Corporate Citizen - An Oxymoron

There is a fundamental problem these days with economic policy - US corporations have run amok. No longer do they act in the national interest or even give a pretense of being good national corporate citizens. It's all about profits, maximizing profits. In fact, we are told that is a corporation's only responsibility. But is that really the case or have we been spun a lie so long and often we believe it to be true without question? How does the United States align it's Corporations to the interests of the nation?

In a recent House Science Subcommittee hearing, American Decline or Renewal? – Globalizing Jobs and Technology, some these fundamental questions of corporate governance were addressed.

it has gradually become clear to me that much of a nation’s economic strategy is embedded in the institutions through which that particular nation is governed, and that the existence of institutions imply a certain strategy

- Dr. Bruce R. Scott, testimony before the Investigations and Oversight House Science Subcommittee.

From Dr. Margaret Blair, a law professor and economist, opening statement:

I want to speak to you today on a question about the fiduciary obligations that corporate directors have, by law, in this country. In particular, I want to address a claim often made in the financial press, and by members of what a Delaware Court judge has recently called the “corporate governance industry.” This is the claim that corporate directors have a legal duty to maximize share value.
What I hope you will take from my testimony today is that this claim is, at best, a misleading overstatement. At worst, this claim is simply false, but is often asserted as a weapon to try to persuade corporate managers and directors that they should take actions that benefit particular shareholders of a given corporation, regardless of whether those actions may impose high costs on creditors, employees, the communities where corporations have their operations, or other stakeholders, or sometimes even on the long run ability of the corporation itself to compete effectively for market share, or to develop the next technology

Dr. Margaret M. Blair even wrote a book about it, Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century .

So, is everyone getting that? In order to sustain the United States as a Democracy versus a haven for multinational corporations akin to the No Man's Land of Oklahoma where outlaws were under no jurisdiction, had no consequence, we must make corporate entities accountable to the citizenry of the United States. We must realize not only can we do precisely that, we must do precisely that. We must hold and make these US based corporations responsible and responsive to the United States national interest.

Ralph Gomory said:

We need to realize that the interests of the American global corporation, whose interest is profit, and the interests of most Americans, who want a higher standard of living, have been diverging.

In other words, globalization is putting America at greater and greater risk by the very corporations it spawned.

So maybe this is a little hard to digest. Why are they bothering with such esoteric concepts? Well, after some pondering, it dawned on me that to enact dramatic, strategic trade and economic policy change, one must directly confront this false assumption that corporations must be like glorified Ferengi.

In order to convince lawmakers to pass legislation and enact policy we desperately need and also to console legislators, to assure such new legislation and policy would not be overturned in the courts, we must address these fundamental definitions of corporate history and governance.

Bruce Scott (read his entire testimony, watch the video) noted:

Today’s global economy is much like the US in the later 19 century

In today’s economy, nations and states charter firms to compete in a global common, but no chartering authority exists that wields the political power to impose rules on these global markets. While there are rules for trade, the chartering of financial firms in particular invites a race to the bottom to escape taxes as well as regulations. At the same time, some countries are imposing conditions on foreign firms as a condition for doing business in their countries. This issue is particularly important in the case of a few very large countries, notably China.
These countries, with priorities that favor rapid growth, are using national power to partner with US firms on the condition that the latter move some of their activities to China. These countries are behaving much the way New Jersey did in an earlier era, taking advantage of an inadequately regulated common

Dr. Scott is pointing out today we are living in a corporate bandit outlaw haven. We're in No Man's Land with the multinational globalization corporate cartel, running amok, thumbing their nose at what is actually good for America.

And the kicker, Dr. Scott recommends:

you consider reopening the question of a federal charter or license for US firms as a way to specify certain requirements for behavior

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Meta: 

Comments

Corp Irresponsibility

I wonder how much discussion goes on about our own government's use of h1bs and consulting firms that use them. How much offshoring of government work happening also needs to be documented and brought into the light. It isn't just the private sector thats giving the country away. Think about being a laid off IT worker supporting your state's use of an h1b programming body shop with your unemployment comp tax dollars - thats what I'm talking about.

