After no executives faced prosecution following the 2008 financial crisis, the nature of corporate power and the state's ability to monitor it have become important issues in American politics. One question that features regularly in contemporary discourse is whether corporations treated by the state as “too big to fail” are also treated as “too big to jail.” The Democratic Party has brought this to the fore in the 2020 presidential primary, with several candidates arguing that executives should be held criminally accountable for their companies’ misconduct.Footnote 1 But this idea challenges an established feature of American law. The targets of corporate crime prosecutions in the United States are rarely executives, but the corporations they head. Corporate criminal liability, the doctrine that criminally sanctions corporate entities for their agents’ actions, has a long history in the United States traceable to the Supreme Court's 1909 decision in New York Central and Hudson River Railroad v. U.S. Existing scholarship attributes corporate criminal liability's emergence to the choices the justices made in that case and older trends in Anglo-American common law that facilitated the doctrine's jurisprudential construction over the protests of business.Footnote 2
Excavating the deeper political history of corporate criminal liability reveals a more complicated explanation as to why corporations rather than executives became the objects of prosecution. Extant literature's narrow focus on New York Central as the sole juncture for understanding corporate criminal liability's arrival obscures a series of constitutive political actions that paved the way for the doctrine to become entrenched in law well before the Court stepped in. These developments and how they were sequenced in the turn of the century's political context prompted the Court to grant the doctrine constitutional legitimacy.
The emergence of large corporations and a nationalized economy in the late nineteenth century fundamentally reshaped American life, and obtaining a full understanding of corporate criminal liability's development is only possible by analyzing political change within this climate. Several ideational, political, and institutional developments during this period were necessary, but each insufficient alone, to bring about the advent of corporate criminal liability. Those include the rise of the real entity theory (RET) of the firm in political discourse and legal theory, the growing political power of corporate middle managers, and the reconfiguration of the Supreme Court into a partner of the prevailing Republican coalition. This history offers important lessons into how courts, business interests, parties, and ideas influence American political development.
Understanding this story requires looking back to the 1870s, when political discourse began to reconceptualize the corporation as a being with an independent essence. This made political actors receptive to a new jurisprudential theory of the corporate form that emerged later in the century, RET, which understood the corporation as a self-directed autonomous body independent of its constitutive participants rather than a legal fiction created by private contract or state grant. Both progressive champions of regulation and laissez-faire advocates endorsed this conception of the corporation for different reasons. Progressives believed it would bolster the state's regulatory power by providing a new rationale for holding capital accountable, while laissez-faire enthusiasts thought that treating corporations as persons under law would give businesses new legal protections from state interference. These rival political logics produced a bipartisan consensus that the corporation was an independent autonomous entity that could have the requisite mens rea, or guilty state of mind, required for the attribution of criminal liability.
Real entity theory provided a common framework within which actors across the political spectrum could discuss and debate corporate law, but all sides accepted the idea that the corporation was a being capable of criminal intent because each saw corporate criminal liability as something that supported their policy goals. This complements the work of Stephen Skowronek, who has argued that political ideas can be repurposed by different political actors to serve different political purposes.Footnote 3 Actors with contradictory goals can embrace common ideas under the presumption that those ideas serve their objectives best. The bipartisan appeal of RET was an essential precondition for the emergence of corporate criminal liability because it put railroad officers, proponents of regulation, and laissez-faire adherents in agreement regarding what the corporation was and how it should be treated in law. These groups accepted the ruling in New York Central, and each step toward the doctrine's articulation, because they all saw the outcome of interest as bolstering their goals.
This shift in legal thinking provided theoretical and political prerequisites for the doctrine's emergence, but corporate criminal liability would not have been identified as a feasible reform had it not been for the rise of middle managers of railroad corporations as a powerful class of political players. As corporations grew in complexity and size, they reorganized into hierarchical structures in which middle managers carried out discrete functions necessary to an enterprise's operation. But these managers were more than new positions of power in the firm, as they became active in political arenas. An analysis of the Interstate Commerce Commission's (ICC's) annual reports from 1889 to 1903 shows that railway managers regularly testified before the ICC and proposed amending the Interstate Commerce Act (ICA) to make railroad corporations rather than individuals the targets of prosecution for violations of the law. Managers claimed that a culture of reciprocity developed in the industry in which everyone committed crimes without reporting on each other. They promised the ICC that they would report wrongdoing, but only if it meant the prosecution of a rival firm rather than of a colleague occupying a similar position to them at a competing railroad.
This testimony persuaded the ICC to endorse changing the law to target corporations in criminal cases—but not exactly on the managers’ terms. Progressive advocates of regulation on the ICC endorsed corporate liability as a pragmatic attempt to empower the state to better control capital. This produced an agreement that corporate criminal liability was the best policy, which helped to generate a bipartisan consensus among pro-regulatory progressives and laissez-faire adherents in Congress. This resulted in the Elkins Act of 1903, which reformed the ICA by making railroad corporations liable for criminal wrongdoing.
The emergence of corporate middle managers as political actors reveals several realities about business politics in the United States. While Alfred Chandler's famous description of the industrial era's “managerial revolution” focuses on how managers emerged as sources of power in the firm, this history reveals that during this revolution managers also emerged as actors capable of political coordination.Footnote 4 Further, close analysis of the case complicates a story that might seem to be explainable as regulatory capture. While some railroad managers persuaded the ICC to support their agenda, it bears repeating that the New York Central and Hudson River Railroad opposed the doctrine so strongly that they challenged it before the Supreme Court. This highlights that firms rarely act as homogeneous “business communities,” as scholars of agency capture and pluralism sometimes suggest in sweeping analyses of business-state relations.Footnote 5 Acknowledging the diversity of opinion among firms clarifies the intricate and messy dynamics of business politics and offers a more nuanced perspective into how firms shape political change. Corporations rarely operate as an undifferentiated collection of “business interests” capable of bending politics to their unitary will. Rather, exploring diversity and differences within industries helps to explain how and why different business coalitions win or lose in given political confrontations.
While railroad managers secured a victory in the Elkins Act, a final step was necessary for corporate criminal liability to become a principle applicable to all corporate crimes—the New York Central decision. The ruling was not an apolitical occurrence. Scholars of regime theory have emphasized that when partisan coalitions seize governing power in the wake of political upheaval, courts are one of many sites where political leadership entrenches their preferences and values during their stretch of dominance in electoral institutions.Footnote 6 Regime theory analyses of the Supreme Court thus treat the institution as a creature of historical context, recognizing that the Court is staffed and structured by the majority governing coalition of a given moment to reinforce and protect their interests. By ensuring that the bench shares their preferences, majority coalitions render judicial review a tool that generally confers legitimacy on their favored policies.Footnote 7
After Reconstruction, the Republican Party engaged in a concerted effort to restructure national political institutions to serve their agenda of creating a nationalized capitalist market. The party saw the federal judiciary as well-suited for that purpose, selecting judges based on their “devotion to party principles and ‘soundness’ on the major economic questions of the day.”Footnote 8 This meant that Republican presidents, who held the White House for thirty-six of the forty-four years from 1868 to 1912, appointed judges “that fit within a fairly narrow ideological space” aligned with the party's economic agenda.Footnote 9 By 1909, when New York Central was decided, the Supreme Court was an ally of the Republican majority ushering in Lochner Era jurisprudence committed to economic liberties, economic nationalism, and the protection of corporate rights. The justices did not just resolve New York Central based on precedent, but on the terms of the ruling conservative coalition.
