Tuesday, May 18, 2010

The Corporate Challenge

We will never succeed in creating a sustainable society until we overcome the death-star like power, and evil, represented by the modern corporation. Seem a tad extreme? Let's look at a few facts.

Corporations only make up 20% of US firms but they account for 85% of all US business revenue.

The economic power of the largest corporations boggles the mind -- of the100 largest economies in the world, 53 of them are corporations!

There are only 10 COUNTRIES that have economies larger than Exxon Mobil. Or to put it another way, Exxon Mobil is economically larger than 180 countries in the world.

We now have 63,000 multi-national corporations in the world -- huge monoliths that transcend national boundaries and operate beyond the legal jurisdiction of any national legal system.

The massive economic wealth of corporations overwhelms most political systems, including ours, and weakens democracies around the world. Our political process moves, or is blocked, at the whim of corporate sponsors and lobbyists.

We have no one to blame but ourselves -- we are the mad scientists that have created these economic Frankensteins. How so?

First, we made it LAW, that the directors and managers of a corporation have a duty to act in the best interest of the corporation, which has been interpreted as an obligation to do whatever it takes to maximize the wealth of shareholders. This, the "best interest of the corporation" principle is one of the greatest obstacles in allowing corporations to become more socially responsible institutions. 

If polluting the nearby river maximizes profit, the managers are obliged to do it. If the corporation can maximize dividends by closing a factory and moving to another country, shut her down. If carcinogenic ingredients help keep costs down, and therefore profits up, well, then a bit of cancer is the "price" of doing business.

Under our current system, a corporate manager is being UNETHICAL if they consider policies that would promote positive social, health, or environmental impacts if they would reduce profits. Really. No, really, that is the system that we created.

If an individual acted this way we would call him or her a sociopath, but if a corporation does it, it is "just business."

Second, we further encourage such diabolical behavior by limiting the liability of shareholders for the action of their companies. Limited liability is why corporations must be chartered by a government authority -- in the US the states do this. They are supposed to supervise and regulate the corporations but it is rarely done in practice. Shareholders might take more care if they were held financially accountable for the misdeeds of their companies (think BP and the oil disaster for a current example).

Third, in the US we have granted corporations "personhood" allowing them protection under the constitution just like a flesh-and-blood person. Corporations are now allowed to spend as much money as they like to influence elections.

Corporations have become not only the most powerful economic force on the planet, but the dominant political force as well. This concentration of power is increasingly unaccountable to you and me, to our government, or the planet.

How do we fix this? A few ideas:
  1. Revoke corporate charters of companies violating the public trust
  2. Roll back limited liability 
  3. Corporate directors and top managers should be personally liable for gross negligence 
  4. Extend liability to shareholders under certain circumstances 
  5. Eliminate corporate personhood (Learn more here) 
  6. Change the legal mandate that requires the corporation to strictly pursue its own self-interest and to give primacy to maximizing shareholder wealth.

    (Maryland has taken a step in the right direction by creating the legal framework for the "Benefit Corporation." (Learn more here))

Ultimately, we need to rethink the whole nature of the corporation and its role in society. It is clear that the mindless pursuit of short term profits, regardless of consequences, is ultimately doomed to failure -- not only for the company but for society at large.

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