IS THE CORPORATION OBSOLETE? Corporate Irresponsibility? Predatory Behavior? Blame the Charter -- and Rewrite it
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Source: Tom Paine.
IS THE CORPORATION OBSOLETE?
Corporate Irresponsibility? Predatory Behavior? Blame the Charter -- and Rewrite it
Jonathan Rowe is a fellow at the Tamales Bay Institute and a contributing editor of
the Washington Monthly.
Editor's Note: This piece originally appeared in the Washington Monthly. It is
reprinted with permission.
It is a sign of immersion that the thing immersed doesn't notice. The fish,
famously, is not aware of water. Dick Cheney and George W. Bush cannot see past
their allegiance to the oil industry because it's all they know -- their water.
So it is with the corporation. Over the last century and a half, the corporation has
become the dominant institution of American life, the "envelope of existence," as one
writer put it. It defines work, entertainment, politics, transportation, the way people
think about their bodies and the world. Increasingly it dominates the cognitive
environment of daily life. For all the kvetching about government, the corporation
permeates our lives in much more basic ways.
Yet the more pervasive the corporation becomes, the less we seem to notice. It's
just the way things are, the new normal, and rapidly it is becoming the norm for the
entire world. This has been the subtext of recent trade agreements, and the implicit
agenda that has inspired the opposition to the World Trade Organization. Protestors
in Seattle and elsewhere have not been opposing trade per se. One might as well
oppose the morning. The issue rather is who controls this trade, under what terms
and to what ends.
As it has evolved over the last 150 years, the American corporation is more than just
a mode of business. It is an agenda, the organizing principle for an entire society --
the embedding in the institutional matrix of the single-minded quest for monetary
gain. Apologists may protest to larger aims, or at least effects. But the soul of the
corporation is the charter, and corporate charters speak for themselves. They say
that the company exists to make money and for no other reason. The question today
is whether that governing concern is large enough to serve as organizing principle for
the entire world.
The question may seem eccentric, even na´ve, in these economically triumphant
times. Yet back in the days when the corporation was still new and its impact clear,
the question was of obsessive concern. President Lincoln expressed this in a
19th-century version of Eisenhower's military-industrial complex speech.
"Corporations have been enthroned," Lincoln said. "An era of corruption in high places
will follow ... until wealth is aggregated in a few hands ... and the Republic is
Lincoln knew a thing or two about threats to the Republic. The question continued as
farmer-populists and Progressives led the drive for regulations and restraints.
Presidents Theodore Roosevelt, Taft, and Wilson all called for federal chartering of
large corporations, as Madison, with unusual foresight, had urged at the
Constitutional Convention. Roosevelt even created a Federal Bureau of Corporations
because of these concerns.
The corporation has attained an almost metaphysical
stature in American life -- an apotheosis of the
market rather than just a contrivance of fallible
But soon enough the corporate economy became simply "the economy" in the
majestic singular. It was helped greatly by a fledgling advertising industry, which
cast it in friendly and even patriotic terms, and by an economics profession that
served as apologist and booster. Most important of all, prosperity had a quieting
effect -- the sedation of Huxley's Brave New World as opposed to the statist
oppression of Orwell's 1984. The 1990s were such a time, of course. But as regularly
happens, the wheel is turning once again. The stock market is no longer a money
machine for the masses, and the jazzy new technology -- the microchip -- is
becoming a bit old hat.
The energy situation, moreover, has brought dirty old industries such as oil and coal
back to center stage. After Clinton's off-and-on embraces, the Bush administration
has seized the role of Monica to the suits. At the same time, corporations are
showing a degree of raw aggression that is unsettling to say the least. They are
claiming new territory in virtually every dimension of existence, from the personal
space that is assaulted by huckstering and cell phones to the Star Wars initiative,
which will stake a commercial claim to the farthest reaches of outer space. They are
taking control of the quest for knowledge at universities, and are moving even to
claim the gene pool and the processes of life itself.
Perhaps this helps explain why the looming invasion of oil companies into the nation's
parks and wilderness areas has become so symbolically charged. It captures in a
single image what is happening already in American life. Put all this together, and it is
not surprising that there are efforts to revive the debate that was aborted a century
ago and to inquire into the nature of the institution that the United States is seeking
to launch into a global role. The issue here is not the market economy or the free
enterprise system, though journalists inevitably will cast it that way. Rather, it is the
institutional machinery the government has created to dominate that system.
