Private: The Movement for Benefit Corporations: Another Way to Bypass Citizens United

By Jamie Raskin. Mr. Raskin is a Maryland State Senator, a constitutional law professor at American University, and a Senior Fellow at People for the American Way. He introduced SB 690, which became in April 2010 the first Benefit Corporation law in America. This post is part of an ACSblog symposium marking the one-year anniversary of the landmark decision Citizens United v. FEC.

You never change things by fighting the existing reality. To change something, build a new model that that makes the existing model obsolete. -- Buckminster Fuller

The modern American corporation is bound by law to pursue a single objective in everything it does: increasing company profit. If it deviates from profit maximization, shareholders can bring the house down in a derivative suit.

This relentless profit motivation works wonders financially but is dangerous to the common good. For what is profitable for one company may not be beneficial for everyone. This is why popular forces in America have always tried to build regulatory fences around corporations to contain the damage of their "externalities," such as catastrophic oil spills in the ocean, collapsing oil mines that kill the parents of small children, consumer fraud, sickening peanut butter and food-borne diseases, economic monopolies, mortgage scams, stock market rip-offs, economic crashes and so on.

Perhaps the most important fence hemming in corporate power has been the ban on corporate political spending. This is the first line of defense for popular democracy because it allows our representative institutions sufficient freedom from corporate influence to set up the other fences that we need. To get meaningful food and drug safety laws, consumer protection laws, workplace equity laws, and clean water laws, we need campaign finance laws that permit representatives in Congress and the state legislatures to be elected in a way that is free of corporate control and manipulation.

The Supreme Court in Citizens United v. FEC demolished our first line of defense against corporate control of our representative institutions. Five corporate-minded justices -- let's call them "Justices United" -- not only tore down the fence guarding popular democracy but seriously trashed the fence protecting the "free market," which is democracy's next-door neighbor.

It has gone unremarked that Citizens United is as vicious an assault on the free market -- as classically understood -- as it is on popular democracy. After all, the great Adam Smith argued for a free market in goods and labor because he thought that competition among businesses would both benefit consumers and ennoble the entrepreneurs. But he saw that collusion by business corporations would threaten to unleash anticompetitive conspiracies in the economy and what economists now call "rent-seeking" behavior in the political sphere. In The Wealth of Nations, Smith observed that, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Citizens United is the perfect Supreme Court decision for a post-industrial and globalized capitalism that emphasizes making money off of political power plays and exploitation of public resources rather than the competitive production of goods and services. It invites businesses to seek their profits through joint ventures in campaign spending to elect the most "pro-business" candidates who will then approve predatory rent-seeking activity by the various sectors. Under Citizens United, the pharmaceuticals, Wall Street, military contractors, the health insurance sector, and the energy industry pool their fantastic resources, invest in servile politicians and then work together to obtain ever larger shares of the public's money.

One response to these developments, beautifully described by Jeffrey Clements in this symposium, is to rebuild the fences protecting democracy and the free market by way of constitutional amendment. The people have often overridden by constitutional amendment the Supreme Court's pinched and reactionary jurisprudence relating to democracy, such as the decisions finding no constitutional right for women to vote (which led to the 19th Amendment) or no constitutional bar to poll taxes (which led to the 24th).

This is a movement America clearly needs, and I am doing whatever I can to push it forward. But the problem is that the disease of excessive and unleashed corporate power now threatens to kill every political cure being offered to deal with it. How long will it take us to amend the Constitution, securing two-thirds of each House of Congress and three-fourths of the states, when the corporations are now liberated to spend whatever they want to stop us?

So I want to suggest another promising response to our problem that we can undertake at the same time, which is to remake the American corporation itself.

This idea is grounded in the spectacular growth of green, progressive, and socially minded businesses that want to make not only money for themselves but positive contributions to their communities, yet find themselves stifled by the straitjacket requirements of corporate law.

Justice Stevens observed sharply in dissent in Citizens United that corporations have "no consciences, no beliefs, no feelings, no thoughts, no desires."

But what if they did?

We need a new business model that empowers businesses to act with purposeful social conscience along with the monomaniacal profit-making imperative that has been cemented into law by the Delaware corporate code and its imitators across America.

The new business model would, of course, be an old business model. When corporations were first chartered by states in America, they had specific social purposes, like building bridges or roads. They were kept on a short and revocable leash. They had to act as profit-making public instrumentalities.

That was a long time ago and we are unlikely to get back to this original arrangement any time soon.

But we can at least design an optional business model that permits companies to merge the profit motive with a determination to have a specific "positive impact on society and the environment," such as reviving a polluted community river, partnering on a long-term basis with a public school to promote literacy and graduation, or promoting affordable housing.

We advanced this model in Maryland in April of 2010 when the General Assembly passed and Governor Martin O'Malley signed the nation's first "Benefit Corporation" law. This historic measure invites new businesses incorporating in our state to inscribe a commitment to the interests of employees, customers, the broader community and the environment directly into their corporate charters and to treat them with the same seriousness as their stock values. Benefit corporations cannot be sued by shareholders for failing to place profit over every other company value or for refusing to sell out the business to a high bidder not committed to the social side of the company's agenda. (Everyone knows the story of how Ben and Jerry's was obliged to sell to successors who were not equally committed to the community side of the company ethos.) At the same time, those who want to do good are not forced to register as non-profits and then live or die at the mercy of for-profit corporations or the vagaries of foundation fundraising. If all goes well, they will be self-sustaining and profitable.

The response has been sensational both in Maryland, where more than a dozen businesses have already shown up to incorporate as benefit companies, and across the country. Vermont followed with a law soon after Maryland; both houses in New Jersey have unanimously passed a benefit corporations law; the same bill passed in the New York Senate 60-1; and bills are flying in Pennsylvania, Michigan, Colorado, Virginia, North Carolina, and California.

The newly organized benefit corporations are adding an extremely hot branding device to their marketing efforts. All over America, consumers and entrepreneurs are seeking business networks committed to what is local and what is green. Over time, I believe that benefit corporations will replace profit-only corporations because that is what consumers, employees and businesspeople want. The public commitments of benefit companies will be enforceable both privately and publically because they have to meet a "third-party standard" of best practices developed by independent groups like B-Lab.

The prospect of a surge of public-spirited corporations can throw a monkey wrench into current plans to consolidate corporate power and wealth behind one political party and its "deregulatory" agenda. At the outset, these new companies could check the lopsided campaign finance advantages just handed by Justices United to the most right-wing forces in America. Over time, though, one hopes that the benefit corporations could decisively propel the movement to rebuild the fences that protect both political democracy and an honest free market.

Campaign Finance, Constitutional Interpretation, Democracy and Elections, Supreme Court