Original sins: legal personhood
“I still do not understand how a corporation can have person-hood if it has no soul and never dies” Jon Stewart
After taking a look at incorporation and limited liability, this week we are going to delve into the last of our three original corporate sins: legal personhood.
One of the very odd things about incorporated organisations is that we define them in law as a legal person, distinct from their owners or shareholders or staff.
As a legal person it can enter into contracts, it can purchase and sell assets, lend and borrow money, and it can attack others or defend itself in court. It also has a lifespan beyond its constituent members. It can live forever! Or until it goes bust or is wound up.
In the UK the legal personhood of the corporation wasn’t defined in law until 1897 when it was central to a court case relating to a boot making company that went bust leaving debts. The House of Lords found that the company was a distinct legal person, separate from that of its main shareholder. It is now seen as settled in law. The Companies Act of 2006 states that “members of the company are a body corporate”.
The United States saw a similar evolution in corporate personhood at about the same time, when a decision by a US court in 1886 recognised the corporation as a “natural person”. Given the role of slavery in the formation of the modern corporation (see our post on the original sin of incorporation) one of the many dark ironies of this particular bit of corporate history is that the basis of this case was the 14th amendment to the Constitution. This amendment was adopted to protect emancipated people who had been previously enslaved. It states that “no state shall deprive any person of life, liberty or property.” By arguing that this amendment also applied to corporations it enabled them to act against what they saw as state overreach and to strike down regulations.
Much more recently, in 2010, in the United States legal personhood was used to claim that corporations as “individuals” have a political right to free speech under the First Amendment, including the right to “use money amassed from the economic marketplace to fund their speech.” In effect, this gives corporations the ability to capitalise on their vast resources to engage in political speech.
However, legal personhood has a long history, one that is pretty grim in places.
During the Roman Empire charities, public works companies, municipalities and voluntary associations could adopt legal (or fictitious) personhood. So, like incorporation, the origin of the privilege of legal personhood was tied to the delivery of social purpose. Alongside this however businessmen could limit their risk taking through a legal ploy whereby they transferred commercial responsibilities to a shared enslaved person, who was assigned the assets required to carry out the business. In contrast to bestowing legal personhood, by using a slave who was legally considered a non person, the business was depersonalised. The partners were therefore able to separate management from ownership and limit their liability.
After the fall of Rome, the Catholic Church integrated the concept of legal personhood into its canonical law. Pope Innocent IV affirmed that the entity of “the church” is in corporate matters figured as a person. The idea of the “fictitious person”, was therefore used in relation to Christian institutions. Much like the non personhood of Roman slaves, this might have been eased by the fact that in some cases the monks within a monastery were deemed to be legally dead, having renounced their lives to God. So legal personhood of an institution has its roots, at least in part, in the negation of the personhood of the individuals within it.
From these somewhat disturbing beginnings, the corporate form, which also became known as a “moral person”, spread throughout Medieval Europe and, like in Rome, it was primarily adopted by municipalities, towns, and universities for political, religious, educational, and civic purposes.
Similarly in England, long before it was formalised in corporate law, we also saw this gradual evolution of the idea of the “corporate person” in particular in relation to the descriptions of towns, counties and boroughs. As Harold Laski explains in “The early history of the corporation in England”, these gradually moved from being seen and treated as communities or collectives of individuals, to being a legal individual in their own right, somehow subsuming the individuals within them. For instance the historical records show that in the period just after the Norman Conquests, Henry I granted the right to load barges to “the men of Cambridge.” But that language soon began to change, with the official records starting to talk about fees and fines being paid “to the borough.” At this point the town or borough was considered to have its own finances and property separate to that of the individuals within it, or to the local lord or the King. But does this incorporated thing, the town or the borough, really reflect or represent the people within it? What if its character or will is different from yours?
We think this idea of legal personhood is at the heart of some of the weirdnesses of corporate life. Just as we might not share the character or will of our town we might at times feel uncomfortable at the idea of being represented by the views of our employers. These can often seem to arise through some opaque internal process and become the settled view of the legal person of the organisation. What if you as an individual disagree? And what if you go on social media and say so?
Do we, like Roman slaves or legally dead monks, need to become non-persons in order to be part of the corporate body? How does this fit with modern work practices like “bringing your whole self to work”? When are we acting as ourselves, and when are we just a limb or organ of the corporate person? And when do we become the corporate body as its representative, embodying the disembodied?
And even if we view them as a person, as Lord Chancellor Thurlow (1731–1806) said during the trial of Warren Hastings of the East India Company, "Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like." Going further, Joel Bakan professor at the School of Law of the University of British Columbia, describes the corporation as a psychopath, a legal person that is unable to “recognize nor act upon moral reasons to refrain from harming others.”
We think these three original sins of incorporation, limited liability and legal personhood lie at the heart of what makes organisations such weird places to work, and may be the root causes of some of the tensions that arise when corporate bodies become legal people, and human beings become corporate bodies.
Stay with us as we explore how they impact the life of an organisation; from establishment through recruitment, culture setting, power dynamics, problems in the workplace, succession and closure.