Corporations have been in existence for centuries starting from very humble beginnings. Religious orders and governments were the first to incorporate like the Benedictine Order of the Catholic Church, founded circa 529 AD identified as the oldest surviving corporation referenced by Bruce Brown in his book The History of the Corporation, Volume 1. Another thousand year continuously operated business was the Japanese temple construction company, Kongo Gumi, established in 578 AD that shut down in 2009 after a run of over 14 centuries. Image the CEO's decision knowing that he was responsible for the liquidation of that kind of dynasty. His parents must be proud but I guess building temples is a talent gone the way of the cooper. Kongo Gumi illustrates the primary need solved by incorporation.
For background, prior to the 1600s in European corporations were established for the public good and violation to the charters was punishable by law. In England a review by Parliament uncovered in 1721 systemic fraud perpetrated by the Directors of the South Sea Company.
|South Sea Company - 1721|
During the early days, corporations were designed in silos and operated as a individual entities. Directorates were not permitted to participate on multiple boards which is common practice in today's chase for personal notoriety and a few dollars. As reported by 247wallst.com relying on a special screen generated by GMI Ratings, in 2011, the top 10 companies paid directors an average annual stipend in excess of $500,000. I imagine they also receive some pretty good travel and entertainment perks.
Jane Anne Morris is a corporate anthropologist and creator of the Democracy Theme Park http://democracythemepark.org/. Her research into the history of the Wisconsin legislator found the following provisions:1
- Corporations were required to have a clear purpose, to be fulfilled but not exceeded.
- The state legislature could revoke a corporation’s charter if it misbehaved.
- Corporations’ licenses to do business were revocable by the state legislature if they exceeded or did not fulfill their charter.
- The act of incorporation did not relieve corporate management or stockholders/owners of responsibility or liability for corporate acts.
- State (not federal) courts heard cases where corporations or their agents were accused of breaking the law or harming the public.
- Directors of the corporation were required to come from among stockholders.
- Corporations had to have their headquarters and meetings in the state where their principal place of business was located.
- Corporation charters were granted for a specific period of time, such as twenty or thirty years.
- Corporations were prohibited from owning stock in other corporations, to prevent them from extending their power inappropriately.
- Corporations’ real estate holdings were limited to what was necessary to carry out their specific purpose(s).
- Corporations were prohibited from making any political contributions, direct or indirect.
- Corporations were prohibited from making charitable donations outside of their specific purposes.
- State legislatures could set the rates that some monopoly corporations could charge for their products or services.
- All corporation records and documents were open to the legislature or the state attorney general.
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
The legal case in the United States that set corporations on the path to untouchable status arose out of the 1886 Supreme Court case between Santa Clara County v. Southern Pacific Railroad. Based on misleading summary notes of a court reporter, the documents from the decision subsequently were used as precedent to hold that a corporation was a "natural person." From there, companies used the newly drafted 14th Amendment enacted to protect the rights of freed slaves as leverage to grant corporations constitutional "person hood".
Once the camel's nose was under the proverbial tent, other rights and restrictions built into corporate charters continued to erode faster than a Russian Polecat racing down the Ural Mountains the morning of February 15, 2013.
New Jersey was the first state, in 1889, to allow one company to own the assets of another. From there, the rules on the books were erased at an even faster rate. New Jersey continued to lead the country in legislation when, in 1896, the “General Revision Act” was passed removing the restrictions on company size and market share, creating perpetual corporate charters, reducing shareholder powers, and allowing any purchase, mergers or acquisition demanded by a company. As if it were a competition, Delaware first got into the game in 1883 and, with indecision from New Jersey, passed the “General Incorporation Law” in 1899 setting the standard for companies to establish their own rules of governance held to this day as the friendliest state to businesses.
