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Whose Corporations? Our Corporations!

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Posted on Apr 7, 2012
glennshootspeople (CC-BY)

By Ken Jacobsen, AlterNet

This piece originally appeared at AlterNet.

Corporations are not working for the 99 percent. But this wasn’t always the case. In a special five-part AlterNet series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and a leading expert on the business corporation, along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, will examine the foundations, history and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy?

Historically, corporations were understood to be responsible to a complex web of constituencies, including employees, communities, society at large, suppliers, and shareholders. But in the era of deregulation, the interests of shareholders began to trump all the others. How can we get corporations to recognize their responsibilities beyond this narrow focus? It begins in remembering that the philosophy of putting shareholder profits over all else is a matter of ideology which is not grounded in American law or tradition. In fact, it is no more than a dangerous fad.

The Myth of Profit Maximizing

“It is literally – literally – malfeasance for a corporation not to do everything it legally can to maximize its profits. That’s a corporation’s duty to its shareholders.”

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Since this sentiment is so familiar, it may come as a surprise that it is factually incorrect: In reality, there is nothing in any U.S. statute, federal or state, that requires corporations to maximize their profits. More surprising still is that, in this instance, the untruth was not uttered as propaganda by a corporate lobbyist but presented as a fact of life by one of the leading lights of the Democratic Party’s progressive wing, Sen. Al Franken. Considering its source, Franken’s statement says less about the nature of a U.S. business corporation’s legal obligations – about which it simply misses the boat – than it does about the point to which laissez-faire ideology has wormed its way into the American mind.

The notion that the law imposes a duty to “maximize shareholder value” – a phrase capturing the notion that profits are mandatory and it is the shareholders who are entitled to them – is so readily accepted these days because it jibes perfectly with assumptions about economic life that constantly come down to us from business and political leaders, from academia, and from the preponderance of the media. It is unlikely to occur to anyone under the age of 40 to question this idea – or the idea that the highest, or even sole, purpose of a corporation is to make a profit – because they have rarely if ever been exposed to an alternative view. Those in middle age or beyond may have trouble remembering a time when the corporation’s focus on shareholders’ interests to the exclusion of all other constituencies –customers, employees, suppliers, creditors, the communities in which it operates, and the nation – did not seem second nature.

This narrow conception of corporate purpose has become predominant only in recent decades, however, and it flies in the face of a longer tradition in modern America that regards the responsibilities of a corporation as extending far beyond its shareholders. Owen D. Young, twice chairman of General Electric (1922-‘40, 1942-‘45) and 1930 Time magazine Man of the Year, told an audience at Harvard Business School in 1927 that the purpose of a corporation was to provide a good life in both material and cultural terms not only to its owners but also to its employees, and thereby to serve the larger goals of the nation:

“Here in America, we have raised the standard of political equality. Shall we be able to add to that, full equality in economic opportunity? No man is wholly free until he is both politically and economically free. No man with an uneconomic and failing business is free. He is unable to meet his obligations to his family, to society, and to himself. No man with an inadequate wage is free. He is unable to meet his obligations to his family, to society, and to himself. No man is free who can provide only for physical needs. He must also be in a position to take advantage of cultural opportunities. Business, as the process of coordinating men’s capital and effort in all fields of activity, will not have accomplished its full service until it shall have provided the opportunity for all men to be economically free.”


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mrfreeze's avatar

By mrfreeze, April 11, 2012 at 5:16 pm Link to this comment

D.R. Zing - I’m glad you enjoyed Mr. Kunstler….he always says provocative and thought-provoking things. I sincerely hope “someone” (young, middle-aged, etc..) comes up with solutions to our problems.

Report this
D.R. Zing's avatar

By D.R. Zing, April 11, 2012 at 3:47 pm Link to this comment

Hi mrfreeze,

I enjoyed the link and cannot disagree with your
observations. We are a wired and Borged society. 

Still, many in the Occupy Wall Street movement are
young.  And many of the young kids living with
their parents who go out on their own soon realize
their opportunities are diminishing. 

Yes. There are those in denial, those who will still
get jobs but for the majority things are not looking
good and things are not likely to end well. 