Focusing only on New York Central ignores this long series of political actions that laid the groundwork for the doctrine's constitutional affirmation. This underscores the importance of remaining attentive to context, timing, and contingency when studying political development. The emergence of RET, the rise of middle managers as a political force, and the alignment of the Supreme Court with the era's dominant coalition were all necessary for corporate criminal liability to evolve into legal orthodoxy. The outcome in New York Central can only be understood as a result of how these critical factors were sequenced and linked in this historical context.Footnote 10
Section 1 reviews existing scholarship on the origins of corporate criminal liability before resituating this history within an account of the political dynamics of industrialization, corporate development, and judicial and party politics at the end of the nineteenth century. Section 2 explores the advent of RET in legal philosophy, which supplied the theoretical premises necessary to attribute a mens rea to the corporate form while fostering a broad political consensus on what the corporation was and how it should be conceptualized in law. This is followed by Section 3's analysis of the statements of railroad managers to the ICC, as detailed in its annual reports from 1889 to 1903, with attention to how they advocated for corporate criminal liability. Section 4 examines how the managers’ testimony influenced congressional debates over the Elkins Act of 1903 and the Court's 1909 ruling in New York Central.
Analyzing this history does not shed light on how to fix the flaws in corporate criminal liability today, as it primarily offers lessons for scholars of law, business-state relations, and political development. But for those seeking to change the state's approach to punishing corporations, the foundations of the liability rules we use need to be understood if they are to be reformed. While it is easy to dismiss radical or even moderate ideas for reforming corporate criminal liability rules as unrealistic, it is important to realize that existing rules governing corporate law are not legal necessities or inevitabilities. This mentality contracts the intellectual and political space in which new ideas can be proposed and considered. That corporate criminal liability was not a natural outgrowth of common law, but the product of contingent historical circumstance, should be encouraging for those hoping to rethink liability rules as they operate today.
1. Corporate Criminal Liability in Political Context
Research on corporate criminal liability has typically been relegated to the disciplines of law and history, but the ability of the state to monitor the actions of corporations through criminal law is a crucial aspect of political power. As Odegard and Helms noted in 1938, in the wake of industrialization, America evolved into “a business civilization” in which the corporation became the dominant mode of economic organization.Footnote 11 But this reality was not predetermined, natural, or inevitable, and corporate criminal liability is thus an important innovation in American law. A developmental approach to studying the doctrine sheds light on how the legal and economic dynamics of late nineteenth-century American politics facilitated its emergence.
Most explanations of corporate criminal liability's origins divorce its history from politics, instead attributing its arrival to trends in Anglo-American common law. It is true that English common law rulings holding governmental bodies responsible for failing to maintain roads, canals, and waterways as failures to prevent public nuisances laid some basis for the legal rules of corporate liability adopted by the American colonies.Footnote 12 Throughout the early nineteenth century, U.S. judges retained comparable practices to the English by only holding corporations guilty for crimes of nonfeasance, that is, the failure to perform legally required acts, which did not entail proof of intent. Judges were reluctant to convict corporate entities for misfeasance or malfeasance that required the identification of a corporate mens rea to attribute liability.Footnote 13 However, legal practice changed as large corporations emerged at the end of the century and many prosecutors began charging corporations for violations requiring proof of intent. This coincided with the Supreme Court's 1886 ruling Santa Clara County v. Southern Pacific Railroad Co. in which the justices provided the constitutional basis for corporate personhood in the 14th Amendment's Equal Protection Clause, skirting any conflict with its previous precedents that explicitly declined to acknowledge corporate personhood through the Privileges and Immunities Clause of Article IV.Footnote 14 Around the time of the Santa Clara ruling, it became more common to see corporate prosecutions for active violations of law, like railroads charged for negligence for faulty trolley design.Footnote 15
When the New York Central case reached the Supreme Court in 1909, it challenged the constitutionality of this practice. The New York Central and Hudson River Railroad insisted that corporate entities could not be held liable for criminal actions, disputing the validity of the Elkins Act of 1903. The law held railroads criminally liable if their agents granted shippers rebates, rate discounts railroads routinely offered to high-volume shippers to secure their business that were covered by raising costs for low-volume shippers. The Court applied the concept of respondeat superior—the civil law doctrine that an entity is vicariously liable for its agents’ actions—to criminal activity, ruling that employers could be held criminally liable for employees’ actions performed within the course of their employment. This expanded the reach of corporate criminal liability to all crimes requiring proof of mens rea. The academic consensus is that the decision single-handedly elevated corporate criminal liability to legal orthodoxy, with some scholars describing the rule as “a creation of the courts,” on which Congress has generally “not chosen to legislate.”Footnote 16 This narrative depicts the articulation of corporate criminal liability in 1909 as the Court's “only available option” based on existing common law or as an exertion of judicial agency.Footnote 17
While courts were key sites for the doctrine's articulation, narratives that focus only on courts ignore the array of political factors that paved the way for the doctrine's emergence and take the Elkins Act at the heart of the case for granted without scrutiny. Further, the U.K. and other common law nations have been slower to embrace corporate criminal liability and have done so in more limited fashion.Footnote 18 These different developmental histories in other common law nations indicate that explaining the doctrine as a natural outgrowth of Anglo-American common law fails to capture the full story. These accounts of corporate criminal liability's rise leave many questions unanswered that can be illuminated through a political developmental analysis of the U.S. case.
It is important to recognize that corporate criminal liability emerged at a critical moment for the political economy. As the economy industrialized and corporations of unprecedented size came to dominate sectors of industry in the late nineteenth century, business regulation became a crucial political issue. Public hostility to the “robber barons” fueled moral condemnations of industry, generating an atmosphere in which the legitimacy of corporate power was questioned.Footnote 19 Linking the story of corporate criminal liability to an account of corporate development, with attention to how railroads shaped political change as the country's first large corporations, illuminates how America's industrial terrain conditioned the doctrine's development.
Although the federal regulatory state began to take shape as the economy transformed at the end of the century, regulation was not new in the industrial era. Through the nineteenth century, municipal regulations of economics and transportation were fairly common despite popular understandings of antebellum America as a nation committed to liberal free markets.Footnote 20 But while regulation was not entirely new, large corporations were, and the degree of regulatory power necessary to monitor them required a significant overhaul of American law. Martin Sklar has shown how the shift from a market economy to one dominated by massive corporations was accompanied by fundamental changes in law and governance. As corporate entities became powerful economic actors, they existed in tension with legal institutions reflecting individualistic conceptions of obligation and responsibility. The burden of resolving this tension fell onto legal institutions, which transformed to meet the demands of the corporate economy. The law's adaptation to the reconfiguration of American capitalism kept the state subordinate to the businesses driving the economy.Footnote 21 Consistent with Sklar's account, corporate criminal liability was a transformation designed to accommodate the large corporation in the legal system.
Railroads were essential in reshaping law in relation to the corporate economy. As private entities serving public goods, relying on public aid, and conducting inter- and intrastate commerce, railroads raised hard questions about law and the role of the corporation in American life. But while the emergence of railroads was an international phenomenon, they were handled differently in different countries, as distinct political settings produced diverse responses to railroad expansion. Frank Dobbin has shown that in the United States, France, and Great Britain, industrial policy reflected each nation's political and economic cultures. The American policy paradigm encouraged local- and state-level entrepreneurial innovation and limited central state involvement except to check corrupt concentration. But with a longer history of equating democratic governance with state power, France controlled railway policy through a central state bureaucracy, while Britain adopted a policy of state nonintervention locating almost all control in the private sector.Footnote 22 Similarly, Colleen Dunlavy's comparative analysis of railroads in the United States and Prussia sheds light on how state structures shaped the path of industrial development. America's federalist structure produced a competitive dynamic incentivizing states to invest heavily in railroads early in their development, while the centralized Prussian state left railroad development to private enterprise, as the monarchy feared that raising taxes for railroads would empower the Parliament. But ceding control over development to states produced diverse railway interests and geographically dissimilar technological choices in railway design that made it hard for railroads to develop as a national system in the United States, while Prussian politics facilitated the development of a more coherent national railway system.Footnote 23 Dobbin's and Dunlavy's perspectives illustrate the necessity of studying the unique aspects of political institutions, culture, economy, and law within a nation when studying its response to industrialization. A narrowly focused developmental account of American political history can thus shed light on how factors unique to the U.S. case shaped how the problems raised by industrialization were defined and solved in American politics.
