CORPORATIONS AS LEGAL
PERSONS ARE SOCIOPATHIC
PERSONS ARE SOCIOPATHIC
CORPORATIONS AS LEGAL PERSONS ARE SOCIOPATHIC
The reason companies behave this way is that, by the time their behavior is
exposed, they already have huge amounts invested in doing business in the
way that causes harm. What should their directors do in this situation?
Should they cease and desist, take massive write-offs and maybe even go out
of business? Not likely when the corporate law tells them to protect their
investment (and says nothing about the public interest). As a consequence,
strategies are employed to allow the company to continue with business as
usual.
These strategies often include influencing our elected representatives to
allow them to continue. Because they are the engines of our economy, they
are incredibly successful in getting their way.
Not at the expense of:
The modern corporation is the only citizen that the law dictates should
pursue its own self-interest. As a consequence, the public interest is
threatened to the point where government cannot fulfill the job for which it
was created. We have been able to survive this self-inflicted paradox for
nearly 100 years, but companies keep getting bigger and the damage that
gets done keeps getting worse. Things like global warming show just how
incompatible the modern corporation and the liberal democracy are.
All this begs the question, where is corporate self-restraint and respect for
the public interest going to come from? More regulation? Corporate social
responsibility? Triple bottom line accounting? Socially responsible
investing? No. While each of these solutions helps a little bit, they treat the
symptoms, but leave the cause in place. Something must be done to eliminate
the cause.
The cause of the lack of corporate self-restraint is the duty of directors to act
in the best interests of the corporation. This drives all corporate action that
damages the public interest. This duty to act in the corporation’s self-interest
must be balanced with respect for the public interest.
Luckily, this is not that difficult. With regard to the duty of directors, the
corporate law is the same the world over. A uniform change to the duty of
managers to act in the best interests of the corporation will dramatically
change corporate behavior everywhere.
Management experts will tell you changing the duty of directors is changing
the corporation at its point of highest leverage. Here a small change that is
easily understandable and appeals to people’s highest standards can have
the most effect.
This change must reflect the fact that profits and the public interest are not
necessarily mutually exclusive. You can have both. In fact, the change to
profits without damaging the public interest is likely in the long run to result
in higher overall profits.
This change need not change the fundamental purpose of the corporation,
that it earn a financial return for its owners. It also need not confuse the
direction of the corporation so that corporate managers have more than one
goal.
The way to make this change most effectively is to make it clear to corporate
managers that their duty to act in the corporation’s best interest has limits.
When they find their company harming the environment and other elements
of the public interest, they should cause it to stop. Their duty should be
changed from simply pursuing the corporation’s best interest to pursuing the
corporation’s best interests but not at the expense of the public interest.
Code for Corporate Citizenship:
This change should in effect become a kind of corporate Hippocratic Oath,
that management acts in a way that “first does no harm.” This will cause
companies to become respectful of the public interest. It will cause them to
become better citizens.
The corporate law should be amended to change the duty of directors by
adding 28 words that will protect five particular elements of the public
interest. These words are:
“…but not at the expense of the environment, human rights, public
health and safety, dignity of employees or the welfare of the
communities in which the corporation operates.”
I call these 28 words the Code for Corporate Citizenship. They are not set in
concrete. Some will say that the dignity employees is not part of the public
interest. Others will suggest one or more elements of the public interest
which should be included. In addition, others will rightly point out that these
words cannot be added on one day and become effective the next. A
transition period will have to be included that will give today’s corporations
time to write-off investments in plant, technologies and processes that
damage the public interest and invest in new plant, technologies and
processes that are public interest benign.
The point of the Code is to tell corporations that we expect their behavior to
be tempered by a healthy respect for the public interest. We expect them to
behave like good citizens. This is not too much to ask. They are our most
powerful citizens.