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Your ideas will only make it worse

So lets see here...the answer to keeping jobs here in the USA is to create more bureaucracy for corporations to wade through. What do you think the real reason companies have left this country? Taxes and regulation. Create more of it and they will leave even faster. There is no law you can pass to keep it from happening. The only way to get them to come back is to *reduce* regulation, and *lower* taxes. As a corporation why would I stay in a country that seeks to punish me the more successful I get?

The idea that corporations are in a 'lawless' environment is laughable. There are so many hoops and regulations that a corporation that must go through it is insane.

Honey works better than a big slap in the face. Look at it from the angle of a CEO of a corporation. They want to make a profit. If the USA keeps slapping them every which way when they try to do this...why stay in the USA? China is attractive because strangely enough they are more of a free market than the good ole US of A.

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taxes and regulation

I think if you go to the hearing and read some of the proposals (this one is on redefining the corporate charter), you will see a series of carrot and sticks on corporate tax code to give corporations breaks for being loyal to the nation.

I would say the corporations are slapping America in the face and nowhere did I see any proposal or idea that would make US corporations less competitive in this hearing.

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Nice theory, now let's look at the real world.

Your arguments are the same that come up every time a proposal to hold corporations accountable for their actions. It came up for OSHA, it comes up with Union rights, in came up in the formation of anti-monopoly laws. Yet every one of those things has served to make the lives of the employees and consumers better, and as a result the whole nation, including the regulated companies, got wealthier. The EU has more corporate regulation then the US, would you care to track the value of the Euro vs the Dollar? Or we could look at a company that is left unregulated to just persue profit, Halliburton. We gave them $21 billion and very little oversight, and they moved their headquarters to Dubai and very little of that money, and none of the infrastructure that it bought is going to be seen by the US once the war is over.

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real world

Folks, please register if you want to really have a discussion. We don't release any of your stuff, registration is simply for spam control as well to make sure people are arguing the issues. It's all security but unfortunately due to security your comments must go into a moderation queue. Register and you can just post as well as write up your own views on this.

Secondly, that's right, under the current definitions, tax code and law, Haliburton moved to Dubai. Cisco is planning on moving to China and foreign nations buy up US assets at a fire sale. China has bought up many manufacturing companies or they move to China where it is required to partner with a state owned Chinese corporation.

So, considering what is going on right now, what is the issue with modifying corporate tax code as well as the actual charter to make corporations be more in the US national interest and America's interest?

Let's look at the stats please. What policies, say Japan's not only make them extremely competitive, profitable but also their people prosperous and not with a massive trade deficit? This isn't about ideology, it's really about keeping the United States economically strong. Micro economics, or corporate economics, the way US policy and corporate law is, makes it in their best interest to often act against the United States. There is no conflict in keeping these US corporations highly profitable yet modifying law and policy to also ensure they are working for the US national interest.

Changing the law does not imply in the least that suddenly these business entities would be weakened. If anything it implies they would be stronger over the long run.

As it is multinational corporations have almost a free for all. Does one honestly believe that corporations will not continue to headquarter offshore or move around the globe depending upon conditions as it stands? Regulation is almost a joke at this point so does one really want to further enable the poisoning of kids, child labor, pollution of the world as these corporations hunt the globe to find nation-states even more favorable to their profit agenda? What makes people think they will not relocate in Burma...so where does the buck stop? When people are plain enslaved all for the agenda of profit? And since when does slave economics means that the global economy operates best? If one looks back at those sorts of systems if anything, looking at raw profit numbers, that will collapse a global economy for one has simply wiped out any chance of a middle class, which happens to be a consumer class.

Who is not in the real statistical world here?

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OK, let's look at the real world

In your theory, the most heavily regulated states in America would be ones that all major corporations would have fled.

That would explain why Silcon Valley and San Francisco in California and Route 128 in MA are ghost towns with grass growing in what used to be city streets.

In the real heavily taxed and regulated California, major corporate HQs in the SF Bay Area are not only in the major cities, but are expanding into the bedroom communities, Concord and Walnut Creek and even San Ramon have major corporate headquarters.

