Despite all the laws and regulations that apply to corporations, which for the most part are designed to make corporations more responsive to the greater good, corporations have wreaked great harm on our environment, their workers, their customers, and the general public. Despite all the rules, capitalism can still pretty much do what it wants.
The problem is not that the laws and regulations are not enforced, although that is partly true. The problem is more that the laws and regulations are weak because of the strong influence corporations have on both Congress (this is true of Democrats as well as Republicans) and those responsible for regulating.
But the more basic, functional, aspect of the problem is that the context has always been corporate interest v public interest. Corporations are structured in such a way that their only interest is the bottom line, how to constantly increase their profit, and so please their shareholders. There is no concern for the public good. That is the source of the problem. And that is what must be reformed. (See my post, "Making the Titans of Finance and Industry Accept Social Responsibility.")
People will say that it is the nature of the beast for corporations to be concerned solely with their bottom line. That is certainly true for the beast as it has developed, from the Robber Barons on. But there is nothing inherent in the idea of a corporation or capitalism that makes it inimical to factoring in a concern for the public good. The essence of capitalism is that control of the means of production and the distribution of products lies in private hands; that will remain unchanged.
My point is that we must rethink what a corporation is. What is its function in our economy and society?
Corporations are a creature of the law. We forget that businesses are entitled to the benefits of incorporation because they provide something of value … they are critical to the economic health of the country and their workers. They meet both economic and societal needs.
From this perspective, corporations exist to enhance the greater good. But from the perspective of their CEOs and shareholders, they exist to make them money. And so, unfortunately, as we have seen repeatedly since the industrial revolution, corporations have been mostly intent on making money and have done much that has had a negative impact on the greater good. Often with full knowledge.
The answer to this conundrum is to reform the laws governing corporate organization by restructuring corporate governance. The goal of this effort should be to make consideration of the greater good … the public interest as well as worker interest … an integral part of the corporate decision-making process.
I propose that this reform has four primary elements:
- By law, the primary mission of each corporation should be to enhance the greater good. Because it can only enhance the greater good if it is successful and prospers, the first goal within that mission will remain: to prosper and make money for its shareholders; that would not be altered by any of the proposed changes. It would, however, be tempered by new goals relating to the greater good and workers' interests. No longer would the only factor be impact on the bottom line.
- By law, Boards of Directors should include a stated percentage of directors (perhaps 25%) who represent the interests of the greater good and workers.
- By law, all management decisions, whether regarding products, manufacturing methods, or personnel, must consider the impact on their workers and the greater good. Any decisions that directly impact workers should be made with worker participation.
- By law, each corporation must have a public ombudsman in its hierarchy who is responsible for reviewing all procedures and decisions to ensure that the law is followed not just to the letter but in spirit.
These requirements will engage corporations in a more healthy, long-term perspective, rather than the short-term one resulting from the current emphasis on stock price.
Most people currently involved in corporate management, most shareholders, and the broader market will most likely not react kindly to these proposed changes. They would involve both a major change in corporate culture and a likely reduction in the financial benefits that accrue to those running and investing in corporations.
But with the passage of time, with the emergence of a new generation of business leaders, these changes will become such a part of the corporate method that it will be hard to imagine that it was ever otherwise. This is the rational way to manage a business if it is to be not just productive but a good citizen of our society.
If we are to ensure that corporations work towards a goal that includes the greater good, then this reform has to take place.
Ronald L. Hirsch is a teacher, legal aid lawyer, survey researcher, nonprofit executive, consultant, composer, author, and volunteer. He is a graduate of Brown University and the University of Chicago Law School and the author of We Still Hold These Truths. Read more of his writing at www.PreservingAmericanValues.com
