Finding State Action When Corporations Govern

Abstract

The financial crisis of 2008 is blurring the lines between the State and the private sector. While painful, this process may facilitate a re-examination of the state action doctrine. This Article argues that corporations have for some time been increasingly taking on roles as pseudo-governmental actors without incurring the accountability to the people generally associated with state action. This is happening via new governance, and while the recent financial crisis may suggest that the problems associated with new governance are waning, the reality is that the corporate consolidations likely to follow in the wake of the downturn - together with the government's oft-stated desire to divest its bailout stakes in private companies as soon as possible - will result in even more powerful corporate actors with an even greater ability to govern. In this Article, I argue that there are at least four reasons why state action is present when private actors leverage state-granted limited liability to carry out this type of governance: First, the corporation does not exist without the State and the State derives significant benefits in exchange for granting corporate status. Second, the abuse of the corporate form for illegitimate governing is foreseeable and has been predicted since the 1800s, but state law nevertheless encourages this type of abuse by making shareholder wealth maximization the priority of corporate management and protecting those managers from personal liability via doctrines such as the business judgment rule. Third, the democratic process has arguably failed to keep the accumulation of corporate power in check and therefore it falls to the judiciary to rein in the abuse of that power. Fourth, to the extent that the arguments made in this Article constitute an expansion of current state action doctrine, such expansion is consistent with the history of that doctrine. Understanding state action under the Fourteenth Amendment to include new governance has wide-ranging implications, not least of which is the potential for increasing the degree to which international corporations may be held accountable for human rights violations.

Keywords: corporations, state action, new governance

JEL Classification: K00, K22