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The Corporate Veil


the California market ¬nally collapsed in 2001, state policymak-
ers strengthened their regulatory capacities, and Enron came under
intense scrutiny. In a belated but nonetheless extraordinary effort to
promote transparency, the Federal Energy Regulatory Commission
created an online database of one million internal e-mails written by
Enron employees over the previous three years. Some Enron employ-
ees complained, with justi¬cation, that FERC™s disclosure had com-
promised their personal privacy. One e-mail, with author and recip-
ient identi¬ed, asked: “So . . . you were looking for a one night stand
after all?”49 )
Even in the United States, however, enthusiasm for vigorous pub-
lic sector regulation waned over the quarter-century. Government
sought less burdensome ways of achieving regulatory objectives,
often passing regulatory functions to quasi-governmental or non-
governmental organizations within which industry representatives
could formulate and enforce regulatory standards. This sort of self-
regulation was not novel: Some prominent self-regulatory organiza-
tions “ such as the Joint Commission on Accreditation of Healthcare
Organizations and the New York Stock Exchange “ have operated for
decades. Recently, however, this corporatist model of self-regulation
has been extended into other sectors, as a way of lowering the regu-
latory pro¬le of government itself. For example, authority for safety
within nuclear plants is shouldered by a private regulatory bureau-
cracy, the Institute for Nuclear Power Operations, while authority for
regulating the internet has been passed from the U.S. Department
of Commerce to the Internet Corporation for Assigned Names and
Numbers, set up as a nonpro¬t corporation under California law.50
Neither the old nor the new self-regulatory organizations were subject
to federal or state disclosure laws.
Other countries also adopted similar industry-run structures for
delivering public services. Canada transferred national air traf¬c con-
trol functions from a government department to an industry-led
nonpro¬t corporation, NavCanada, which operated outside Canada™s
Access to Information Act. (Because Canadian and U.S. air traf¬c
is so tightly intermingled, this meant that many U.S. airline passen-
gers, ¬‚ying on what they imagine are purely domestic ¬‚ights, are
being directed by a foreign and private air traf¬c control service.)
The United Kingdom adopted a similar model for its air traf¬c con-
trol service and for Network Rail, the organization that now oversees

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the country™s expansive rail system; neither is covered by the UK™s
Freedom of Information Act. Other countries, including the United
States itself, have also contemplated using nonpro¬t structures to
deliver air traf¬c control and other transport services.


A conceptual muddle
The process of restructuring the public sectors of the advanced
democracies is still underway. When it is done, the public sector
will look radically different than it did twenty or thirty years ago.
Indeed, it may be dif¬cult to speak intelligently about a “public sector”
at all. Functions that traditionally have been performed by govern-
ment employees working within government agencies will be spread
across a heterogeneous mix of new organizations. Some will still look
like traditional government departments; but others will be nonpro¬t
organizations, or for-pro¬t enterprises, or partnerships of all three of
these forms. There may be no tight correlation of functions and orga-
nizational forms: Different institutions may work beside each other
within one jurisdiction, doing essentially the same work; or different
countries may choose different structures for doing the same work.
This is the inevitable result of the pragmatism that is characteristic
of new thinking about the delivery of services to the public.
This process of restructuring has already posed a substantial
threat to existing disclosure laws, and this threat will grow in com-
ing years. The threat arises because of a weakness in our traditional
thinking about governmental openness. Most disclosure laws build
on a classical liberal conception of the social and political world,
which draws a sharp distinction between public and private spheres
of activity, and which regards one of the main aims of political action
as being the defense of the private sphere from incursions by the
public sphere.51 Disclosure laws typically articulate the distinction by
establishing rights to information held by organizations in the public
sphere. Indeed, these laws are often justi¬ed as a tool for maintain-
ing a sharp distinction of public and private spheres by preventing
an overreach of governmental power. This is particularly true in the
United States, where James Madison™s warning “ “A people who mean
to be their own governors, must arm themselves with the power which
knowledge gives” “ is routinely invoked in calls for stronger disclosure
laws.