A New Deal
One sign of the renewed debate is the recent book by Jack Beatty, called Colossus:
How the Corporation Changed America. After a decade or more of
how-to-make-a-million books, it is significant that someone of Beatty's stature has
stepped back and attempted to put the corporation into a broader social and
economic frame. Beatty is an editor at the Atlantic, and his work shows the best
voice of that magazine -- temperate, fair-minded, but with a strong ethical compass.
Through anthology and essay, Beatty argues that a disposition toward worldly lucre
runs deep in the United States. It took root here with the Puritan settlers and found
ultimate expression in the modern corporation.
In the contest between God and Mammon, it wasn't even close. Yet as the vehicle
for these pecuniary urgings, the corporation posed a big dilemma. On the one hand,
it became a prodigious engine of "prosperity" as conventionally defined. Yet it also
represented a concentration of power beyond anything the Founders envisioned --
and power was the very thing they strove mightily to subdue. It was their demon,
the thing they found "ultimately corrupting," as historian Bernard Bailyn put it.
Yet here it was, the thing Madison and the others dreaded most, arisen through the
cracks in their own system and bearing gifts that the populace could not resist. The
result was a bipolar national psyche, which Beatty illustrates through a host of
contemporary accounts, from John D. Rockefeller's ruthless empire-building to the
repercussions of the more recent leveraged buy-out craze. Beatty's answer is the
one John Kenneth Galbraith formulated in the '50s: countervailing power. The
centralized economic power of the corporation requires institutional counterweights
in the form of a strong federal government, as well as labor unions and organized
Countervailing power is a brooding Madisonian concept that extends the
constitutional principle of checks and balances to the unanticipated gap in the
design. (Decades ago, a young Ralph Nader took the idea to heart.) As Beatty says,
it is the missing element in debates over the global economy. Competition for global
market share will not ensure that other needs are met; in fact, it practically ensures
that they won't. If corporations are going to have free rein on a global level, then
there must be a counterbalance -- a "New Deal for the global economy" -- to protect
the environment, establish labor standards, temper the rush toward genetic
engineering, and so on.
This is a suggestive idea, and something like it is bound to come. Yet as Beatty
himself points out, the New Deal served largely to save corporate capitalism from its
own excesses. The World Trade Organization, which is run primarily for its corporate
constituents, is the first step toward the new global order, and not exactly a
promising one. Already Philip Morris has gotten behind the idea of a global treaty on
tobacco marketing. One suspects its goal is not to put itself out of business.
There will always be a need for cops on the beat, for corporations as for real people.
We can work for an arrangement that is more than a global version of the company
town. There's a particular need to reestablish boundaries between corporations and
the rest of life -- to declare particular realms (such as childhood and aspects of the
gene pool) off-limits. But while we construct a system of external restraint, it would
be wise to inquire into the nature of the entity that requires all this policing.
The question requires a shift of mental gears. The corporation has attained an almost
metaphysical stature in American life -- an apotheosis of the market rather than just
a contrivance of fallible humans. Yet the process by which the modern corporation
came about does not square with this exalted status.
In fact, the story of the corporation is practically a primer of contemporary
right-wing demonology. Outlandish public subsidy, industrial policy, judicial activism,
revenue-mongering by corrupt politicians -- it's all here. As for unintended
consequences, nothing the government has created has produced so many.
From Monasteries to Monopolies
The first corporations in the Western tradition were monasteries, boroughs, guilds,
and the like. They were vehicles of community and social cohesion; they sought to
restrain the tendencies toward self-seeking -- not provide an institutional amplifier
for them. By the time of the American Revolution, this form had evolved into a kind of
franchise, chartered by the legislature to perform a specific public function, such as
running a toll road or a bridge. These early business corporations were limited in size
and scope; and there was little reason to suspect that such creatures of the state
would one day become the dominant institutions in it.
Thus there is no provision in the Constitution for the large business corporation. The
Founders thought they were dealing with a polity of individuals organized as
interests. The corporation was an extension of the government, and thus would be
restrained by the checks and balances by which they sought to hold institutional
power in check. That assumption fell apart in the period that came to be described
as "Jacksonian Democracy." The practice of granting charters one by one through
legislation had given rise to corruption and abuse, and the Jacksonians opened up
the corporate form to all comers, through general incorporation laws.
