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Is 'Corporate Citizen' an Oxymoron?
theodp writes "Citing expert testimony from a recent House Science Subcommittee hearing on Globalizing Jobs and Technology, The Economic Populist challenges the conventional wisdom that maximizing profits should be a corporation's only responsibility, suggesting it's time for the US to align its corporations to the interests of the nation instead of vice versa. Harvard's Bruce Scott warns that today's global economy is much like the US in the later 19th century, when states competed for funds generated by corporations and thus raced to the bottom as they granted generous terms to unregulated firms. Sound familiar, Pennsylvania? How about you, Michigan?"
this is advocating a form of fascism, right?
In a sense they are right. If society on a whole is doing better than it did before than the environment the Corporations have to work in will improve and their profits will increase.
Through better education a society will gain individuals who will generally be able to earn more money and therefore consume more products and allow for a diversity in competing genres of products.
As in, it takes a bit of education for certain hobbies and if the population on a whole is more rounded it opens more niches and markets for new revenue streams.
Secondly, a corporation serves the interest of its shareholders in the end even if it fails to make a profit they can still choose to keep the current CEO and board if they don't vote them out (that is rare though) and the self interest of shareholders often include their own well being so if you own shares in a factory and they produced chemicals that caused the shareholder or someone they know cancer, they might take it up with the board of directors even though change in company policy might cause a loss in profit.
Having money does you no good if you are dead and dying right?
"I am the king of the Romans, and am superior to rules of grammar!"
-Sigismund, Holy Roman Emperor (1368-1437)
I'm pretty sure the Soviet Union tried that experiment already with unsatisfactory results.
Wow, that is a HUGE straw man you have there.
A Corporation's rights and responsibilities should be listed in a charter, and failing to uphold their responsibilities should cause them to lose their rights.
The lack of a charter has caused corporations to grow to be superior to nations, but with little or no accountability.
Corporations have only two responsibilities: Maximize profits, and follow the law.
It is our responsibility to make the law just.
This is how a democracy harnesses the power of greed to provide justice and prosperity to all.
From 1917 to about 1980, fear of communism helped keep capitalism in line. During that period, capitalism had ideological competition, and there was a very real fear on the part of business owners that their companies might be nationalized. During that period, most telcos were state-owned. Britain nationalized the steel and coal industries during the 1950s, and most of the rental housing units in the country were state-owned. During the Great Depression, the U.S. Government ran many programs that employed people and built things, a form of socialism.
For over a century, communism was taken seriously as an alternative to capitalism. (Yes, it never worked all that well in Russia. Neither did monarchy, democracy, capitalism, or oligarchy. Russia did better in its communist period than before or since.) During that period, when it faced competition, capitalism had to deliver an ever-higher standard of living. Which it did. There was more talk of "corporate responsibility" during that period than there is now.
Companies used to fear public opinion. That ended during the Reagan administration. (This is why Reagan was such a darling of business.)
The triumph of unbridled capitalism may be temporary. Something similar happened in 1900-1929, when railroad and power companies ruled the world. That ended in the Depression, and for the next fifty years, businesses were strongly regulated and kept in line.
Wait, are you blaming corporations for the crap that *you* bought?
Also, I have arbitrarily determined that your pay is excessive. Please hand an additional 10% your income over to the government so that they can put it to better use.
Nerd rage is the funniest rage.
Rev. Wright, is that you?
Magic Johnson has HIV, not AIDS. While they are related - and often the former leads to the latter - HIV does not mean certain death; whereas AIDS does.
Caesar si viveret, ad remum dareris.
Another issue left out of TFA, was which stockholders interests are being represented by the board of directors? A stockholder who plans on holding the stock for the long term is going to have a very different idea of ideal corporate governance than a stockholder who wants to flip the shares as quickly as possible (e.g. Warren Buffett vs Carl Icahn).
Today, the very concept of a corporation entails the idea of profit maximization. That's why singling out one (Nike, Monsanto, Microsoft) and getting angry at it for making short-sighted moves in the name of profit is like getting angry at an alligator for eating meat. What did you expect? That's what it does.
"Corporate citizenship" or "corporate responsibility" are nothing more than marketing slogans. You can't ask an alligator to eat veggieburgers, and you can't ask a corporation to play nice. Even if it actually did so, its competitors would roll over it.
If you want an economy that responds to more than the richest 1% of 1% of the population, you need economic entities that are qualitatively different -- that measure success differently. That doesn't mean more government interference, because the state and the corporation have the same flaws, for the same reasons. The state and the corporation are rivals, not enemies.
Rather, what we need are economic bodies that are expressly designed in the interests of their employees and clients. The effective way to do it is through cooperatives.