Whether the definition of good citizenship protects four, five or six elements
of the public interest and whether their citizenship begins five, ten or fifteen
years from now is not as important as the determination that their behavior
should begin to change. Their citizenship has become a necessity.
The reason companies behave this way is that, by the time their behavior is
exposed, they already have huge amounts invested in doing business in the
way that causes harm. What should their directors do in this situation?
Should they cease and desist, take massive write-offs and maybe even go out
of business? Not likely when the corporate law tells them to protect their
investment (and says nothing about the public interest). As a consequence,
strategies are employed to allow the company to continue with business as
usual.
These strategies often include influencing our elected representatives to
allow them to continue. Because they are the engines of our economy, they
are incredibly successful in getting their way.
Not at the expense of:
The modern corporation is the only citizen that the law dictates should
pursue its own self-interest. As a consequence, the public interest is
threatened to the point where government cannot fulfill the job for which it
was created. We have been able to survive this self-inflicted paradox for
nearly 100 years, but companies keep getting bigger and the damage that
gets done keeps getting worse. Things like global warming show just how
incompatible the modern corporation and the liberal democracy are.
All this begs the question, where is corporate self-restraint and respect for
the public interest going to come from? More regulation? Corporate social
responsibility? Triple bottom line accounting? Socially responsible
investing? No. While each of these solutions helps a little bit, they treat the
symptoms, but leave the cause in place. Something must be done to eliminate
the cause.
The cause of the lack of corporate self-restraint is the duty of directors to act
in the best interests of the corporation. This drives all corporate action that
damages the public interest. This duty to act in the corporation’s self-interest
must be balanced with respect for the public interest.
Luckily, this is not that difficult. With regard to the duty of directors, the
corporate law is the same the world over. A uniform change to the duty of
managers to act in the best interests of the corporation will dramatically
change corporate behavior everywhere.
Management experts will tell you changing the duty of directors is changing
the corporation at its point of highest leverage. Here a small change that is
easily understandable and appeals to people’s highest standards can have
the most effect.
This change must reflect the fact that profits and the public interest are not
necessarily mutually exclusive. You can have both. In fact, the change to
profits without damaging the public interest is likely in the long run to result
in higher overall profits.
This change need not change the fundamental purpose of the corporation,
that it earn a financial return for its owners. It also need not confuse the
direction of the corporation so that corporate managers have more than one
goal.
The way to make this change most effectively is to make it clear to corporate
managers that their duty to act in the corporation’s best interest has limits.
When they find their company harming the environment and other elements
of the public interest, they should cause it to stop. Their duty should be
changed from simply pursuing the corporation’s best interest to pursuing the
corporation’s best interests but not at the expense of the public interest.
Code for Corporate Citizenship:
This change should in effect become a kind of corporate Hippocratic Oath,
that management acts in a way that “first does no harm.” This will cause
companies to become respectful of the public interest. It will cause them to
become better citizens.
The corporate law should be amended to change the duty of directors by
adding 28 words that will protect five particular elements of the public
interest. These words are:
“…but not at the expense of the environment, human rights, public
health and safety, dignity of employees or the welfare of the
communities in which the corporation operates.”
I call these 28 words the Code for Corporate Citizenship. They are not set in
concrete. Some will say that the dignity employees is not part of the public
interest. Others will suggest one or more elements of the public interest
which should be included. In addition, others will rightly point out that these
words cannot be added on one day and become effective the next. A
transition period will have to be included that will give today’s corporations
time to write-off investments in plant, technologies and processes that
damage the public interest and invest in new plant, technologies and
processes that are public interest benign.
The point of the Code is to tell corporations that we expect their behavior to
be tempered by a healthy respect for the public interest. We expect them to
behave like good citizens. This is not too much to ask. They are our most
powerful citizens.
Whether the definition of good citizenship protects four, five or six elements
of the public interest and whether their citizenship begins five, ten or fifteen
years from now is not as important as the determination that their behavior
should begin to change. Their citizenship has become a necessity.
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