I found the following paragraph on the web and like the way it describes the events around the errant 1886 legal decision. Excerpted from Culture Jam: The Uncooling of America (Kalle Lasn, William Morrow/Eaglebrook, 1999)
“This 1886 decision ostensibly gave corporations the same powers as private citizens. But considering their vast financial resources, corporations thereafter actually had far more power than any private citizen. They could defend and exploit their rights and freedoms more vigorously than any individual and therefore they were more free. In a single legal stroke, the whole intent of the American Constitution -- that all citizens have one vote, and exercise an equal voice in public debates -- had been undermined. Sixty years after it was inked, Supreme Court Justice William O. Douglas concluded of Santa Clara that it "could not be supported by history, logic or reason." One of the great legal blunders of the nineteenth century changed the whole idea of democratic government.”3
Recent news of rogue trades and Ponzi schemes in the financial services industry have left their mark on the global economy. Again confirming the generally accepted principle that, left unattended, corporations lack basic morality and ethics in the constant search for greater profits answering only to shareholders. These executives are blinded by the idea of a higher stock price as their quest tied to their legacy as business magnates.
So today there are many different types of corporate structures in the United States. Popular company forms include the C-Corp, S-Corp, Limited Liability Corporation (LLC), Limited Liability Partnership (LLP) and a newly designed Benefit Corporation “B Corp” created in New Jersey in November 2011 and now available in five other states. Although they all serve a specific purpose, perhaps the B Corps are the most interesting. These companies harness the power of business resources to solve social and environmental problems. Perhaps the creation of this type of corporation and Occupy Wall Street activism are positive signs that the old ideas of corporate immunity and single minded profit goals have come full circle as the pendulum of reasonableness has return.
Contemporary business leaders are beginning to see the benefits of the balanced approach to profits with an eye towards a positive corporate citizenship.
“As corporate citizens of the world, it is our responsibility – our duty – to serve communities where we do business … by helping to improve, for example, the quality of citizens’ education, employment, health care, safety, and overall daily life, plus future prospects,”5 CEO of Starbucks, Howard Schultz
Can the problem of corporations betraying the public trust placing profits ahead of humanity be solved and if so where should society's resources be focused creating the largest impact of change and accountability?
I humbly suggest that the simple, grass roots efforts akin to Occupy Wall Street do not have the necessary leverage or long term effect necessary to bring about this cataclysmic change. Others suggest the complete removal of PACs and special interest groups used to finance legislation reversing the cycle promoting the good for the few at the cost of the many. An idea of broad based incentive programs placed in the proper hands would level the democratic playing field. I am interested to hear other thoughts how today's capitalism can return to our version invented by early pioneers, industrialist and politicians using corporations to enhance our quality of life in this decade. When I write my blog entries I receive insight and guidance from a number of people. For this perspective on the history of corporations in the United States, I would like to thank my long-time friend, Steven Miyao - CEO and founder of kasina for an alternative point of view and for providing a perfect sounding board.
kasina is a trusted advisor to the leaders of the asset management and insurance industries. They are innovators in the distribution of Financial Services products through consulting, research, and benchmarking data. www.kasina.com7
My research continues. Check back soon.
The History of the Corporation, Volume 1 by Bruce Brown
p. 40 of The Lincoln Encyclopedia, by Archer H. Shaw (Macmillan, 1950, NY). That traces the quote's lineage to p. 954 of Abraham Lincoln: A New Portrait, (Vol. 2) by Emanuel Hertz (Horace Liveright Inc, 1931, NY).
3. Excerpted from Culture Jam: The Uncooling of America (Kalle Lasn,William Morrow/Eaglebrook, 1999)
4. Rick Crawford, email@example.com letter from Lincoln to (Col.) William F. Elkins, Nov. 21, 1864.
5. Nicholas Confessore, New York Times - Policy-Making Billionaires Published: November 26, 2011 http://www.nytimes.com/2011/11/27/sunday-review/policy-making-billionaires.html?pagewanted=all
6. Ross L Muir and Carl J. White, Over the Long Term... the Story of J. & W. Seligman & Co. 1964