Alfred Chandler's seminal work The Visible Hand offers insight into industrialization in the U.S. case. Chandler contends that large enterprises emerged in the United States to coordinate the nationalizing market and that the development of hierarchical managerial tiers were essential to the reconstitution of the corporate form. Railroads were the model of corporate organization for the nation's industrial and commercial sectors trying to adapt to a nationalizing market. Navigating this market involved carrying out new tasks related to national investment coordination, capital mobilization, large-scale infrastructure maintenance, and cost accounting. Consequently, railroads developed layered managerial tiers to perform these discrete functions. According to Chandler, the rise of this class of middle managers was an essential part of the new corporate form.Footnote 24
Historically oriented political scientists have since shown that the emergence of a national industrial order dominated by large corporations was more politically contingent than Chandler suggested. Stephen Skowronek has described late nineteenth-century state development as driven by competing parties controlling the spoils system and courts establishing the rules of legal and political life.Footnote 25 Several scholars have shown how the emergence of a national economy driven by large firms was a function of the choices made by these courts and parties, particularly the Republican Party. Richard Bensel has shown how Republicans, the primary agents of big business in Washington during industrialization, deliberately created a nationalized market as a precondition enabling large corporations to grow. This revises Chandler's story by suggesting that the corporation was not just an adaptation to economic change, but rather that the national market was a political creation that preceded the rise of a new corporate form.Footnote 26 Gerald Berk's work has also illustrated that a nationalized market was not an inevitability. A different economic model, regional in scope, offered a feasible alternative to a nationalized economy, but court rulings revising receivership laws and locating corporate control with directors and executives rather than shareholders buttressed a national economic model over alternatives.Footnote 27
This illustrates that the emergence of the large corporation and the rules the state adopted to monitor it require political explanation. Institutional context, party politics, and courts drove political change during this period, and the New York Central decision can only be understood as a product of this universe. This underscores the importance of examining courts in this story.
Scholars of regime theory have shown the myriad ways courts are structured and staffed to protect the interests of elected political powerholders, turning judicial review into means of settling disputes on terms favorable to the majority governing coalition of a given era. This helps to explain the conservative and economic nationalist character of the Supreme Court's Lochner Era jurisprudence in the early twentieth century. Howard Gillman's account of the Republican reconstruction of courts in the late nineteenth century details how the party remade the federal judiciary into an ally that could further the party's agenda of promoting economic nationalism and industrial growth. This strategy was in part a function of pressure from northern financial and manufacturing interests, which elevated economic nationalism into a primary interest of the party. Party politics thus left the federal courts well positioned to issue rulings favorable to Republicans and to industry, as according to Gillman, “the social and professional background of most Republican-appointed federal judges disposed them toward the viewpoints advocated by corporations.”Footnote 28 When New York Central reached the Supreme Court in 1909, the justices resolved the question of corporate criminal liability on terms favorable to the regime that reconstituted it.
Note that the decision in New York Central can be interpreted as at odds with Lochner jurisprudence and as an anti-corporate ruling, especially since it ruled against the corporation that brought the suit. But remember that corporate criminal liability was supported by lawmakers of diverse ideological persuasions. Republicans viewed it as consistent with principles sympathetic to business, given that punishing the corporate body offered corporations new legal protections, not to mention the higher burden of proof that had to be met if a corporation was tried in criminal rather than civil court. But the endorsement of corporate criminal liability by actors of diverse political ideologies can only be understood upon examining shifts in corporate ontology and legal theory at the turn of the century.
2. Legal Theory and Corporate Ontology
The conditions for corporate criminal liability's formulation would not have been present without major changes in legal theory, particularly the rise of a new understanding of the corporate form popularized at the end of the century through RET. This theory conceptualized the corporation as a self-directed entity independent of its owners, managers, shareholders, and civil society. Understanding the corporation as an autonomous body meant it could be attributed a mens rea, providing a theoretical basis for locating criminal liability in the corporate body. But RET also provided political prerequisites for corporate criminal liability's emergence by fostering a consensus among lawmakers on what the corporation was and how it should be legally defined. The interpretation of the corporation as a “real entity” was endorsed by political actors of diverse ideologies, creating fertile political ground out of which corporate criminal liability could develop.
While RET only emerged in American academic work in 1897, the seeds of the idea were present in political discourse well before then, making American politics ripe for RET prior to its intellectual articulation. But RET was not the only legal theory of corporate ontology at the time. Legal historians and theorists have excavated two more theories of the corporate form that fueled nineteenth-century politics—concession and aggregation theories. These three theories are simultaneously ontological and prescriptive in that they outline what corporations are and how they come into existence as well as what rights and obligations attach to them, given the nature of their being. How Progressive Era intellectuals and lawmakers invoked these frameworks sheds light on how the contradiction between corporate personhood and America's individualistic legal culture was reconciled as RET took root and corporate criminal liability materialized.Footnote 29
Skowronek's theory that political actors can extract diverse meanings from ideas by altering their associated political purposes is especially clear regarding ideas about corporate ontology.Footnote 30 Connections between ontology and prescription are tenuous within these frameworks; while each theory's ontological premises are clearly defined, their implications are malleable. As John Dewey noted in 1926, each framework has been utilized by actors of different ideologies to rationalize diverse policy positions.Footnote 31 So despite their fixed ontological principles, the meaning of these theories has been altered over time to serve the aims of political actors with a variety of intentions, rendering it necessary to study their influence within their historical context.
Concession theory, the oldest of the three, postulates that the corporation is a creature of the state and can only act for the purposes for which it was designed. The theory has roots prior to the founding of the United States, and it resonated with a society in which corporations were primarily borne through charters allowing states to control corporations and direct them to pursue narrowly tailored goals. This granted states robust power over corporations.Footnote 32 This theory had real appeal through the nineteenth century, famously being invoked by Chief Justice John Marshall in Trustees of Dartmouth College v. Woodward (1819). Joseph Angell and Samuel Ames strongly endorsed it in an influential 1875 treatise, writing that the corporation was a “body, created by law … for certain purposes.”Footnote 33 But through the second half of the century, concession theory's legitimacy eroded as corporations became independent economic agents and general incorporation statutes replaced state chartering authority with simple incorporation procedures that removed rigid barriers to market entry. Beginning in New Jersey in 1888, the proliferation of these laws enabled the rise of massive holding companies by abandoning prohibitions on corporations from holding stock in other corporations.Footnote 34
As concession theory's legitimacy deteriorated, two new corporate ontologies emerged. One was aggregation theory, which understood the corporation as a nexus of contracts. As Victor Morawetz wrote in 1882, a “private corporation is an association formed by the mutual agreement of the individuals composing it.”Footnote 35 By rooting corporate ontology in the initiative of civil society and private contract, aggregation theory hardened the divide between the state and the corporation and became a favored framework for advocates of corporate liberty.Footnote 36 It was essential to jurisprudence that defined corporations as private property and particularly to Santa Clara County v. Southern Pacific Railroad Co. (1886). As Horwitz has argued, although Santa Clara is often interpreted to have articulated a legal personification of the corporation, RET was actually not present in American jurisprudential theory when the case was decided, and the case's theoretical basis was largely rooted in aggregation theory.Footnote 37 This illustrates that although RET did not emerge until later in the century, key political and legal developments preceding its emergence could be interpreted as consistent with its tenets and generated a political context amenable to its arrival.
However, as corporations became larger and more complex over the course of the nineteenth century, it became difficult to ascribe a coherent identity to bodies viewed as cumulative reflections of so many contracting participants.Footnote 38 It was at this point that a company's independent identity became central to facilitating its market interactions with customers, suppliers, and the state. This generated space for RET to develop. According to Horwitz, RET conceives of the corporation as “a real and natural entity whose existence is prior to and separate from the state.”Footnote 39 Real entity ontology conceptualizes the corporation as an independent being with an existence separate from its constitutive participants. Note that RET took root as railroads came to dominate the economy. Railroads, as the nation's first large corporations, were characterized by massive size, intricate managerial hierarchies, and expansive geographic reach, rendering them hard to explain as an aggregation of their diverse and geographically dispersed officers and agents. RET's emergence was in part contingent on politics, but also in part on the arrival of a technological form too large and complex to define through existing frameworks.