They are the generation likely to face
starvation in the prime of their lives. I know that
sounds apocalyptic but some of the best minds in
science are at this time predicting a collapse of the
ecosystem supporting human life will occur
by 2050, if not sooner.

We are seeing the beginning of it now with global
climate change.  We shall see more in the future:
droughts, floods, snow storms, tornadoes, hurricanes
—all the things that scientists have been
predicting as a consequence of climate change. Most
ominously, the coral reefs in the the oceans are
dying. When they die, hundreds of millions of people
will lose their food supply. 

Right now, twelve-year-olds are reading The
Hunger Games
, while twenty-somethings are either
involved in The Occupy Movement or silently
sympathizing with it. They realize their parent’s
generation squandered precious time and resources
and it is the younger generation who will pay.

It’s important to remember, too, that Ronald Reagan
was able to capture the young conservatives in the
1980s precisely because things were looking up. Jobs
were plentiful. Corporations were just beginning to
consolidate in to megalithic entities. The economy
and its people were still benefiting from FDR’s New
Deal. The ecosystem, while ravaged at the time, was
not in the process of collapsing. All that has
changed. 

Young people are distracted, not stupid.  They become
aware that free speech does not exist; that privacy
does not exist; that we are in a state of perpetual
war; that the opportunities of their parents and
grandparents do not exist; that the next few decades
are likely to be bleak; that the intellectual
resources of this country, particularly in the
executive branch of government, are misplaced and
focused on the wrong the threats, which is to say
the executive branch is obsessed with terrorism
and largely oblivious to the forces of nature
that are gathering to kick our ass. Our youth
become aware of all these facts and, yes, they
get pissed off. 

The next few decades will be most interesting indeed. 
Wealth, luxury and opportunity are wasted on the rich
and elderly.

It will be our young people who figure out what to do
and how to change our systems to survive the
coming hell on earth.

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mrfreeze's avatar

By mrfreeze, April 11, 2012 at 7:35 am Link to this comment

D.R. Zing - I enjoyed reading your “quibble.” Yet, I can’t exactly agree with you that anyone in this country is actually pissed-off enough to do anything about our current situation (i.e. total corporate domination in just about everything).

I’d think differently if I didn’t see just about everyone walking down the street with a f**king hand-held-device (their tricorders…..thanks Rodenberry)or observe EVERYONE texting in the grocery lines (the kids as well as the grannies). Some days I feel as if I’m witnessing “Borg-lite,” as everyone runs around madly worrying if they’re going to upset the collective….

I thought you might appreciate James Howard Kunstler’s most recent rant about student loans…...something a lot of young people should REALLY be pissed about.

http://kunstler.com/blog/2012/04/strange-jubilee-1.html

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D.R. Zing's avatar

By D.R. Zing, April 11, 2012 at 7:24 am Link to this comment

I like this article quite a lot. It offers good
history, something we need. I agree with its premise
and conclusion. 

A quibble:
The notion that the law imposes a duty to
“maximize shareholder value” – a phrase capturing the
notion that profits are mandatory and it is the
shareholders who are entitled to them – is so readily
accepted these days because it jibes perfectly with
assumptions about economic life that constantly come
down to us from business and political leaders, from
academia, and from the preponderance of the media.
It is unlikely to occur to anyone under the age of
40 to question this idea . . .

Uh, that last part I highlighted in bold is bullshit. 
You need to hang out with more young people, sir.
They’re pissed off.  Many of them feel—and
rightfully so—that they are the contestants in
The Hunger Game. And they know who makes the
rules of the game: corporations. 

Only thing I would add is we need to stop or slow
down large corporate mergers and acquisitions.  They
sap all the money from the company, result in
layoffs, kill the talent that built the smaller
company, are bad for customers and, to repeat, they
take all the money and put it in banker’s and
executive’s pockets, leaving the rest of us holding
our something or other.  From Microsoft, to airlines, to
the news media, to record companies—mergers result in
shite for customers, employees, artists, and the economy
at large.

Stop the mergers, break up the too-big-to-fail companies,
restart the economy.

