The corporate model, as implemented under US law, has some design flaws of its own. And these design flaws go to the heart of why corporations tend to make people, far more often than not, behave in either unethical, immoral, or even abhorrent ways.
Here I will show that the widespread anti-corporate sentiment so many Americans feel, which may seem reactionary and undefined, is in fact quite rational and based on a real phenomenon. Countless accounts of corporate crime and malfeasance have been documented in film, books, and online. (None more succinct than the film 'The Corporation' where scores of top corporations were analyzed using standard behavioral models and found to be sociopaths. This wasn't just a clever trick. Modern corporate behavior met all the criteria for deviant, anti-social behavior without conscience.)
Personal experience too has shown people first hand that dealing with corporations, from credit card companies, insurance companies and telecommunications companies, to even their local drugstore chain, often leaves them victims.
But rarely is an attempt made to explain the phenomena. And as long as bad corporate behavior is attributed exclusively to people instead of the system itself, we will never be able to address the problem.
So here's what took me years to figure out. Not that it should have. It's extremely simple and part of it is right there in bold print: LLC. Limited liability corporation.
I have identified three fundamental components of the corporate model which contribute to sociopathic behavior. But none is more influential than limited liability. This is nothing short of an invitation to act without consequence. And when people are allowed to act without consequence or accountability, they will do bad things. We are an imperfect species, susceptible to temptation. Even decent people are capable of doing bad things without the threat of accountability. We've known this since the stone age. This is why we have laws.
But the corporate model protects people from the law. It allows people to act behind a shield of limited liability and as a result, corporations willingly break the law knowing that the increased profit gained will be less than the fines imposed for the illegal act. This shield also benefits the shareholders who get to participate and profit from a criminal operation from a nice, tidy distance.
There's another primary contributor to the sociopathic tendencies of corporate operators. And it is written into the law itself. As corporate attorney Robert Hinkley writes in his essay, "How Corporate Law Inhibits Social Responsibility:
The provision in the law I am talking about is the one that says the purpose of the corporation is simply to make money for shareholders. Every jurisdiction where corporations operate has its own law of corporate governance. But remarkably, the corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation–usually a board of directors–and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, where I live, this duty of directors is in Section 716 of the business corporation act, which reads:
...the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders....
Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. This provision is the motive behind all corporate actions everywhere in the world. Distilled to its essence, it says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders.
Think about this. What these laws, in every state of the Union, say is that corporations are required to place profit above every other consideration. What if you or I placed profit above every consideration? What would we be? Sociopaths.
Yet we have institutionalized this very standard into US law. A legal precept that not only allows, but requires that corporations place the profits of their stakeholders above the interests of society as a whole.
It is fun to watch the disciples of Ayn Rand and Milton Freidman jump through intellectual hoops to try to rationalize how corporations acting exclusively in their own self interests somehow benefit society. And many get paid big bucks to do this circus act.
But a circus act it is. Even wild dogs understand that acting in the interests of the pack is often necessary for survival. Perhaps the Rockefellers should have started with a kennel before attempting the University of Chicago.
Some will argue correctly that corporations are not all evil and many provide great benefits to society through the products and services they provide. This is true, but it is also a strawman argument. There is no requirement that, for a business to be profitable and provide a useful product, it must be limited of liability and possess the singular consideration of maximizing profit at the expense of all social responsibility.
To the contrary, our economy would be far more prosperous without these lawbreaking sociopaths devouring real innovation and competition. And as time has shown, the harm they do to society and the environment in their tunneled quest for profits costs our economy far more than it pays back.
As corporation buy up a greater and greater share of our economy, and permeate more and more of our lives with their sociopathic ways, they threaten far more than our economy. They are destroying good itself. I'm beginning to see the corporate ethos trickle down to ordinary people and small businesses. A new era of Darwinian animalism is taking hold in our society where the choice of doing right and wrong is made on a calculator.
I see more and more commercial advertisements where desire for a product is represented by greed and selfishness. One even depicted a father stealing his small child's waffle from the breakfast table - because it was just so delicious. This was supposed to be cute. But it was really just sick. A sick commercial for an increasingly corporate society.
There is one last point I want to make. While the corporate system of unaccountability and sociopathic profit seeking allows otherwise decent people to do bad things, it also attracts people who already have sociopathic tendencies. If you're a veritable scumbag who wasn't cuddled enough as a baby, you will thrive at Exxon, or CIGNA, or Citibank, or literally thousands of other top corporations. Someone did a study that showed just that (Link provided kindly by OHdog. Much gratitude.)
The epidemic disease of corporatism has spread so much that I'm not sure how it can be stopped. But however we stop it, I am sure it will involve clearly defining its root causes.
The shield from accountability and the singular goal of profit at the exclusion of all other considerations is a bad system. It's bad for the planet, bad for society, and even bad for the economy.
Social Capitalism
Muhammad Yunus, who won the Noble Prize in Economics last year, proposed an interesting idea at his acceptance speech. Here's a brief excerpt:
Your Majesties, Your Royal Highnesses, Honorable Members of the Norwegian Nobel Committee, Excellencies, Ladies and Gentlemen,
...
Let us suppose an entrepreneur, instead of having a single source of motivation (such as, maximizing profit), now has two sources of motivation, which are mutually exclusive, but equally compelling a) maximization of profit and b) doing good to people and the world.
Each type of motivation will lead to a separate kind of business. Let us call the first type of business a profit-maximizing business, and the second type of business as social business.
Social business will be a new kind of business introduced in the market place with the objective of making a difference in the world. Investors in the social business could get back their investment, but will not take any dividend from the company. Profit would be ploughed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a non-loss, non-dividend company.
Once social business is recognized in law, many existing companies will come forward to create social businesses in addition to their foundation activities. Many activists from the non-profit sector will also find this an attractive option. Unlike the non-profit sector where one needs to collect donations to keep activities going, a social business will be self-sustaining and create surplus for expansion since it is a non-loss enterprise. Social business will go into a new type of capital market of its own, to raise capital.
Young people all around the world, particularly in rich countries, will find the concept of social business very appealing since it will give them a challenge to make a difference by using their creative talent. Many young people today feel frustrated because they cannot see any worthy challenge, which excites them, within the present capitalist world. Socialism gave them a dream to fight for. Young people dream about creating a perfect world of their own.
Almost all social and economic problems of the world will be addressed through social businesses. The challenge is to innovate business models and apply them to produce desired social results cost-effectively and efficiently. Healthcare for the poor, financial services for the poor, information technology for the poor, education and training for the poor, marketing for the poor, renewable energy - these are all exciting areas for social businesses.
I don't fully subscribe to Yunus' idea as presented because I believe it underplays the role of democratic government, which I still very much believe in. But what an incredible thought. Social businesses. Owned by everyone. With two simultaneous goals - success and social benefit.
I included his opening salutations to give you the idea of who he was addressing that night. I would love to know how badly his speech horrified his audience.