While Dewey contended that corporate ontologies are infinitely malleable, Horwitz has suggested that there is an inherent deregulatory mentality to RET, claiming that it “was a major factor in legitimating big business and that none of the other theoretical alternatives could provide as much sustenance to newly organized concentrated enterprise.”Footnote 40 Horwitz is correct in stating that RET can be readily formulated in ways that legitimize the large corporate form, but David Millon has illustrated the ontology's broader malleability by showing that while it fueled deregulatory politics in the early twentieth century, it was repurposed to corroborate arguments about corporate social responsibility in the 1930s. This illustrates that the political implications of RET can only be understood upon recognizing how it has been deployed in its historical context.Footnote 41
Associated with progressives like Frederick Maitland, RET enjoyed broad support among late nineteenth- and early twentieth-century intellectuals. Its earliest invocation in American legal scholarship was from Ernst Freund, who outlined his “organic theory” of the corporation in his 1897 book The Legal Nature of Corporations. Freund recognized the difficulties faced in reconciling the individualistic character of American law with RET, admitting that notions of “intention, notice, good and bad faith, responsibility … act and liability” do not readily comport with the idea of the corporate entity. Nevertheless, he claimed it was “unjustifiable” to suggest that liability maxims should thus persist “without modification.” He wrote that existing conceptions of liability “may be inadequate where it is simply a question of adjusting conflicting interests in accordance with prevailing ideas of justice and equity.”Footnote 42 In short, he argued that liability rules should be reformed to accommodate notions of the corporate entity.
Other progressive scholars shared Freund's perspective of the corporation as a real entity. John Figgis wrote that corporations “exist by some inward living force, with powers of self-development like a person” and have “a real claim to a mind or will of [their] own.”Footnote 43 J. P. Davis claimed that corporations were “autonomous, self-sufficient and self-renewing bod[ies]” that “may determine and enforce their common will” and that “neither the group nor its functions is created by the state.”Footnote 44 This logic provided the theoretical premises to attach a mens rea to the corporation.
The political significance of RET was its appeal to political actors across the ideological spectrum, but this convergence on RET was not a function of some inherent appeal to the theory. Rather, the implications that could be drawn from RET complemented the era's political currents. Many of RET's progressive proponents viewed the framework as a justification for expanding the state's regulatory power and as a means of holding capital responsible for actions that were difficult to trace to individuals in corporate hierarchies.Footnote 45 But the framework's libertarian proponents saw it differently. By granting corporate persons legal rights and protections comparable to those granted to human persons, RET could legitimate a politics protecting business from state interference and regulatory overreach.Footnote 46 Several late nineteenth-century political trends laid the seeds for an interpretation of RET favorable to those hostile to regulation: the inevitability thesis, social Darwinism, and rhetoric of the corporate soul.
During the Industrial Revolution, the large corporation was often explained as an unavoidable result of competition in a national market—the “inevitability thesis.” Whereas disdain for concentrations of capital was widespread prior to the 1880s, this hostility gradually abated over time as the acceptance of tremendous corporate size as natural became common.Footnote 47 While some progressives challenged the idea of bigness, many argued that bigness was inevitable and insisted that large corporations should be controlled by the state to ensure that they would serve the public rather than be broken up to promote competition among small manageable firms.Footnote 48 In “Relation of the State to Industrial Action,” the ICC's Chief Statistician Henry Adams wrote that large businesses “are by nature monopolies” that should be managed as discrete entities and regulated in the public interest.Footnote 49 Scholars William Cook and Ernst von Halle wrote that bigness is “a law of nature” and “an unavoidable step” in economic development.”Footnote 50 This idea of inevitability was also endorsed by titans of industry. John Flagler of the American Cotton Oil Trust said that the emergence of massive monopolistic corporations was “a steady, logical, and wise evolution.”Footnote 51 In 1889, steel magnate Andrew Carnegie penned a defense of the large corporation in the North American Review, claiming, “It is a waste of time to criticise the inevitable.”Footnote 52 The rise of RET was due in part to the growth of corporate forms so big and complex they could not be explained through existing legal theories, so rationalizing the large corporation as an inevitability made RET seem like a necessary ontological tool for understanding the new corporate form.Footnote 53
The influence of Social Darwinism buttressed RET and the inevitability thesis. William Graham Sumner famously infused laissez-faire economics with constructs of “survival of the fittest,” insisting that “millionaires are a product of natural selection.”Footnote 54 This resonated with defenders of classical economics regardless of whether the phrase “fittest” referred to individual entrepreneurs of corporate competitors. In a famous address, oil titan John D. Rockefeller insisted that the “growth of a large business is merely a survival of the fittest,” claiming that a large business's tendency to “sacrific[e]” the smaller businesses around it was “the working out of a law of nature.”Footnote 55 Even progressive economists critical of corporate concentration accepted that Darwinist concepts like natural selection could explain competition among corporations in a market economy, meaning that industrial behemoths were the natural result of conflict among rival firms.Footnote 56 Conceptualizing large corporations as the champions of the market jungle granted them a capacity for self-determination consistent with the conceptualization of the firm as a real entity.
Perhaps the best example of how the seeds of RET were sewn into political discourse before its emergence as a formal theory can be found in nineteenth-century “corporate soul” rhetoric. A synthesis of popular resistance to industrial concentration and corporate personhood, the phrase “soulless corporation” was integral to anti-corporate populist discourse. Levelled as a criticism of self-interested corporate entities, the term constituted an attempt to deny corporations the moral legitimacy they needed to be accepted by the public. Populists like Texas Congressman John Reagan were particularly eager to denounce corporate soullessness. As the lead architect of the ICA, Reagan stated in 1882 during debates over the bill that “corporations have no bodies to be kicked and no souls to be damned.”Footnote 57 Two years later Oscar Turner from Kentucky criticized the ICC's proposed powers as too weak by indignantly asking on the House floor, “did ever any man … hear of such a moral-suasion remedy expressly against a soulless corporation?” prompting applause from his colleagues.Footnote 58
A favorite adage of Reagan in particular, the phrase “corporations have no bodies to be kicked and no souls to be damned” had a long history predating debates over American interstate commerce law. Its earliest invocation can be traced to eighteenth-century England, when Lord Chancellor Edward Thurlow is quoted as asking, “Did you ever expect a corporation to have a conscience, when it has no soul to damn and no body to kick?” Even early English observers of the common law like Thurlow believed corporations lacked the prerequisites for criminal sanction, despite how frustrating they found that reality.Footnote 59 But this maxim about English common law gained new life in the United States during the industrial era. Jonathan Chausovsky has uncovered the phrase's presence in U.S. discourse as early as 1872 in debates during Pennsylvania's Constitutional Convention, when one delegate claimed that “corporations have more rights in this country than individuals have” and that the state was “creating artificial bodies” to enjoy these rights. He lamented that “corporations neither have souls to be damned nor a proper place to be kicked.”Footnote 60
Between the phrase's eighteenth-century roots and its presence in the Pennsylvania debates, the latter of which explicitly treats the corporation as artificial, it would be incorrect to suggest that the language of soullessness was directly linked to RET. Rather, the phrase enjoyed a revival in the U.S. industrial age among those who were frustrated with the state's inability to control corporate entities, sought to challenge their moral integrity, and defended prosecuting individual executives for criminal wrongdoing. But the important point is that this language of soullessness did not go unnoticed by executives. In a creative response, business leaders initiated campaigns highlighting their companies’ benevolent activities and the unique benefits they offered to employees and the public by emphasizing their corporate “soul.”Footnote 61 It was this rhetorical response to the anti-corporate criticisms of “soullessness” that helped provide a precursor to the idea of the corporation as a real, independent, and autonomous entity with a distinctive “soul.”
