Modern history suggests that a good case can be made for the parallel rise of democracy and the corporate structure.  The concept of the social contract (that governments ruled by permission of the governed) and the corporate contract (that persons of limited means should have a mechanism to aggregate their wealth independent of government) grew in public acceptance since the 16th to 17th centuries.   Except for the early-to-mid 20th Century experiment with fascism - where corporations became extensions of the Axis political structure - politics and the corporation went their separate but parallel ways.  

      They grew up separate but parallel because of three shared values: (1) A belief in the sanctity of stockholder rights, namely that management served the aims of stockholders and were not some imperial class unaccountable to those who provided them the means to live in luxury; (2) that the corporation was a fictional person created by law, not a flesh and blood person; and therefore should have limited powers vis-à-vis real people; and (3) that a corporation existed in perpetuity and that there was a corporate shield protecting management from liability, had to be balanced with some limitations on corporate activities in the political arena.
     The United States Supreme Court, by first declaring that money was speech and now declaring that managers can use a stockholder’s wealth against his political self-interest, threaten to undo a very creative synergy between democracy and the corporate structure.   Investors must now not only be concerned about market forces but the management’s political leanings.  This is a knife at the heart of the international investment community because no foreign investor wants their profits poured down the rat hole of American partisan politics.
    This does not need to be the last word, however.  There are legislative ways to reign in the power of managers.  One would be to force the democratization of Boards of Directors to return some balance of power between managers and stockholders.  Another would be to require mandatory levels of dividend payments to limit the size of corporate slush funds.  That seems to be where the next political battles will take place as the forces of management will try to protect their power to use other people’s wealth against their political wishes.

Originally posted to Steve Love on Fri Jan 22, 2010 at 07:40 AM PST.

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