The Sovereign and the CEO

To paraphrase an insight from Michael Lind: Of the major national institutions—academia, the media, the administrative state, corporate America, and electoral politics—conservatives today can only realistically win control in one. And when conservatives win in electoral politics, whether state or federal, these other institutions frustrate our effective exercise of power at nearly every step.

This is ultimately a problem of sovereignty. Namely, it is the frustration of the ability of popular government—at both the state and federal levels—to act within its proper sphere, caused by other institutions acting outside of their proper spheres.

That problem is especially acute when it comes to corporate America, which is at once especially frustrating and especially addressable. Corporations are creations of government, intended initially to fulfill public purposes, the subverting of legitimate public laws obviously not among them. The good news is that this means policymakers have not only the right, but also the obligation to govern them accordingly.  

The Corporation as Legal “Concession” of Sovereignty  

We all remember how corporate America undermined the first Trump Administration. How CEOs and their lobbyists fought Trump’s immigration policies so they could import cheap labor. How they championed Black Lives Matter and the chaos of 2020. How they funded Democratic electioneering schemes.

Years ago, many corporate executives were Republican donors. But so far in 2024, only one Fortune 100 CEO has donated to support Trump’s presidential campaign. For his trouble, Elon Musk has faced intense anger and scrutiny.

And that’s just federal electoral politics. Against red states, corporate America leverages its vast wealth and resources against legitimate conservative politics even more effectively. It has become a routine fact of red-state politics that companies respond to conservative policies by announcing boycotts or rolling out corporate programs that undermine state law. For example, when Texas passed its Heartbeat Act, over 50 companies condemned the state, and several announced initiatives to fund their Texas employees’ procurement of abortions outside the state.Or recall the mass corporate condemnation of Georgia’s voter integrity law. Or Disney and over 150 other companies’ campaign against Florida’s Parental Rights Act. Or the corporate backlash against Indiana’s religious freedom law.

Within their purportedly private spheres, corporations go even further, adopting DEI policies, embracing activist campaigns, and imposing mandates on employees that run directly counter to American values and promised constitutional freedoms.

Put simply, much of corporate America has become like a private, parallel government that reliably advances progressives’ anti-American agenda when it truly matters. Against conservative political power, corporate America is a “sanctuary” for nullification and resistance, creating strongholds from which conservative policies are blocked, weakened, and, ultimately, rolled back.

Some call this “woke capitalism.” Matthew Crawford calls it the “party state” because it is characterized by a private managerial class that asserts itself as a class and acts to advance its own partisan interests, as a state would. The corporate bureaucrats who run all these companies are drawn from the same narrow class of people, and their real accountability system is not responsibility to voters or shareholders, but to their own cohort. The preferences of that cohort, not the laws and policies of legitimate political authority, are what corporate America believes it must obey. That is a problem of sovereignty.

This should not be surprising: Legally and historically speaking, corporations are themselves a kind of sovereign. They are created by the sovereign—the state—by grant of a corporate charter, which was called a “concession,” and which confers on them state-like qualities.

For that reason, in the Anglo-American tradition, corporate privileges were always suspect. They conferred super-human capacities—for instance, concentrated capital, perpetuity longer than any human life, limited liability—that would inevitably encroach upon the liberties of natural persons. As one essayist put it during the 1785 debate over the charter for the Bank of North America, incorporation created “that solecism in politics, a government within a government.”

Accordingly, in our tradition, the view was long held that corporate privileges should only be bestowed when they were needed to accomplish public purposes that individuals and voluntary associations alone could not. This is one reason why many of the first corporations in America were municipal governments—for instance, the “Massachusetts Bay Company.” For most of American history, we recognized that this delegation of the state’s sovereignty should be guarded jealously and monitored to protect against its abuse.

The Detour and Frolic from Public Purpose

As a condition of granting corporate privileges, corporations were internally constrained by the provisions of their charters, over which states had immense latitude.

At the Founding, corporations were individually chartered to serve certain, limited, public purposes, usually for enterprises that required more capital than held by an individual person, such as public infrastructure. A corporate charter was only formally valid in the state granting the charter. Other states could require corporations to get a separate charter to operate in their states. 

Over time, that special-purpose requirement eroded. But even after special incorporation gave way to general incorporation statutes, states still limited corporate powers to the purposes the corporation stated in its charter—called the ultra vires doctrine. States could invoke the remedy of quo warranto to revoke a corporation’s charter where the corporation abused or neglected its franchise.

States also imposed many other charter-based limits that reflected their public policies. These included retaining the state’s power to amend a corporate charter after it was issued, requiring a majority of directors to be residents of the chartering state, privileging the votes of small over large shareholders, and limiting the total capitalization of the corporation.

A couple of limitations are worth special notice. In Massachusetts, by the 1880s, a provision stipulated that, while corporate shareholders had limited liability, they were still personally liable for unpaid wages owed to employees. In Texas, around the same time, the state corporation law required corporations to own only such land as was needed in their business operations—and divest any excess large, concentrated landholdings.

However, in the modern era, these conditions to the receipt of corporate privileges fell away. Motivated by desires for a certain kind of economic growth, the United States elevated the corporate form from limited public franchise to almost unlimited rights-bearing person.