Businesses, and particularly railroads, began adopting corporate soul imagery in the 1870s. This prompted major newspapers to run headlines like “A Corporation with a Soul” or “A Generous Corporation” about railways that helped their communities, such as by transporting necessary resources for free during public health crises. Railroads including the Chicago, Burlington, and Quincy; Minnesota and Northwestern; Southern Pacific; Philadelphia and Reading; Louisville and Nashville; Great Southern; and Illinois Central all ran such campaigns in the 1870s and 1880s or received news coverage publicizing their corporate souls.Footnote 62 This corporate soul discourse rested on an important assumption—that the corporation was a real, distinct entity to whom a “soul” could be attributed independent of its owners, managers, or shareholders.
While these trends predated the arrival of RET in jurisprudential theory, they illustrate that kernels of RET were present in American political discourse for decades prior to it being concretized in academic literature. These developments made treating the corporation as an independent entity in law politically viable well in advance of Freund's articulation of RET in 1897. Consequently, when railroad managers testified before the ICC about potential reforms to the interstate commerce law through the 1890s, their language relied on a construction of the corporation as an independent entity to whom a mens rea could be attributed. But understanding how railway managers successfully advocated for their policy goals requires tracing political debates over corporate law from the ICA of 1887 to the Elkins Act of 1903.
3. Railroad Managers and the Interstate Commerce Commission
The Interstate Commerce Act (ICA) of 1887, which created the nation's first independent regulatory commission in the Interstate Commerce Commission (ICC), has been examined by countless scholars of political science as a pillar of the regulatory state. But the law's criminal elements remain understudied, as has the Elkins Act of 1903, which amended it to make railroad entities criminally liable for rebating. An analysis of the lead-up to the Elkins Act shows that the political case for corporate criminal liability was first proposed neither by litigants before the Supreme Court nor by legislators drafting the Elkins Act, but by railroad managers testifying before the ICC through the 1890s. The ICC's annual reports make clear that over the course of a decade, railroad managers persuaded the ICC that the ICA needed to be reformed to make the corporation the subject of prosecution for wrongdoing rather than individual railroad agents. The testimony of those managers would be cited by Congress in debates over the Elkins Act and by the Supreme Court to defend its ruling in New York Central. This highlights just how politically powerful middle management became during the “managerial revolution” in American business.
The managers’ successful persuasion of the ICC was just one step in establishing political momentum for corporate criminal liability. Only when progressive proponents of regulation on the ICC came to endorse the doctrine in service of bolstering the state's regulatory power did enough bipartisan support exist to alter liability rules in statute. Again, this cannot be described as a simple case of regulatory capture. Scholars like Gabriel Kolko point to the nineteenth century, when regulatory institutions were thin and industries nascent, as a political context ripe for capture. Kolko particularly identifies the ICC's capitulations to railroads as a prime example.Footnote 63 But the concept of regulatory capture, broadly defined as when agencies cease to serve the public interest by attending to the demands of the industries they are designed to regulate, is subject to contestation. In complex, multifaceted industries, it is difficult to pinpoint a definitive set of industry interests that can capture an agency's agenda.Footnote 64 Although the lobbying of railroad managers to the ICC was crucial to corporate criminal liability's emergence, the New York Central Railroad opposed it so vehemently that they took their case all the way to the Supreme Court. Consequently, describing this as a story of railroads “capturing” the ICC would overlook the complexities of industry-agency relations and the genuine differences of opinion that existed among railroads on an important issue.
It should be noted that while railroad managers were the first to mount a successful case for corporate criminal liability, legislators discussed the idea as early as the 1870s. In debates over the ICA, lawmakers spent substantial time considering whether corporate entities could or should be the targets of the law's penal provisions. Nineteenth-century statutory law remained unclear on the question, but it was not impossible to imagine it as a possibility given trends in state and federal courts.Footnote 65 But while the question of whether criminal sanctions could or should be imposed on corporate bodies was a legitimate one for the ICA's architects, debates over the law reveal that the answer was reached easily. Political actors across the board rejected the prospect of punishing corporations through the 1870s and 1880s. John Reagan, the ICA's initial sponsor and main advocate, often repeated his favorite phrase that “corporations have no bodies to kick and no souls to be damned” when defending his proposal to prosecute individual executives and agents for criminal wrongdoing. Although they disagreed with his policy prescriptions, even Reagan's staunch foes agreed with his opposition to corporate liability. John Brown, president of the Texas and Pacific Railroad and an opponent of Reagan's proposed bill, repeatedly informed the House Commerce Committee that “a corporation … is not an individual,” “cannot be vindictive,” and should not be subjected to criminal oversight.Footnote 66 When the law passed in 1887, it included no provisions for punishing corporate entities, and its harshest provisions were criminal fines directed against individuals for a variety of prohibited practices.
Sixteen years later, in 1903, the law was amended to hold carriers criminally responsible for those actions. The most conspicuous political demands for this reform came from the ICC. Through the 1890s the ICC's annual reports revealed a gradual shift, as they initially rejected corporate liability in their early reports before endorsing it in 1899. But the reasoning the ICC provided for this change was not rooted in legal arguments. Rather, the ICC's support for entity liability was justified as a reflection of what they heard from railroad managers.
There is reason to think that railroad managers had pull before the ICC even before this shift occurred. For instance, a series of 1889 amendments to the ICA reinstituted imprisonment as a punishment for rebating. When the amendments passed, legislators expressed concern that they were proposed to the ICC by railroads to divert sanction away from higher-level officers. Rep. Albert Anderson (R-IA) expressed outrage that “the Interstate Commerce Commission was pushing this amendment, unasked and uninvited, on the House floor.” He stated that the law reflected claims from railroad presidents and managers that “their clerks and subordinates are the law-breakers, and that they are honest men and not responsible.”Footnote 67 Thomas Bayne (R-PA) condemned the amendment as “a scheme in the interest of railroad corporations.”Footnote 68 An analysis of the ICC's reports indicates that their concerns were well founded. The ICC's 1888 report cited demands from the Chicago Board of Trade that imprisonment should be used to make “the fraudulent shipper criminally responsible for his conduct.” The report noted that the “possibilities for fraud which may be contrived between unscrupulous shippers and weak or unreliable employees are enormous,” because employees who process merchandise often do not operate “upon the highest plane of honorable conduct.”Footnote 69 This put lower-level employees and small shippers, the constituency the bill was initially designed to protect, in the sight of the criminal law. This development indicates that by the early 1890s, railroad managers were capable of effective political coordination.
To trace the shift in the ICC's position regarding corporate criminal liability, it is necessary to begin with its earliest reports. The ICC's 1890 report noted that carriers were reluctant to retaliate against competitors who engaged in wrongdoing by notifying the commission of criminal activity. Since “few carriers feel themselves entirely secure in the matter of the observance of the law,” everyone avoided invoking prosecution against one another. The prevalence of legally questionable behavior within the industry impeded the law's enforcement by creating reciprocal incentives among railroad managers to maintain a culture of silence. The report concluded by refusing to endorse corporate criminal liability, which some managers recommended as preferable to targeting individuals since it would eliminate incentives to hide wrongdoing.Footnote 70
By 1894, the ICC's reports began to reflect a different tenor, and it became clear that this was due to managers pushing for corporate criminal liability to supplant individual liability. The ICC's 1894 report stated the following:
We may properly allude to certain modifications of the penal provisions of the act, which are advocated by many railroad managers. It is proposed by them to exempt the officers and employees of carrying corporations from criminal liability for rate cutting and similar offenses, and to impose such liability solely upon the corporations themselves. In brief, the argument is that the extreme severity of the present law operates to prevent its enforcement; that railway managers will not give information against their rivals when the consequence might be the imprisonment of individuals with whom their personal relations are friendly and familiar, but that such disclosures would be freely made if they resulted only in the imposition of a fine upon the offending corporation.Footnote 71
Railroad managers openly informed the ICC that they were withholding incriminating information on individuals with whom they were friendly, but would gladly provide it if it meant the imposition of a fine against a rival corporation rather than charges against the individuals they knew. The ICC claimed that the wrongs committed involved “a high degree of moral turpitude” warranting the imprisonment of individuals and still resisted attaching liability to corporations in lieu of individuals. But the presence of this testimony in the annual report indicates that commissioners began taking the concerns of the managers, and their arguments for corporate rather than individual criminal liability, more seriously than they did in 1890.Footnote 72
While it is remarkable that managers openly admitted that they were willing to withhold evidence of crime, the ICC's response was even more remarkable. This practice was indicative of a troubling motive—managers were willing to ignore the law if everyone kept this pervasive culture of wrongdoing silent—but the ICC Commissioners neglected to explore if and how the push for entity liability was connected to deeper motives to protect individual wrongdoing from sanction. Instead, the ICC uncritically considered advice on how to punish the railroad industry from the railroads themselves, neglecting to consider the interests individuals had in insulating the industry's widespread disregard for the law from oversight.
