How To Get Away With Murdering A Corporation

charter-new-york-corporation-bank-of-new-york-27
Fairly unimpressive, and yet this piece of paper grants license to do almost anything.

Today the more moderate forces of progressives and the far Left are obsessed with one thing: the corporation. “Get corporate money out of politics,” they say. “We’re not against capitalism,” they explain, “We’re against corporatism.” “Corporations have taken over,” they argue, “We need to take back democracy from the corporations and their creations like NAFTA.” That last point is an interesting one because, even for the oldest among them, saying that the corporations have taken over during their life time implies that this supposed shift happened sometime in the 20th century.

That’s of course not the case. The corporate form grew up alongside capitalism and has always been a big player, arguably even more so during other times of both US and world history. For the former, the late 19th century saw the burgeoning industries of finance, oil, and railroads dominated by large duopolies, monopolies, and oligopolies (control of a market by two companies, one company, or a handful of companies, respectfully). While there were far fewer corporations, their power was more concentrated and in the hands of a few. But-for the combined forces of antitrust reform, the Great Depression, and the nascent labor and socialist movements, those corporations would still be in control today (though some like the House of Morgan, now JPMorgan Chase, are still in control).

For the latter, the British empire and other colonial domination was fostered and sustained by the immediate predecessors of corporations during mercantilism – chartered companies. Despite being the 17th century, these chartered companies are not too dissimilar from their modern counterparts: they issue bonds and stocks to the public and more importantly for the purposes of this post, they were chartered by their respective governments.

Vereinigte_Ostindische_Compagnie_bond
A bond issued in 1623 by VOC. Chartered in 1602, it is considered the first multi-national corporation.

The aspect of chartering is often overlooked in the modern discussions of the corporation. This is a somewhat rational neglect: after all, it is incredibly easy to get a corporation chartered for any legal purpose outside of banking and insurance. And it is not terribly difficult to have one chartered for an illegal purpose either. To understand why, let’s look at the corporate form and chartering process under US law, specifically the Model Business Corporation Act (which has been mostly adopted by all the states – it is state governments that charter corporations).

A corporation has four characteristics under the MBCA: (1) freely transferable shares; (2) a continuous existence despite the death of any individual shareholder; (3) limited liability of shareholders; and (4) centralized management of assets by directors and officers. To charter a corporation, generally only four things are required: (1) the incorporator’s names and addresses; (2) the name of the incorporation; (3) the name and address of the initial registered agent; and (4) the number of shares the corporation is authorized to issue.

Here is why it is not that difficult to charter a corporation to be used for an illegal purpose: with limited liability it is difficult to go after the people directly responsible without piercing the corporate veil (a discussion for another time) and the state government conducts little to no review of the purpose for which the corporation is formed. Some corporations are chartered without a specific purpose even given. Many are incorporated by a set of people who then transfer over the operation of the corporation to others so that it can be difficult to tell who is really making the decisions.

Why are the laws so lax on corporations? Because the role of the government under capitalism is to perpetuate capitalism and capitalism can only be perpetuated by attenuating the decisions of capitalists from any popular push-back. Long before Citizens United, these laws have fostered the continuous growth of corporations unchecked by democratic accountability.

The accountability that does exist is important because those laws have also been created with the facilitation of capitalism in mind. Let’s take a look at one: NY Bus Corp § 1101. This law allows the New York Attorney General to “bring an action for the dissolution of a corporation.” Unlike many of the civil suits against normal people, ones that cost them their homes, their jobs, their residence in this country, corporations are entitled to a jury in these proceedings. The NYAG can dissolve a corporation for lying in the process of their formation (which again, there generally is not much to lie about). Or the NYAG can dissolve a corporation that “has violated any provision of law whereby it has forfeited its charter, or carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to the public policy of the state.”

What kind of violations must a corporation engage in to be put under such a punishment? Well in the 19th century it was often used because the corporations were not being corporations and as such not accumulating capital for the capitalists, thus losing their legitimacy. See e.g.  In re Brooklyn E. R. Co., 125 N.Y. 434 (N.Y. 1891); Day v Ogdensburg & L. C. R. Co., 107 N.Y. 129 (N.Y. 1887); People ex rel. Bishop v Kingston & Middletown Turnpike Road Co., 1840 N.Y. LEXIS 118 (N.Y. Sup. Ct. May 1, 1840). Towards the end of the 19th century, and then again in the early 1960’s, the NYAG did use this law to dissolve corporations for illegal mergers and acquisitions and other antitrust violations. And in possibly my favorite case in this subject, one corporation was dissolved for the practice of hypnosis.  People by Lefkowitz v Therapeutic Hypnosis, 83 Misc. 2d 1068 (N.Y. Sup. Ct. 1975).

300px-Hypnotize_with_Any_TV_Set
AG Schneiderman, please go after the astrology corporations.

What about the exploitation of people? Okay we know the general exploitation by wages in the Marxist sense is not going to win any sympathy from judges. But what about the scams? Companies like Herbalife or Fox News?

Let’s look at two rare instances of this disciplining of excessively exploitative corporations by the government. First we have People v. Abbott Maintenance Corp., 11 A.D.2d 136 (N.Y. App. Div. 1st Dep’t July 5, 1960). In this case, Abbott’s business model consisted of telling people they were hiring for floor waxing jobs and convincing them to buy a floor waxer under a retail installment contract for $936 (modern equivalent of $7,819.78). They did not actually provide these “employees” with clients and the floor waxers were actually worth $102.90 and were not supposed to be used without further maintenance. Essentially the corporation existed solely to rob people. Even then, the first time around the judge dismissed the case before it even reached a jury, and it was only on appeal that the judge upheld the allegations were a prima facie case for dissolution.

And then we have People by Abrams v. Oliver Sch., 206 A.D.2d 143 (N.Y. App. Div. 4th Dep’t Nov. 16, 1994). Readers of my generation will find this case interesting because it concerns student loans, specifically the Guaranteed Student Loans program (GSL). Under GSL, when a student withdraws from a school prior to the completion of their degree, refunds must be given within 30 days to reduce the outstanding principle. It is similar to how landlords cannot leave an apartment vacant when a lease has been broken early just to attempt to collect on the amount they would have received if the lease had not been broken. Oliver Schools was essentially a scam business school program and as such a lot of students withdrew from it. So many that by 1989 the school was in arrears just for the refunds at $738,593.92 (equivalent of $1,486,821.15 today).

It’s hard not to draw a cynical conclusion here that the reason why this relatively extreme measure was used was because it involved a corporation causing financial problems for the government. Also the rarity of these cases is fairly astounding given the amount of scams: in the last ten years there have been 0 published cases under NY Bus Corp § 1101, though that may change very soon. In short, it appears that despite the language of the statute focusing on the public interest, that corporations are generally only dissolved when they (1) are not actually acting as corporations or (2) are costing the government money.

The relationship between the government and the corporations is one of loose facilitation. The government does not protect people from corporations; the government protects corporations from the people. And under a for-profit system that is rational: the government should only discipline those corporations that threaten the ability of other corporations to accumulate capital or the ability of the government to facilitate the accumulation of capital. Corporations did not take over the government – the government for the past few centuries has been how the corporations gained power. If we only look at corporations as the problem, rather than the conscious adoption of a capitalist economy by the government and the capitalist class that controls it, there is no explanation for how the government gets away with murdering corporations, as rarely as that happens. But when we look at those dissolutions and why they happen, it quickly becomes clear that it is profit, not corporations, that controls our government. And it is that profit motive, not the big banks or even the corporate form, that has to go.

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