“The prevalence of the corporation in America has led men of this generation to act, at times, as if the privilege of doing business in corporate form were inherent in the citizen, and has led them to accept the evils attendant upon the free and unrestricted use of the corporate mechanism as if these evils were the inescapable price of civilized life, and, hence to be borne with resignation. Throughout the greater part of our history, a different view prevailed. Although the value of this instrumentality in commerce and industry was fully recognized, incorporation for business was commonly denied long after it had been freely granted for religious, educational, and charitable purposes. It was denied because of fear. Fear of encroachment upon the liberties and opportunities of the individual. Fear of the subjection of labor to capital. Fear of monopoly. Fear that the absorption of capital by corporations, and their perpetual life, might bring evils similar to those which attended mortmain [immortality]. There was a sense of some insidious menace inherent in large aggregations of capital, particularly when held by corporations.” — U.S. Supreme Court Justice Louis Brandeis, 1933 dissent in Liggett v. Lee
The New York Attorney General Leticia James is considering the corporate death penalty for the Trump Organization. If true, it’s really good news for the entire field of corporate governance in America. It is past time to bring back the corporate death penalty.
Corporations come into being when they are granted what is called a charter — basically a license or permission to operate in the state — by a state’s government.
While there are a few federally chartered corporations — Amtrak, for example — they are exceedingly rare and usually limited to very specialized areas of operation that involve the public good rather than just making money.
There was a time in this country when states routinely killed corporations that they found were harming the interests of the state’s citizens or behaving in a predatory or monopolistic fashion. The practice was widespread across the country right up until the last decade of the 1800s, when John D. Rockefeller provoked a change in most states’ corporate charter laws.
The Founders of this nation were so wary of corporate power that when the British Parliament voted to give a massive tax break — through the Tea Act of 1773 — to the East India Company on thousands of tons of tea it had in stock so that the company could wipe out its small, entrepreneurial colonial competitors, the colonists staged the Boston Tea Party.
This act of vandalism against the world’s largest transnational corporation, destroying more than a million dollars’ worth of corporate property, led the British to pass the Boston Ports Act of 1774, which declared the Port of Boston closed to commerce until the city paid back the East India Company for its spoiled tea. It was an economic embargo like we declared against Cuba, Iraq, and Iran, and it led the colonists straight into open rebellion and the Revolutionary War.
Thus the Framers of our Constitution intentionally chose not to even use the word corporation in that document, as they wanted business entities and churches to be legally established at the state level, where local governments could keep an eye on them.
Throughout most of the first 100 years of our nation, corporations were severely restricted so that they could not gain too much power or wealth.
As “Father of the Constitution” and then America’s third president, James Madison, wrote in an 1811 memorandum: “[T]here is an evil which ought to be guarded against in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical Corporations. The power of all corporations, ought to be limited in this respect. The growing wealth acquired by them never fails to be a source of abuses.”
In most states it was illegal for a corporation to buy or own stock in another corporation, to engage in more than one type of business, to participate in politics, and to even exist for more than 40 years (so that the corporate form couldn’t be used by wealthy and powerful families to amass great wealth in an intergenerational way and avoid paying an estate tax).
All of that came to an end during the “chartermongering” era of the 1890s when, after Ohio prepared to charge John D. Rockefeller with antitrust and other violations of the corporate laws of that state, he challenged other states to broaden and loosen their laws regarding corporate charters so he could escape jail and move the center of his operations.
A competition broke out among, primarily, Connecticut, New Jersey, New York, and Delaware, which Delaware ultimately won by enacting laws that were the most corporate-friendly in the nation. You can literally incorporate in Delaware with a single shareholder, a single director, and a one-sentence statement of purpose that “This corporation exists to do whatever is legal in the State of Delaware.” This is why today more than half of the NYSE-listed companies are Delaware corporations.
Which has created a real problem for human beings who are the victims of crimes committed by corporations.
