Corporations wield immense power. They increasingly operate at global level, beyond the reach of national governments. They play a major part in dictating the kind of development path humanity is following, based on the concept of endless economic growth. Now we are reaching the limits of what the planetary ecosystem can sustain, but there is apparently no limit to the ambition of large corporations. Yet attempts to control them and limit their power and reach have not been successful to date.
It is easy to forget that, in addition to all their other privileges, corporations also enjoy human rights, even though they clearly are not human beings. The article looks briefly at how this came about and proposes one way to tackle corporate human rights.
We live in a world where corporations wield immense power. They operate at global level, beyond the reach of national governments. They play a major part in dictating the kind of development path humanity is following, based on the concept of endless economic growth. Now we are beginning to reach the limits of what the planetary ecosystem can sustain, but there is apparently no limit to the ambition of large corporations. Yet attempts to control them and limit their power and reach have not been successful to date. One little known fact is that, in addition to all their other privileges, corporations actually enjoy human rights, even though they clearly are not human beings. The article looks briefly at how this came about and proposes one way to tackle corporate human rights. On December 10 1948, the General Assembly of the United Nations adopted and proclaimed the Universal Declaration of Human Rights. It emerged as a direct result of the experience of the Second World War. Since then it has influenced most national constitutions and has served as the foundation for a growing number of national and international laws, and treaties, as well as regional, national, and sub-national institutions protecting and promoting human rights. It may therefore come as a shock to realise that the word “everyone” throughout the whole of the Universal Declaration on Human Rights and related instruments such as the European Convention on Human Rights includes more than just human beings, who are legally defined as “natural persons”. It may also include companies and corporations, because they too are defined as persons under the law once they have been “incorporated”. One definition of the word incorporate is: to give substance or material form to something, to embody it. Incorporation, as in the creation of a corporation or company, signifies creating a “legal person”. Once created, this legal person has rights, just as natural or human persons do.
How and why did incorporation develop?
Incorporation as a legal concept was originally designed to create a stable entity that could outlast individual human beings, provide continuity and potentially exist forever, or until they are dissolved. At this time, such a “body corporate” or legal person could only be created by royal charter. The first corporations set up in Mediaeval Europe were charitable institutions such as hospitals. They were non-commercial bodies, created for the public good, not private profit. From the 17th Century onwards began the emergence of the commercial, for-profit corporation.1 For example, the British East India Company was incorporated by English royal charter in 1600, the Royal African Company in 1660, the Hudson’s Bay Company in 1670 and the British South Africa Company in 1889. As their names indicate, most were set up to exploit a particular region and several were granted monopolies on trade in those regions. All were instrumental in helping to establish the colonisation of territories which later became part of the British Empire. Indeed, the history of many of these companies shows how they often functioned as if they were already the government in the regions where they operated. The British East India Company, for example, came to effectively rule India, exercising both military and administrative powers. It was liquidated and its functions directly handed over to the British Crown under the Government of India Act of 1858. Its history thus shows clearly how the British government benefited from its activities to assume control of India. The history of the British East India Company also demonstrates how corporate structures evolved. John Company, as it was sometimes called, began as a trade association with members or partners sharing in the risks and benefits of its trade monopoly. Those members gradually began to put all their stock together and hold it jointly. Later they decided to sell their jointly held stock to the Company and in return they received a share in the company, so becoming shareholders. The company then traded the stock in its own name. These developments were the result of decisions taken by the people involved in the company without broader discussion. This early evolution into a for-profit corporation, and the creation of the concept of shareholders who benefit from its profits, but are shielded from direct responsibility for the acts of the company, laid the basis for the structure of the modern corporation or limited company.2 At first, only the monarch could grant a charter, but nowadays, in most parts of the world, a company may be created by a comparatively simple process of registration, for example at Companies House in the UK. Once registered with the state, the company becomes a legal person, a separate entity from its human directors and investors. Again, in most jurisdictions, registering a corporation or company confers “limited liability” on its directors and investors. This means that they are not exposed to losses beyond their investments in the corporation or company should it fail. This status is signalled in the UK, for example by the letters ltd, standing for limited liability. There may be other advantages such as more favourable tax regimes than those enjoyed by human persons and the freedom to raise funds and transfer the company to other owners.3 Legal persons may also enter into contracts and own property.
