Is 'Corporate Citizen' an Oxymoron?

theodp writes "Citing expert testimony from a recent House Science Subcommittee hearing on Globalizing Jobs and Technology, The Economic Populist challenges the conventional wisdom that maximizing profits should be a corporation's only responsibility, suggesting it's time for the US to align its corporations to the interests of the nation instead of vice versa. Harvard's Bruce Scott warns that today's global economy is much like the US in the later 19th century, when states competed for funds generated by corporations and thus raced to the bottom as they granted generous terms to unregulated firms. Sound familiar, Pennsylvania? How about you, Michigan?"

Economics is not a closed system

[vertinox]

In a sense they are right. If society on a whole is doing better than it did before than the environment the Corporations have to work in will improve and their profits will increase.

Through better education a society will gain individuals who will generally be able to earn more money and therefore consume more products and allow for a diversity in competing genres of products.

As in, it takes a bit of education for certain hobbies and if the population on a whole is more rounded it opens more niches and markets for new revenue streams.

Secondly, a corporation serves the interest of its shareholders in the end even if it fails to make a profit they can still choose to keep the current CEO and board if they don't vote them out (that is rare though) and the self interest of shareholders often include their own well being so if you own shares in a factory and they produced chemicals that caused the shareholder or someone they know cancer, they might take it up with the board of directors even though change in company policy might cause a loss in profit.

Having money does you no good if you are dead and dying right?

Re:I was hopeful...

[Sun.Jedi]

Wait, are you blaming corporations for the crap that *you* bought?

No. I am angered because I don't really have a choice to purchase American made products. They are scarce and/or more expensive, although the ones I do purchase are often of higher quality.

Also, I have arbitrarily determined that your pay is excessive. Please hand an additional 10% your income over to the government so that they can put it to better use.

The government can't spend the money I send in now correctly. What in the world would make anyone think more would solve the problem?

Private versus Commerical interests...

[Zarf]

As a working technologist for the past two decades (I started in IT as a pre-teen) I have been content to let the suits figure out the economics and leave me to play with my toys. But, in the last few years since having a family of my own I have begun to see how unsustainable some "corporate cultures" really are and how a business could be seen as a way to find and keep people you think are "of quality" around yourself.

I don't think most businesses operate like this because we are developing a "management class" in America. These are people who graduate from school as bosses. They don't work their way up to become a boss or manager they come out of the factory sparkling and new as managers.

That creates a fundamental disconnect between the work force and management. It's one that creates a first and second class "citizenship" in the corporation. In many ways if you believe there is such a thing as a "corporate citizen" then this new path through the corporate ladder means that we have reverted to a feudal system in society.

In other words, we may be making "American Style" Democracy obsolete or unworkable. Democracy (in America) is already evolving ... the vote of people with control over special interests counts more than the vote of common people. That's because the lobbyists like to eat.

What this means is that corporate profit maximizing interests usually count more than individual or family interests over time. And that means whatever feeds profits best will win. If human rights feed profits, great. If family stability feeds profits, awesome. If healthy employees help profits, wonderful. But, how do retirement plans feed profits? How does universal health care help profits?

These things do help profits by creating a more stable society where individuals can take risks, make inventions, try new careers. But, they don't help any particular corporation. They don't help profits in the 18 month window. These are things that are financially stupid on anything but the 100 year scale.

Take the example of the educational systems in India. A net profit loss for fifty years that eventually lead to an economic boom in the 1990's. That's my big example of a long-sighted investment in the people that will not pay off any particular corporation in a time-line that can be appreciated by share-holders en masse... however a visionary could see it.

It is a sad fact that some of the things that help the citizens of a nation help all corporations that do business in that nation... and that means that a corporation that is doing those things is helping its competitor. That could mean that strategically undermining a nation may in fact boost profits for a corporate entity which can do things to hurt its competitors and find ways around that damage to make itself more competitive.

