The Corner

Economy & Business

Elizabeth Warren’s Corporate Reform Bill Is a Terribly-Written Mess

Sen. Elizabeth Warren on Capitol Hill, November 2017. (Joshua Roberts/Reuters)

I’d urge everyone to read my colleague Kevin Williamson’s takedown of Elizabeth Warren’s vaunted “Accountable Capitalism Act.” Here’s how Kevin describes the bill:

Under Senator Warren’s proposal, no business with more than $1 billion in revenue would be permitted to legally operate without permission from the federal government. The federal government would then dictate to these businesses the composition of their boards, the details of internal corporate governance, compensation practices, personnel policies, and much more. Naturally, their political activities would be restricted, too. Senator Warren’s proposal entails the wholesale expropriation of private enterprise in the United States, and nothing less.

It is, he says, “unconstitutional, unethical, immoral, irresponsible, and — not to put too fine a point on it — utterly bonkers.”

Now, go read an opposing view. The coverage in Vox, for example, is slightly more rapturous. Matthew Yglesias writes that the Act would “redistribute trillions of dollars from rich executives and shareholders to the middle class — without costing a dime” and that it “starts from the premise that corporations that claim the legal rights of personhood should be legally required to accept the moral obligations of personhood.” Yglesias says the bill is about “saving capitalism” and puts a different spin on Warren’s quest for “accountability:”

Warren wants to create an Office of United States Corporations inside the Department of Commerce and require any corporation with revenue over $1 billion — only a few thousand companies, but a large share of overall employment and economic activity — to obtain a federal charter of corporate citizenship.

The charter tells company directors to consider the interests of all relevant stakeholders — shareholders, but also customers, employees, and the communities in which the company operates — when making decisions. That could concretely shift the outcome of some shareholder lawsuits but is aimed more broadly at shifting American business culture out of its current shareholders-first framework and back toward something more like the broad ethic of social responsibility that took hold during WWII and continued for several decades.

But if you look at the actual bill text, you’ll see that key provisions are utterly, hopelessly vague. Covered corporations “shall have the purpose of creating a general public benefit.” Officers and directors are required to manage the corporation in a way that “seeks to create a general public benefit.” And what is a general public benefit, you ask? Here’s the definition:

The term ‘‘general public benefit’’ means a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole.

Oh, and if the corporation doesn’t comply with this requirement, it’s subject to suit.

How is an officer or director supposed to understand what the government is actually mandating? Warren’s language creates a legally enforceable command that’s not much more detailed than demanding corporations “be good” and that places trust in judges to determine how, exactly, large corporations must be good. Such imprecision violates the Fifth Amendment. Laws are supposed to provide “fair notice” of prohibited conduct. This is especially true when applied to criminal law or free speech, but as the Supreme Court has explained, the fair notice requirement is broadly applicable:

Even when speech is not at issue, the void for vagueness doctrine addresses at least two connected but discrete due process concerns: first, that regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discrimina­tory way.

Neither due process concern is satisfied by Warren’s bill. It empowers arbitrary action and would leave even the most good-faith officer or director utterly befuddled as to the mandated course of action — particularly when faced with complex decisions that implicate competing constituencies. The law would likely face serious constitutional challenges as soon as it hit the United States Code.

But Kevin’s right. In truth, the bill is a “go-nowhere proposition” — a legal impossibility designed to generate good feelings with all the right constituencies. While Warren is busy courting the Left, however, it’s incumbent on the rest of us to provide the reality check. Statist dreams and sloppy prose won’t create the economy America needs.

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