But their aim was to bust up monopolies, not to absolve corporations of the
responsibilities that came with the license to operate in that form. A corporate
charter bestows an extraordinary privilege -- exemption from common-law rules of
personal responsibility. It enables the owners of the corporation to say in effect, "I
didn't do it, your honor. The corporation did." People still believed that those so
privileged owed something to society in return. "While the rights of private property
are sacredly guarded," wrote Jacksonian Chief Justice Roger Taney in 1837, "we must
not forget that the community also has rights."
But the corporate form that emerged from
the 19th century takes the romantic
individualism of that era and transplants
it into an institutional machinery geared
exclusively to self-enhancement, without
regard to implications for the context in
which it grows. That is a definition of a cancer.
Accordingly, free-incorporation laws typically included limits on the size and scope of
the corporation. Some expired after a given period, like broadcast licenses today.
The existence of such charter restrictions was why Rockefeller and others resorted
to secret trust agreements to construct their corporate empires; their charters
wouldn't let them purchase stock in other companies.
That's where things stood until a New Jersey governor by the name of Leon Abbett
came on the scene. Abbett was what rightward polemicists today would call a
"revenue-hungry politician." Where others saw dangerous agglomerations of economic
power, he saw money for the state's coffers -- along with under-the-table
emoluments for himself. Abbett proceeded to rewrite New Jersey's corporate-charter
laws to make them a little like a Liberian flag of convenience. Pay the fee and you
could do pretty much whatever you wanted. By 1900, New Jersey chartered some 95
percent of the nation's major corporations.
More than one could play this game, however. Delaware soon outbid New Jersey -- in
part by insulating managers from pesky shareholders -- and ultimately won the
ensuing race to the bottom. Today, a fair portion of the world's largest corporations
exist in file drawers in law offices in Wilmington. This means that the ground rules for
the major players in the global economy have been constructed largely to fill the
revenue needs of one of the nation's smallest states -- and were drafted by
corporate lawyers for the benefit of their clients. (In Delaware, for example,
corporate officers are fully indemnified for all court costs and settlements and thus
are insulated from civil and criminal responsibility.)
Meanwhile the visible hand of government was providing subsidies on a scale that
would cause the most prolific pork-barreler of today to blush. The first truly national
corporations were the railroads, and they began with the help of large government
land-grants, along with capital infusions, free surveying, and federal troops
dispatched to rout the natives when necessary. An activist Supreme Court played a
big role as well. In Santa Clara County vs. Southern Pacific Railroad Company,
decided in 1886, the court declared that corporations are "persons" within the terms
of the 14th Amendment and thus are entitled to full constitutional protection.
The court cited no precedent for this assertion, nor even justification. It did "not
wish to hear argument on the question," it said. Some 50 years later, Justice Hugo
Black observed that "Neither the history nor the language of the 14th Amendment
justify the belief that corporations are included within its protection." Nevertheless, a
constitutional provision designed to ensure the rights of the most vulnerable citizens
-- former slaves -- became a protection to the most powerful instead.
Among other things, this left states helpless to counter the charter-mongering of
New Jersey. Absent Santa Clara, other states might conceivably have refused to
honor the degraded New Jersey charters. But since corporations were now "persons,"
the court eventually held that other states didn't have that choice. The only
alternative was to try to curb the worst abuses of these new juggernauts. Thus was
born the federal regulatory apparatus -- antitrust laws, the Interstate Commerce
Commission, pure food and drug laws, and the rest. In other words, the federal
regulatory state didn't leap unbidden from the imaginations of statist schemers. It
was largely a response to the corporate economy, and to the urbanization that came
with it. Then, as now, a corporate economy and a centralized state go hand in hand.
Charting a New Course
There's a case to be made that the emergence of the current form of corporation,
while not pretty, served a useful end. It mobilized the entrepreneurial and managerial
energies that filled a sprawling continent and tapped its vast resources. The job
could have been done better and with more attention to long-term implications. Still,
it did get done; and given the circumstances of the 19th century, perhaps it was
better to err on the side of permissiveness.
