Corporation as a Pathological Institution

Author

Institution

Introduction

Social responsibility has been one of the most controversial topics in the modern society. It underlines an ethical theory that any entity, whether it is an individual or organization, has a duty and responsibility of acting for the benefit of the society at large. This duty aims at maintaining a balance between the ecosystem and the economy (Brubaker, 1995). In most cases, however, social responsibility is examined within the confines of corporations, where they are required to embrace and pursue its social responsibilities rather that solely focusing on profit maximization. This notion would undoubtedly result in the creation of businesses that have a positive relationship with the community or society within which they carry out their operations (Brubaker, 1995). Needless to say, there exists a tradeoff between the economic development or pursuits of an organization in terms of material gain and the environmental or societal welfare. It is worth noting that social responsibility revolves around the sustenance of a clear balance or equilibrium between these two aspects (Maxwell et al, 2000). Business entities may undertake passive social responsibility where they desist from engaging in activities that are socially harmful, or undertake active social responsibility through carrying out activities that have a direct effect on the advancement of social goals (Brubaker, 1995). Business entities in the contemporary human society have the fundamental or primary aim of maximizing profits. This may be done through reduction of the costs of operation of increasing their sales (Maxwell et al, 2000). In most cases, business entities resort to the former option, where they resort to reducing the cost of operations through shortcuts. It is worth noting that most of these shortcuts are detrimental to the society. Pursuing of economic growth usually involves neglecting social responsibility (Maxwell et al, 2000). This explains why organizations in the contemporary society have been finding ways of going round the laid out legal structures in an effort to maximize their income or profitability at the expense of social responsibility or the environment and the society at large. This is the main theme in Joel Bakan’s book “The Corporation: The Pathological Pursuit of Profit and Power”.

According to Bakan, corporations are established to make money or profits irrespective of the results affecting their own industry, world, managers or even labor force. This means that corporations are psychopathic, having acquired rights that were previously the preserve of human beings. As pathological or psychopathic institutions, corporations are known to knowingly and deliberately undertake actions that are destructive without any regard to their victims. Bakan determines that these legal constructs and economic institutions are fundamentally and essentially unbalanced with their existence being exclusively aimed at preserving their self-interests irrespective of the consequences of their activities. Bakan notes that these legal constructs were previously not so pervasive, influential or crucial. They previously only subscribed to proprietorships and partnerships, with the partners or owners being liable for any harmful activities pertaining to the companies, be they financial losses or even destructive tendencies to other individuals. This, however, has changed through enhancement of corporate power, in which case corporations manipulate the moderation controls of the government resulting in a reduction in the regulations that constrain their actions. In addition, they have been at the forefront in encouraging the incorporation of free-market answer to every problem that crops up. Bakan notes that the creation of a corporation was predicated on the notion of limited liability, all in an effort to protect investors especially from the middle class. The main reason for its popularity was that it allowed the investors to escape the failures of their companies unscathed, something that undermined personal moral responsibility that had for centuries been prevalent in the commercial world. The limited liability with which corporations came allowed investors to be recklessly unconcerned about the fortunes of their companies. In essence, the surrender of governments to public relations juggernauts and lobbyists has unleashed psychopathic tendencies and behaviors of corporations, something that would eventually hurt them.

Bakan starts his analysis of the corporation in the 18th century England. He brings an analysis of South Sea Company and how it started selling stocks hand over fist. These stocks were sold for a shady or unclear trading proposition in countries that had no likelihood of granting trading rights. The sale was done with company directors that had little knowledge pertaining to the countries where the trading was to be undertaken, and with whom the company had not established any contacts (Galiani et al, 2005). It, therefore, came as no surprise that the company surprised thereby destroying homes, families and lives. This resulted in the enactment of the Bubble Act, which criminalized the creation of a company or entity that took the form of a corporation or that issued transferable stocks devoid of legal authority.

However, this changed with industrialization which necessitated capital investments for enormous enterprises leading to the repealing of the Bubble Act. In essence, government control was lessened so as to enhance corporate growth. This was complemented with limited shareholder liability, as well as relaxation of constraints imposed on acquisitions and mergers all in an effort to encourage mass investment (Cespa & Giancinta, 2007). The resultant corporations were not products of government grants anymore, rather they were independent and free beings. The only difference between corporations and human beings is that corporations were entities representing accumulated, organized capital, unlike human beings who mainly represented personal capital (Cespa & Giancinta, 2007).

The corporation, however, has all the rights of a human being. This, combined with its nature as a pooled wealth, gave it powers of socialized means of production, in which case it rose above any other form of labor and capital. In addition, its operations were only geared towards benefiting its managers and shareholders. The power of collective capital over individual or personal capital is confirmed through assigning the rights of private property to collective or combined private property.

