Fixing the Rotten Corporate Barrel

States grant corporate charters; they should start taking some of them away

by John Cavanagh and Jerry Mander

The Nation magazine, December 23, 2002

The global corporations of today stand as the dominant institutional force at the center of human activity. Through their market power, billions of dollars in campaign contributions, public relations and advertising, and the sheer scale of their operations, corporations create the visions and institutions we live by and exert enormous influence over most of the political processes that rule us.

It is certainly fair to say, as David Korten and others have, that "global corporate rule" has _ effectively been achieved. This leaves society in the daunting position of serving a hierarchy of primary corporate values- expanding profit, hypergrowth, environmental exploitation, self-interest, disconnection from communities and workers-that are diametrically opposed to the principles of equity, democracy, transparency and the common good, the core values that can bring social and environmental sustainability to the planet. It is a basic task of any democracy and justice movement to confront the powers of this new global royalty, just as previous generations set out to eliminate the control of monarchies.

The first step in the process is to recognize the systemic nature of the problem. We are used to hearing powers that be-when faced with an Enron or WorldCom scandal-explain them away as simple problems of greedy individuals; the proverbial few rotten apples in the barrel; the exception, not the rule. In reality, the nature of the corporate structure, and the rules by which corporations routinely operate, make socially and environmentally beneficial outcomes the exception, not the norm.

Public corporations today-and their top executives-live or die based on certain imperatives, notably whether they are able to continuously attract investment capital by demonstrating increasing short-term profits, exponential growth, expanded territories and markets, and successful control of the domestic and international regulatory, investment and political climates. Questions of community welfare, worker rights and environmental impacts are nowhere in the equation. Given such a setup, Enron's performance, like most other corporate behavior-especially among publicly held companies-was entirely predictable, indeed, almost inevitable. Enron executives were only doing what the system suggested they had to do. Corporations that can successfully defy these rules are the rare good apples in an otherwise rotting barrel.

That such structural imperatives should dominate the global economic system and the lives of billions of people is clearly a central problem of our time; any citizens' agenda for achieving sustainability must be rooted in plans for fundamental structural change and the reversal of corporate rule.

New Citizen Movement

Around the world, the spectrum of anticorporate activity is broad, with strategies ranging from reformist to transformational to abolitionist. Reformist strategies include attempts to force increased corporate responsibility, accountability and transparency, and to strengthen the role of social and environmental values in corporate decision-making. Such strategies implicitly accept global corporations as here to stay in their current form and as having the potential to function as responsible citizens.

A growing number of activists reject the idea that corporations have any intrinsic right to exist. They do not believe that corporations should be considered permanent fixtures in our society; if the structural rules that govern them cannot be fixed, then we should seek alternative modes for organizing economic activity, ones that suit sustainability. These activists seek the death penalty for corporations with a habitual record of criminal activity. They also demand comprehensive rethinking and redesign of the laws and rules by which corporations operate, to eliminate those characteristics that make publicly traded, limited-liability corporations a threat to the well-being of people and planet.

Possibly the most visible and growing arm of this anticorporate movement is the one that focuses on the corporate charter, the basic instrument that defines and creates corporations in the United States. Corporations in this country gain their existence via charters granted through state governments. As the landmark research of Richard Grossman and Frank Adams of the Program on Corporations, Law and Democracy (POCLAD) has revealed, most of these charters originally included stringent rules requiring a high degree of corporate accountability and service to the community. Over the centuries corporations have managed to water down charter rules. And even when they violate the few remaining restrictions, their permanent existence is rarely threatened. Governing bodies today, beholden to corporations for campaign finance support, are loath to enforce any sanctions except in cases of extreme political embarrassment, such as has occurred with Enron, Arthur Andersen and a few others. Even then, effective sanctions may be few and small.

