Thursday, August 20, 2009

Changing the Corporation

Published on Thursday, August 20, 2009 by

Changing the Corporation

by Robert C. Hinkley

The corporation is no more than an aggregation of capital managed for the proportional benefit of those who supply it.  It is a system controlled by managers, administrators and clerks largely for the benefit of passive investors looking for a higher return than they can earn elsewhere. 

It makes no sense that government should provide the very wealthy with a tool that poses a continuous threat to the public interest.  Government's job is to protect the public interest, not sponsor those that destroy it.   

Doing nothing

In Common Sense Thomas Paine from argued for a change of government, but what he said 232 years ago has application today. 

The current situation has become intolerable.  Governments now stand by while modern corporations destroy.  Governments are responsible for creating the modern corporation.  Citizens are responsible for creating government.  We have furnished the means through which the destruction is conducted.  In the words of Paine, "our calamities [are] heightened." 

This problem is not getting fixed.  Indeed it is getting worse.  As each year passes, more communities are destroyed, human rights are violated and millions die.  Corporate induced climate change now threatens all six and one-half billion inhabitants on this planet. 

If nothing is done, the catastrophic effects predicted of global warming will become a reality.  Pollution and human rights abuse will continue to move around the globe as governments in one jurisdiction pass laws and governments in others do not.  Employees and our communities will continue to be threatened by globalization.  New problems will take their place among those left unsolved as even newer technologies are developed and government finds it impossible to keep up.  

The most serious part of this problem, however, is not the physical damage that is being done.  It is the damage being done to the civic spirit of the people.  They have begun to feel that it doesn't pay to be a good citizen. They have begun to lose hope.   

Each year they see governments of their elected representatives acting to prefer corporate interests over their interests.  They know this is wrong, but they see no way of correcting it.   

Not understanding the true source of this problem results in the blaming of government and corporate personnel.  When successive changes in personnel do not solve the problem, despair sets in and people begin to withdraw their support for government and their involvement in politics.  They reason that government is ineffective and their involvement will have no effect.  They conclude they should not waste their time.  Their withdrawal increases the power of the modern corporation to set the agenda.  As a result, government loses its focus on solving human problems.  This makes it more irrelevant to the average citizen and corporate abuse of the public interest becomes even harder to eliminate.     

Each year more give up on government ever solving the problems caused by corporations.  They come to believe that big companies will always control government.  They no longer worry about what kind of world they will leave to their children and future generations.  They believe instead their lot in life is simply to find a way to make a living in this madness.    

As they give up on government, they give up any hope of influencing the world we live in and will leave for the generations to come.   Corporations then fill the vacuum.  Their political power gets stronger.  This, in turn, makes it harder for government to pass new laws protecting the commons from corporate abuse.  It is a vicious cycle.  Abuse begets loss of hope begets more corporate political influence begets more abuse. 

Abuse of the commons by the modern corporation will not go away if it is simply ignored.  If nothing is done, humanity's suffering at the hands of the modern corporation will continue to multiply.  Each generation will suffer more than the one that precedes it.  The question is what to do.   

Treating the symptoms

Humanity's future is and always has been dependent on it recognizing and solving the world's problems as they arise.  The inability of government to rein in the damage caused by modern corporations is such a problem.   

Whenever great change is needed, there are always those who will argue that it is not or that change is impossible.  Those that argue change is impossible are the most disturbing.  They have given up hope thereby consigning humanity to a future where corporations make the rules and people obey them.  This is a form of corporate slavery that no human being should suffer or accept.  

Those that will argue change is not needed will almost always come from the classes which are benefiting most under the current system.  Their fear of losing the benefits they have earned, won or inherited keep them from taking the next step forward.    

They will suggest that the community's afflictions are not that bad and point out that corporations have done much to benefit the community in the past.   In making this argument, they give no credit to mankind's ingenuity.  They forget that corporations are not the reason for progress—people are.  Companies only act through people.  Every new piece of corporate invented technology was really invented by a human being or group of them working together.   

The company was just the employer.  It provided the capital.  Essentially, they argue that without the aggregation of capital there would be no progress.  In this respect they are probably right.  It is desirable for society to have a means to put capital together.  Capital funds research and development of new technologies.   