Corporate human rights
More controversially, they may use their status as legal persons to claim aspects of human rights, such as freedom of speech in order to lobby and advertise. For example British American Tobacco claimed in 2008:
That ability, both of manufacturers to communicate and consumers to receive information, is protected by Article 10 of the ECHR [European Convention on Human Rights], which recognises free speech (including commercial free speech) as a fundamental right.4
Although there are clearly reasons why tobacco companies might be considered less worthy of human rights protection than others, nevertheless the principle is clear:
The European Court of Human Rights has held on several occasions, that statements made in the commercial context shall come within the realm of protection provided for by Article 10 of the European Convention on Human Rights and Fundamental Freedoms […].5
This means that commercial statements by business, including advertising actually come under the jurisdiction of human rights law as (commercial) free speech.
Freedom of speech: Unequal powers to persuade
Should corporations be able to exercise such powers? Corporations have the resources to purchase the highest levels of skills and technology to exercise free speech: to advertise their products, develop their image and imprint their brand on the public imagination. Not content with advertising/commercial breaks, corporations are also able to purchase product placement to advertise particular goods in films and television in some parts of the world. Public relations (PR), first invented as a concept by Edward Bernays, a cousin of Sigmund Freud’s, are a critical part of the corporate effort to win over consumers and promote the image of the corporation in question as a friend, an expert or an advocate, and there are now hundreds of PR companies involved in work to develop corporate branding. The title of one of Bernays’ books “The Engineering of Consent” describes exactly what PR is about and why it is so important. As an early example of successful advertising, Bernays developed a campaign in the 1920s to encourage women to smoke, using the statue of Liberty as an image to equate smoking, women and liberation.6 Another aspect of freedom of speech exercised by corporations under article 10 is the freedom to lobby. The right to seek to influence political decision-making and inform politicians is clearly vital to the interests of human persons and civil society groups or alliances. However, once again, corporations have far greater resources with which to carry out lobby campaigns than civil society. Brussels, the centre of Europe’s decision-making, is full of corporate lobbyists, far outnumbering public interest groups. As Corporate Europe Observatory notes, this “results in flawed policies that put commercial interests above those of people and the environment and undermines the very basis of democracy.”7
Libel laws: Unequal powers to defend reputations
Corporations also use their status as legal persons to exploit libel laws in many national legislatures to defend their reputations. The UK is particularly notorious for its libel laws. A famous case was that of McDonald’s versus Helen Steel and David Morris, often called the McLibel case,8 over a pamphlet published by them and other members of London Greenpeace (not connected to Greenpeace International) that criticised McDonald’s on a number of counts. Some of the defendants agreed to apologise, but Helen and David decided to defend the claims made in the pamphlet. The case lasted 313 days in court over ten years and clearly illustrates the disparity in power between a multinational corporation and two individuals without personal resources other than determination. They were not granted legal aid funding by the state to hire lawyers to advise them because this was not allowed in a libel case. This meant that they had to defend themselves in court without advocates, even though they had no training or background in legal matters. They later won a ruling in the European Court of Human Rights that “their rights to a fair trial and freedom of expression were violated when they were denied legal aid”.9
The European Court ruled that UK laws had failed to protect the public’s right to criticise massive corporations whose business practices can affect people’s lives, health and the environment.10
Although this was followed by calls for legal aid to be made available to rectify the imbalance of power and resources that this case so clearly highlighted, this has not happened. Furthermore, it is not just a matter of legal aid. UK libel law has been widely criticised for curtailing freedom of speech and silencing legitimate criticism, but the law itself has not been changed, even though there is clearly a deterrent effect when legal persons have some of the same rights but far more resources with which to enforce them and prevent human persons from challenging them. This case shows how corporate legal personhood, enabling corporations to bring libel cases against other persons, can lead to miscarriages of justice.
But to the conventionally minded English lawyer there is no question that companies should be able to sue for libel. After all, companies are "legal persons" – …. The view is that if "natural persons" can sue for libel then so can companies.11
Human beings cannot directly bring cases against corporations for human rights abuses
Another consequence of human beings and corporations both being persons under the law, is that human beings cannot bring cases directly against corporations for human rights violations because human rights law is about protecting people (persons) against the state. Instead they have to use other laws, such as those regarding negligence, or environmental damage, or they must appeal to the state for redress. Addressing corporate abuses remains an incredibly slow and unequal struggle. Two examples are the Bhopal disaster of Union Carbide, or the ongoing case against Texaco in Ecuador.12 Even recent UK laws on Corporate Manslaughter are of limited use. Although corporations are people (persons), they do not have bodies that can be imprisoned. They often create and use subsidiary corporations with no assets to carry out risky activities or accumulate liabilities. Such subsidiaries can later be dissolved. A corporation accused of corporate manslaughter may simply claim that an employee was behaving in a rogue manner and the corporation did not know what was happening. It may, in exceptional circumstances, be possible to “pierce the corporate veil”13 and hold individual employees of the company responsible for a crime, but such individuals are dispensable and their removal is unlikely to affect the continued “life” of the corporate legal person.