For example, the good citizens of California had been wondering out loud who killed their citizens in the Camp Fire, along with hundreds of other Californians over the years in other fires. Now, prosecutors have convicted Pacific Gas and Electric of 84 separate counts of manslaughter: the corporation is responsible for each of those deaths (as well as others in the past).
California’s largest private, for-profit corporate utility appears to have killed a number of people over the years, in many cases because of negligence apparently prompted by a desire to jack up corporate profits and distribute that money to its shareholders and executives instead of funding maintenance and safety.
But the corporation did not go to jail – and neither did any of the executives who made the decisions for the corporation. Why? Because as a corporation, they play by different rules than you or I.
Imagine you got a holiday package delivery gig and decided to make more money by increasing the number of packages you can deliver in a day. The easiest way to accomplish this is by ignoring state and local regulations (speed limits) and drive like a maniac.
But what happens if, in your haste, you hit and kill a bunch of schoolkids in a crosswalk?
Particularly if you’d already been busted multiple times for felony reckless driving and had already killed other entire families driving badly on public streets … several different times in several different cities.
And, on top of that, if you had lied to the police and the courts, saying that you’d been driving very, very carefully — all while you tried to hide or destroy the evidence. You’d spend many years in prison for those deaths and the cover-ups; in some states you may even face the death penalty.
Now consider what happens when a corporation behaves like that. Pacific Gas and Electric (PG&E) has already been nailed for “speeding,” ignoring laws that require them to operate in a way that’s safe — and people have already died, on multiple occasions.
- PG&E was found guilty for the 2010 San Bruno pipeline explosion that injured more than 50 people and killed eight. They were fined $1.6 billion and are on probation now.
- In 2017, the U.S. Attorney for the Northern District of California noted in a public statement that the company had continued to break that same law. “The jury found PG&E guilty of six felony counts — five willful violations of the Pipeline Safety Act and one count of corruptly obstructing the federal investigation…” As an additional penalty, they were ordered to perform 10,000 hours of community service, pay a $3 million fine, and another five years was added to their “probation.”
- In 2017 alone, PG&E’s failure to properly maintain and operate their equipment and rights-of-way caused 17 fires in California; while investigators referred 11 of those cases to prosecutors for code violations, so far there have been no new indictments.
- In December of 2018, PG&E was again busted by the California Public Utilities Commission for not only refusing to mark and warn people of the locations of their gas pipelines in a timely fashion, but, as CNN noted, they “[P]ressured workers to falsify data…”
- In 2020 they were convicted of 84 counts of manslaughter for redirecting maintenance revenues to their stockholders and senior executives and thus failing to maintain their power lines in a way that could prevent predictable fires.
And the crimes of PG&E pale in comparison to those of the tobacco industry that killed my brother, the asbestos industry that killed my father, and companies like ExxonMobil that promoted lies about global warming that may kill many of our great-grandchildren.
The Corporate Death Penalty Is Not New
While the human death penalty has largely disappeared in the world and is fading in the U.S. (a good thing), the corporate death penalty needs a revival.
The corporate death penalty, widespread in the 19th century, is a political and economic Darwinian process that weeds bad actors out of the business ecosystem to make room for good players.
The process of revoking corporate charters goes back to the very first years of the United States. After all, the only reasons states allow (“charter”) corporations is to create economic activity that, at the end of the day, will itself serve the public interest. As the Wyoming Constitution of 1889 laid out:
“All powers and franchises of corporations are derived from the people and are granted by their agent, the government, for the public good and general welfare, and the right and duty of the state to control and regulate them for these purposes is hereby declared. The power, rights and privileges of any and all corporations may be forfeited by willful neglect or abuse thereof.”
When a corporation does business ethically and legally, it serves its local community, its employees, its customers, and its shareholders. For over a century, American corporations were held to this very reasonable standard.
