legally, being given by natural people.   

Why does this matter?  When we vilify or exalt the action of entities (like corporations or governments) we disconnect ourselves from the realities of the world, or at least our responsibilities within it.  We become more susceptible to Groupthink in either direction.  We are able to shirk our responsibilities -- as employees, as agents, as lawyers, as voters, as shareholders, as people -- to make decisions the are conscious of the world around us.  In our daily lives and in our representative capacities, we all must make difficult decisions from time to time.

Sometimes, tough decisions require a cost-benefit analysis that means someone else will be worse off because of our decision.  It's hard, but it's what people do. Often, it's what we must do.  In doing so, though, it is essential that we hold ourselves and other people accountable as people for what we've done. Regardless of the rhetoric we often hear, the amalgamations of people who make up both governments and corporations have done some amazing and impressive things.  Both have also done some horrendous and outrageous things.  The people in charge, and the people who follow, are accountable in both circumstances. 

In this instance, I am making a conceptual argument, not a legal one.  There are legal regimes, sometimes effective, sometimes not, for holding both entities and their agents accountable for their actions (and rewarding them, where appropriate).  How we think about corporations and governments and each other, though, has a broader impact.  Without us -- all of us -- there are no corporations and there is no government.  If we remember that, our responses to challenges are more likely to be more targeted, more effective, and more reasonable.  Just because we don't always agree, doesn't mean we aren't all in this together.  Whether we like it or not, we are, and it's time we acted like it. 


Corporations, Current Affairs, Ethics, Joshua P. Fershee, Social Enterprise | Permalink

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I immediately concede your points that (1) entities as persons are legal fiction and (2) that entities are comprised of the individuals who direct them. In great part, I would argue that a substantial number of entities are organized to obtain a singular benefit – limited liability (as attorneys, we counsel clients as to multitudes of other considerations). Thus, shifting liability (a creation of the sovereign reciprocating various forms of additional or distinct taxation) requires the legal fiction of “personhood.” There is a broad divide between a publicly traded entity, a “multi-national” and the vast majority of entities in operation.

In reality, other than marriage or parenthood – and sometimes to the exclusion of both – in a vast number of formations, there is no more intimate relationship than that between the business and its organizer/founder, director(s), officer(s) or member(s). As is oft the case, the individual’s business represented by an entity is – even where rigidly “respecting the formalities” - intrinsically bound to character of these individual(s). If you doubt it, revisit “business divorces” and determine whether a “domestic” forum results in less rancor.

Law practice being a second career (almost 18 years), I started, built, managed and eventually sold a durable goods business over a 28 year period with family. As a result, I hold a distinct perspective. Being “wholly invested” can (and did) mean pledging all one has and personally guaranteeing all the rest. You open the doors in the morning, you sweep the floors – simply said “you do all that is required and then some.” You are wholly invested and the consequence of decisions are borne in the most personal and intimate ways.

I understand the perspective that you have represented. It certainly speaks for the argument that those “not invested” are often remote to the consequences of their actions and decisions. However, I would argue that the real “fiction” in the vast majority of entities is that the entity is not the “alter ego” of the shareholder(s), partner(s) or sole proprietor.

Conceding government is the amalgam of a plethora of individuals, I agree with you. I have long advocated that (similar to Toqueville) that local government should be larger than State government. Local government should be vested with more discretion, and it is more responsive and less remote to the objects of its purpose. In addition State government should be larger than federal government for the same reason. I would proffer that when “government” is used like a word of profanity, it is because those persons exercising that authority are remote to the consequences of their actions and decisions.

Posted by: Tom N | Apr 15, 2014 8:11:29 PM

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