The 1895 annual report further addressed the railroad managers’ demands without subjecting them to scrutiny. The report stated that it was at “the special insistence of railroad managers … that the imprisonment features of the present law be repealed” and that all penal sanctions be limited to fines. The managers argued that the imprisonment clause acted as a “shield to the guilty.” Given the “resultant disgrace” following a conviction, managers claimed that persons with knowledge of incriminating facts refused to share them with prosecutors, aware “of the possible consequences to the wrongdoer.” This indicates that railroad managers were not primarily concerned with deterring wrongdoing, but with protecting the individuals who performed illicit acts from prosecution by directing prosecution onto the corporation—a real entity that could be punished for criminal behavior. Treating the corporation as an independent actor capable of criminal action shielded it from scrutiny of the culture of withholding information among managers, although the ICC still declined to take a definitive position on corporate liability.Footnote 73
The 1898 report marked a clear turn in the ICC's position. The report quoted extensively from the testimony from Aldace Walker before the ICC. As the former president of the Santa Fe Railroad and acting receiver of the Atlanta and Pacific Railroad, Walker outlined his perspective on why the ICA's criminal provisions were not working.
Mr. Walker: …It is very difficult to get the absolute facts which are considered as necessary by the courts to punish railroads that are suspected.… It results to a considerable extent from the reluctance of the railways to help.
The Chairman: To have the penalties attached to the misdemeanors enforced against their rivals?
Mr. Walker: Against their associates. That puts them [managers] in the position of being informers, and, as has been said, in this country an informer is worse than the criminal in the eyes of the public.Footnote 74
Walker's testimony provided more evidence that officials disobeyed the law because of a widespread lack of cooperation. But these industry norms of wrongdoing and silence were not met with prosecution. Instead of attempting to change this culture, the ICC elected to adopt the managers’ suggestion to work around it by altering liability rules to accommodate the idea that the corporation was a real entity capable of criminal action.
By the century's end, the ICC completely reversed its position. The 1899 report argued that the law targeted, “Men who in every other respect are reputable citizens” for “acts which, if the statute law of the land were enforced, would subject them to fine or imprisonment.” The ICC wrote, “It is difficult to estimate the moral effect of such a condition of things upon a great section of the community.” It concluded that “we are convinced that criminal remedies as applied to the present situation are utterly inadequate to prevent departures from published rates.” In lieu of individual liability, the ICC explicitly endorsed corporate criminal liability.Footnote 75
The shift toward corporate liability was rooted at least in part in debates about the law's efficacy. The ICC had legitimate concerns with getting the ICA enforced, and there were many who believed that punishing corporations would be a more effective deterrent than punishing individuals. The ICC Chair Martin Knapp, a staunch advocate of regulatory power, would later make this case to Congress during debates over the Elkins Act. But in its annual reports, the ICC did not justify its shift in position through an argument about efficacy. Instead, it opted to draw on managers’ claims that they were reluctant to expose wrongdoing by the otherwise “reputable” citizens they worked with. The ICC's endorsement of corporate criminal liability was thus heavily driven by the political case made by railroad managers—one which, upon closer scrutiny, may or may not have been driven by a genuine motivation to see the law enforced.
By 1902, the ICC's report insisted that without amendments to criminalize corporate entities, the ICA's criminal provisions were “practically a dead letter.”Footnote 76 This change is noteworthy given the reservations ICC commissioners expressed in their early reports. There were arguments that the ICC could have made to support entity liability on pragmatic grounds, such as that detecting individual liability within a corporation was onerously difficult or that corporations benefitted more from crimes than individuals and therefore punishing the corporation was a better deterrent. But these arguments were absent from the ICC reports, which were instead replete with citations to the demands of railroad managers. The politicking of railroad managers before the ICC was thus key to establishing the necessary political momentum for corporate criminal liability to emerge. However, it was only entrenched in law in 1903 when enough bipartisan support coalesced for Congress to pass the Elkins Act. It was this law that the Supreme Court upheld in its New York Central ruling in 1909.
4. Congress, the Courts, and Corporate Criminal Liability
Through the Elkins Act, Congress reformed the ICA to make interstate carriers criminally liable for their employees’ actions, specifically if their employees granted or sought rebates. Passed with bipartisan support, the law provided the statutory basis for attributing a mens rea to railroad corporations. When the New York Central and Hudson River Railroad challenged its constitutionality, the Supreme Court transplanted the civil law concept of respondeat superior into criminal law and applied the doctrine of corporate criminal liability to all cases requiring proof of mens rea. Scholarship has produced cursory analyses of the Elkins Act, but tracing debates over the law connects the influence of managers before the ICC to the Supreme Court's 1909 ruling.
