The Invisible Friend
by Harry Glasbeek
New Internationalist magazine,
Publicly traded corporations: they are
everywhere. They talk to us. They support political causes, parties
and politicians. They sponsor opera, ballet, theatre, tennis,
football, hospitals and universities. They are renaissance operations.
They employ us. They sack us. They maim and kill us. They ravage
and rape our physical and spiritual environments. They are the
embodiment of capitalism. They protect capitalists from being
held to account.
The legal architecture of the Anglo-American
corporation ensures crimes can be and will be committed on behalf
of the rich. This corporate veil is woven to hide the rich from
our gaze - behind this veil they do us harm and render our numerical
majority relatively impotent.
Once wealth-owners contribute capital
to a firm, they incorporate as a legal corporation, and they are
then given a certificate (ie stocks) that gives them the right
to participate in the appointment of the directors and managers
who are to deploy the now 'collectivized' capital so as to maximize
profits. The registered corporation is deemed to be a separate
legal person, acting in its own right. The contributors who hold
the certificates are entitled to share in the profits according
to the number they own and may vote at some decision-making meetings
about corporate policy. They are also entitled to share in any
property left over after the corporation ends business and has
paid all its debts. They have traded their property-owning status
over their capital for the privilege of limited liability. This
means simply that, should the corporation be unable to pay for
any damages done or debts incurred while chasing profits, these
shareholders cannot be personally called upon to make further
contributions. Their only financial risk is the potential loss
of their initial investment - a very limited risk when dealing
with large publicly traded corporations. If things don't look
good, the owner of the certificate can sell it at any time.
This is how it works. According to legal fiction, once a venture
is registered as a corporation, a new property-owning and investing
'person' is created. This is the investors' 'invisible friend'.
The harms inflicted by the venture can then be attributed to this
new 'person' (ie the corporation), not to individual investors.
This corporate 'person' is separate from the shareholders who
stand to benefit from its profit-chasing protected from fiscal
losses in a way that no other market actor could hope for. They
are also rendered legally immune from any wrongful, illegal and
criminal acts the corporation might commit in their search for
profits. They are like children who can claim, with perfect legality,
'It wasn't me!',
Children often invent invisible friends
to take the blame when they misbehave. But kids grow up and, as
they mature, they are taught to take responsibility for their
own conduct. Not so for the titans of capitalism who continue
to blame their 'invisible friend' (ie the corporation) who commits
crimes on their behalf. This is how the corporation is designed
in law to create a class of legally irresponsible profit-maximizers.
They have no reason to care about the way in which profits are
garnered by their creature, the corporation. Indeed, there is
an incentive to have the corporation act wrongfully, illegally
and criminally if that pays!
But despite the pretence that a corporation
is a real person, unlike you and I it has no physical, corporate
body that can think and act. Live human beings have to do that
for it. But when they think and act on behalf of their corporate
bodies, they can claim that they are not acting as people in their
own light, but as the corporation. It's a short step to the claim
that they are not personally responsible for any thinking and
acting that might do harm and/or breach a law.
True, sometimes directors/managers are
held responsible if it can be determined hat their thoughts and
acts are their own, rather than those of the corporation. But
the starting position is that senior managers have a measure of
immunity, although not quite the privilege of total legal irresponsibility
enjoyed by the shareholders. The senior managers' prestige and
rewards tend to rely on improving the value of the shareholders'
interests. This will encourage wrongful corporate behaviour if
it is likely to pay off in increased shareholder satisfaction.
Innocent even if guilty
Then there is the legal flipside. Because the corporation needs
others to think and act, it cannot be guilty of a criminal offence.
There is o wrongdoer whose intention to commit an illegal act
can be proved. No-one seems responsible - not the senior management,
not the shareholder, not the corporation. To get around this,
the law is forced to use another pretence: it holds the corporation
'criminally responsible' when its acting mind and will exhibit
wrongful intention. In a large corporation, this is immensely
difficult to prove. It helps immunize corporations from criminal
prosecutions. Increased incentive for wrongdoing - if it pays.
Corporations commit an enormous number
of offences. One conservative study notes that 60 per cent of
Fortune 500 companies are convicted of an offence annually. Many
of them are common misdemeanours - not getting a permit or a licence,
failure to record or publish information, not getting appropriate
insurance coverage. These do not lead to the clamour for revenge
inspired' by common street crime. But many corporate offences
are just plain evil incarnate and cause horrible hurt and damage.
