Solution: Bring Back the Corporate Death Penalty

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How Big Business conquered America. Over the next few months the entire book will be here, new chapters posted every Sunday, for subscribers to read at no cost. If you want to get a physical book to mark up or share with others, just click on the picture above, visit your local bookstore, or check your favorite online seller.

Solution: Bring Back the Corporate Death Penalty

While the human death penalty has largely disappeared in the world and is fading in the United States (a good thing), the corporate death penalty needs a revival.

The corporate death penalty, widespread in the 19th century, is a political and economic process that weeds bad actors out of the business ecosystem to make room for good players. The process of revoking corporate charters goes back to the very first years of the United States. After all, the only reasons that states allow (“charter”) corporations (normal business corporations can be chartered only by a state, not the federal government) are to serve the public interest.

As the Wyoming Constitution of 1889 laid out:

All powers and franchises of corporations are derived from the people and are granted by their agent, the government, for the public good and general welfare, and the right and duty of the state to control and regulate them for these purposes is hereby declared. The power, rights and privileges of any and all corporations may be forfeited by willful neglect or abuse thereof. The police power of the state is supreme over all corporations as well as individuals.72

When a corporation does business ethically and legally, it serves its local community, its employees, its customers, and its shareholders. For over a century, American corporations were held to this very reasonable standard.

Beginning in 1784, Pennsylvania demanded that corporations include a revocation clause in corporate charters that automatically dissolved them after a few decades so they couldn’t grow so large or so rich as to become a public menace. It also authorized the state to dissolve any corporation that harmed the state or its citizens, including harms to customers and employees.

“Nor shall any charter for the purposes aforesaid be granted for a longer time than twenty years,” Pennsylvania’s corporate law read, “and every such charter shall contain a clause reserving to the legislature the power to alter, revoke, or annul the same, whenever in their opinion it may be injurious to the citizens of the commonwealth” (Article I, Section 25).73

As the United States grew, the federal government passed laws requiring corporate-death-penalty revocation clauses in the state corporate charters of insurance companies in 1809 and banks in 1814. By the late 1880s, every state required them for all business corporations.

From the founding of America to today, governments routinely revoked corporate charters, forcing liquidation and sale of assets, although it’s been over a century since such efforts have focused on corporations large enough to have amassed financial and, thus, political power.

In the 19th century, banks were shut down for behaving in a “financially unsound” way in Ohio, Mississippi, and Pennsylvania. And when corporations that ran turnpikes in New York and Massachusetts didn’t keep their roads in repair, those states gave the corporations the death sentence.

In 1825, Pennsylvania passed laws making it even easier for that state to “revoke, alter, or annul” corporate charters “whenever in their opinion [the operation of the corporation] may be injurious to citizens of the community,” and by the 1870s, 19 states had gone through the long and tedious process of amending their state constitutions expressly to give legislators the power to terminate the existence of badly behaving corporations that originated or operated in those states.

Candidates have even run for public office (for example, Senator Elizabeth Warren in the 2020 Democratic presidential primary) and done very well or won on platforms including the revocation of corporate charters. One of the largest issues of the election of 1832 was Andrew Jackson’s demand that the corporate charter of the Second Bank of the United States not be renewed.

Following that lead, states all over the nation began examining their banks and other corporations, and in just 1832, the state of Pennsylvania pulled the corporate charters of 10 corporations, sentencing them to corporate death “for operating contrary to the public interest.”

Oil corporations, match manufacturers, whiskey trusts, and sugar corporations all received the corporate death penalty in the late 1800s in Michigan, Ohio, Nebraska, and New York, among others.

President Grover Cleveland invoked the mood of the times in his 1888 State of the Union address when he said:

As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel. Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.74

Today, all of the states still have laws that allow them to impose the corporate death penalty; it’s just been decades since these laws have been used against a large corporation. (Small companies are routinely shut down by secretaries of state, sometimes for malfeasance but mostly just because they’ve become inactive or failed to pay their taxes.)

Corporations have successfully argued before the Supreme Court that they should have First Amendment rights of free speech, Fourth Amendment rights of privacy, Fifth Amendment protections against takings, and 14th Amendment rights as “persons” to “equal protection [with you and me] under the law,” among other “rights of personhood.”

It’s long past the time that these “persons,” when they become egregious and recidivist criminals (and particularly when they repeatedly kill people), be treated the same as human criminals: remove them from society permanently. New, smaller, more innovative companies can fill the spaces now occupied by bloated corporate criminals. The result will be (as it was after AT&T was broken up in the 1970s for violating anti-monopoly laws) an explosion of innovation, competition, and opportunity.

If enough corporate criminals are targeted, the American business renaissance could spread across industries including media, pharma, airlines, tech, banking, insurance, food, chemicals, oil, and beyond.75 It would be a real stimulus, meaningful and long-lasting: it’s time for our states to start enforcing the corporate death penalty.