The Elkins Act amended the ICA by imposing a criminal fine of $20,000 on corporations that offered rebates to shippers.Footnote 77 With support from President Theodore Roosevelt, Attorney General Philander Knox, and many powerful railroad interests, the Elkins Act sailed almost unanimously through Congress over concerns that eliminating imprisonment as a sanction for individuals would render the law a weak deterrent.Footnote 78 But the near unanimity of the congressional vote should not obscure important details about the law's passage. The House Commerce Committee's first report on the proposal directly cited the ICC's discussions of managerial testimony, noting that in “extensive hearings … it was strongly urged” by the ICC's members that the clauses authorizing imprisonment of individuals be removed and replaced with sanctions on the corporation.Footnote 79
The report quoted ICC Chairman Martin Knapp's statements before the committee in extensive detail. As an advocate of state regulatory power, Knapp told the committee that the ICA was inadequate in two respects. First, “the corporation carrier is not liable, but only the officer, agent or representative.” He claimed that the “officials of that grade which participates actually in transactions of this kind are a sort of fraternity” and were reluctant to provide evidence that could “inflict punishment and suffering upon some friend or send some associate to jail.”Footnote 80 He admitted that he found rebating to involve “a very high degree of moral turpitude.” However, because of the interpersonal relationships among railway employees, he claimed that attempting to punish individuals “instead of being an aid is a hindrance.” Knapp stated that “over and over again they tell us that they will not under any circumstances give evidence or be in any way connected with the effort to disclose the truth of those transactions when the result of that disclosure might inflict punishment and suffering upon some friend or send some associate to jail.”Footnote 81
Throughout his testimony, Knapp repeated that rebating was common in the industry. But he stated that “men high up in railroad circles” had come before the ICC and admitted that they were unwilling to give incriminating information on their counterparts working for other railroads, given the prevalence of rebating. He informed the committee that managers repeatedly stated that if incriminating evidence were to be used to punish the corporation via a fine rather than prosecute individuals, they “would not hesitate to furnish the proof and would actively engage in the prosecution.”Footnote 82 The resistance, he noted, was that managers were reluctant to “become an informer” against an “associate and friend … who occupies a similar relation to another railroad.”Footnote 83 In its conclusion, the committee report drew on statements from Knapp and another ICC Commissioner Joseph Fifer, who claimed that the individuals engaging in these transactions are generally “men of high standing” who do not deserve imprisonment. The report concluded that “it is a very difficult matter” to secure incriminating information and convictions against men with such character, rendering individual liability ineffective.Footnote 84
That Knapp in particular, a well-known advocate of regulation, endorsed the bill reveals how pro-regulation progressives also came to endorse a conception of the corporate form as a real entity with a mens rea for their own purposes. It also highlights additional wrinkles in attempting to characterize this as regulatory capture, as Knapp did not simply echo the demands of managers because they bought his favor but because he saw the railroads’ favored policy as an answer to problems he genuinely hoped to solve by bolstering the state's regulatory power.Footnote 85 The ICC's 1903 report expressed clear support for the Elkins Act, saying the redirection of liability onto the corporation “corrected a defect which has been explained in previous reports.”Footnote 86
It would take six years for the Supreme Court to hear a case regarding the law's constitutionality. As a reflection of the existing regime, the Court largely shared the preferences of the predominant Republican coalition at the time. Of the Court's Justices in 1909, six had been appointed by Republicans. Three—David Brewer, Joseph McKenna, and John Marshall Harlan—were appointed by Republican presidents during the party's late nineteenth-century reconfiguration of the federal judiciary into a bastion of economic conservatism. The three Democratic appointees were all chosen during that same period by the conservative Democrat Grover Cleveland and had established ties to corporate interests (Edward White was a recognized economic conservative; Melville Fuller had experience as a corporate lawyer and left the Democratic Party after William Jennings Bryan won the party's presidential nomination in 1896; and Rufus Peckham worked as corporate counsel in New York and was known to be a “confidant of tycoons” including Morgan, Rockefeller, and Vanderbilt.Footnote 87) The three remaining nominees appointed by Republican Theodore Roosevelt—Oliver Wendell Holmes, William Day, and William Moody—were almost certainly in part selected due to Roosevelt's belief that they would serve as allies in support of his antitrust and regulatory programs, for which many saw corporate criminal liability as a useful tool. The 8–0 ruling in New York Central was a function of the Court's reflection of these coalitional and political dynamics.Footnote 88
Note that the Republican reconstruction of the federal judiciary not only involved partisan staffing but also changes to the federal courts’ jurisdictional boundaries. Given the dramatic changes to business practice during industrialization, litigation was raising new issues about economic regulation at a rapid pace. The GOP recognized the benefits offered by locating control over heated questions related to the economy with unelected judges who could protect the party's controversial agenda of economic nationalism without fear of electoral reprisal. Passed by a lame-duck Republican Congress, the Judiciary and Removal Act of 1875 revised the federal courts’ jurisdiction in ways that redirected most litigation involving national commercial interests into federal rather than state courts. This ensured that almost all cases raising difficult questions about corporate power and the national economy, such as New York Central, would be heard and answered by a predominantly conservative federal bench. By the twentieth century the federal courts had been deliberately well positioned by the Republican party, jurisdictionally and ideologically, to articulate constitutional principles that resolved questions about federal oversight of interstate commercial transactions on conservative terms.Footnote 89
In its appeal of the Elkins Act, the New York Central Railroad was specifically fighting the imputation of criminal liability to corporations. It asserted that fining a corporation for a crime committed by an individual amounted to “[taking] the property of every stockholder” and “[destroying] the presumption of innocence” for common carriers. New York Central argued that the “presumption of innocence prevails alike whether the defendant in a criminal prosecution be a corporation or an individual.” It claimed that to secure convictions without adequate evidence, Congress “introduce[ed] civil analogies into the criminal law.”Footnote 90 New York Central's logic illuminates how opponents of corporate liability sought to deploy a combination of aggregation theory and RET to rationalize their position. Claiming that fining the corporation was equivalent to stealing from stockholders reflected tenets of aggregation theory, while insisting that corporations receive the same legal protections as individuals—namely, the presumption of innocence—drew on RET.
In response to New York Central's arguments, the state deployed RET by contending that the corporation was “the real offender” and claiming that it would be “anomalous and unjust” to punish individuals. The state's brief cited congressional committee reports, floor debates, committee testimony, and reports from the ICC. The government noted that during the sixteen years between the passage of the ICA and Elkins Act, “no single successful prosecution [was] waged against a malefactor” because “the close relations that existed prevented one member of that class from testifying against his fellows.” The state thus attributed a mens rea to the corporation, stating: “We think that a corporation may be liable criminally for certain offenses of which a specific intent may be a necessary element. There is no more difficulty in imputing to a corporation a specific intent in criminal proceedings than in civil.”Footnote 91
On its face, the Court's ruling reflected a conclusion that the only practical means of punishing corporate wrongdoing was punishing the corporate body. However, the reports of the ICC were crucial to the majority decision. Justice Day wrote in the majority that the futility of punishing individuals was “developed in more than one report of the Interstate Commerce Commission, [and] was no doubt influential in bringing about the enactment of the Elkins Law.” The Court rationalized the doctrine as a solution to the inadequacies of regulation, concluding that to reject it “would virtually take away the only means of effectually controlling the subject-matter and correcting the abuses aimed at it.” Day's reasoning explicitly legitimated corporate criminal liability through the frame of RET:
While the law should have regard to the rights of all, and to those of corporations no less than to those of individuals, it cannot shut its eyes to the fact that the great majority of business transactions in modern times are conducted through these bodies, and particularly that interstate commerce is almost entirely in their hands.Footnote 92
By anthropomorphizing the corporation as capable of criminal intent and autonomous action, Day's ruling extended the application of corporate criminal liability to all cases of corporate criminal activity beyond interstate commerce violations.
New York Central's challenge demonstrates that the ICC's reports, which were so essential to this development and to Day's reasoning in the case, amplified only a sector of the railway industry's demands. The railroads that testified to the ICC made effective use of a new institutional venue to advance policy preferences that were not shared by the entire industry. The fact that certain sectors of the industry won over others in this case, despite meaningful divides that manifested among railroads over a significant political question, is not just a historical novelty. This story highlights how the doctrine of corporate criminal liability was a creature of contestation and contingency unique to this political-historical moment. New York Central's challenge failed because a longer series of preceding actions and choices, which were shaped by the actions of their industry competitors in different institutional venues, established the terms of this debate and the acceptable range of policy solutions. Had these developments not fit together as they did, New York Central's challenge may have been successful. This shows how consequential political choices can be conditioned by developments unfolding over long stretches of time through the actions of diverse actors across multiple venues. The complicated reality of political change revealed by such a perspective can be easily missed by narrowly focusing on punctuated critical junctures and their proximate triggers in isolation from their broader political context.
5. Conclusion
In 1914, Samuel Untermeyer, legal counsel for the House Banking and Currency Committee during its investigation into the “Money Trust” in 1912–1913, wrote, "The corporate form is a mere shield behind which the individual acts. The now trite saying that guilt is personal should be written into every line of the law.”Footnote 93 Untermeyer's concerns about the efficacy of corporate prosecution remain relevant today. With many scholars and policymakers questioning whether current rules governing corporate prosecutions are the most effective way to rein in corporate lawlessness, it is important to seriously analyze why we use the rules we do.
While the New York Central decision was in some ways reflective of long-term trends in common law, the ruling was conditioned by many preceding political actions and developments. Questions over whether and how to punish corporate entities for wrongdoing were raised by lawmakers as early as the 1870s, and the terms of this debate were defined over the course of decades prior to New York Central. The jurisprudential validation of corporate criminal liability could not have occurred had it not been for politically appealing innovations in legal theory, the political actions of railroad managers before the ICC, and the reconstitution of the federal judiciary into a partner of the Republican regime.