We began to view corporations as mere associations of persons, united solely by an economic interest in maximizing financial returns—and therefore governed by the principles of freedom of contract. If the corporation is—to adapt Barney Frank’s line about government—“just the name we give to the things people do together,” then the law should enable endless, customizable options, and a corporation should be free to grow without limit and into any area to which its shareholders putatively “consent.”

One of the most poignant descriptions of this shift came from the law professor Bayless Manning, who in the 1960s wrote:

The nineteenth century legal mind … vividly saw the “corporation”—the legal construct—as something quite separate from the economic enterprise: three dimensional, virtually alive, a little bit sacred because of its “immortality” and connection with the “sovereign,” and withal terribly important. …

The nineteenth century obsession with corporate “powers,” “franchises,” and ultra vires was grounded upon the insistence that corporation law was about corporate ideology, not about economic policy. If the legislature created a particular corporation in the shape of a horse, the horse “could not” moo. It was not that the enterprise should not violate a legislative prescription; it was that the “corporation” could not do so as a matter of inherent incapacity. …

[But] [i]n the last sixty years of business law in the United States, point by point, topic by topic, issue by issue, the commercial image of the business organization has emerged to overshadow the concept of the “corporation.” … One result of this break-through is that corporation law, as a field of intellectual effort, is dead in the United States. When American law ceased to take the “corporation” seriously, the entire body of law that had been built upon that intellectual construct slowly perforated and rotted away. We have nothing left but our great empty corporation statutes—towering skyscrapers of rusted girders, internally welded together and containing nothing but wind.

The earlier entity-based view of the corporation imposed inherent limits on corporate behavior. One consequence of forsaking it is that corporations have been free to roam outside of their traditional domains. As Irving Kristol once described:

One must …concede that both the Founding Fathers and Adam Smith would have been perplexed by the kind of capitalism we have [today]. They could not have interpreted the domination of economic activity by large corporate bureaucracies as representing, in any sense, the working of a “system of natural liberty.” … The large, publicly-owned corporation of today which strives for immortality, which is committed to no line of business but rather (like an investment banker) seeks the best return on investment, which is governed by an anonymous oligarchy—such an institution would have troubled and puzzled them, just as it troubles and puzzles us.

Today, we are reaping the rotten fruits of a mistaken view of corporate “liberty”—one that is at odds with our political tradition.

Many commonly suggested remedies to problems with big corporations today—from a more aggressive approach to antitrust enforcement to campaign finance restrictions—are attempts to impose externally the limits that corporate law once provided internally. We should revisit these internal limits (and more) on corporate power, albeit in modern form.

Returning to Proper Sovereignty

We cannot, and should not, just go back to special incorporation statutes that tell every company what they can and can’t do. But I emphasize the foregoing history because I do think we need to start thinking about the law governing the internal affairs of corporations again.

Many of the problems we have with corporate power today come from an internal governance of these companies that has gone awry. ESG and DEI, and more broadly disloyalty to community and nation, are fundamentally corporate governance ideologies that permeate entire institutions. What we need is better corporate governance.

So here are some policy ideas that would apply state power to balance corporate power internally within these corporations:

• Give more voting power to flesh-and-blood retail shareholders over institutional investors and asset managers.
• Impose greater qualification requirements for board candidates, such as for their character, or real-world experience.
• Prohibit the use of ESG and DEI in both corporate governance and business management as inconsistent with fiduciary duties.
• Proscribe corporate financial support for public indecency.

These are just a few illustrative ideas. The point is that conservatives should start taking the corporate form, and corporate governance, seriously again.

A major obstacle to pursuing this course, created by a combination of federal law and questionable interpretations of Supreme Court precedent, is that the law of one tiny, terminally Democratic-controlled state, Joe Biden’s Delaware, dictates the corporate governance of over two-thirds of the corporations listed in the Fortune 500. The Supreme Court has (arguably) suggested that only a corporation’s chartering state can regulate its internal affairs. And some people understand the Court to have said separately that states must allow out-of-state corporations to do business in their states. The result: a corporate-charter monopoly, in which corporations can charter in one state—whichever state offers the law most favorable to corporations—while doing business in all.

There are three ways to take this on. First, red states can beat Delaware in offering alternative jurisdictions for corporate law. Just last month, Tesla successfully changed its incorporation from Delaware to Texas after Delaware courts issued a questionable decision invalidating Elon Musk’s compensation. Several red states, including Texas, Georgia, Utah, and Wyoming, have set up their own business courts to attract companies.

Second, red states can attempt to regulate corporate internal affairs even without corporations choosing to reincorporate. States could push the boundaries of the current “internal affairs doctrine,” mentioned above, which purports to limit the ability of states to regulate the internal affairs of corporations chartered out-of-state. States could potentially even require a state-specific corporate charter for doing business in the state and impose limits on corporate power through that charter.

Third, Congress can act. Congress can authorize states to regulate corporate internal affairs. Congress can also limit any race-to-the-bottom competition for corporate charters among the states and require that corporate law maintain certain limits on corporations, such as those discussed above.

To reclaim proper sovereignty, we need to limit corporate power. Corporate “sovereigns” must return to their limited exercise of power within the economic sphere and allow the American people to govern themselves once more.

This essay is adapted from remarks delivered at the 2024 National Conservatism Conference.