There are countless examples that demonstrate that employee control works. It avoids practically all the evils of the corporate model: outsourcing, management/labor tension, secrecy, poor working conditions, creative accounting, and the list goes on.
Co-ops automatically are what corporations want you to believe they are. A co-op is a citizen of your community in a way a corporation never could be, because all its owners are citizens of your community.
What if I do the same thing, and I do get different results?
IMHO, most long term successes in business have balanced profit and citzenship. Look at businesses that have been around for 30+ years and you'll find that most try to balance their profit with philanthropy. One example that comes to mind is Target (formerly Dayton Hudson). Both corporately and at each retail store they have a policy of supporting worthy causes. WalMart also has a similar policy, but doesn't seem to apply it to it's own employees. ~
One may argue the motives of corporate philanthropy, but it does seem to help healthy businesses stay in the fight over the long haul.
Invenio via vel creo
Yes, those excessive profits. Never mind that for every $1 in profit EXO makes they pay $3 in taxes. So let's really aim that 'middle finger' squarely where it belongs - the Government.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
The current corporate governance situation began with the "shareholder rights" movement that started in the 1980's. That movement was fostered by corporate raiders who had no long term interest in the corporations they attacked. They wanted to get in, make a quick profit, and get out.
The movement was focused on disregarding the rights and interests of the non-shareholding stakeholders in a corporation -- the communities in which they operate, their employees, their customers, those affected by their impacts on the environment and markets, and possibly others.
Those rights and interests had previously been protected by unwritten understandings, the so-called "social compact". The shareholder rights movement effectively broke the social compact because there was no legally-enforceable impediment to their doing so.
The way to fix this is to restore the social compact and protect the interests of non-shareholder stakeholders by law, regulation, or contract. This means restoring the power of unions, strengthening regulation of markets, and providing safeguards for the interests of communities, especially those that provide benefits to corporations without written agreements reflecting the reciprocal obligations of those corporations.
As a working technologist for the past two decades (I started in IT as a pre-teen) I have been content to let the suits figure out the economics and leave me to play with my toys. But, in the last few years since having a family of my own I have begun to see how unsustainable some "corporate cultures" really are and how a business could be seen as a way to find and keep people you think are "of quality" around yourself.
... the vote of people with control over special interests counts more than the vote of common people. That's because the lobbyists like to eat.
I don't think most businesses operate like this because we are developing a "management class" in America. These are people who graduate from school as bosses. They don't work their way up to become a boss or manager they come out of the factory sparkling and new as managers.
That creates a fundamental disconnect between the work force and management. It's one that creates a first and second class "citizenship" in the corporation. In many ways if you believe there is such a thing as a "corporate citizen" then this new path through the corporate ladder means that we have reverted to a feudal system in society.
In other words, we may be making "American Style" Democracy obsolete or unworkable. Democracy (in America) is already evolving
What this means is that corporate profit maximizing interests usually count more than individual or family interests over time. And that means whatever feeds profits best will win. If human rights feed profits, great. If family stability feeds profits, awesome. If healthy employees help profits, wonderful. But, how do retirement plans feed profits? How does universal health care help profits?
These things do help profits by creating a more stable society where individuals can take risks, make inventions, try new careers. But, they don't help any particular corporation. They don't help profits in the 18 month window. These are things that are financially stupid on anything but the 100 year scale.
Take the example of the educational systems in India. A net profit loss for fifty years that eventually lead to an economic boom in the 1990's. That's my big example of a long-sighted investment in the people that will not pay off any particular corporation in a time-line that can be appreciated by share-holders en masse... however a visionary could see it.
It is a sad fact that some of the things that help the citizens of a nation help all corporations that do business in that nation... and that means that a corporation that is doing those things is helping its competitor. That could mean that strategically undermining a nation may in fact boost profits for a corporate entity which can do things to hurt its competitors and find ways around that damage to make itself more competitive.
The goal of a government (in my view) should be to seek ways to balance the goals of profit making against long term goals. Both sets of interests serve human good because employees are citizens and so are share holders and they benefit all from profits in the short term and that is good. Governments can create incentives for long term investments in your competitors by creating short term incentives to do so using tools such as those dreaded taxes and tax breaks and inventing artificial economies such as the "Income Tax" industry which CPAs and income tax software vendors make their fortunes on.
The interesting thing is that Governments create jobs using red-tape.
[signature]
It's not really a problem with corporations, the problem is when you take away the accountability of the owners. That's the major loophole. Limited liability is one hell of a loophole...
A corporation is a "pretend person" created by a governmental process. There are various kinds, but they're all imaginary: charities, educational corporations, membership associations, foundations, etc. Corporations have no existence beyond what the government chooses for them, so their functions can be adjusted by the government as necessary.