Bakan outlines the fact that in the first few decades of the 20th century, the United States government had an immense role to play in shaping the independent and free corporate entities emerging at that time. Some corporations were immensely concerned about their customers. Bakan, for example, examines Henry Ford who, at one time, decided to cancel the dividends of shareholders through reduction of the prices so as to divert the money to the consumers. However, his generous techniques were challenged by John Dodge who had earmarked the dividends for starting a business of his own (Galiani et al, 2005). He, therefore, took Ford to court after the later cancelled the dividend. The judge affirmed Dodge’s claims stating that irrespective of the goodness of his intentions, he had no right to divert such money to customers. This marked the beginning of a culture where corporations were required by law to act in the profit of shareholders’ best interests rather than for the general good. In essence, corporate investment on human rights, welfare, human health and environment was seen as illegal if it was not for the best financial interests of the shareholders (Cespa & Giancinta, 2007).

On the same note, he states that the United States courted big corporations in an effort to optimize on the profits with which they came. Soon other nations followed suit competing with each other and seeking the influx of capital investment and jobs with which corporate growth comes. This resulted in the introduction of the GATT (General Agreement on Tariffs and Trade) in 1948 and WTO (World Trade Organization) in 1993, thanks to competition in international business. These trade agreements and organizations resulted in the relaxation and removal of business regulations across borders so as to expedite, as well as attract international business. Eventually, corporations whose responsibility only rested on their shareholders rather than the general welfare carried their disregard for public welfare and safety to the global stage.

While underlining the growth of the corporations, Bakan examines the change in the power structure between the state or government and the corporations. Initially, governments were in control of corporations. This, however, has changed over the years, with the growth of corporate powers. The growth and international expansion of corporate power in the 80s and 90s resulted in the evolution of varied institutions at the international level that significantly eroded the nation state’s powers. He draws the example of the World Trade Organization (WTO), which he states has evolved into a corporate influenced, secretive, as well as powerful overseer of the mandate of the government to protect the environment and citizens from corporate harms. Bakan stresses the fact that over its considerably short life, the World Trade Organization has evolved into a considerable fetter on the capacity of nations to defend their citizens against misdeeds of corporations. He further stresses the point that corporate are now governing the society even more than elected and democratic governments do this underlines a situation where democracy has been thwarted with governments, which are the representatives and protectors of their citizens, being relegated to a subordinate level to the corporations demands (Bakan, 2004).

In examining the corporation as an externalizing machine that wrecks havoc at the environment, health and income of individuals with impunity, Bakan brings in the notion of corporations utilizing cost-benefit analysis in making decisions pertaining to the safety measures that they have to take. Their psychopathic nature means that they are singularly self-interested, bearing no capacity to have any genuine concern for other entities in any context. In its psychopathic personality, corporations are programmed in such a way that they exploit other entities for profit (Bakan, 2004). They come with a built-in compulsion or impulse to externalize costs, thereby dissipating any concern pertaining to human safety or the environment in instances where they face their common denominator, which is profit. In this regard, he cites the example of a lady who had another car slamming into her 1979 Chevrolet Malibu as she stopped at a red light (Bakan, 2004). This resulted in the explosion of her fuel tank with the car being engulfed in a fire that burnt her children. In essence, she resorted to a legal battle with General Motors claiming that they had exhibited negligence in designing the fuel tank as it had been too close to the rear bumper with no appropriate brace separating it from the rear. However, General Motors, through its engineer, stated that the maintenance of the current fuel tank was considerably less costly than coming up with a tank that could not explode (Bakan, 2004). The company calculated the cost pertaining to paying off the victims and compared it to the cost that would be incurred in improving the design, a comparison that showed that the later was cheaper than the former (Bakan, 2004). It was considerably less costly to pay off the deceased’s families in lawsuits than making improvements to protect human life through placing the gas tanks at a safer place.

This was the same case for General Electric, which prefers to finance clean-ups and pay fines in instances where it is caught flaunting the environmental laws instead of complying with public health and environmental requirements. He comes up with a list of apparent infringements by the General Electric in 20th Century’s last decade. These infringements include weighty issues such as illegal oversea sale of weapons, severe and repeated defilement of waterways and land, as well as responsibility for airline disasters. He uses these examples to underline the fact that for corporations like these, compliance with the rule of law has to be evaluated through the lens of costs and benefits. More often than not, shareholders gain more profits through risking human life through engaging in fraud, defiling lakes and streams, rather than complying with the laws.

