Corporate Law: A Historical Perspective of the Supreme Court’s Corporate Law Decisions from the Nineteenth Century to the Present

Abstract

This encyclopedia article analyzes the development of the corporation in the United States from the time America’s financial infrastructure was envisioned by Alexander Hamilton to the present effect of multinational corporate policy on a globalized world. Corporations grew on the foundation of a robust stock market and the creation of a national bank permitted by the Supreme Court’s interpretation of the Constitution’s necessary and proper clause in M’Culloch v. Maryland. The Federal Reserve System was created to avoid the ill effects of stock market crashes, and federal securities laws were enacted to protect investors. On the other hand, management was protected from liability by treating corporations as separate legal entities, a concept which is a legal fallacy but which continued to be used for centuries. Breaches of fiduciary duty were addressed by a federal corporate governance structure that overlay state governance laws, but it was not until the corporate scandals of the recent past (such as Enron) that Congress created a federal governance statute (the Sarbanes-Oxley Act of 2002) under its commerce powers to regulate interstate activity. The developing awareness of the need to curb the greed of corporate behavior and establish increased responsibility of management extends not only to the shareholder (in terms of profits) but also to society as a whole. Evidence of this extension is the greening movement now beginning to be seen in corporate America. Furthermore, the growth of corporations to multinational status has raised the need to consider the impact of deleterious policies on foreign nationals. The article provides an insightful snapshot of American corporate activity and its legal structure, both of which have been a boon and a bane for economic life in the United States.