Sunday, September 17, 2006

U.S. Corporate Governance, Part III: The Mind of the Invisible Individual

After the Civil War, and the ratification of the 14th Amendment which prohibits any state from depriving life, liberty, or property, without due process of law. Of course, the railroad companies at this time (1860-1880's) became larger than any company had ever dreamed--perhaps for good reason, as they provided transportation in a vast country. However, with this capital, they became more able to avail themselves of legal protections that were intended to protect newly freed slaves.

In a slight detour, I would like to editorialize on the nature of our legal system because it is entirely appropriate. Each citizen in the United States is free to have his day in court, or file a lawsuit to enforce their rights. However, this freedom is limited, and too often, completely diminished because most people cannot afford to pay lawyers to enforce those rights before a judge. Of course, corporations can afford those rights, and large railroad companies can script their own.

In 1886, the Supreme Court determined that corporation is a person under the U.S. Constitution, and that they are entitled to due process. This happened only because there were, and still are, enough corporations with enough money, to create legal fictions that while not completely without merits, probably do not belong in the Constitution. Corporations certainly have value and may have tremendous value, but at no time did a group of elected officials in our country determine that a corporation should be a person. Over the last 140 years, however, our elected officials have ratified that result by their inattention to this detail.

Our nation suffered through the worst conflict of our history and the lasting results were the eradication of the sanctioned institute of slavery, but the rise of invisible individual. For all intents and purposes, the modern corporation is now a person under the law with all the benefits but none of the obligations. Because a corporation isn't really a person it cannot reason, it was never intended to consider any other obligation but profit maximization, it exists in perpetuity, and can even kill other people. However, that corporation will never be sent to jail, or even executed. The most that can happen is it can shut itself down, but the people who were responsible for the actions of the corporation are certainly not prosecuted as murders or most of the time even criminals.

It is certainly a paradox. Why do we care?

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