Literature painting New York Central as an outgrowth of common law ignores this history and misses how and why the question posed to the Court in New York Central was an artificial binary. In only considering whether the state should prosecute corporations or individuals, the Court failed to consider other options, such as imposing civil liability against corporations and criminal liability against individuals in cases of corporate lawbreaking.Footnote 94 The question's framing and the Court's answer did not organically emerge out of the common law, but was shaped by how railroad managers structured the debate, defined the range of solutions, and grounded discussion on their terms. This offers important lessons into how ideas, business interests, and institutions interact in shaping political change.
Ever since Chandler's account of the managerial revolution, scholars of business and economics have paid more attention to corporate middle managers as actors who assert meaningful control over the modern firm's operations.Footnote 95 Chandler rightly noted that historians had overlooked how managerial hierarchies shaped the development of modern capitalism and the corporate form. Daniel Carpenter has since made a similar move in analyzing the federal bureaucracy, emphasizing how unelected middle-level bureaucrats in federal agencies emerged in the Progressive Era as forces capable of shaping the political agenda by controlling the flow of information to Congress to favor their preferred policy programs.Footnote 96 This account of corporate criminal liability's origins links the work of Chandler and Carpenter. Middle managers in railroads emerged as actors capable of shaping political change and coordinating political action independent of ownership by articulating a persuasive case for corporate criminal liability before the ICC. The bureaucrats on the ICC, notably Martin Knapp, chose to transmit what they heard to elected officials. Recognizing how railroad managers shaped the political agenda through their relations with bureaucratic agents illuminates how midlevel officials in both corporations and state bureaucracies evolved into actors capable of independently shaping politics during this period.
This history also sheds new light on Gilded Age politics, and in doing so offers insights into how firms relate to political discourse. Many scholars suggest that industrial era politics was driven by corporate interests reorienting political parties and institutions to serve their interests.Footnote 97 At the same time, others insist that the populists did an effective job at keeping business in check.Footnote 98 Scholars on both sides persuasively back these competing claims with robust evidence, contributing to a contradictory picture. The history outlined here provides some perspective into what is missing in this conversation. The truth is that business both won and lost, depending on whom you look at. Sweeping accounts of industrial era politics can provide valuable insights, but at the risk of overlooking the diversity of opinion among businesses and the various strategies different coalitions of firms deployed to different effects. Close examination of corporate criminal liability's history sheds light on the messy character of business politics by unveiling disagreements within the era's most powerful industry over an important issue. This raises a significant question overlooked by broad accounts of Gilded Age business politics—rather than asking whether business won or lost, the better question is, why did some businesses win and others lose? In the case of corporate criminal liability, the answer has to do with political discourse.
The railways supportive of corporate liability won in part due to their capacity for political coordination, but an important element of their triumph was their ability to build their favored ideas into law by speaking within ideational frameworks that had broad political appeal—namely, RET. Corporate actors knew they were disliked and distrusted, and the most effective businesses muted the impact of anti-corporate politics not by resisting change, but by using new ideas to push policies favorable to them. “Big business” is often treated as a nearly all-powerful force that can upend norms of legal and political discourse to bend lawmakers to their will, but businesses’ power to challenge the law is constrained by the ideological, ideational, and discursive forces that are dominant at a given place and time. Rather than resisting any form of criminal liability or demanding a complete recommitment to laissez-faire, savvy railroad managers argued for a new form of criminal liability that was simultaneously consistent with popular legal and political discourses and their preferences. Firms have tremendous political power, but it is important to recognize that at any given historical moment they operate within the same universe of ideas and discourses all other political actors do. This indicates that firms are not wholly unrestrained in politics; rather, they must speak within prevailing ideational and ideological discourses if they are to maximize their ability to influence political change. Moments in which business appears to clearly win or lose warrant close and nuanced analysis to understand how firms’ actions, choices, and strategies are shaped by their political and ideological environment.
While the emergence of corporate criminal liability is important as a case study of political change, the doctrine has also had significant long-term consequences on corporate law. Immediately after New York Central, corporations found ways to avoid and minimize the impact of entity liability on their operations. Businesses claimed that the complexity of the corporate form should be a mitigating factor in court since it presents challenges to oversight and communication that make it difficult to prevent misconduct at lower levels. Making seemingly good-faith efforts to prevent lawbreaking through internal compliance and training measures became a means to secure judicial mercy for exhibiting due diligence when the law was broken. These became routine defenses for corporations immediately after New York Central and remain so today.Footnote 99
The expansion of corporate rights over the course of the twentieth century has also worked on behalf of corporations in avoiding prosecution. The protection of corporate rights was a priority for the Supreme Court in the industrial era. As Justice Black noted in 1938, from 1872 to 1910 more than 50 percent of the Supreme Court's invocations of the 14th Amendment were used to protect corporations.Footnote 100 Throughout the twentieth century, corporations secured additional criminal process protections from the Supreme Court and lower courts, including due process and 6th Amendment trial rights, as well as some protections against unreasonable searches and seizures, double jeopardy, and excessive fines under the 8th Amendment.Footnote 101 Due to this robust battery of protections and the high standard of proof beyond a reasonable doubt that needs to be met for a criminal conviction, corporations often prefer being tried in criminal court rather than in civil trials or regulatory proceedings where they enjoy fewer protections and lower burdens of proof prevail.Footnote 102
Rooting a mens rea within the corporation has also hardened the idea that corporate crimes lack a comparable moral stain to crimes committed by people, as the anthropomorphized corporation has a different moral imperative than the individual in American society. Scholars have argued that criminal corporations regularly exhibit a willingness to break laws in the name of profit maximization, which the Michigan Supreme Court famously specified as the primary purpose of the corporation in the 1919 decision Dodge v. Ford.Footnote 103 In the case, the Michigan Supreme Court ruled that almost any corporate behavior is justified as long as it is rationalized as serving the profit motive.Footnote 104 Despite emerging from a state court, Dodge is more than a piece of trivia. It has been central to twentieth- and twenty-first-century discourses outlining the purpose of the corporation, elevating profit maximization above other aims, and glorifying the competitive ideal. Even contemporary rulings and reports from organizations like the American Law Institute reflect the Dodge v. Ford principle, and activist investors continue to insist that profit maximization should be the corporation's primary goal over all else.Footnote 105 Borrowing the language of Joel Bakan, this has licensed corporations to behave as “dangerously psychopathic entities.”Footnote 106
Research indicates that in today's corporate culture, noncompliance is commonly glorified as an appropriate or even “fun” way to maximize profits.Footnote 107 However, criminal liability is rarely invoked against corporations in the modern era. Brandon Garrett has shown that federal prosecutors more commonly offer corporations deferred prosecution agreements (DPAs) in which they delay prosecution for a specified period on the understanding that charges will be dropped should the corporation implement court-mandated structural and internal compliance reforms. DPAs, which were ironically devised in the 1930s as a tool to be used for first-time juvenile offenders,Footnote 108 have become a means for federal prosecutors to secure public relations victories by appearing to crack down on corporate bodies without taking serious action.Footnote 109
If current liability rules are a necessary or inevitable feature of the common law as existing literature suggests, there is little we can do to fix these problems. Assuming this to be the truth constrains any discussion of alternatives or reform proposals within a narrow framework of what is possible. But realizing that the doctrine only came to fruition when it did due to the convergence of a specific set of political, economic, and ideological conditions reveals that it was a product of contingency, not inevitability. It is true that corporate criminal liability has become standard legal practice over time and that reforming it would be a significant undertaking, and this history does not illuminate ways to fix it. But by shedding light on its roots, it clarifies an important reality. Those who want to change the principle need to understand that it was never a legal necessity, but a political choice. Innovative alternatives, ranging from moderate proposals articulated by scholars like William Laufer and Vikramaditya Khanna to more radical ideas championed by progressive policymakers, warrant serious attention.Footnote 110 Recognizing that corporate criminal liability emerged as a political choice can create political and intellectual space for these ideas to receive meaningful engagement from policymakers and the scholarly community. Only by fully understanding and recognizing the political roots of corporate criminal liability can we create opportunities to have serious discussions about fixing it.
