101 Iowa L. Rev. 499 (2016)

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Abstract

Public clamor over the Supreme Court’s recent decisions in Citizens United and Hobby Lobby can be explained at least in part by the absence of any consistent rationale in corporate-rights adjudication. As many scholars have noted, the Court has never supplied a coherent explanation of corporate rights—where they come from and how to discern their existence and limits. Group rights derive from individual rights, we are told, but little other guidance is forthcoming. As a consequence each new judgment is open to the charge of unprincipled fiat.

This Article contends that, despite its opacity, the case law implies a deep and tractable logic. In particular, the Article argues that the corporate-rights jurisprudence reflects an unstated principle of “organizational neutrality.” Constitutional rights are ascribed to corporations such that entrepreneurs are neither rewarded nor punished for choosing the corporate form over other modes of coordination (for example, contract, proprietorship, partnership, or cooperative). That is, the Constitution is presumed neutral as between the form of governance through which entrepreneurs organize productive activity. The same neutrality principle explains the corporate-rights jurisprudence in statutory cases, albeit as a presumption about Congress’s meaning rather than a binding constraint on its authority.

Moreover, insights from transaction-cost economics supply a ready justification of the neutrality principle. Entrepreneurs choose their governance mechanisms—ranging from the more hierarchical to the more market mediated—with an eye to minimizing the social costs of production. A group-rights jurisprudence favoring one or another mode of organization would bias this choice and encourage marginal enterprises to pick wasteful governance structures. Critiques of the Court’s corporate-rights jurisprudence ought therefore to explain why a non-neutral rule is, in a particular context, worth the measure of inefficiency it is apt to introduce.