Report this

By heterochromatic, April 9, 2012 at 11:57 pm Link to this comment

——Ten years from now you can look back on calling a
perfect stranger stupid and
repulsive and eat crow——-


lster that same night I looked back on calling your
idea stupid and repulsive…....and regret only my
restraint in describing it.

perfect stranger?  very far from perfect DS…..and
were you not such an asshole you wouldn’t think
yourself any great intellect.

see in ten years….woodpusher.

Report this

By Dr_Snooz, April 9, 2012 at 10:57 am Link to this comment
(Unregistered commenter)

I appreciate you challenging the stated goal by many
corporations of “maximizing shareholder value.” But
honestly, no corporation really believes this. The de
facto guiding principle is maximization of the CEO’s
and his cronies’ pay and bonuses. They will drive the
corporation in disastrous directions if it increases
their pay. When it all blows up, they jump from the
burning building, deploying their golden parachutes
on the way down.

I’m not sure if it’s better to challenge their stated
arguments or to reveal the truth behind the lies they
spout.

Thanks for your critique either way.

Report this

By John Steinsvold, April 9, 2012 at 10:00 am Link to this comment

An Alternative to Capitalism (if the people knew about it,
they would demand it)

Several decades ago, Margaret Thatcher claimed:
“There is no alternative”. She was referring to capitalism.
Today, this negative attitude still persists.

I would like to offer an alternative to capitalism for the
American people to consider. Please click on the following link.
It will take you to an essay titled: “Home of the Brave?”
which was published by the Athenaeum Library of Philosophy:

http://evans-
experientialism.freewebspace.com/steinsvold.htm

John Steinsvold

“Insanity is doing the same thing over and over and
expecting a different result.”
~ Albert Einstein

Report this

By heterochromatic, April 9, 2012 at 8:57 am Link to this comment

DS——placating the Kochs is not the same as capping a random CEO… your
calling for a terror campaign is no less fucked up than anything anyone could
suggest. the law of the jungle doesn’t turn out well…especially when you want to
fight the folks with all the money and weapons.


ecven should you prevail, what do you then have?

Report this

By kazy, April 9, 2012 at 7:51 am Link to this comment
(Unregistered commenter)

prisnersdilema excellent idea. Have you thought of ever writing your reps on this idea? Not that it would make a difference, but it’s worth a try.

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DonSchneider's avatar

By DonSchneider, April 9, 2012 at 6:28 am Link to this comment

To heterochromatic , you keep placating the Koch and Coors of the world and see
where we end up . Like the old song lyrics “Wishing and hoping and planning”.... ! 
You can wish in one hand, and crap in the other and see which one fills up first
Ten years from now you can look back on calling a perfect stranger stupid and
repulsive and eat crow, till then remember you could just keep your mouth closed
and appear a fool instead of opening it and removing all doubt.  You would do
well to read a little before making such proclamations ! I would suggest Richard
Wolf on Capitalism, then move into Dahrendorf for an introduction.You’ll at least
be on firm enough ground to begin a discussion. Our discussion can go no
further, since it has always been a firm policy of mine to ignore the unprepared.
You are attempting to bring your pea-shooter intellect into a battle you should
back away from with grace.

Report this

By heterochromatic, April 8, 2012 at 5:15 pm Link to this comment

EZ——excellent link. thank you.

Report this

By heterochromatic, April 8, 2012 at 2:04 pm Link to this comment

DonSchneider——not only a repulsive comment, but a stupid one as well.

after the second one, there would be enough security guards to prevent the third.

 

change your tune and bad luck to you till then.

Report this
DonSchneider's avatar

By DonSchneider, April 8, 2012 at 12:50 pm Link to this comment

If a few random CEO’s were to have some really really bad luck, perchance those
still standing would have reason to pause for thought ?

Report this

By balkas, April 8, 2012 at 11:58 am Link to this comment

turning once again to abecedarianism or even pedestrianism, we can see clearly—- no
matter how much the Twenty-or-so-percentage of people try to obnubilate or sweep
under the rug what can be seen with naked eye—that those who do least or even no
harm to bears, suffer today the most from the hand of the TWENTY PERCENT.
and nearly every researcher, ‘liberal’, ‘progressive’, politician, ‘teacher’, MSM
editor/columnist, judge, bankster, army echelon, cia/fbi agent, policeperson, doctor,
lawyer, actor, singer, musician, ‘scientist’,  in US rejects what the eye tells himher and
resorts to theorizing.

