In the wake of congressional testimony by former Twitter security chief Peiter Zatko, Sen. Lindsey Graham (R-SC) has suggested that he will partner with Sen. Elizabeth Warren (D-MA) to introduce legislation to regulate technology companies via a federal license. Bloomberg’s Emily Birnbaum and Anna Edgerton report that, “There is bipartisan support for new internet regulation to protect user privacy and security,” but that Republicans other than Graham have expressed reluctance to increase federal power in this area. Sen. John Cornyn (R-TX), for example, said about big tech security concerns, “I don’t think we need any more bureaucrats.”
Cornyn is correct, especially when it comes to the kind of regime that Graham and Warren seem to have in mind. Some proponents of increased oversight of tech firms have argued that they should be subject to similar controls to those on telecom companies, as overseen by the Federal Communications Commission, but using licensure as a regulatory and disciplinary tool against Twitter and Facebook would likely look more like Sen. Warren’s deeply problematic Accountable Capitalism Act (ACA). Warren first introduced the ACA in 2018, and while the bill hasn’t gone anywhere legislatively, its proposals have garnered a lot of attention from the news media and scholars, including analyses everywhere from Vox to the Brookings Institution to the Georgetown Journal of Legal Ethics.
The centerpiece of the ACA is a federal charter for large corporations that could be revoked on the authority of a federal official reporting to the Secretary of Commerce. The most important distinction here is that rather than going through a formal law enforcement process by which a company would be accused of some specific crime and subjected to due process in an Article III court, the director of the proposed Office of Corporations would simply revoke the charter administratively, essentially destroying the company—and its value for investors—with a stroke of a pen. Under the provisions of the ACA, only an act of Congress could reverse this administrative decision. I wrote about the problems with this approach for National Review in 2020:
Senator Warren’s legislation would put the continued existence of every large corporation in the country in the hands of a single sub-cabinet-level political appointee, empowered to determine whether a firm’s “misconduct” had “caused significant harm” to customers, employees, shareholders, or business partners. That last item seems like an odd inclusion, and it could be the worst. Any company that does business with your company and doesn’t like your latest terms could attempt to haul you before the federal Office of Corporations firing squad as a way of playing hardball. Even if unsuccessful, such a review could torpedo the share price of the target company.
What price would a company pay if its very existence were on the line? Almost anything short of being legally dissolved suddenly becomes plausible, which is why a future Director of the Office of Corporations would quickly become more powerful than the Department of Justice’s antitrust division, the Securities and Exchange Commission, and even the President himself. The ability to bend the corporate titans of Wall Street and Silicon Valley to your will with the mere suggestion of a charter review would make the ring-makers of Mordor blush: It would permanently institutionalize regulation by shakedown and eliminate due process for shareholders.
Instituting a system like this, even if it were only for large technology companies, would be terrible policy that would constitute a massive erosion of property rights and due process. It’s especially disappointing that any members of the Senate would be endorsing it precisely at the time that federal courts, including the U.S. Supreme Court, are trending in the direction of finally recognizing limits on executive policy making and the unholy mixing of executive and judicial powers. Recent decisions like Seila Law v. CFPB (2020), Jarkesy v. SEC (2022), and West Virginia v. EPA (2022) have thankfully trimmed the overreach of the administrative state. The last thing we need is members of Congress fertilizing its renewed growth.