But the corporate form that emerged from the 19th century is essentially an engine
of appetite. It takes the romantic individualism of that era and transplants it into an
institutional machinery geared exclusively to self-enhancement, without regard to
implications for the context in which it grows. That is a definition of a cancer; and
while it didn't seem to matter much in the 19th century -- so much space to
conquer, so many resources to tap -- today that is no longer the case. Where once
there was an abundance of social and environmental space to absorb the side
effects of large-scale enterprise, today the sponge is getting full. A cell-phone
purchase may bring happiness (or whatever) to the purchaser but misery to many
others who must share the coffee shop or subway car while the caller yaks. The
purchaser of the SUV might get to feel like a suburban cowpoke, but everyone else
gets less space on the road, more brutal crashes, and tighter gas supplies as well.
On a larger scale, the implications of genetic engineering, global warming and the
rest push the boundaries of human life itself. In conventional economic terms, the
externalities of corporate enterprise are starting to outweigh the internalities -- the
negative side effects of production and consumption are becoming larger than the
presumed benefits to the parties immediately involved. Yet the corporation has
evolved to maximize such externalities; when it shifts costs onto the social structure
or the environment, then its own bottom line increases.
In a global economy, this chain of unintended consequence extends to all corners.
The organizing principle of the corporation becomes the mode of governance of
human life itself. So it is not extraordinary to ask whether the version of the
corporation that emerged in 19th-century America, with the help of activist judges
and pork-barreling, revenue-hungry politicians, is adequate to the challenges of the
21st. To put this another way, if the government is as stupid as our friends on the
right contend, then might it not have made a few mistakes in the form of corporation
that it launched upon the world?
There are people who dispute the premise of the question, of course. Milton Friedman
and others contend that corporations should not concern themselves with anything
besides making money. They serve humanity best when they serve themselves most.
Most of us probably have known people like that, and they weren't the kind we'd
want to fill the world with -- especially if they were the size of Exxon or Microsoft. A
more serious objection is that corporations can do ample good already, given
enlightened management (which is no small given). Yes, the corporate-responsibility
movement is to be applauded. But it is vulnerable in the extreme -- to Wall Street
pressures, the passing of an inspired leader, corporate takeovers, the downward pull
of less conscientious competitors. When competitors move production to low-wage
sweatshops abroad, even the most well-meaning maker of dungarees or sneakers
eventually has to follow.
It is time for the corporation to grow up.
If it is to keep the legal status of a person,
then it should accept the responsibilities
that we expect of persons as they mature.
In this world the wicked often do prosper. As long as the corporate charter says that
making money is the corporation's only objective, a CEO invites shareholder lawsuits
if he or she pursues other goals. By contrast, if we built a larger mission right into
the governing document -- the corporate soul -- as in the old days, then the good
guys would have a stronger hand. When broadcasters were held to a
community-service standard as a condition of their licenses, news departments
flourished. A more permissive regime has enabled broadcast corporations to score
financially, especially in radio. Public service has not fared as well.
Perhaps the answer lies in different kinds of corporations -- new institutional tools
designed for different tasks. There could be one type for small start-up firms that
need lots of room for experiment and risk. As a company grew larger the society
could expect more of it. Concerns for the environment, workers, local communities,
and the rest could become warp and woof of the charter -- the basic contract with
the community -- so that CEOs would not be dragged constantly down to the lowest
In this approach, we could do away with much bureaucratic regulation, such as the
mountainous economic sophistry that attends antitrust litigation today. If the charter
said a company could grow only so big, or control only so much market share, that's
how big it could grow. Moreover, if the charter required corporations to take
responsibility for some of the costs they now "externalize" upon the rest of us, they
could use their own ingenuity to meet those responsibilities in the most efficient
manner. Entrepreneurial energies would still prevail, only in more directions. Already,
such measures as pollution taxes and fees turn environmental cleanup into a
bottom-line mandate. Charter revision could accomplish the same thing on a larger
Whatever the exact approach, it is time for the corporation to grow up. If it is to
keep the legal status of a person, then it should accept the responsibilities that we
expect of persons as they mature. A corporation, declared Chief Justice John
Marshall, is but "an artificial being, invisible, intangible, existing only in contemplation
of law." It is a social creation, a projection of the society's values and aspirations. As
the creator, so the creation -- and the time is long overdue to ask whether the two
Reprinted with permission from the Washington Monthly. Copyright by the
Washington Monthly Company, 733 15th St. NW, Suite 1000, Washington, DC 20005.
Originally published at:
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