Making a Federal Case of Chartering
The recognition of the limits that Delaware's corporate laws place on the public's ability to regulate them in the public interest has periodically caused corporate scholars and activists to revisit the notion that corporations should be chartered at the federal instead of the state level.
The proposal last received serious consideration in 1975, in the post-Watergate reform era, when three pioneers in the corporate accountability movement--Ralph Nader, Mark Green and Joel Seligman--reviewed the pros and cons of federal chartering in their book, Taming the Giant Corporation.
Boston College Law School Professor Kent Greenfield thinks federal chartering needs to be given serious consideration once again as the recent corporate crime wave provokes renewed debate over corporate reforms.
"We have made choices with regards to other frameworks of regulation where we don't want states or companies to compete, for example with regard to civil rights and healthy workplaces," he explains. "With federal chartering, every corporation would be on an equal footing. States would not be competing with each other on grounds that we as a society don't want them to compete on."
Proponents say federal chartering would establish a minimum standard of corporate accountability, and make it possible to bring back some of the other limits on corporations that were once written into charters at the state level. A federal chartering system could be used, for example, to restrict corporations from specific forms of campaign finance or from incorporating in offshore tax havens. It could also be used to require corporations to serve some public purpose.
In fact, the federal government already charters a limited number of corporations that, in theory at least, are required to serve a "public need." Federally chartered cooperatives, for instance, are required to serve the communities they operate in.
Anticipating the possibility of federal chartering, some progressive activists are beginning to propose related reforms. Tikkun's Michael Lerner has proposed adding a Social Responsibility Amendment to the U.S. Constitution requiring any corporation doing business in the country and making over $20 million a year to get a new corporate charter once every 20 years, which would be granted if they could prove a history of social responsibility to an independent grand jury.
But the proposal to charter corporations at the federal level is not lacking for skeptics who see the dominance of corporate lobbyists inside the Washington, D.C. beltway as a major obstacle to chartering corporations for any public good at the federal level.
"I thought federal chartering would be a good idea until Congress went into the hands of the Republicans and I saw what damage could be done at the federal level," attorney Robert Benson says. "At least at this point we have more influence in state legislatures. You can get a lot of things through the California legislature right now, for example, than you could never get through Congress and even most states. I'd be reluctant to give Congress the power to preempt the states for that reason."
But only a few major corporations are chartered in California.
"It's always a serious concern when access to the decision-makers is skewed the way it is," Greenfield responds. "But what we have now is even worse. We have a state--Delaware--which is home to less than one-third of one percent of the U.S. population--that remains the jurisdiction which governs all the internal affairs of most of the most powerful corporations in America, not to mention the world. So at the federal level we would have to have these battles as well, but at least they would be battles. In Delaware, it's not even a battle."
And even if Delaware were to become attuned to corporate accountability concerns, corporations could simply reincorporate in another state ready that offers a more hospitable environment.
Charlie Cray is director of Citizen Works' Corporate Reform Campaign
© Multinational Monitor October/November 2002