How to "better" Corporations

( 1 Vote ) There are various ways in which we can make organizations, mainly companies and corporations, be both "better" and more socially responsible. However before we begin, we first need to look at what the original intent and design of corporations was several hundred years ago. We must also look at what corporations have become in the last century and a half. Some could argue that corporations as an entity is one of the factors that cause a great deal of problems throughout the world. In turn, one could also see that if we can fix the issues caused by corporations then we may be able to make a somewhat better world.

Historically, the corporation was a public institution that was created by the government with the purpose of serving the public interest. Initially, there were special charters that were granted by state legislators who would dictate how long a corporation could last, limit what they could do and how much they could make on the given project.

Quite possibly, the most important thing that made these corporations different from the ones today is the fact that when the charter was written up to form a corporation, it had "public good" provisions within it. If a bridge had to be constructed, for example then a corporation would be made for the sole purpose of building the given task, in this case a bridge. After the job was completed, the corporation would be dissolved. [2]

Sadly, things took a turn for the worse after the American Civil War. Hundreds of thousands of Americans died on both sides so that the Fourteenth Amendment could be passed. This gave the now freed slaved some very important freedoms within our country. However because corporations were also now legally known an individual entity, they could say the Fourteenth Amendment and the Bill of Rights also applied to them. [2]

As a result, corporations had the same rights that were originally given to real physical individuals. Some of the rights and protections that were extended to corporations were the rights to free speech, the right to influence the government also known as lobbying, and the right to use the mass media. Some additional rights are that they also received the rights to privacy which ensures that government agencies could not investigate them for their crimes. It also allows them to be able to construct a public image that they believe would best serve their interests. [2]

As previously stated, corporations have the right to create an image that will help fulfill their interests. There is nothing wrong with this right, though there should be more regulations placed on what can and cannot be said on the various forms of media. These corporations should not be able to lie, cover up or sugarcoat what negative things that they have done. For example, a company should not be able to state that they are environmentally friendly because they plant a few trees yet they release various dangerous and hazardous pollutants into the environment.

We understand that it is still extremely hard to see the light at the end of the tunnel given what has occurred in the last few weeks and months in regards to the U.S Supreme Court ruling in regards to what corporations can do with corporate funding. This ruling has allowed corporations to in President Obama's own words, that the decision "gives the special interests and their lobbyists even more power in Washington – while undermining the influence of average Americans who make small contributions to support their preferred candidates." [8]

Even though we allowed Pandora's Box to be open when corporations were allowed to use the Fourteenth Amendment, there are still quite a few things that can be done to minimize further damages caused by the corporations. The very first thing that must be done is to change the legal right that corporations have to become an individual. By removing their right to become or be known as an individual, they will no longer be able to use the Fourteenth Amendment to their advantage. One may argue that this is impossible but thankfully it has already taken place.

The example described above is a very small one but it is one of the things that will cause changes to occur. In addition, there are several other legal things that can be done. The government can add regulations on how and what companies can do. The government can hold companies accountable for all of their actions. The government must also change the legal definition and requirements that corporations have. One such requirement is that according to the law, a company’s sole reason for existing is to make profit for whoever will get that profit. [2]

The legal definition of what a corporation currently is defined as needs to be changed into one that concerns itself for both profit and the "public good." By doing so, society as a whole can take a step in the right direction in that we may be able to avoid history from repeating itself. If the definition is not changed, then it is highly probable that events like Enron, the 2008 Banking Crisis will happen again.

It is understandable that some people do not want to give the government more power but instead they want to reduce the power that the government currently has. However, at least if the power is given to the government instead of corporations, people for the most part will be able to vote on things that they want and don't want the government to do. On the negative side, if we increase the power of corporations, we will not be able to have any say on what things they can and can't do unless you are a shareholder. Still, more often than not, your vote generally does not have any power over the actions that they decide to take.

Quite frankly, if we had given more power to the government instead of corporations, several things could have quite possibly been avoided. Incidents like Enron and the 2008 Banking Crisis issues may not have occurred if there was more government intervention in place. Yes, the 2002 Sarbanes Oxley Act is a step in the right direction, but it is still far from being a perfect act in that it has things missing from it or that it is not strict enough on corporations.

There is a legal business principle called the Conflict of Interest which basically states that a person on the board of directors on one company cannot be on the board of another company due to issues resulting from conflict of interest. [9] Why don't we use the same thing on corporate and government relationship level? In that a government position won't be given to a person who was previously in a corporate position that the available government position should be fighting against.