Report this

By berniem, April 8, 2012 at 8:41 am Link to this comment

Yo, beachboy! Admit it, you’re really chromeys lil bro., ain’t ya? Or maybe you’re “Da Chrome” hisself using an alias ‘cause you’ve managed to bore everyone stiff with your inane former incarnation! FREE BRADLEY MANNING & TIM DeCHRISTOPHER!!!!!

Report this

By balkas, April 8, 2012 at 4:28 am Link to this comment

cut these endless studies and just note that US system of life is founded on
the right of a person to control another.
and the controllers/owners of vast numbers of people, races, and peoples
unite in order that that system not only remains but also gets stronger.
and it does this via THEIR CONGRESS, army, cia, fbi, judiciary, education,
media, w.h, education.
hey folks, guns don’t kill people; corporations don’t control people—-
people control people!!
THEY OWN YOU, said george carlin. so, throw off that yoke!

Report this
mrfreeze's avatar

By mrfreeze, April 7, 2012 at 9:57 pm Link to this comment

The reason why corporations are not nor will they ever be “socially responsible”:

Maximize shareholder value!

As long as Milton Friedman’s mantra is accepted as doctrine and human nature is all about greed & self-interest, what exactly can be done?

Report this

By berniem, April 7, 2012 at 5:29 pm Link to this comment

Corporations should be given life spans and allowed to “pass away” after their purposeful and clearly defined existence has been achieved. So, also, should they be limited in scope and function and not permitted to diversify into conglomerate or expand beyond strictly drawn boundaries. All of their boards of directors should be comprised of at least 50% of the labor force with full decision making authority in all areas including, especially, the hiring and compensation of ceo’s, and other managerial staff. I’m sure there are many more ideas out there to bring these “persons” to heel but I offer these as at least a modest proposal! FREE BRADLEY MANNING & TIM DeCHRISTOPHER!!!!!

Report this
prisnersdilema's avatar

By prisnersdilema, April 7, 2012 at 3:54 pm Link to this comment

I have always thought that one of the best ways to make corporations more ethical
is to require that their CEO’s, and board of directors be licensed, by the states in
which they do business. Licensing could require training in ethics, and periodic
psychological evaluations to check for evidence of mental issues.

Society, requires licensing and ethical standards for almost all of it’s professional
class, doctors, lawyers… etc. Licensing, CEO’s would not be much different. 

The state could then mandate ethical standards, and revoke licensure for violation.
This could create a means, by which CEO’s could not move from one corporation
to the next wrecking lives, exporting jobs overseas,  while escaping any
responsibility for their actions.

Executives like Warren Anderson, former head of Union Carbide, who murdered
thousands of people in Bhopal India, by removing safety controls as a cost cutting
measure,  could be prevented from ever running a business again.

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EmileZ's avatar

By EmileZ, April 7, 2012 at 1:02 pm Link to this comment

@ Richard Friedman

Some states are or have set up corporate charters which mandate social responsibility.

Legislative Initiatives Encourage Corporate Social Responsibility

http://osbsustainablefuture.org/home/section-newsletter/20103fall6wolfstone/

Report this

By Richard Friedman, April 7, 2012 at 12:32 pm Link to this comment

The article is wrong.  Of course, corporations must
obey the laws and pay their creditors; otherwise they
will be subject to fines and collection suits.  But
the directors owe their fiduciary duty to the
shareholders.  That is why corporations should be
attempting to maximize profits.

The real problem is that in many cases directors have
not done their job and let the managers reap benefits
wholly out of line with their achievements. 
Directors also have not balanced short term gain
against the long term welfare of the shareholder
base.

All this happens because shareholders are passive and
changing, while the directors hire and deal with
managers on a personal basis. There is no easy
solution to the problem.  I wish I could tell you I
had one, but I don’t.  I do know the writer’s
analysis is not helpful.

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