However, a corporation with no responsibility to the public interest is not the only possible means for capital to come together.  There are other ways to fund the development of new ideas.  Capital should be able to come together in ways that are less destructive.  

Sometimes those who argue that change is not needed will claim that the market will sort it all out.  Those companies that are bad citizens will lose customers and go out of business.  The problem with this argument is all the harm that is caused before they do go out of business.   

General Motors is a good recent example.  Here was a company that dragged its feet every step of the way.  Only when the US government saved them from oblivion did they change their mind about designing more fuel efficient cars.  In the meantime, billions of tons of carbon dioxide from vehicles they manufactured were emitted into our atmosphere that need not have been.   

The idea that the market will demand corporate citizenship is a myth.  All we have to do is look around us at the dozens of companies that are destroying the commons to see that the market is not delivering on this idea.  

Fundamentally, there are only two answers to the problem of intentional corporate abuse of the commons.  Either governments must be strengthened to give them more power to rein in corporate abuse of the commons or the corporation's inclination (and, in certain cases, compulsion) to wantonly harm the public interest must be eliminated.   

Strengthening governments  

The conventional wisdom is to answer that weak government is the problem.  This conclusion is supported by the corporate sector which is forever pointing the finger at government for being the ineffective and incompetent.  In doing this, business seems to lose sight of the fact the fact that they have controlled government for more than a generation. 

One must wonder if the current financial crisis will change the way business looks at government.  The world's financial experts have managed to ruin their businesses losing more than two trillion dollars of other people's money. Who have they called upon to ride to their rescue?  Government.   

The obvious response to the charge that government is the problem (though not one usually put forth by business) is to try to strengthen government so that when corporate abuse arises, the government can quickly contain it.  This has already been tried thousands of times.  For the most part, it hasn't worked.   

Volumes and volumes of ineffective business regulation are testimony to the fact that making government tougher on business does not work.  Since Rachel Carson wrote Silent Spring in 1961 tens of thousands of environmental laws and regulations have been enacted around the world.  These laws undoubtedly have made the world a better place to live today than it would have been otherwise, but is the Earth's environment in better shape today than it was then?  Definitely not. 

With the rise of the union movement in the US and elsewhere, working conditions in big companies improved.  Child labor and working hours were reduced.  Workplace safety improved.  Yet, these problems were not eliminated.  Most of them just moved from one jurisdiction where they would no longer be tolerated to another one where they would.  Companies did not stop taking advantage of workers.  They simply moved their operations where the lack of regulation allowed them to continue violating the human rights and dignity of those they employed. 

I once lived in Manchester, New Hampshire, home of what was once the biggest textile manufacturing complex (also the biggest sweatshop) in the world.  When these facilities unionized in the early 20th century, what did the modern companies that owned them do?   They moved to the South where the union movement was not as strong and they could continue to pay low wages and impose lousy working conditions.  Then, when the union movement caught on there, they moved their operations overseas to Southeast Asia, China and elsewhere.  This saga continues today. 

When tobacco was found to cause cancer, new regulations were passed in America and the developed world limiting where and how these products could be advertised.  Did this halt the steady growth of people dieing every year from tobacco related illnesses?  No, the industry simply found other ways to make their products attractive to undiscerning consumers and other markets (specifically China and countries in the third world) in which to advertise them.     

The problem of corporate abuse of the public interest cannot be solved by imposing more laws and regulations that try to restrain the corporation one abuse one jurisdiction at a time.  The best that can be said about this strategy is that it moves the abuse around from one jurisdiction to another.  It doesn't solve the problem; it just moves it elsewhere, to places where local governments are willing to accept it for a while. 

Another shortcoming of this strategy is that it actually makes some corporate abuse of the commons legal.  That which before was wrong but not illegal becomes legitimatized.  Environmental laws don't eliminate pollution.  They permit amounts of it up to a level which the government determines for a while to be safe.   

Confronting corporate abuse in this manner is like treating the symptoms of a disease.  It may reduce the adverse effect of the symptoms, but because the underlying cause has not been dealt with, the problem keeps coming back.  Sometimes it comes back in a strain that is even more difficult to cure.   


