South Africa and Corporate Constitutional Rights

Ralph Nader - June 19, 1996

South Africans should be aware that a key provision of the nation's new constitution risks entrenching a new form of power abuse in the country-- autocratic rule by big corporations.

South Africa's new Constitution establishes that "juristic persons are entitled to the rights in the Bill of Rights to the extent required by the nature of the rights and of the juristic persons." This provision affords fundamental constitutional protections -- freedom of expression, political rights and guarantees of privacy -- not just to people, including those within corporations, but to the artificial entity of the corporation itself.

The American experience of providing corporations with similar rights that people have should ring alarm bells for South Africans concerned about preserving their newly won freedoms. While the U.S. constitution does not explicitly afford corporations the rights guaranteed in our Bill of Rights, court decisions have extended almost all those rights to corporate entities, with disturbing results.

The American experience makes clear that the constitutional language covering "juristic persons" creates direct conflicts with several of the South African Constitutional Principles of 1993, including the assurance that real persons will have political rights, associational rights and rights to life, security of person, the environment and information.

To avoid these conflicts and in the interest of practical justice, careful consideration must be given to develop the supremacy of individual rights over corporate rights.

The lesson that emerges from our 100-year-plus experience in treating corporations as persons for constitutional purposes is this: If corporations -- all of which are chartered by the government -- are given the same rights as human beings, human beings will not have the same effective rights as corporations. This is not only because of the massive financial and technological resources available to corporations, but the unique powers, privileges and immunities that are inherent in the transnational corporate form or accrete to it over time, and which allow corporations to overwhelm real persons' rights. As against real persons, corporations enjoy perpetual life, can create evasive holding companies and subsidiaries and cannot be subjected to normal social or legal sanctions, such as shame or incarceration. The artificial corporate entity also benefits uniquely from limited liability for investors and many newer extensions of limited liability for itself, such as the use of voluntary bankruptcy and other disappearing acts to dodge trade union contracts, claims brought by injured persons and other financial obligations, while remaining in business.

South Africa is well positioned to advance democratic practice in the world, by tapping its rich and recent history of citizen organizing and developing new democratic institutions. But consider the ways that granting equal freedom of expression to corporations can invalidate citizens' rights of association, as revealed in a 1986 U.S. Supreme Court ruling.

In Pacific Gas & Electric v. Public Utilities Commission, a public utility disputed a state regulation requiring the utility, a legal monopoly, to allow a non-profit consumer ratepayer advocacy group to enclose inserts in the utility's billing envelopes. The inserts urged consumers to join the ratepayer group, which was universally open for membership; printed at the ratepayer group's expense, they would not have cost the utility any money because they would add no additional expense to the utility's mailing.

The U.S. Supreme Court invalidated the regulation, ruling that it violated the utility's "negative" free speech rights to avoid being associated with speech it opposed. In the process, it invalidated a powerful new tool to enable citizens to band together to pursue a common agenda, on utility issues or in dozens of other arenas from banking to housing to insurance.

If South Africa follows the American example of granting the same level of free speech protections to corporations as it does to real human beings, it could thus strip communities of mechanisms to organize associations, and thereby the substance of the very right to associate.

A more promising, democracy-enhancing approach to the question of corporate free speech protections was articulated by the U.S. Supreme Court in Red Lion Broadcasting v. Federal Communications Commission. "It is the right of the viewers and listeners, not the right of broadcasters, which is paramount," the Court stated in a case involving the "Fairness Doctrine," a government requirement that broadcasters air both sides of public controversies. Unfortunately, while Red Lion remains good law, its logic has not been widely applied in practice, even in the broadcasting sphere.

Extending Bill of Rights protections to corporations endangers electoral democracy as well. The South African Bill of Rights assures every citizen the right to "campaign for a political party or cause." But permitting corporations to exercise this power -- for example, by spending money on behalf of a candidate -- can dilute these same and other rights of expression for real people.

In the United States, large corporations drown out citizen voices with their massive political contributions, and leverage their donations into effective control over both major political parties.

Even the U.S. Supreme Court, which has found a limited American constitutional right for corporations to make campaign contributions through political action committees, agrees that corporate spending in candidate elections undermines fair political process and the rights of individuals. In Federal Election Commission v. Massachusetts Citizens for Life, Inc., the Court stated, "Relative availability of funds is after all a rough barometer of public support. The resources in the treasury of a business corporation, however, are not an indication of popular support for the corporation's political ideas. They reflect instead the economically motivated decisions of investors and customers. The availability of these resources may make a corporation a formidable political presence, even though the power of the corporation may be no reflection of the power of its ideas."

Devising a campaign financing system fundamentally different than such a corrupt model is a prerequisite to fulfilling South Africa's democratic potential. Devising an alternative system requires a limitation on corporations' political rights.

Providing corporations with privacy rights will also conflict with real South African persons' constitutional rights to life, security and environment. Again the American experience is instructive, for the extension of privacy rights to corporations in the United States has undermined important regulations that protect people's health and well-being, and the environment.

For example, in 1977, in Marshall v. Barlow, the U.S. Supreme Court invalidated workplace safety rules that authorised the federal government's Occupational Safety and Health Administration to conduct workplace safety inspections without warrants, on the grounds that the inspections violated corporations' privacy rights. In dissent, Justice Stevens pointed out that the Court's decision would severely hamper the ability of government inspectors to conduct the surprise inspections needed for effective enforcement of workplace safety rules.

Unfortunately, the Court has continued to disregard Justice Stevens' insights, and in 1986, the U.S. Supreme Court suggested that the logic of Marshall applies to enforcement of environmental regulations.

If South Africa follows the same course, as the constitutional provision on "juristic persons" appears to require, corporate privacy rights will impede government actions to uphold citizens' rights to a clean environment, to life (where workplace hazards or pollutants are life-threatening) and to security (because forced exposure to workplace dangers and toxics constitutes a form of violence).

Finally, corporate privacy rights may also interfere with South African citizens' constitutional right to information, particularly the ability to obtain environmental, workplace safety or other information collected by government from corporations.

"Too frequently the extension of corporate constitutional rights is a zero-sum game that diminishes the rights and powers of real individuals," writes an American legal commentator, Carl Mayer. It is a game that corporations are unfairly positioned to win for technical, legal, as well as resource and organizational, reasons. As Mayer points out, in the "information era," corporations are increasingly able -- as individual citizens are not -- to convert their claims to freedom of expression and related rights (such as privacy rights covering business communications) into claims of property rights. Some corporations are even defining "commercial speech" as a property right, thus giving corporations double protections as against the single protection for individual citizens.

Thus the South African constitutional and legal system is creating unaccountable Frankensteins -- as U.S. Justice Brandeis labeled the entities "which states have created by their corporation laws" in 1933 -- that have human powers but are constitutionally shielded from much actual and potential law enforcement, as well as from accountability to real persons.

As they too frequently do in the United States, these Frankensteins stand ready to shred the rights guaranteed to real people in South Africa's 1993 Constitutional Principles.

The South African public interest would be served in the weeks ahead if the South African Constitutional Court took action to resolve the contradiction between corporate rights and the guarantees to real people in the Constitutional Principles, establishing that real persons have greater rights than the artificial legal entity of the corporation.

Ralph Nader is a consumer advocate in the United States.