The examples are endless. British American
Tobacco and Philip Morris knowingly lied about a product- tobacco
- that led to addiction and killed their customers. The World
Health Organization estimates four million people die yearly from
tobacco-related illness. No-one has been tried for this conscious
infliction of terrible hurt. Johns-Manville and the Cape Company
knowingly exposed millions of people to poisonous asbestos. Some
18 per cent of serious exposures are estimated to result in life-threatening
disease. They lied to governments and workers as they chased profits
at the expense of life. No-one has been charged with a criminal
offence. The manufacturer AH Robbins knew that its intrauterine
contraceptive device would let loose organ-affecting bacteria
when inserted in women. Many miscarriages and some deaths later,
they went into bankruptcy - but no-one was ever prosecuted for
this willful infliction of harm. Nestle hustled women in poor
countries to use their powdered milk, instead of breast milk.
When the powder was mixed with impure water, large numbers of
babies got sick. Some died. If Nestle did not comprehend this
at first, protesters brought it to their attention. Yet they persisted
in their quest for profits at the cost of babies' lives for many
years. No charges.
Ford made a Pinto car that exploded on
touch. It had known this could happen, but preferred not to cut
into its profits by recalling the car - paying damages to the
burnt victims was cheaper. No-one was ever convicted for these
deaths by immolation.
Royal Dutch Shell, Unocal, Talisman and
Occidental Petroleum have been implicated in the murderous practices
of various repressive regimes in Aceh, Nigeria, Burma, Sudan and
Colombia. The poisoning of the Love Canal community in upper New
York State was brought to us by a subsidiary of Occidental Petroleum;
the mass gassing of Bhopal, by a subsidiary of Union Carbide.
The rate of recidivism(reoffending) is
truly spectacular. Take ExxonMobil, who despoiled the pristine
Alaska coast with sticky black oil and then saw their recklessly
engineered gas plant in Australia explode, killing workers and
leaving a whole state without gas for three weeks; then in Alabama
these oil barons deliberately scammed the Government out of $3.5
billion and went on to steal fresh water from New York's Hudson
River and replace it with polluting bilge. Firestone made the
tires for Ford's SUVs. The deaths caused when the SUVs flipped
are blamed on tire defects by Ford and SW engineering by Firestone.
In the 1970s Firestone produced steel-belted radials that it knew
had a tendency to separate - with some 24 million of them on the
road at least 41 people were killed and many more were injured
when the tires blew out. I could go on and on.
Corporate evildoing is not exceptional
behaviour: rather, it is the norm. The corporation has been legally
designed as a criminogenic creature - in other words, prone to
compulsive criminal behaviour. The law devised a scheme of business
regulatory rules that penalizes offenders without criminalizing
them. The idea is that corporate offences are not real crimes,
but 'overly aggressive behaviour' - a natural side effect of being
a competitive market actor that generates the wealth we all share.
Such offences, so the thinking goes, are of a lesser order and
should not stigmatize violators.
It is now becoming more common to hold
senior managers personally responsible for their corporations'
wrongdoing. This is to be welcomed because it finally recognizes
that real flesh-and-blood human beings are responsible for corporate
conduct. But the key issue is: why do these bloodless corporations
commit so many wrongs? The nub of the matter- the structured criminogenic
nature of the corporation - is avoided. Meanwhile governments
go through elaborate gymnastics to prove their even-handed application
of our laws and values.
In 1996 the English Law Commission recommended
a new law against corporate killing. Despite the law being backed
repeatedly by the Labour Government, it has not as yet acted on
the suggestion. In Australia, the Federal Government passed legislation
making a corporation, as such, criminally responsible if its culture
led to the commission of a crime. Similar legislation is under
consideration in Canada and by two Australian state governments.
A few steps in the right direction - these events are now seen
as more than just a regulatory peccadillo. But the protected rapaciousness
of the wealth-owning class still hides behind the corporate veil.
The corporate form allows wealthowners
to influence governments more effectively than they could as simple
individuals. It leaves them better placed to lord it over small
entrepreneurs, consumers and workers. Workers' right to combine
in unions faces serious restrictions on the use of their collectivized
power. No such constraints are imposed on shareholders who are
given limited fiscal liability and total legal immunity. Corporate
managers are expected to do everything in their power to maximize
the wealth of the protected shareholders.
Corporate criminality is but a manifestation
of the brutality of capitalist relations of production. We need
to see shareholders for what they are, beneficiaries of the killing,
maiming and ravaging of our cultural physical and political environments.
This is a first step in demystifying the way in which capitalism
maintains its legitimacy. There is an entirely plausible argument
to be made that criminal law should hold major shareholders responsible
for the many evils done by the corporation on their behalf And
many social and environmental campaigners are now focusing their
attentions on the laws that allow shareholders and investors the
protection of their 'invisible friend' - the legal fiction that
is the corporation.
Harry Glasbeek is Professor Emeritus and
Senior Scholar, Osgoode Hall Law School, York University, Toronto,
and author of Wealth By Stealth (Between the Lines, 2002).