Seeing that eliminating corporate abuse of the public interest one abuse one jurisdiction at a time will not work, some have suggested the solution lies in strengthening government by eliminating the constitutional rights of corporations.  As Benjamin Franklin did more than 200 years ago, they correctly recognize that the liberal democracy is ill equipped to protect the public interest when the rich and powerful are bent on harming it.    

In order to reduce the exposure of the commons to this problem they would change the US Constitution so that corporations no longer be entitled to the protections it affords citizens (e.g. the right to free speech, due process, equal protection and to be free from unreasonable searches and seizures).  Corporations would remain dedicated to the pursuit of self-interest, but government would be under no restriction in making or prosecuting new laws against them.   

It's easy to see why this idea is appealing to some.  It takes a "strict construction" approach to the Constitution.  "Corporations are not even mentioned in the Constitution.  How then can they have rights under it?"  Also, "corporations are not people.  Why are they afforded the protections provided for people in the Constitution?"   

Proponents of the "eliminate corporate personhood" idea believe fundamentally that the key to eliminating corporate abuse is to turn off corporation's right to free speech.  They presume that this will eliminate corporations' ability manipulate government through the use of that right.  This, in turn, will allow government to more stringently regulate business and, through this rather indirect route, corporate behavior will be improved.   

Is this realistic?  Money always seems to find its way into politics.   If corporations remain dedicated by law to the pursuit of profit, will they not still find ways to bend government to their own purposes? Shouldn't we first try changing the purposes before we start messing with the Constitution? 

Corporate constitutional rights also encompass much more than just freedom of speech.  When corporate personhood is eliminated does this mean corporations will no longer be entitled to a fair trial?  Does it mean legislators will be able to pass laws in favor of one company and against its competitors?  Does it mean an individual loses her property rights once she puts her property into the hands of her wholly-owned corporation?  Have the proponents of this idea considered the effects of creating two judicial systems: one for corporations that would have no constitutional rights and one for individuals who do?  Under which rules would corporate directors and officers be prosecuted?  Under existing rules where, as individuals, they are entitled to their constitutional rights or under new rules where, as personnel of (and somehow tainted by) the corporation they serve, no constitutional rights would be recognized?   

Finally, this idea also ignores that abuse of the commons by the modern corporation is not exclusively an American problem.  It occurs all over the world and is caused by hundreds of companies formed and operating outside the U.S.  Judicial decisions by US courts giving companies the rights of citizens under the US Constitution cannot be the source of the problem when companies operating outside the US damage the commons just as much.   

Taking away the constitutional rights of corporations is not the answer.  There is a conflict between the way our government is supposed to work and the goal of the modern corporation.  The way to remedy this conflict is not to make it acceptable for government to treat corporations unfairly.     

Changing the corporation

We shouldn't need to change government to allow it to be able to govern its own creation (corporations).   Instead, we should modify the corporation into something that is more capable of being governed. 

The corporation is an artificial entity created by the corporate law.  This law gives the corporation its purpose and dictates in broad terms how it is to be achieved.  These terms were changed in the last half of the 19th century to eliminate provisions designed to protect the public interest.  That has proven to be a mistake.  Doesn't it make more sense to admit that mistake and put respect for the commons back in the corporate law and back in corporations? 

© 2009 Robert C. Hinkley

Robert C. Hinkley is a corporate lawyer and former partner in one of America's largest law firms.  He now lives in Sydney, Australia"Changing the Corporation" is the third and final excerpt from his new book, "Corporate Citizenship: A Path Towards Eliminating Corporate Abuse of the Public Interest", which have appeared on [1] this weekThose interested in obtaining a copy of Corporate Citizenship can contact him on [2]

Donations can be sent to the Baltimore Nonviolence Center, 325 E. 25th St., Baltimore, MD 21218.  Ph: 410-366-1637; Email: mobuszewski [at]


"The master class has always declared the wars; the subject class has always fought the battles. The master class has had all to gain and nothing to lose, while the subject class has had nothing to gain and everything to lose--especially their lives." Eugene Victor Debs


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