Unequal global powers - beyond the control of national governments
Corporations as persons not only have greater powers than natural persons. They are now more powerful than many states. Their global reach puts them beyond the control of national governments, whose interests are in any case (as we have briefly seen) often closely allied to those of the corporations, for example, in extracting critical resources from other countries. The World Trade Organisation, which can bring sanctions against national governments and even force them to change their constitutions, may be seen in many ways as the creature and instrument of the corporations and those governments that benefit from corporate activities.
How should human persons respond?
Many proposals have been made to limit the power of corporations. Some suggest limiting the maximum size of any corporation, others would like to introduce international law to control them at global level. This was attempted before, with the establishment of the UN Centre for Transnational Corporations, which was tasked to develop a Code of Conduct for Transnational Corporations. However, the Centre was closed down and work on the Code was halted back in 1993, soon after the Earth Summit. The question posed is this article is as follows: could some basic changes in the law help to begin the process of controlling the power of corporations? The legal person is an entity created in law whose powers were gradually extended by private commercial interests without broader discussion. Now it is on the same footing with human persons under human right law. Should we allow corporations to enjoy human rights? Is barring corporations (as legal persons) from enjoying human rights a useful contribution towards curbing their powers in general? If so, how could this be done?
Taking action – a proposal for fundamental change
It would in theory be possible to add a sentence to the Universal Declaration on Human Rights and related instruments such as the European Convention on Human Rights to say that human rights apply only to human persons and not to any other kinds of person. It would also be possible to change national law so as to recognise that corporations are not people, but creations of the registrar for corporations or companies. As such, as with a hospital trust or a university, they would then be treated as an emanation (or creation) of the state. This would change the legal situation such that, instead of corporate rights competing with real people’s rights, the corporations would be subject to human rights law and would be obliged to observe the human rights of human persons. Such a change requires political will, which in turn would have to be generated by public pressure, as there are powerful vested interests in keeping things as they are. The implications of such an action are very broad, and could help with tackling issues relating to the power and reach of corporations. If corporations (as legal persons) were excluded from enjoying the benefits of human rights law, people would be able to bring cases against corporations directly for violation of their human rights, without having to ask the state to do so on their behalf. It would make for clarity: corporations would no longer enjoy human rights but would instead be subject to them. The contradictions involved in having persons (legal and natural) that are treated equally under human rights law, but are unequal in other important respects, pitted against each other in a competition for rights, would begin to be addressed. This would give human beings more freedom to challenge and change the corporation, which after all is only an instrument created by human beings. It could also compel the state to do a better job of protecting people against corporate abuse, instead of siding with corporations against the people. It would be difficult to do, but considering the issues helps to reveal how the evolution of the law has led to a situation in which human persons are profoundly disadvantaged – which makes struggles for social and environmental justice and equity even more difficult than they might otherwise be. If we want to shift the balance of power and reclaim the proper role of governments in representing their people, we should consider making these changes in the law.
- 1. For more information on the emergence of the commercial corporation, see Who’s in charge?
- 2. Who’s in charge?
- 3. General information from e.g. Wikipedia: Legal Pesonality, Wikipedia: : Piercing the Corporate Veil and Investopedia: Incorporation
- 4. British American Tobacco response to UK Department of Health discussion document “Consultation on the future of tobacco control, May 2008”, 5 September 2008
- 5. J. Krzemińska (2005): Freedom of Commercial Speech in Europe
- 6. Hungry Corporations: Transnational Biotech Companies Colonise the Food Chain, Helena Paul and Ricarda Steinbrecher with Devlin Kuyek and Lucy Michaels, in association with Econexus and Pesticide Action Network Asia-Pacific, published by Zed Books, November 2003, Chapter 3 Image Control: Manipulation and Public Relations
- 7. Corporate Europe Observatory: Lobbycracy
- 8. Wikipedia: McLibel Case: McDonald's Corporation v Steel & Morris (1997)
- 9. Clare Dryer (2005): Libel law review over McDonald's ruling. The Guardian, 16 Feb. 2005
- 10. Media release: Victory for McLibel 2 against UK Government. 15 Feb. 2005.
- 11. David Allen Green (2010): Why should companies be allowed to sue for libel?; Comment is free, guardian.co.uk, 12 Aug. 2010.
- 12. For opposing views see ChevronToxico and Chevron.
- 13. Wikipedia: Piercing the Corporate Veil