Buried beneath the laundry pile of new left-wing regulations the Biden administration hopes to push is a previously obscure idea whose time may, regrettably, have come: the federal corporate charter. For decades, anti-capitalist legal theorists have advocated national licensing requirements for corporations — charters that government officials could revoke for alleged misbehavior. We may soon see what that idea looks like in practice.
With President-elect Biden moving quickly to staff his new administration, many observers are wondering how radical his appointees are going to be. We may not see Senators Elizabeth Warren (D., Ma.) and Bernie Sanders (I, Vt.) in the cabinet (if for no other reason than their Senate replacements would be named by Republican governors), but we will likely see many new senior federal officials in their mold. CNN reported this week that “Elizabeth Warren’s fingerprints are all over the Biden transition, much to Wall Street’s dismay.” Our friends on the Street are wise to be dismayed.
We can get a good idea of what Warren-style officials would want by looking at the senator’s own Accountable Capitalism Act, an admittedly aspirational piece of legislation introduced in August 2018 as Warren herself was preparing to run for the Democratic nomination for president. The very first item that Warren’s office listed in its press release on the bill is the provision for a federal corporate charter, which would cover any American company with more than $1 billion in annual revenue.
The Accountable Capitalism Act would require such corporations to reject the traditional obligation — and long-standing legal precedent — to maximize value for shareholders and instead embrace a “stakeholder” model that “obligates company directors to consider the interests of all corporate stakeholders,” including “communities in which the company operates.” The bill would also create the Office of United States Corporations at the Department of Commerce, which would have the authority to punish any company deemed insufficiently solicitous to stakeholder interests.
The legislation invites state attorneys general to petition the director of the Office of Corporations with the names of firms that they consider unworthy. The director would then have it in her power to revoke the charter of any corporation, giving the company in question one year until its ability to operate expires. The only escape from the verdict of the Office of Corporations would, apparently, be a direct appeal to Congress. Warren’s office describes the process by which a company would use its one-year countdown-to-destruction “to make the case to Congress that it should retain its charter.” This special act of Congress, setting aside a particular charter revocation, would be a sort of reverse Bill of Attainder for the corporation in question.
Proponents of this “corporate death penalty” assure us that it is not a radical or untested method of regulating business, pointing back to the early days of the republic, when corporate charters were more limited in issuance and duration, and throughout the 19th century, when they were much more frequently revoked by state officials. There was a time, they remind us, when being allowed to form a corporation at all was a special privilege that monarchs and legislatures extended only to enterprises that were judged to be “beneficial to the public interest,” rather than to any old group of investors seeking to pool their resources.
Left-wing critics are certainly correct that it was more difficult to form a corporation in the 18th and early 19th centuries, but returning to such a system would hardly be an improvement. One of the many things that we can be proud of in American history is the gradual move away from an economy in which citizens have to beg the government for preference and permission and toward a system in which citizens are generally allowed to conduct their peaceful business as they see fit. During the 19th century we shifted from a system under which the grant of a corporate charter was a one-off special favor, and adopted what was, in effect, a “shall issue” presumption that allowed people to form and operate corporations — as the legal phrasing goes — for “any legal purpose.” Turning the clock back would be social regress, not reform.
Senator Warren’s legislation would put the continued existence of every large corporation in the country in the hands of a single sub-cabinet-level political appointee, empowered to determine whether a firm’s “misconduct” had “caused significant harm” to customers, employees, shareholders, or business partners. That last item seems like an odd inclusion, and it could be the worst. Any company that does business with your company and doesn’t like your latest terms could attempt to haul you before the federal Office of Corporations firing squad as a way of playing hardball. Even if unsuccessful, such a review could torpedo the share price of the target company.
What price would a company pay if its very existence were on the line? Almost anything short of being legally dissolved suddenly becomes plausible, which is why a future Director of the Office of Corporations would quickly become more powerful than the Department of Justice’s antitrust division, the Securities and Exchange Commission, and even the President himself. The ability to bend the corporate titans of Wall Street and Silicon Valley to your will with the mere suggestion of a charter review would make the ring-makers of Mordor blush: It would permanently institutionalize regulation by shakedown and eliminate due process for shareholders.
Suppose, for example, that a left-wing Office of Corporations director decides that ExxonMobil has caused “significant harm” to the global environment by contributing to climate change. Say goodbye to the $150 billion of wealth owned by Exxon’s shareholders. But don’t stop there: Who is to say that the director of President Josh Hawley’s Office of Corporations won’t decide that Apple has done “significant harm” to national security by collaborating with Communist officials in China? There goes another $2 trillion. Hope you weren’t planning to retire anytime soon.
The Accountable Capitalism Act isn’t going anywhere in Mitch McConnell’s Senate, but runoff elections in Georgia and a challenging 2022 map for Republicans could change that. Even if the GOP manages to maintain a majority in the upper chamber, supporters of a free and growing economy need to mobilize now to head off ideas like this before they get the “pen and phone” treatment from an incoming administration that has already telegraphed its willingness to make policy without the agreement of Congress.