At the same time, corporations have obtained many rights similar to those granted human beings. American courts have ruled that corporations are "fictitious persons," with the right to buy and sell property, to sue in court for injuries and to express "corporate speech." But they have not been required, for the most part, to abide by normal human responsibilities. They are strongly protected by limited liability rules, so shareholder-owners of a corporation cannot be prosecuted for acts of the institution. Nor, in any meaningful sense, is the corporation itself vulnerable to prosecution. Corporations are sometimes fined for their acts or ordered to alter their practices, but the life of the corporation, its virtual existence, is very rarely threatened, even for great crimes that, if carried out by people in many states of the United States, might invoke the death penalty.

Of course, it is a key problem that these "fictitious persons" we call corporations do not actually embody human characteristics such as altruism or, on the other hand, shame-leaving the corporate entity literally incapable of the social, environmental or community ideals that we keep hoping it will pursue. Its entire structural design is to advance only its own self-interest. While executives of corporations might occasionally wish to behave in a community-friendly manner, if profits are sacrificed, the executive might find that he or she is thrown off the wheel and replaced with someone who understands the rules.

State charter changes could alter this. State corporate charter rules could set any conditions that popular will might dictate- from who should be on the boards, to the values corporations must operate by, to whether they may buy up other enterprises, move to other cities and countries, or anything else that affects the public interest. In Pennsylvania, for example, citizen groups have initiated an amendment to the state's corporation code that calls for, among other things, corporate charters to be limited to thirty years. A charter could be renewed, but only after successful completion of a review process during which it would have to prove it is operating in the public interest. In California a coalition of citizen organizations (including the National Organization for Women, the Rainforest Action Network and the National Lawyers Guild) petitioned the attorney general to revoke Unocal's charter. Citing California's own corporate code, which authorizes revocation procedures, the coalition offered evidence documenting Unocal's responsibility for environmental devastation, exploitation of workers and gross violation of human rights. While this action has not yet succeeded, others are under way.

Revoking a charter-the corporate equivalent of a death sentence-begins to put some teeth into the idea of accountability. Eliot Spitzer, Attorney General of New York, declared in 1998: "When a corporation is convicted of repeated felonies that harm or endanger the lives of human beings or destroy our environment, the corporation should be put to death, its corporate existence ended, and its assets taken and sold at public auction." Although Spitzer has not won a death sentence against a habitual corporate criminal, he has taken up battle with several giants, including General Electric.

Even if corporations were to be more tightly supervised, that would not be enough to change society. Such actions must be supported by parallel efforts to restore the integrity of democratic institutions and reclaim the resources that corporations have co-opted. But tough charters and tougher enforcement would be a start.

Alternatives

Names like Exxon, Ford, Honda, McDonald's, Microsoft and Citigroup are now so ubiquitous, and such an intimate part of everyday life, that it is difficult for many people in the industrial world to imagine how we might live without them. But there are hundreds of other forms of economic and business activity. And by whose logic do we need transnational corporations to run hamburger stands, produce clothing, grow food, publish books or provide the things that contribute to a satisfying existence?

Transition to more economically democratic forms becomes easier to visualize once we recognize that many human-scale, locally owned enterprises already exist. They include virtually all of the millions of local independent businesses now organized as sole proprietorships, partnerships, collectives and cooperatives of all types, and worker-owned businesses. They include family-owned businesses, small farms, artisanal producers, independent retail stores, small factories, farmers' markets, community banks and so on. In fact, though these kinds of businesses get very little government support, they are the primary source of livelihood for most of the world's people. And in many parts of the world- notably among agricultural and indigenous societies-they are built into the culture and effectively serve the common interest rather than the favored few. In the context of industrial society, the rechartering movement and the parallel efforts to eliminate "corporate personhood" and exemptions from investor liabilities are important steps in a similar direction, seeking to alleviate the dominance of institutions whose structural imperatives make it nearly impossible for them to place public interest over self-interest.

John Cavanagh, director of the Institute for Policy Studies, and Jerry Mander, president of the International Forum on Globalization, are authors, along with seventeen others from around the worid, of Alternatives to Economic Globalization: A Better World Is Possible (BerrettKoehler), from which this article is adapted.

Corporate Control of American Democracy

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