Why? Turns out that when one pays high taxes and puts up with heavier regulation, one gets things like educated professionals capable of working in a high-tech workplace. And a higher quality of life. Not quantifiable, necessarily, but when professionals have a choice between living in the SF Bay Area and the low tax / low regulation Red States, they come here.

Good schools and roads don't materialize because the marketplace fairy decreed them. It's because people and businesses are willing to pay for them in taxes. Regulations that force businesses not to dump crap into the air and water make an area a more desirable place to live.

A good part of the startup money and technological expertise that backs Obama comes straight out of Silicon Valley high-tech corporate types. Is it because they expect Obama to reduce taxes and eliminate what the GOP is left of Federal regulations?

If you don't like this, there's always the Third World. They have few taxes and regulatory enforcement can generally be made to disappear with the right bribes. Why don't you already live there?

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Specious argument

Even despite the recent hard times, the USA is still the world's biggest consumer market. As such e can still wield considerable force. We could, for example, make a binding license for corporate responsibility a precondition for doing business in the USA. Few companies could afford to write off our market; any that do would not be missed.

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spurious I think you mean

That's what the hearing was implying, changing the corporate charter definitions and expanding upon them to act in the national interest. Then there are a lot of policies that don't do that, such as a VAT or the Warren Buffet trade certificate idea which simply start creating incentives via profits to get corporations to act in the national interest.

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Your vision is too narrow.

Your vision is too narrow. We should not think only of America and US citizens, we should think of the whole world, and all humanity. We are no longer a collection of separate civilizations, free to go about our separate businesses in blissful ignorance of even the existence of other civilizations, we are a single worldwide civilization. We cannot properly tackle problems such as global warming on a mere national context, it must be an international effort.

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taxes and regulation

Just how much more do we need to give away to the corporations? How much lower do taxes have to be before we see any benefits? This is just more of the same tired old supply side fairy tales.

Under the New Deal, taxes and regulations were much higher than they are todya, and we also had 4 decades of unprecendented prosperity.

As the new deal has been gutted, we now have speculative bubbles and all the other economic ills we are experiencing today
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"If the hand of the Free Market is invisible, how come we can see it?" Tom Tomorrow

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Offshoring the Constitution

Why not address the underlying Constitutional legal issue at hand? That is, why do corporations in general trump their individual right to protections under the 14th Amendment to the Constitution of the United States of America over an individual citizen's right to those same protections, namely privilege and immunity.

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What?

This is absolutely counter to the foundation of a corporation. That is, a corporation exists, as a private entity, to maximize shareholder wealth. Right or wrong, that is the purpose of the corporation. Somehow Ms. Blair has no Juris Doctor but appears to be thoroughly involved with the corporate law program at Vanderbilt. Even at my law school, which was no Vanderbilt, every law professor had a JD from a first tier law school. How could these arguments by Ms. Blair or the foundations "supporting" them ever be taken seriously if she's studied everything but law itself?

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Clearly not

Firstly she is quoting the corporate tax code, secondly she is by far, not the only legal expert pointing this out...

there was in fact a President who ran on these facts, Teddy Roosevelt.

Your argument is most spurious since you cannot attack the legal definitions which she and others quote.

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TR

Theodore Roosevelt famously said in favor of progressive taxation (and I paraphrase here cuz i don't have my Bartlett's handy) The wealthy gain greatly from the benefits of a free society and therefore have a moral obligation to contribute back to it.

He was branded as a traitor to his class for saying that

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"If the hand of the Free Market is invisible, how come we can see it?" Tom Tomorrow

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Corporate Citizen - An

Um.

Value does not equal Profit. The primary corporate responsibility is to create *Value*. You can create absolutely no profit and still create value.

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Corporate Citizen - An

I don't understand why there's so much debate over what a coorporations responsibility is, as if a coorporation is a person. Granted, while it is LEGALLY a person, it's not ACTUALLY a person, it's only a piece of paper that PEOPLE use as a legal tool to maximize their profits. It's the only reason coorporations are ever made and the only reason they exist, so the only PURPOSE of corporations is to maximize profits, not value. Nobody goes through the effort of creating a coorporation unless there's something in it for them (i.e. profit).