However, as much as Bakan raises pertinent issues pertaining to the responsibilities of corporations, it is worth noting that his examination of “Corporations” is a bit warped. This term is not used broadly to discuss all the legally incorporated business entities, which would, in fact, include NGOs, small businesses, philanthropic entities, non-profit entities, as well as state-owned enterprises. Instead, he uses the term only with reference to large Anglo-American publicly traded businesses (Bakan, 2004). Questions arise as to the reason for his exclusion of these entities. In his arguments, he singled out these corporations calling them institutionally psychopathic and underlining suffering of infirmity as they have the sole mandate of being self-interested. However, questions arise as to whether small businesses are any less self-interested and greedy than the large ones. In fact, he does not consider the fact that every person and entity is self-interested including the middle class propagandists. The only difference between these large Anglo-American publicly traded corporations is the fact that they make up the fundamental engines of growth, not to mention the fact that they make up the foci of technological and social change, as well as the key driving force behind modernity and internationalism.

On the same note, it is imperative that one examines the composition of these corporations. As Bakan acknowledges, the ownership of their shares is broadly spread to the public (Bakan, 2004). Bakan loathes the fact that the common people have become shareholders in large corporations. It is noteworthy that a large number of the corporations are under the ownership of widely-held mutual funds, small investors, as well as pension funds from workers. In essence, these corporations are owned by common individuals as they are genuinely companies of janitors, managers, workers and engineers. This means that the workers, in their tens of millions, would to stand to lose the most in case the taxes and regulations stifle profitability and development in these enterprises. On the same note, the profitability of the corporations is founded on the actions of millions of the customers, who by their own regard purchase the items on sale from the corporations.

In addition, as much as the book presents the two sides of the argument pertaining to the appropriateness of a limited liability corporation as a form or type of business association, Bakan tries to sway the reader to the view or perspective that limited liability, as well as separation of control and ownership gives the corporation the green light to operate without accountability and with impunity. On the same note, he seems to imply that the existence of limited liability corporations is predicated on the existence of the state, without which they cannot exist. In addition, he underlines the notion that contemporary limited liability prompted the rise of the modern corporation to prominence (Galiani et al, 2005). Of course, it is extremely true that the corporation would not exist in the absence of a state, just as is the case that statutory laws would be nonexistent without the state. However, it would be improper to create the notion that there would be lawlessness in case the state was not there, especially considering the fact that there have been numerous episodes in history where order and peace prevailed in spite of the inexistence of strong authority (Galiani et al, 2005). This makes the notion that the corporation would not exists without a statutory grant suspicious. Of course, there exists no way of ascertaining whether corporations, in their contemporary nature, would exist. However, it is worth noting that alternative forms would undoubtedly exist just as they have existed throughout the history. Corporations come with two fundamental characteristics or features. They have limited liability and are separate entities that have the capacity to operate or carry out their duties separately from their shareholders (Khanna, 2004). As much as limited liability may be seen as having been granted by the state, liability has practically always been limited by the shareholders’ wealth. Scholars note that bankruptcy laws, regardless of their draconian nature, cannot take more than the debtors’ existing assets. In addition, laws pertaining to partnerships that have been in existence right from the ancient times, as well as the law of trusts whose existence can be traced back to the Anglo-American system of 16th century underlined the notion that there would be entities that operate or carry out their activities with a personality that is separate from that of their owners (Khanna, 2004).

In addition, Bakan uses the varied examples to not only point out the pursuit of self interest among corporations, but also to underline the notion that a corporation’s profitability has an inverse relationship with its corporate social responsibility (Bakan, 2004). This is why corporations must sacrifice the environment, human health and other aspects if they have to attain some element of profitability. However, this is not necessarily the case especially considering that research has shown that corporate social responsibility has a positive impact on the profitability of a corporation (Khanna, 2004). In fact, scholars state that there is a mutual or symbiotic relationship between the profitability of a corporation and its corporate social responsibility. While the socially responsible activities of a corporation would endear itself to the people thereby increasing its profitability, the profitability would enhance its sustainability in the long-term and allow it to finance, sponsor or take part in socially responsible activities.

References

Bakan, J. (2004). The corporation: The pathological pursuit of profit and power. New York: Free Press.

Brubaker, E (1995). Property Rights in the Defense of Nature. Toronto: Earthscan Publications Limited

Cespa, G & Giancinta, C. (2007). Corporate Social Responsibility and Managerial Entrenchment. Journal of Economics & Management Strategy. 16: 741- 771.

Galiani, S., Gertler, P.J & Schargrodsky, E (2005). Water for Life: The Impact of the Privatization of Water Services on Child Mortality. Journal of Political Economy 83.

Khanna, V.S (2004). Politics and Corporate Crime Legislation. Regulation 30.

Maxwell, John W., Thomas P. L., & Steven C. H. (2000). “Self -Regulation and Social Welfare: The Political Economy of Corporate Environmentalism. Journal of Law and Economics . 43: 583-618.