Kent Greenfield, Professor of Law and Dean’s Research Scholar at Boston College Law School, recently posted a provocative piece on the CLS Blue Sky Blog (here) in which he argues, among other things, that progressives have “flipped” from supporting “corporate citizenship” pre-Citizens United, to supporting “shareholder primacy” post-Citizens United. (Kent has stressed to me that he does not believe this characterization extends to progressive corporate law scholars.) The piece is short, so I recommend you go read it before continuing on to my comments below, because I will simply be taking some short excerpts from his post and providing some responses, which will likely benefit from the reader having reviewed Kent’s post first. As just one disclaimer, Kent’s post is based on his article, “Corporate Citizenship: Goal or Fear?” – and I have not yet read that paper. Also, I consider the following to be very much an in-progress, thinking-out-loud type of project, and thus welcome all comments.
1. In 2010, the Supreme Court decided Citizens United v Federal Election Commission, ruling that corporations had a First Amendment right to spend money from general treasury funds in support of political candidates. Though seen as victory for political conservatives, the decision was in some ways based on a progressive view of the corporation. In the Court’s reasoning, corporations act as “associations of citizens” with rights of free speech.
Kent argues that the historical divide between progressives and conservatives can be viewed as one of “shareholder primacy” versus “corporate citizenship,” with progressives advocating for corporate citizenship while conservatives advance the cause of shareholder primacy. A couple of caveats are in order here. First, we must distinguish “shareholder primacy” as an assertion that shareholders should have the dominant (or at least more) controlling power within the corporation, from “shareholder wealth maximization,” which posits that the goal of corporate control is shareholder wealth maximization, independent of where the decision-making power resides. Second, we should keep in mind the competing corporate personality theories: aggregate theory, artificial entity (concession) theory, and real entity theory. I have argued in the past (see, e.g., here) that both aggregate theory and real entity theory tend to view the corporation as more private than public, with aggregate theory equating the relevant “association of citizens” with shareholders, while real entity theory looks to the board of directors – in either case positing a group of natural persons who can assert constitutional rights against government regulation. Artificial entity theory, on the other hand, views corporations as more public, at least in part because it is essentially impossible to mimic the corporate form solely through private contracting, and thus the state is entitled to more leeway in regulating corporations than natural persons acting in their purely private capacity. In light of all this, it may be better to view progressives as opposing shareholder wealth maximization as the sole goal of corporate governance, while being flexible as to the means used to achieve that end – be it shareholder primacy, director primacy, or “state primacy.” (I am not suggesting that a shift to shareholder primacy as the favored means of achieving the ends of progressive corporate governance is insignificant. Rather, I argue merely that a shift in means is less dramatic than a shift in ends, and thus less appropriately characterized as an ideological flip.) To the extent Citizens United is viewed as having merely strengthened the associational, private view of corporations without challenging the shareholder wealth maximization norm – it is hard to view it as advancing a progressive view of the corporation. In fact, it arguably stands simply as an opinion that gives more political power to corporations to pursue shareholder wealth maximization (or for managers to use shareholder wealth maximization as a justification for self-dealing) at the expense of other stakeholder concerns.
2. The biggest impediment to using the Citizens United moment to change corporate governance for the better is the progressive left.
In light of my comments above, I think there is a stronger argument to be made that the biggest impediment to changing corporate governance for the better is the continuing identification of corporations as purely private entities. It has been said that the greatest trick the devil played was convincing the world he didn’t exist. In this context, we might say the greatest trick played on progressives was convincing them their only viable choices are contractarian.
3. Justice John Paul Stevens’s dissent in Citizens United …. (perhaps unwittingly) bolsters shareholder supremacy by arguing that corporate speech should be limited in order to protect shareholders’ investments.
It may be better to view this part of Justice Stevens’s dissent as challenging the majority’s view that opening the corporate political contribution floodgates is not problematic because “corporate democracy” will address any problems. Meanwhile, Justice Stevens quotes Dartmouth College approvingly, and states that “corporations have been ‘effectively delegated responsibility for ensuring society's economic welfare,’” both of which place him squarely in the concession theory camp – despite his protestations to the contrary.
4. The irony runs the other way as well. In the 2014 Hobby Lobby case, the Court granted corporations the statutory right under the Religious Freedom Restoration Act to object to otherwise applicable regulations on religious grounds. Writing for the Court, Justice Samuel Alito recognized that corporations need not maximize the bottom line ….
Go here for my take on whether Hobby Lobby changed anything in terms of the ability of those who control corporations to pursue “socially responsible” ends. It is worth noting that a corporation’s ability to pursue “socially responsible” ends as part of an overall shareholder-wealth-maximizing strategy in light of the business judgement rule is not necessarily the same thing as concluding corporations will pursue some optimal level of “corporate citizenship,” which may rather require recognizing state power to require such activity or prohibit related harmful activity.
5. The world is flipped. Progressives are championing shareholder rights. Conservatives are planting their ideological flag on the summit of corporate citizenship.
As noted above, to the extent one views progressives as seeking more corporate social responsibility, and being willing to consider alternative methods to that end – be it shareholder primacy, director primacy, or state primacy – I do not see a significant flip here. Meanwhile, to the extent conservatives can be viewed as having supported shareholder wealth maximization as the optimal, but not sole, means to the end of lifting all ships via a rising tide, in addition to being consistently united against government regulation, there is also arguably nothing here that constitutes a significant “flip.”
Of course, generalities like “progressive” and “conservative” typically suffer from significant amounts of imprecision, and it may be that the “flip” characterization is more or less appropriate given the strand of progressive or conservative one is considering.