As one would expect this very simple suggestion has not been followed and there are countless examples. One example includes Michael Taylor, a former lawyer for the Monsanto Corporation. After leaving Monsanto he went to work for United States Food and Drug Administration. He was one of the players involved in writing the FDA policies towards genetically modified foods and that GMO’s are relatively safe. [6]

In addition to the work on the FDA’s policies stated above, he was the one who wrote another policy that did not require or exempted bio foods for needing to be properly labeled. After helping write these and other policies, he left the FDA and in time he went back to working for the Monsanto Corporation. [6] This is a prime example that shows that the government is not doing a proper job if it allows incidents of coincidence like this to occur. If this is not a clear example of conflict of interest then one must believe that corporations do no evil in the world.

Yes, this may be oversimplifying the policy approving process but at the same time it’s no coincidence that policies that favor corporations like Monsanto were past while Michael Taylor worked for the FDA. One could argue that it could be pure coincidence but the fact that Michael Taylor returned to Monsanto after leaving the FDA shows that this was not due to coincidence.

CEO's and other top management also play major roles on whether or not a corporation will be the ideal corporation. However one must not forget that the average lifespan of the average CEO in a given corporation has gone down in the last few decades to be between 5 to 7 years. As a result, they can only think short term goals and not long term ones. A solution to this is that companies can pay CEO's and other high executives for performance on the long term scale. For example, if you are able to reduce carbon emission by 20% over the decade or 2% a year reduction for ten years then those responsible for the decrease will be able to get an already stated increase in the bonus they receive.

Outsourcing is a very economical practice that companies have at their disposal. On the flip side, it can be a practice that is very exploitative to the areas that are used to outsource both labor and manufacturing. One clear example is in regards to what the Disney Corporation has done in Haiti. One could argue that Disney is bringing income to the local populous by Disney having a production plant in Haiti. Frankly speaking, Disney is clearly exploiting the region for their own gains without regards to social well being of their outsourced workforce.

Generally when you decide to outsource something, you will be able to produce the given product at a very low margin and be able to sell it at hundreds if not thousands of times the production cost. Take the Disney example above, they paid the workers around 10 cents per shirt and they were able to sell that same shirt in the United States for over $14 a shirt. Please remember that this example about the sale increase is on the low side of things. Like previously stated above, sometimes the markup can be thousands of times the production cost. Yes, outsourcing the extremely profitable for Disney but paying around 10 cents a shirt is not even enough for the people to buy a single slice of bread. [7]

Disney and others may argue that they are paying much more than others would. So what if you pay more than any other company? The money you pay is not nearly enough to provide for both the social and economic well being of the workers. The companies could just increase the pay to a few dollars, while at the same time still pay below the minimum wage in the US. Yes, you will still be saving money on production while still being profitable and be a socially responsible company. If a company follows this guideline, it may motivate other companies into following their lead.

An additional issue that many people have with corporations is the notion of limited or no liabilities that they have in regards to their actions. A perfect example of this is the 1989 Exxon Valdez oil spill, in which the company only had to pay between 300 to 500 million. However the amount they paid was an extremely limited amount, initially they would have had to pay well over 2.5 billion. [5]

Having limited liability is very important to offset the risks associated with running business however if you are clearly at fault, then you should be liable. In the state of Connecticut, there is a law that basically says that when whoever is transporting HazMat, could be containers of nuclear waste which spills, the person who made that waste is responsible. It does not matter if you are at fault for the spill; you are still required to pay whatever needs to be done to fix the situation that your product caused. If the waste spills or explodes, the company which produced that HazMat material will have to pay the associated costs to clean the mess up. Something similar should be applied to all corporations. If the law puts a legal connection with the cause and effect of corporate actions, then they will find it in their own best interest to do it right in the first place and not have to deal with the law and bad public relations issues. [1]

In addition, the use of cost benefit analysis should not be placed on the same level as something that can cause serious harm or even death to people. One example of this is that in the case of the Ford Pinto in which there were two events that showed that they clearly placed their own cost benefit analysis above the social well being of individuals. The first being that the management did not pay any attention to the engineers claims that the Pinto was unsafe. Later on, the management again used the analysis to determine that it would be much cheaper to pay the injuries and deaths caused by the Pinto instead of installing a cheap $1.00 modification to the cars gas tank. [4]

There are countless problems that are associated with corporations as a whole. The biggest issues deal with the fact that corporations for the most part are not socially responsible to the public both legally and morally. Of course, changes can occur but the first thing that has to be change is the legal definition of what a corporation is and increase the laws to protect the public from corporations. If some of these suggested changes every take hold, then maybe we will be able to make a somewhat better world to live in.

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