The goal of a government (in my view) should be to seek ways to balance the goals of profit making against long term goals. Both sets of interests serve human good because employees are citizens and so are share holders and they benefit all from profits in the short term and that is good. Governments can create incentives for long term investments in your competitors by creating short term incentives to do so using tools such as those dreaded taxes and tax breaks and inventing artificial economies such as the "Income Tax" industry which CPAs and income tax software vendors make their fortunes on.

The interesting thing is that Governments create jobs using red-tape.

Corporations

[robot_lords_of_tokyo]

It's not really a problem with corporations, the problem is when you take away the accountability of the owners. That's the major loophole. Limited liability is one hell of a loophole...

Re:This is what happens without communism

[Anonymous Coward]

There's a simple fix for that. It involves protectionist principles.

Any company that decides to leave the country losses all rights to trademarks, patents, etc. Any imports using the same trademarks incurs huge tariffs.

A company is nothing without it's mind-share.

As for the oil companies. We don't have to place more taxes on them. We should at least eliminate the tax breaks we give them. Also, we should never allow these companies to buy each other out.

Most of the problems we are having today can be traced back to deregulation and consolidation of these energy companies. This of course is further traced back to the gullibility and ignorance of the general population and the corruption of the current US government and its non-elected appointed by the white house officials.

Companies are allowed to operate because they benefit society. Governments have to regulate those companies so they do not harm society.

The true evil is a docile ignorant stupid population.

Re:I was hopeful...

[Anonymous Coward]

re: huge profit margins

Actually, the percentage profit margin for gas bought at the pump hasn't changed significantly in almost 40 years. What HAS changed is the government profit margin, which has risen from 1.5% in 1950 to 20% at present. Exxon still makes the same 9.5% that they did 10 years ago, but your federal government is raking in the dough.

It should be noted that "excessive first quarter profits" refers to the DOLLAR AMOUNT of oil industry profit, which is obviously on the rise as the sale price rises. But the dollar amount is useless without considering inflation. We've the value of the dollar is almost 9 times less today than it was in 1950. If you consider gas prices in 1950, and adjust ONLY for increased taxes and inflation, the calculated present price is closer to $4.50 than the $4 we're all paying at the pump. Really the question is, why aren't we paying MORE for gas?

Consider what happened when we got our "economic stimulus" last month. The federal government printed off $600 for every citizen - lowering the value of the dollar - and gas prices shot up almost a dollar.

High gas prices are the result of poor fiscal policy at the federal level; they are simply the fastest market to respond to inflation.

Re:So, basically

[MacDork]

stringent organization of the economy and society, and aggressive repression of opposition. In addition to placing the interests of the individual as subordinate to that of the nation

Yep. Partly.

Yet, mostly not. FTFA:

is often asserted as a weapon to try to persuade corporate managers and directors that they should take actions that benefit particular shareholders of a given corporation, regardless of whether those actions may impose high costs on creditors, employees, the communities where corporations have their operations, or other stakeholders

Should Sony skip free with a few vouchers after committing half a million instances of felony computer trespass? GGP sure thinks so...

(Yeah, that last part's a straw man, but so is GGP... honestly, how does total crap like that get modded insightful?)

Re:Two responsibilities

[Rolgar]

If you make the penalties sufficiently harsh for the severity of the crime, and can prosecute the organization and individuals involved, and reduce the number of appeals so the company can't expect to indefinitely delay their punishment, the two responsibilities will align, because lawbreaking would become unprofitable. I'm all for due process, but the appeals system is abused to no end because it's like a whole second chance. More appeals judges need to dismiss frivolous appeals with an increase in penalties so the only appeals will be truly questionable decisions.

Re:So, basically

[Adambomb]

As i mention in other replies, the big issue for me is the fact that this is all based on the subjective notions of "ethics and national interest". If we create such a system with great intentions, it must be created such that subjectivity cannot enter into the equation. The wrong person gets in power and bam, the system is the infrastructure to have massive influence over american corporations and vicariously, the economy. Its the wrong kind of step unless it is done flawlessly.

