Corporations Are People Too
Posted by Mark Radulich on 03.19.2011
The good, the bad and the ugly about corporations.
There are few subjects in the American conversation that illicit more partisan rage, with the possible exception of war, than "The Corporation." Those on the left often deem it to be an institution led by modern day slave drivers and polluters whose only motivation is to make untold riches at the cost of anyone and everyone. Those on the right see it as an institution next to godliness in virtue. The corporation's mere existence creates jobs, wealth, convenience, luxury, and is as patriotic as Nancy Reagan and apple pie. As per usual the truth is somewhere in the middle.
The fact is that while capitalism has it's problems and therefore the entities of power within can be problematic, no other economic system has been as successful in creating as much wealth in as many places far and wide as capitalism. Furthermore, corporations have an essential role in creating and spreading that wealth in large economies. Of course you can't get to a large economy without the benefit of large corporations first. The problem with the modern American conversation regarding corporations is that both sides seemingly attack or defend (depending on whether or not they are direct beneficiaries) it without a willingness to examine context or even facts at times. They drown the subject in bellicose waters and are simply not interested in full scope of what it means to have corporations in a modern society. Depending on who you are and what you do, corporations are either all good or all bad, meaning the conversation is utterly pointless. Corporations are simply a collection laws that define their purpose and existence. Like a song or a book or a document or a TV show it cannot be good nor evil but rather it is the people making up that corporation; their collective wisdom, ability to make decisions and own moral code that determine whether or not the specific corporation itself is all good or all evil. This is an important distinction that often gets vigorously ignored as people flock the religions of their own personal biases.
What I will attempt to do in this space is define the nuances between corporations that do good things and those that do evil. I will address the grievances of the workers and the public at large that see corporations as a power to be dethroned and defeated while also dealing with the positive economic impact corporations have had on the global marketplace. The goal here is to show the good, the bad and the ugly of what it means to have corporations in existence. Some have made your lives infinitely better while others have wrought devastation that will be felt still by our great grandchildren. It is important to know which is which and who did what.
The title of this piece is an allusion to a line in the 2003 documentary, "The Corporation" that focused on how these entities have negatively affected our lives. "The Corporation" looks at corporations through the prism of its legal status as a class of person and evaluates its behavior towards society and the world at large as a mental health professional would evaluate an ordinary a person in need of services.
A Wikipedia entry on this movie states that, "The documentary shows the development of the contemporary business corporation, from a legal entity that originated as a government-chartered institution meant to effect specific public functions, to the rise of the modern commercial institution entitled to most of the legal rights of a person. One theme is its assessment as a "personality", as a result of an 1886 case in the United States Supreme Court in which a statement by Chief Justice Morrison R. Waite led to corporations as "persons" having the same rights as human beings, based on the Fourteenth Amendment to the United States Constitution. The film's assessment is effected via the diagnostic criteria in the DSM-IV; Robert Hare, a University of British Columbia psychology professor and a consultant to the FBI, compares the profile of the contemporary profitable business corporation to that of a clinically-diagnosed psychopath.
The film is in vignettes examining and criticizing corporate business practices. It establishes parallels between the way corporations are systematically compelled to behave and the DSM-IV's symptoms of psychopathy, i.e. callous disregard for the feelings of other people, the incapacity to maintain human relationships, reckless disregard for the safety of others, deceitfulness (continual lying to deceive for profit), the incapacity to experience guilt, and the failure to conform to social norms and respect for the law."
This is as good a place to start as any in differentiating between the assertions above and the reality of what the vast majority of corporations are.
Historically businesses were sole proprietorships, meaning that the shop was owned by one person and the businesses themselves were relatively small. In addition, each business served a niche need in the local community that otherwise would not have been met as most people would or could not venture outside of their local community. There was little need for an accumulation of capital to operate a blacksmith shop or an inn for example. When your only business is with the locals within a 5-mile radius or the occasional traveler, the amount of capital needed does not warrant any other type of ownership.
As transportation allowed for a more mobile society and business ventures grew in scope, the invention of the partnership became a more viable means of handling business growth. The partnership allowed for more capital to be acquired and for a larger skill set to be available for the business. Corporations, which again are simply a legal entity charged with governing the operations of a business, came about because of the grand scales of some projects and because of the long time frames required to accomplish set goals.
