What Corporate Veil?

Adam Winkler’s We the Corporations: How American Businesses Won Their Civil Rights (WW Norton & Co 2018) is provocative and important, and it is filled with stories documenting the Supreme Court case law that has, by now, put corporations on nearly the same constitutional footing as American citizens.

Winkler persuasively frames his book as a liberal critique of the Supreme Court’s corporate rights cases, and he is right to do so. One of the book’s most provocative arguments is that the judicial decisions that have given constitutional rights to corporations have been based on the theory that corporations are ‘associations of people’. Winkler thus shows that the Supreme Court’s seminal corporate-rights cases have embraced a theory of the corporation that is in tension with one of the foundational principles of corporate law, which is that corporations are separate juridical entities in their own rights and legally distinct from their investors and managers.

But Winkler’s characterization of the legal theory the Supreme Court has embraced in corporate-rights cases is somewhat misleading. He claims that the Supreme Court has pierced the corporate veil when it has extended constitutional protections to corporations. In a recent Review in The Michigan Law Review, I argue that the language of veil-piercing, even if used metaphorically, mischaracterizes the legal theory underlying those cases. Winkler is correct that the Supreme Court tends to treat corporations as associations of persons, but he is incorrect that this treatment constitutes piercing the corporate veil. When a court pierces the corporate veil, it performs a practical, fact-based inquiry in which it seeks to determine whether the corporation is truly a separate juridical entity from its shareholders, creditors, and directors. If the court determines that there is no legal separateness, then it can hold shareholders personally liable for the obligations of the corporation.

The Supreme Court did not provide any such analysis in the cases Winkler discusses. Instead, the Court has asserted that corporations are never distinct from their shareholders when they claim constitutional protections. And the Court has offered no legal or theoretical defense for that assertion.

What Winkler has identified is therefore not that the Supreme Court has ‘pierced the corporate veil’ in constitutional cases but rather that the Supreme Court has refused to recognize the very existence of the corporate form in those cases altogether. In describing this phenomenon as ‘piercing the corporate veil’, Winkler implies that the Supreme Court’s treatment of the corporation in constitutional cases is part of a sensible and coherent corporate law doctrine. In this way, Winkler’s use of the phrase ‘piercing the corporate veil’ legitimates a practice that bears little resemblance to the actual doctrine and softens the full force of his criticism.

Winkler’s more provocative point, which emerges when one abandons the language of veil-piercing, is that the Supreme Court’s existential theory of the corporation in constitutional rights cases is radically at odds with the existential theory of the corporation it has adopted in every other area of the law. Winkler correctly implies that the Supreme Court’s constitutional cases are based on a suspect—or at least undertheorized—analytical foundation, and he is right that this argument flows logically from the historical analysis he conducts in We the Corporations. To reach that conclusion, however, one must recognize that the Supreme Court treats corporations as associations of people in some circumstances and as distinct legal entities in others, and that the Court’s decision to abandon the theory of the corporation that applies in other contexts requires at least some explanation. Winkler’s claim that the Court is piercing the corporate veil—whether intended metaphorically or literally—thus masks larger inconsistencies in its reasoning.

Of course, corporations may deserve many of the same constitutional protections as people. But if those protections are based on the view that corporations are associations of persons, then the Supreme Court should explain why that theory of the corporation applies in certain circumstances and not in others.

Joshua C Macey is a Postdoctoral Associate at the Cornell Law School.