Beginning in 1784 when Ben Franklin was deeply involved in Pennsylvania politics, that state demanded that corporations include a revocation clause in corporate charters that automatically dissolved them after a few decades so they couldn’t grow so large or so rich as to become a public menace. It also authorized the state to dissolve any corporation that harmed the state or its citizens, including customers and employees. It was pretty explicit:
“Nor shall any charter for the purposes aforesaid be granted for a longer time than twenty years; and every such charter shall contain a clause reserving to the legislature the power to alter, revoke, or annul the same, whenever in their opinion it may be injurious to the citizens of the commonwealth…” (Article I, Section 25)
As the United States grew, the federal government passed laws requiring corporate-death-penalty revocation clauses in the state corporate charters of insurance companies, in 1809, and banks in 1814. By the late 1880s, every state required them for all business corporations.
From the founding of America to today, governments routinely revoked corporate charters, forcing liquidation and sale of assets, although it’s been over a century since such efforts have focused on corporations large enough to have amassed financial and, thus, political power.
In the 19th century, banks were shut down for behaving in a “financially unsound” way in Ohio, Mississippi, and Pennsylvania. And when corporations that ran turnpikes in New York and Massachusetts didn’t keep their roads in repair, those states gave the corporations the death sentence.
In 1825, Pennsylvania passed laws making it even easier for that state to “revoke, alter, or annul” corporate charters “whenever in their opinion [the operation of the corporation] may be injurious to citizens of the community,” and by the 1870s, 19 states had gone through the long and tedious process of amending their state constitutions expressly to give legislators the power to terminate the existence of corporations that originated in those states.
Presidents have even run for public office and won on platforms including the revocation of corporate charters. One of the largest issues of the election of 1832 was Andrew Jackson’s demand that the corporate charter of the Second Bank of the United States not be renewed.
Following that lead, states all over the nation began examining their banks and other corporations, and in just the year 1832, the state of Pennsylvania pulled the corporate charters of 10 corporations, sentencing them to corporate death “for operating contrary to the public interest.”
Oil corporations, match manufacturers, whiskey trusts, and sugar corporations all received the corporate death penalty in the late 1800s in Michigan, Ohio, Nebraska, and New York, among others.
President Grover Cleveland invoked the mood of the times in his 1888 State of the Union address, when he said:
“As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel.
“Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.”
The Oligarchs Rise Up
When, in the late 1870s, the State of Ohio began threatening Standard Oil Trust of Ohio with the corporate death penalty and the possibility of criminal sanctions against its principal owner, John D. Rockefeller and his oligarchic buddies publicly called for states to change their corporate governance laws to get around most of the restrictions that Ohio and most other states had placed on them.
New Jersey heard the call, and thus became the first state to engage in what was then called “charter-mongering” — changing its corporate charter rules to satisfy the desires of the nation’s largest businesses. In 1875, its legislature abolished maximum capitalization (size) limits.
In 1888, the New Jersey legislature took another huge and dramatic step to help Rockefeller by authorizing — for the first time in the history of the United States — New Jersey-chartered companies to hold stock in other companies. The Standard Oil Trust was legally still in business (Ohio outlawed trusts in 1892, but by then Rockefeller had moved his corporate governance to New Jersey), renamed “Standard Oil Company of New Jersey.” (It is now ExxonMobil, the company that has funded lies about climate change for decades.)
As New Jersey and then Delaware threw out old restrictions on corporate behavior, allowing corporations to have interlocking boards, to live forever, to define themselves for “any legal purpose,” to own stock in other corporations, and so on, corporations began to move both their corporate charters and, in some cases, their headquarters to the charter-mongering states.
By 1900, trusts for everything from ribbons to bread to cement to alcohol had moved to Delaware or New Jersey, leaving 26 corporate trusts controlling, from those states, more than 80 percent of production in their markets as I document in Unequal Protection: How Corporations Became “People.”
There was pushback in New York, though. In 1894 the Central Labor Union of New York City campaigned for the New York State Supreme Court to revoke the charter of Standard Oil Trust of New York for “a pattern of abuses,” and the court agreed and dissolved the company.
In 1912, New Jersey Governor Woodrow Wilson was alarmed by the behavior of corporations in his state, and “pressed through changes [that took effect in 1913] intended to make New Jersey’s corporations less favorable to concentrated financial power.”
