The Corporation

by Jinryu

Taken from a lecture by my MAIS 601 professor at Athabasca University, by Wendell Kisner, about at week ago.  This email is in response to a week of studies, research and debate about modern corporations.  It is posted here with permission.

 

Today we have to deal with something that modernist theorists like Hobbes, Mill, and even Marx did not see – the multinational corporation. Can the social theories we’re reading accommodate this phenomenon and effectively subordinate it to the sphere of political freedom? Or will we need to develop new categories? These are still open questions.

As the group work revealed, the problem with corporations is not just a matter of personal virtue, as if we could get rid of human corruption (e.g. Enron, BP, etc.) and then have “good” corporations. Joel Bakan portrays the corporation as a profit-generating machine – and that is not meant to be a moral judgment but is intended strictly as a description. A corporation has to remain beholden to the legal requirements of fiduciary duty. This is what Milton Friedman invoked in his (in)famous New York Times 1970 essay, “The Social Responsibility of Business is to Increase its Profits” (the full article can be found at http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html). The argument goes like this:

Corporate CEOs are hired to do one thing: maximize investment return for shareholders. That’s their contractual obligation. If they use corporate money to do anything other than this – like, for instance, to improve working conditions for its employees or reduce pollution, etc. – then they are in fact spending someone else’s money without permission. Friedman calls this “taxation without representation.” Therefore when CEOs try to engage in philanthropy or fulfill any perceived social responsibility other than solely increasing investment return they are, according to Friedman, doing something immoral.

A now-classic example cited by Bakan (which is actually from an era before many corporations went multinational) is the Ford Motor Company in the early twentieth century: guided by the ethic that “business is a service, not a bonanza” and should make money only incidentally (Bakan, 2004, p. 36 ff), he was in the habit of returning profits back to the consumers in terms of automobile price reductions. One year when he did so he was sued by two shareholders who claimed in court that the money Ford wanted to return to customers was actually their money and should be given to them. The judge agreed, finding in favour of the plaintiffs and rescinding the savings Ford had wanted to provide, subordinating Ford’s ethic to the legal opinion that “a business corporation is organized and carried on primarily for the profit of the stockholders” and cannot be in place “for the merely incidental benefit of shareholders and for the primary purpose of benefiting others.” (Ibid.)  The plaintiffs were the Dodge brothers, who used the money from the suit to finance their Dodge Motor Company.

Ford was thereby legally prevented from following what we might well understand to be the truly ethical course of action. So even if a CEO like Ford tries to do the right thing, he may well be prevented by the nature of corporate structure itself. In this sense it is descriptively accurate to say that the corporation is a machine. That it is, it’s a legal device for maximizing profits that makes use of human beings as its working parts but which does not and cannot value them as anything other than a means to an end. Corporate “social responsibility” is securely demoted to the strictly subordinate position of either serving corporate self-interest, in which case it is disingenuous, or becoming a liability if genuine. So corporate hypocrisy is legally mandated and, in addition, is provided an ideological gloss from Friedman and his heirs asserting that if a CEO tries to do the right thing, s/he is really doing the wrong thing.

Thus we can certainly hold individuals responsible who serve on corporate boards, but at the same time we need to recognize the reality of structures that not only encourage irresponsible behaviour, but which in a certain way require it (evaluating moral responsibility, that is, in the broader social context outside of mere fiduciary duty). Corporate structure requires that profits be placed above people – unless there are other structures in place (e.g. government-mandated regulations, public opinion, etc.) that prevent it, and even then only because such structures will reduce profits (through fines, boycotts, government-mandated liquidation, etc.). This also necessarily means that if such costs can be factored into the costs of doing business such that a greater investment return can be generated than otherwise, once again there’s every reason for the corporation to go ahead with it and bear the repercussions. Or, alternatively, it may be advantageous for a corporation to move production to a place on the planet that’s less legally “restrictive” (from the point of view of capital).

If the corporation can get away with polluting a given area and then leave the cleaning bill for the public purse – that is, if it can get away with “externalizing” its costs – it has no reason not to do so unless there are forces outside the corporation that would prevent it. If a corporation can produce whatever it brings to market more cheaply by, say, polluting the water in the production area, and if possible public exposure and concomitant political fallout are deemed to be minimal (if these projected costs are significantly less than the projected profit margin) then it has every reason to do so and virtually no reason not to, given the structure of fiduciary duty which takes legal precedence over every other concern. Or, to put it another way, any reason for not doing so would have to come from outside the fiduciary relation that defines what a corporation is. Thus corporations are driven to “externalize” the costs of production – whether those costs be that of wages for workers, cleaning up pollution, designing safer equipment, or providing safer conditions. A multinational corporation might also enter a region to set up production, irrevocably contaminate that region with pollutants, make a huge profit, then either go elsewhere or even sell off its holdings and thereby “commit suicide” – leaving lots of money in the pockets of some people. That’s why Bakan calls the corporation an “externalizing machine.”

Bakan however thinks that the way to reign in corporations is through government regulations. But it seems to me that this has been tried and powerful business lobbies – at least in the US and, to a lesser extent, in Canada – have steadily and persistently worked to erode, undermine, and sometimes out-and-out abolish such regulations. So even if, against the tremendous opposition that would come from business lobbies and the power they wield in the current representational system, we were to restore the government-mandated regulations on corporate activity, what would keep us from winding up in the same place down the road? Does it require something like a Maoist “perpetual revolution,” a constant vigilance and constant activism on the part of citizens? How likely is this?

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