Now, what you might argue is that it's the responsibility of these PEOPLE to be loyal to their country and community, and maybe we should hold these shareholders accountable, but the entire point of a coorporation is to absolve these people of responsibility to begin with, so we can't hold them directly accountable (or rather, if we do, we should eliminate the coorporation as an institution). The only way to hold them accountable is to minimize their profits by imposing immediate sanctions on the coorporation when they hurt local communities, a kind of indirect sanction on shareholders, or even go so far as to say that if a coorporation behaves treasonously or with disregard towards a community, it's shareholders should be legally compelled to renounce all their shares in the company (minus value added since the questionable action). We need to somehow bring some (indirect) accountability back to shareholders.

Now, while such restrictions may discourage business in the US, beaurocracy will not be significantly increased. We're not increasing the paper work for coorporations or anything of the kind. We simply need to enact laws that allow the US government to depose shareholders in certain cituations. We might lose some business, but the only companies that will chose to move overseas in response are companies at risk from this law (since costs don't increase for other coorporations). This may result in a nick in our year end GDP figures, but it doesn't even matter if communities are now safer and the American quality of life has improved.

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Why corporations are formed

As someone who has actually formed corporations, I can flatly deny your false claim: "It's the only reason coorporations are ever made and the only reason they exist, so the only PURPOSE of corporations is to maximize profits, not value."

The first (historical) reason to form a corporation was to protect assets. Specifically to protect shareholder personal assets in the event that the endeavour undertaken by the company incurred liabilities.

Having formed corporations (my own and others), I can flatly state that the most common reason cited for forming a corporation boils down to: "... so I don't lose my house if someone trips and breaks a leg."

The error you are most likely making is to presume that publicly held corps are somehow at all like privately held corps, which stupendously outnumber the publicly held. The vast majority of corps are for small businesses and most of these are formed to separate the assets/liabilities of the endeavour from those of the founder(s).

Further, the "PURPOSE of a corporation" is spelled out in its charter and minutes. That may involve profit, or providing a cooperative negotiating entity (typically for professional associations), or a centralized receivables/payables entity (clubs, neighborhood associations, e.g.), or ... essentially any activity that might create, destroy, or alter assets and/or liabilities.

So while it might be the case that what you have said might apply to some publicly traded corporations, it is ridiculously inaccurate in the larger context of corporations.

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Democracy?

The United States of America is NOT a democracy.

It is a Constitutional Republic that democratically elects its representatives.

BIG, BIG difference.

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that's true

and probably why we have such a hard time getting any sort of policy in the national interest. Anyone who watched the DNC rules committee yesterday is probably keenly aware it sure ain't.

People, register. There is a lively discussion going on here and if you register you can track all of your comments and see replies. Check out the user guide to see all of the goodies you can use on the site if you register and login.

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that's true

Why are anonymous users allowed to post?

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anonymous posters

as a matter of courtesy but usually they want to make just one comment and move on. As I've said they go into a moderation queue, which means I may or may not approve them and there is also a long delay.

Registered posters can track their posts plus comment immediately. They have their own accounts.

Anonymous comments are not meant to be used by people having a discussion like this, at this point people should join the blog and create accounts so one can at least determine who (fake ID of course) is saying what to whom.

Of course that's for people who want to discuss dramatic economic policy change, economics, trade and we also cover immigration, especially H-1B, offshore outsourcing, globalization/labor arbitrage issues.

That said, glad to see so many people taking this article seriously! It's about time we really started thinking this through for the United States clearly needs strong shifts in trade, economic legislation and policy!

Welcome all Anons!

That said, this is a community blog so if people are serious one trade, economic analysis, we hope you stay and write some insightful comments and blog posts.

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Thank you So Much for This Article

I have been looking for this type of raw and real analysis for some time now. I've been watching the stripping of America's high-tech intellectual property going overseas and being raped by other countries all in the name of cheap labor (H1B and outsourcing) for over a decade in Silicon Valley. I don't think that the rest of America understands the implication of this for our future. It is very, very grim. Thank you for this information and analysis. I really appreciate it.

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