Sole proprietorships and most partnerships died when the partners themselves die.
There is also the fact that in sole proprietorships and partnerships, there is unlimited personal liability for the acts of the business entity. In other words, if you go bankrupt in the course of running your personal business, banks or other creditors can sue you personally. One can imagine folks being somewhat gun-shy to take large financial risks when it could result in debtors prison or destitution. Corporations by contrast only die if their charter has a specific dissolution date. Most early corporations had an end date. Most modern corporations do not. Corporations are able to assemble huge amounts of capital and labor and take on multiyear projects. They also help shield people from some of the liability of their actions making people more will to take risks. Without this ability the modern economies would not have happened.
For example, many of the exploration excursions across the Atlantic Ocean in the 16th Century were actually set up as charters, the forebears of modern day corporations. Venture capitalists would not exist today if not for the advent of the limited-liability corporation. It is mostly due to venture capitalists that modern marvel makers are able to ply the wares we thoughtlessly rely on. Without them there would probably never have been an Apple Computers and thus more than likely no personal computer, certainly no Ipods or Ipads. Limited-liability corporations allow for economies to grow in scale and produce the wealth that most of us have come accustom to. They are responsible for luxuries such as the modern car, the aircraft and it's various ports, the housing construction industry, supermarkets and malls, modern medical technology and pharmaceuticals, many more inventions of convenience. The fact that those willing to start a company can't be sued for everything their worth lends some degree of willingness to take the necessary financial risks in order to create great national wealth.
Despite some of the negative aspects of corporations (which we will deal with next) they are a necessary part of this as well as the rest of the industrialized worlds economies. To do away with them is to turn back our lives to the 17th Century. Let me know when you're willing to do that and we'll talk.
In the documentary, "The Corporation," the central premise is that since businesses are considered legally to be a "person" but a person with "limited-liability" i.e. cannot be held responsible for problems it causes, the corporation essentially acts as a sociopath. In other words, a corporation can lie, cheat, steal, pollute and otherwise make the world a less wonderful place and there's little to nothing any governing body can do about it. This is primarily where most of the rage against the machine, if you'll pardon the expression, comes from. You have what adds up to a psychotic bully running around causing misery and we are powerless to stop it. Furthermore, our elected leaders appear unwilling to stand up to the bully. Even more so, they often appear to be in cahoots with the bully.
This is histrionic nonsense. While it is true that corporations are given the same rights as people, like all people, some do good things and some do bad things. We should not throw the baby out with the bathwater. Instead we should examine what is specifically wrong with corporations without attacking them whole.
There are two problems with the modern corporations. The first is the aforementioned limited-liability issue. Corporations are monarchies, not democracies. As such what they do is very much determined by the top leadership and just like any other monarchy, things are fine when you have a smart, compassionate monarch. Unfortunately, not everyone is a position of leadership exhibits these qualities. There are those who attained their position by any means possible and those who have deserved to be promoted but then would do anything to keep their place of power, even if they no longer deserve it. Very few corporate executives have gone to jail for doing illegal things. Recently Target had a multimillion-dollar fine for breaking environmental laws. No one from the corporation went to jail (though they could have) and certainly the corporation did not go to jail because despite its treatment, it's not really a person. Yet, their actions endangered the lives of the public all the same.
There is also the case of cost. If you go by the doctrine that a corporation's sole responsibility is to earn a profit you end up with the calculation that companies have made in the past. What is the cost of correcting the problem vs. the cost of litigation? If senior management decides to go with litigation, they are not held responsible for the deaths they cause. Even worse is the tobacco industry. Here is an industry that has been knowingly selling a product that kills people since the 1940's. The industry was famous for denying that smoking was addictive or harmful. The executives even went before congress and testified to these facts. The problem, of course, is that they were lying. They had seen the studies by their own scientists that cigarettes were both addictive and harmful. None of them were charged with murder or lying to congress or anything else for that matter.
