April 08, 2010
Nostalgia in Corporate Law
Posted by Mae Kuykendall

Objections to Citizens United, and the personhood of corporations, contain a strong element of what Prof. Walter Werner called the erosion doctrine, or, in his other phrase, the "folklore of big corporations."  The basic idea, described and challenged by Prof. Werner, is that the law governing corporations became corrupted over time.  Our moving from incorporations conferred by specific grants of legislatures to a generalized statutory permission for enterprises to incorporate, amass capital, and empower managers is depicted as a critical, and deeply unfortunate, turn in our national life.   During this period, corporations, the critics claim, abandoned their public purpose and evolved into dark agents of greed and political mayhem.   Within corporate scholarship, in Prof. Werner’s words, each version of the erosion doctrine “describes or suggests a process of erosion--once-effective share-holder control or state regulation, or both, withered and died, and is no more.”  One  theme of the response to Citizens United is strong objection to further empowerment of such enterprises.


The erosion doctrine had able exponents over time.  Justice Brandeis’s discussion of laxity versus diligence in corporate governance was a landmark of persuasion.  Writers in the Progressive Era were eloquent in invoking, at least in part in some areas, a Victorian sensibility in favor of new kinds of regulation.  Progressive writers occasionally argued that, if we regulated alarming new things, we could recover some of the disappearing values of the nineteenth century.  


Time passed.  In the 1960s, Ralph Nader did his part to extol the past as a rebuke to the present:


"The first 100 years of the corporation’s history in the United States had stood for one rule above all else: The business corporation could only exercise powers explicitly provided or necessarily implied in its charter with the state.  Delaware’s “self-determination” provision exactly reversed this rule. Now the corporation could be a lawmaker, itself. " 


Recently, an “erosion doctrine” meme has spread.  In this latest version of corporate law nostalgia, the corporation is said to have become a person only as a result of an errant headnote written in a Supreme Court case by a railroad lawyer who invaded the sanctum sanctorum of our law.  The meme produces exclamation marks:  “It was a mistake!”  We also have the movie, The Corporation, and related writings, which recite a tale of lost innocence. 


The recurring claims about the critical unfortunate moments--statutory chartering and the 14th Amendment with its bogus meaning about corporate personhood inserted into our texts--are a nostalgic celebration of an earlier, better day.   For that reason, skepticism is in order.  We have all heard idealization of a past that was idyllic, until some terrible new thing came along, and changed everything.  (For example, women got the vote.) 


The element of desire for a corporate form given to us by our heritage is another reason to be skeptical.   One detects a lament framed almost as loss of collective control of our common narrative; we should be able to anchor the corporation in a founding time, capturing and protecting our original values.    If a historical misstep is corrected, or a headnote revised, we can regain our path.  This is simplistic.  Citizens United is right, or it’s wrong.  We can decide today what we want the corporation to be or do without stories about the loss of our destiny.  (Because this statement is arguably also simplistic, and the use here of the term “nostalgia” is contestable in a matter where the stakes are serious, I’ll do a second blog discussing objections to this account.)


A skeptical view about historical accounts is not to say that nostalgia has no place in corporate law.  For example, here is an excerpt from a review in the California Law Review in 1928 by Prof. Henry W. Ballantine of the book (1927) by Prof. William Z. Ripley that arguably coined the phrase we've heard almost daily the last two years, Main Street and Wall Street:


"Main Street" is the symbol for the phenomenon of widespread increase
of popular investment in corporate stocks since the World War.
"Wall Street" refers to the concentration of financial and directorial
power in our great capital centers. The accusation is hurled by Ripley,
the single-handed champion of "Main Street," against the Machiavellian
wealth and power grabbers of "Wall Street," that by iniquitous newfangled
clauses and inventions, inserted with devilish ingenuity in corporate
charters, the doors have been thrown wide open to all sorts of
financial shenanigan and jugglery. He describes this process by such
terms as "prestidigitation, double shuffling, honeyfugling, hornswoggling
and skullduggery!"

No wonder that, for a moment at least,
A look of sadness, a blush of shame,
Over the faces of Wall Street came,
A spirit of manhood within them stirred
To life at Ripley's horrible words.


The words of both writers offer passion, poetry, color, and clear perspective.  A bit of hyperbole from the past, and a deflating rejoinder by an amiable reviewer, is a good window on the corporate past and present.  This is corporate law nostalgia of a high order.



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