Saturday, October 29, 2005

What Person Has No Body to Punish, No Soul to Condemn?

Answer: the . That’s not a riddle, but part of a quotation by Alexander Hamilton. Most Americans of his day strongly objected to the power of corporations in England, which controlled trade with the colonies, and resolved to prevent their excessive influence in the United States. Whereas in Europe, directors and were not liable for the debts or damages incurred by their firms, the American laws were not so lenient; if a corporation abused its charter, it would be dissolved. Moreover, the founding fathers allowed corporations to be chartered only for a limited time for the purpose of building the public infrastructure, such as roads. Profit for the shareholders was allowed only as a means to serve the .

Since Civil War days, nevertheless, corporate “” has gradually become institutionalized as a legal status throughout North America and in many other countries, where transnational corporations are expanding.

This clever legal invention has enabled both socially benign and harmful changes to take place. Having just spent two days at an ecological economics conference, the harmful effects are uppermost in my mind, perhaps because one engaging speaker, Ben West, captured my imagination today.

West works for the in Vancouver, which is trying to curb a few of the most egregious examples of harmful corporate power, notably the and industries. Since no one can deny that the health effects of those businesses are overwhelmingly negative, West views them as “low-hanging fruit” for a campaign of .

And reforms are overdue. The law treats a corporation as a person, but it is a peculiar type of person — one that’s shielded from many unpleasant consequences of bad decisions. confers three strange attributes.

First, the corporation can be immortal. It can survive all its owners and managers. This beneficial fact gives great stability to its capital, which can be invested therefore in long term projects.

Second, the corporation has limited liability. An injured party cannot sue its stockholders for more money than the amount they paid for their stock. This relieves the owners from much risk and therefore makes their investments particularly sound bets.

Third, the corporation is obliged to maximize its profits. That is, the directors are not permitted to put other interests — including environmental protection, worker safety, societal health and welfare — ahead of the best interests of their shareholders. This strange rule, which should certainly be overturned in court and by legislation, has a long and curious history. In one case, Henry Ford paid his workers higher wages than were absolutely necessary, on the theory that this would enable them to buy his cars — an approach known as “fordism.” However, one of his shareholders was his brother-in-law, a Mr. , who objected to this business practice and sued the Motor Company for having harmed the firm’s profitability. Dodge won, and used the proceeds of the case to create his own car company.

In recent years, citizens have been attempting to reverse the expectation that profits come first. The shocking revelations about public and personal harm done knowingly by officials of Enron, Ford, and Firestone, to mention only a few, have made people conscious of the danger of this rule. Some municipalities have passed ordinances that reject these corporate rights — though often these are enacted only as symbolic gestures, since there is little prospect of revoking “personhood” from corporations by local action.

In Canada, is a federal statute, now in parliamentary committee, that will require directors of not-for-profit corporations to give primacy to the public interest in their decision-making. This does not cover all the problems with corporations, but it is a step in the right direction.

Additional measures that need to be legislated include the requirement that all corporate activities be made perfectly transparent, and that stakeholders — every group significantly affected by the corporation — should be consulted or even represented officially on the board of directors. At a minimum, this would include employees, consumers, and environmentalists.


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