But as New Jersey began to pull back from charter-mongering, Delaware stepped into the fray, passing in 1915 laws similar to but even easier on corporations than New Jersey’s.
Delaware, over the next few decades, continued to strip away their corporate accountability rules so that, as the state’s website said in 2002, “More than 308,000 companies are incorporated in Delaware including 60 percent of the Fortune 500 and 50 percent of the companies listed on the New York Stock Exchange.” (The site today merely has “corporate-friendly” gibberish.)
Progressives Fight Back
In reaction to public disgust with the predatory and monopolistic behavior of these corporate giants, the “Progressive Era” of Teddy Roosevelt’s presidency (1901-1909) saw numerous laws passed designed to restrain bad corporate behavior.
The most well-known was the 1907 Tillman Act, which made it a felony for a corporation to give money to federal politicians’ campaigns.
The Tillman Act (struck down by 5 corrupt Republicans on the Supreme Court in their Citizens United decision) was based, in part, on numerous state laws, like this one that Wisconsin passed in 1905:
“Political contributions by corporations. No corporation doing business in this state shall pay or contribute, or offer consent or agree to pay or contribute, directly or indirectly, any money, property, free service of its officers or employees or thing of value to any political party, organization, committee or individual for any political purpose whatsoever, or for the purpose of influencing legislation of any kind, or to promote or defeat the candidacy of any person for nomination, appointment or election to any political office. [Wis. Laws, Section 4479a (Sec. I, ch. 492, 1905)]”
The penalty for an individual (even a lawyer or lobbyist representing a corporation) breaking this law on behalf of the corporation was not just a large fine but a two-year prison term, and if the corporation itself was found to be violating the law, it faced the corporate death penalty: “dissolution of the corporation and sale of its assets.”
But 1921 saw the end to much of that, when Republican Warren G. Harding successfully ran for president on a platform of tax cuts, deregulation, and privatization. His twin slogans were, “More business in government [privatize], less government in business [deregulate],” and “Return to normalcy” – take taxes back down to where they were before World War I.
When elected, he lowered the top tax rate from 91 percent to 25 percent, producing a huge “sugar high” for the economy. It kicked off the Roaring ’20s and led straight to the Great Crash of 1929, which was made much worse by Harding’s successful deregulation of the banks and brokerage houses.
Between the 1920s and the 1980s all U.S. states amended their constitutions or changed their laws to make it easier for large corporations to do business without having to answer to the citizens of the state, without size limits, and with infinite lifespans.
Today, however, every state still has laws that allow it to impose the corporate death penalty; it is just been decades since they have been used against a large corporation. Small companies are routinely shut down by Secretaries of State, sometimes for malfeasance but mostly just because they have become inactive or failed to pay their taxes.
Corporations have successfully argued before the Supreme Court that they should have First Amendment rights of free speech, Fourth Amendment rights of privacy, Fifth Amendment protections against takings and self-incrimination, and Fourteenth Amendment rights as “persons” to “equal protection [with you and me] under the law,” among other “rights of personhood.”
It is long past the time that these “persons,” when they become egregious and recidivist criminals – and particularly when they repeatedly kill people, be treated the same as human criminals: remove them from society permanently.
New, smaller, more innovative companies can fill the spaces now occupied by bloated corporate criminals. The result will be – as it was after AT&T was broken up in the 1970s for violating anti-monopoly laws – an explosion of innovation, competition, and opportunity.
If enough corporate criminals are targeted, the American business renaissance could spread across industries including media, pharmaceuticals, airlines, tech, banking, insurance, food, chemicals, oil and beyond.
It would be a real stimulus, meaningful and long-lasting. And it could all begin with the high-profile dissolution of Donald Trump’s allegedly criminal empire. Good on Attorney General Leticia James: It is high time for our states to once again enforce the corporate death penalty.
© Thom Hartmann, used with permission. Originally published on The Hartmann Report as Should Trump’s Business’ Get The Corporate Death Penalty?
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