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The Corporate Veil


Because disclosure laws are built on the premise that the aim is to
curb abuses of governmental power, the question for legislative drafts-
men is to determine where the boundaries of government lie. Some
disclosure laws draw the border tightly, including only departments
and agencies at the heart of government. Others may draw the border
more expansively “ perhaps including organizations created by gov-
ernment, owned by government, primarily funded by government,
effectively controlled by government agencies, or performing func-
tions traditionally undertaken by government agencies.52 The lan-
guage of these more expansive approaches varies, but the theme is
consistent: If a right to documents is to be acknowledged, the organi-
zation holding the documents must have a structure or mandate that
makes it appear governmental.
In all, these approaches to disclosure law are restrictive. At best “
but still rarely “ they include some government contractors and
other organizations that closely resemble conventional government
agencies while excluding (for example) privatized utilities or self-
regulatory organizations. This narrow approach creates inconsisten-
cies. Why is it, as one American commentator has recently asked,
that a journalist can review immigration records at the federal gov-
ernment™s Krome Avenue Processing Center in Miami, but not at its
contractor-run El Centro Detention Center in El Centro, CA?53 Why
should a parent™s ability to obtain information about admission stan-
dards at an elite school “ the subject of Sumalee Limpa-ovart™s com-
plaint under Thailand™s Of¬cial Information Act (see Chapter 1) “
evaporate when the school is privately owned?54
These inconsistencies are ampli¬ed across jurisdictions. Why do
residents of Ohio have the right to information from their local
nonpro¬t ¬re company, while residents of the neighboring states of
Pennsylvania or West Virginia do not?55 Why is a British doctor in
private practice, providing medical care that is paid for with govern-
ment money, subject to disclosure requirements while an American
doctor in a similar situation is not? Why do hemophiliacs who are
dependent on New Zealand™s national blood service, which is set up
as a government-owned corporation, have a statutory right to infor-
mation about its operations, while Canadian hemophiliacs have no
comparable right to information from their national blood service,
which is set up with government approval as an autonomous char-
itable corporation? Some variation in policy across jurisdictions is,

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of course, inevitable “ but this variation is also symptomatic of an
underlying intellectual predicament. As the old public sector has bro-
ken up, policymakers around the world are unable to articulate a clear
explanation of the standards that should be used to determine when
an organization must be subject to disclosure rules.


Preventing harm to basic rights
Of all the new disclosure laws adopted in the last two decades, there is
only one “ the South African Promotion of Access to Information Act “
that does not rely on the liberal dichotomization of public and private
spheres. The logic of the South African law unfolds differently, pro-
viding (as a matter of law, if not practice “ there have been dif¬culties
in achieving compliance56 ) a much broader right to information.
In July 1993, South Africa™s apartheid government and the main
opposition force, the African National Congress, reached agreement
on a plan for transition to majority rule. In the interim constitution
that governed South Africa for two years after free elections in 1994,
access to government information was recognized as a fundamen-
tal right. The constitutional assembly that was charged with drafting
a permanent constitution was also directed to ensure that the new
text made provision for “freedom of information so that there can be
accountable administration at all levels of government.”57 These pro-
visions were not unusual; several other countries that were moving
to democratic rule at that time also recognized a constitutional right
to government information. The 1994 provision, like others, relied on
the classical separation of public and private sectors.
However, South Africa soon went further. Activists pressured the
constitutional assembly to recognize a right to information held by
nongovernmental organizations as well. The country™s main labor
organization, the Congress of South African Trade Unions, made the
extension of information rights one of their foremost demands, argu-
ing that the “veil of secrecy” that had covered the private sector during
the apartheid years had “enormously prejudiced™ the human rights
of workers and consumers.58 The appeal resonated with in¬‚uential
members of the African National Congress, who were “acutely aware
of the immense wealth and power of both South African corpora-
tions and transnational companies.”59 The new constitution adopted
in 1996 included in its Bill of Rights the now-familiar assurance