So what does it cost a corporation if it makes an immoral decision? The answer is stockholder's money and maybe but doubtfully, some senior executive's job. If it does cost his/her job you can rest assured that they will receive a large severance package often referred to as a golden parachute. So there problem isn't so much the corporation as an entity, it is rather the culture of protecting the powerful from their own mistakes and absolving them from any real punishment.
The second issue at hand is absentee ownership. Most modern corporations have millions of owners and billions of stock outstanding. Since one share is equal to one vote that means that those with the most shares have the greatest say in election of the board, which is supposed to represent the shareholder's (owner's) interest. This is not bad in and of itself. What ends up making it bad is that most stockholders have little idea what is going on and in the case of large stock holders (pension funds), are philosophically opposed to active investing. So what happens is that the average investor sends his money to a manager who invests the money for him and there is ownership of what the company he has been invested actually does. He's invested solely because the guy he paid to manage his money thinks this particular company will generate a return.
You also have the senior executives being granted large shares of stock as compensation. With stock comes the ability to vote on who becomes a board member. Board members oversee management and are the representatives of the stock investors as we said above. In a perfect world this should be a check and balances situation but that is often far from reality. In the end the board only represents the shareholders to the extent that they can be proven liable for negligence. The senior management pick whom they want to be on the board and it is usually rubber stamped by the shareholders. Keep in mind the way the election is run. Normally management, to the point where the election is mere window dressing, handpicks the candidates. Then if one vote is for the candidate and the other billion are withheld, the candidate is on the board. So, the reality of the situation, no one owns the corporation and management frequently answers to no one. If a corporation is fined, the evildoers get no punishment. It is not their money being used to pay the fine, rather it is the companies i.e. yours. When management donates money for any purpose (political or social) it is not their money being used and it may not reflect the will of the owners. Once again, you are the ones coughing up the dough.
If the reasons that corporations all too often act against the benefit of society at large it is due to the very basic issue of incentive. We typically behave well in a society because the consequences of not doing so outweigh the acts of behaving badly. When you remove those consequences you then remove the incentive to behave. When you answer to nobody you have no reason beyond your own conscience to be decent. More to point, when the consequence for doing your job poorly is a large severance package and you still get to be part of the powerful social sphere, what incentive is there to be more conservative in your decision making. Essentially we've created a culture of corporate gambling addicts drunk in a casino and the chips are ours (or at least they were).
Lastly, capitalism works best when you have large numbers of competing firms. However, competitions end. When you lose in business you are often either dismantled or merged with the winning firm. It's not fair but neither is life. That said, this has happened so much over the last 50 years a miniscule amount of global companies own the lions share of firms the world over. Essentially what we see as competing brands is really several brands under the same parent company competing among themselves. Take for example Viacom. Viacom owns the following television properties: MTV Networks including but not limited to MTV, Nickelodeon, CMT, VH1; BET Networks; Comedy Central; Spike TV. As you can see these are all competing television networks but they are under the same umbrella company. As of 2010, Viacom is the world's fourth-largest media conglomerate, behind The Walt Disney Company, Time Warner and News Corporation (Fox News). When you are number four on a short list to begin with the result a large concentration of power in a very small space. That kind of leverage results in favorable terms for the company but often-unfavorable terms for competitors, workers and consumers alike.
People have remarked with much snark that if you want better wages one should not shop in Wal-Mart or other big box stores. Inherent is a remark like this is an angry bias against corporations. It is true that there are some that do not treat workers well or some the hurt workers, there are just as many who treat their works fine and benefit society as a whole. For every Enron there is a Google. Corporations create more jobs than not (well the smaller ones do). Many jobs are shipped overseas but all that means is they've created jobs in another area of the world, not that they've destroyed jobs. The corporate entity is a tool for creating wealth, just as a hammer is a tool for creating furniture. That it can be used for nefarious purposes doesn't mean that it is evil in and of itself but rather some folks in the world are terrible people.
While talk of unions and regulations can be contentious and certainly both have their own set of problems, they exist as a check on unfettered corporate abuse. It is an imperfect, ugly system, in an imperfect ugly world run by imperfect, ugly people. But it's better than the alternative, ask anyone born before 1950.