Corporations and Morality –

by

We humans have created the very interesting entity known as the corporation. Among the marks of the business corporation are:

1. Transferable shares (think stock market)
2. Perpetual succession (just because the president dies, the corporation does not)
3. Limited liability

The corporation has several characteristics that legal types like to talk about, among them the ability:

1. To sue and be sued
2. To hold assets in its own name
3. To hire agents
4. To sign contracts
5. Make its own internal laws to govern itself

The corporation provides “limited liability” for the owners of the stock. Basically this is supposed to mean that a stockholder cannot be held liable for more than the value of the stock owned.

Now another characteristic or two that seem to be overlooked in discussion are the fact that no matter what the intentions of the founder(s), the only purpose for existence of the modern business corporation is to make money. This not necessarily a bad thing. Without the modern corporation we would not be able to have the production and economy that we do. Corporations provide a living and retirement for millions. This is a good thing.

However, the second characteristic is a result of the first. Employees can distance themselves emotionally from the consequences of other corporate employees. Like this: a company make a potentially useful product that may have unforeseen long-term consequences. Years later the consequences emerge. The people directly responsible are gone, dead or retired or just move on. The current crop of employees had nothing to do with the development of the original product and feel no need to accept responsibility. Now the lawyers get rich, and frequently the injured parties do not have the resources to fight lengthy and complex court battles. This is a bad thing. The corporation gets by with no penalty for the consequences of the past actions. Individual people may be moral. Groups of people are amoral. I might also point out that the corporation, particularly chemical, may have put out a decent product and that people down the line misapplied it. If we humans have an opportunity to screw up, we will.

Now, as I said, corporations are necessary to the modern world, but they sure have drawbacks. Congress tends to try band aids for problems that frequently make things worse. After the scandals of the 90s, and early 2000s, Congress tried a band aid in the form of the 2002 Sarbanes-Oxley Act. Now SOX, as it is known, is one horribly complex set of regulations which boil down to making corporate executives personally responsible for the accuracy of financial statements. Now this sounds like a really good thing. However, there are unseen consequences. First major hitch: never again will a technical person ever head a major corporation, or even be in the upper tier of management. Sounds OK until you realize that no financial type ever created or inspired or approved a major technological innovation. OOPS! We will have increasing profits by job cutting, corner cutting, whatever makes a quarterly short term profit. There will be no investment in long term returns, and strong technical people will have less and less say in the future direction of the corporation. More and more jobs will go overseas. The labor is cheaper even if not as good. And the stockholders will fiddle while Rome burns, as long as there is a dividend. Thanks, SOX!

Obviously, the above is a rather quick and dirty description of a tremendously complex problem. Several things are readily evident:

1. We must have corporations unless the population of the world goes back to pre-industrial agrarian support levels and people work long hours just to eat.
2. We have to figure out how to make corporations responsible for the consequences of their actions.
3. We must protect the investors.

These are some tough questions. They will require tough answers that have been thoroughly thought through. We already have bad legislation that is stifling American industry. We don’t need more. We need some far-sighted long-term legislation for a change. And we definitely need to properly regulate corporations because – The title is misleading – Corporations have no morals.

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