No fascism about it.
I piss off bigots.
Communism is a whole other thing. Go back to Poli Sci 101.
I piss off bigots.
They don't exist in natural law; they are a fiction established by legislation. We can set them up to do anything we want them to do (hence nonprofit corporations, etc.). There's no reason why we can't change what they're supposed to accomplish.
I piss off bigots.
The people of Michigan want fair wages and a clean environment to live in. How dare they! They'll eat poision and breath coal dust and LIKE it or else all the companies will leave and they will die.
Blar.
I don't have a link handy, I'm afraid, but I've heard from friends and read elsewhere that numerous MBA programs (at least in the US) actively advocate getting away with as much as possible in pursuit of profits. "Oh yeah, and don't break the law, kids (wink wink, nudge nudge)." It's not necessarily about following the law, instead it's about getting away with it when you don't.
Cheers,
"What in the name of Fats Waller is that?"
"A four-foot prune."
What may be the ultimate penalty is if dissolution leads to the revocation of the limited liability clause of virtually all corporations - institutional investors would be paying a lot more attention to management following the law if they knew they would be on the hook for knowing of illegal actions undertaken by management.
FWIW, one person who probably holds the most responsibility for the "Maximizing share price" BS is William Lerach.
I know that action is taken quite often; here's a few examples of such violations. Contrary to conventional wisdom, boards tend to draw the line at violating the articles of incorporation, as their own stakes - their own interests - live and die with the corporation. You'll usually see those guilty of such actions readily served up by the company - witness Ken Lay, the Rigas', and many others. The board will look for their own interests, and those usually align with the majority of the stockholders (since they're elected by the stockholders).
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
unions are as capitalistic as it gets! plumbers getting together and controlling plumbing prices is no different than oil companies getting together and deciding oil prices.
The author of your linked article clearly has no idea what he's talking about. He called Michigan the "Wolverine State". Nobody calls it that. Nobody.
Interesting, thank you.
I'm not familiar with the Rigas, but as far as Ken Lay is concerned, one could probably argue that the board didn't abandon him until it was far too late to do anything productive beyond throwing a scapegoat out the door. The kinds of power supply shell games that Enron's teams had dreamed up are patent fraud just in common sense terms, let alone the various definitions for exactly why and how what they did was illegal. I must surmise either that the board was wholly ignorant, and therefore something close to criminally negligent regarding proper corporate governance, or that the board had at least some idea of what was going on, and was copacetic, and therefore complicit, until the law came calling. Either way, Enron doesn't appear to be a good example for how corporate articles are supposed to govern company behaviour and inform the board of directors' and other management decisions, inasmuch as the company was taken down not for violating its own articles, but rather for widespread and highly disruptive fraud. Then again, perhaps I'm missing a salient point?
Cheers,
"What in the name of Fats Waller is that?"
"A four-foot prune."
Even if you take an amoral approach, the responsibility of a corporations is to serve its owners. The most obvious way is by making money. But owners have other interests as well. As an owner I'm not well served if the corporation pays be a $10 dividend it earned by polluting my air and giving me cancer. As an American owner I'm not well served if my corporation pays me a $5 dividend it earned by selling advanced weaponry to China.
But taking a more enlightened view, owners of corporations are moral creatures who have moral obligations and moral duties. Our corporation should have the same moral obligations and moral duties we do because the corporation is acting our our behalf.
So yes, corporations should not just be good corporate citizens, they should also behave morally.
I often don't like the choices people make, but I like the fact that people make choices. That's why I'm a conservative.
I believe the issue is that cooperate entities in the US (and apparently elsewhere) have been given essentially all the rights of an actual person. But for the most part the people leading the corporation are protected from personal liability for the actions of the corporation. Furthermore there don't seem to be many ways to hold a corporation responsible either. You can't jail or execute a corporation. I seem to recall there was a time when the government could dissolve a corporation but that changed a long time ago.
The point of the article (to try to get back on topic) is that currently the people behind corporations use the argument of fiduciary responsibility as an excuse to base all decisions on short term financial gain and stock price. Regardless of whether those decisions are counter to the interests of the people of the planet, nation, or state in which they operate. Meanwhile, to attract business national and state governments keep reducing the responsibilities placed on corporations.
Some privacy policy Slashdot.
Hey, military leaders are intelligent. Nobody was pretending to call it 'military wisdom' or anything.
Geez. Oak is a moron. Corporate entities are accountable to the citizenry most when markets are free, and yet he's calling for less free markets. Did somebody buy him the special shoes with the targets drawn on the uppersoles?
Don't piss off The Angry Economist