162
The Corporate Veil


of a right to government documents “ and the added promise of
a right to any information held by another person or organization
“that is required for the exercise or protection of any rights.”60 This
caused alarm in the business community, and the ¬rst draft of legis-
lation required to implement the guarantee retreated from the lan-
guage of the constitution, providing only a limited right of access to
personal information in private hands, justi¬ed as a safeguard for
privacy rights. Critics of the proposed bill successfully argued that it
would not survive a constitutional challenge, and the ¬nal draft of the
law “ the Promotion of Access to Information Act (PAIA), adopted in
2000 “ restored the constitutional language.61
The PAIA was not wholly inattentive to differences between the
public and private sphere. The right to request information from pri-
vate bodies required an explanation of need, while no such explana-
tion was required when information was sought from public bodies.
Once this hurdle was overcome, however, the requirements imposed
on public and private organizations were substantially the same:
The law speci¬ed comparable procedures for handling requests and
described the limits of the right “ the grounds on which information
might be withheld “ in roughly equivalent terms.
Early cases under the PAIA gave an intimation of its potential use-
fulness. The threat of litigation under the law prompted many major
South African businesses, including a subsidiary of the powerful
conglomerate Anglo American, to disclose their contributions to the
country™s major political parties. A public interest group claimed that
the information was needed so that citizens could exercise their voting
rights on an informed basis. In other cases, minority shareholders in
privately held companies succeeded in obtaining information about
corporate practices. In one of these cases, the documents revealed
that a ¬rm™s controlling shareholders had manipulated government
rules designed to encourage black entrepreneurship. The prospect of
litigation also prompted a major South African bank to disclose its
reasons for denying a mortgage application.62
By the standards of advanced democracies, the kind of infor-
mation being disclosed in these cases was not surprising, but cer-
tainly the process by which it was being disclosed was distinctive. In
countries such as the United States, for example, there are also rules
about the disclosure of information about political contributions,
the conduct of majority shareholders, or bank lending practices.

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However, these rules are contained in discrete statutes (the Federal
Election Campaign Act, state corporation laws, or the Equal Credit
Opportunity Act), each crafted through a legislative struggle aimed at
resolving a discrete policy problem. South African law, by contrast,
articulates a general principle that courts then apply in particular
contexts, perhaps spurring later legislative action to elaborate rules
in that context. Furthermore, the application of the principle is not
affected by “structural formalisms”63 “ such as the extent to which an
organization is connected to or controlled by a government agency.
The potential reach of the South African law may be dictated by
the breadth with which courts are prepared to interpret the phrase
“required for the exercise or protection of any rights.” If “any right” is
interpreted narrowly, to include only those rights recognized under
statutory or common law, then disclosure obligations might be no
more broad than those already recognized under discovery rules for
civil suits in some Western countries.64 On the other hand, the lan-
guage could be interpreted to include all of the rights articulated in
the national constitution™s Bill of Rights, which is broadly drafted and
includes rights of access to housing, healthcare, food, and water; a
right to a safe and protected environment; and a right to fair labor
practices. The South African Bill of Rights is clearly more expan-
sive than the Bill of Rights in the American Constitution, but its
language is not idiosyncratic. It enumerates the same basic rights
contained in many contemporary declarations, such as the Universal
Declaration of Human Rights. When harnessed to this array of
entitlements, the right to access privately held information could itself
be expansive.65
Conservatives in the established democracies will balk at the
notion of giving constitutional status to the whole range of human
rights, but it can be argued that the logic of the South African PAIA
is already followed, imperfectly, even in these countries. A right of
access to information held by nongovernmental organizations is rec-
ognized when the information is needed to protect one of the funda-
mental interests typically described as basic human rights. For exam-
ple, it is common in advanced democracies to impose an obligation on
health professionals in private practice to disclose information about
a serious danger of violence by one person against another.66 Com-
mercial enterprises have an obligation to provide communities with
information about the release of toxic chemicals by their facilities.67

164
The Corporate Veil


Private employers have an obligation to provide their workers with
information about hazardous materials used in the workplace, and
manufacturers have an obligation to provide information to con-

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