Perfection is rare in humanity. I dont trust us to do it properly without it being a hair trigger away from being perverted into something horrible. It might NOT be perverted but what politician doesnt like more power and influence?

The odd one yes, but most people like that tend to not get to the upper echelons of politics in any event.

MBA training says ignore law if you can

[zooblethorpe]

Corporations have only two responsibilities: Maximize profits, and follow the law.

I don't have a link handy, I'm afraid, but I've heard from friends and read elsewhere that numerous MBA programs (at least in the US) actively advocate getting away with as much as possible in pursuit of profits. "Oh yeah, and don't break the law, kids (wink wink, nudge nudge)." It's not necessarily about following the law, instead it's about getting away with it when you don't.

Cheers,

Good question

[IvyKing]

I haven't heard of any penalties or dissolutions either - may happen with corps too small to be of concern to the typical news media. Closest thing to dissolution for most corps is bankruptcy.

What may be the ultimate penalty is if dissolution leads to the revocation of the limited liability clause of virtually all corporations - institutional investors would be paying a lot more attention to management following the law if they knew they would be on the hook for knowing of illegal actions undertaken by management.

FWIW, one person who probably holds the most responsibility for the "Maximizing share price" BS is William Lerach.

Re:So, basically

[Original Replica]

Though a cynic might argue that aligning the interests of the nation to that of its corporations is what is going on now, and that that is merely a different form of fascism.

OK I'll be that cynic. It makes perfect sense that such problems should arise, money is essentially a tool used to trade power, influence, and ownership. So when you have corporations with as much money as many powerful countries, that they would begin to exert the same levels of influence as countries. [corporations.org] The problem with this is that they are countries with only one law: profit. More enlightened countries understand that by improving the lives of their citizens and the lives of citizens in countries close to them, they improve the value of the country itself. The real wealth of nations is in the quality of life of it's citizens, much more so then the exchange rate and quantity of it's currency. [reason.com]

Oil, soil, copper, and forests are forms of wealth. So are factories, houses, and roads. But according to a 2005 study by the World Bank, such solid goods amount to only about 20 percent of the wealth of rich nations and 40 percent of the wealth of poor countries. So what accounts for the majority? World Bank environmental economist Kirk Hamilton and his team in the bank's environment department have found that most of humanity's wealth isn't made of physical stuff. It is intangible....The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population's knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, "natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent." Social institutions are most crucial. The World Bank has devised a rule of law index that measures the extent to which people have confidence in and abide by the rules of their society. An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth.

When you have economic enities as powerful as nations that do not work to preserve and improve the intangible capital within their domain as a priority higher than simple short term monetary profit, then all society loses wealth. So really this is just a more enlightened enforcement of that requirement to "maximize profit".

Re:So, basically

[clang_jangle]

There is nothing inherent in collective endeavor which requires the endeavor be considered an entity. Under US law corporate entities have rights and receive benefits which are superior to those available to the individual.

Re:This is a question of definitions.

[greenguy]

Of COURSE you have employees who want to make money. That's the whole point. To clarify, let's pull out two sentences from your post:

So do most people who work at corporations, though the majority never reach those dreams.

You may dislike corporations, but history has shown they are very effective at making money, and at the end of the day that is what matters to the shareholders.

So, the corporation is an economic structure that is good at putting wealth in the hands of people who are not the ones actually generating it.

The solution is to make the workers and the shareholders the exact same people, so that the people who generate the wealth get to benefit from it. The economic structure that allows that to happen is called a cooperative.

Re:So, basically

[rhakka]

I own an S-corp LLC as well, that doesn't mean I think it's *right*. but you play by the rules of the game you're playing.

corporation personhood is an abomination. I'd be happy to see it go. having a taxable entity is great, but having a nearly impervious shield to liability most assuredly is NOT.

Re:So, basically

[Original Replica]

"What would accomplish more? Suing the shareholders who were not involved but merely own the company? The crew of the ship who likely did what they could to prevent the incident much less don't have the funds to cover all the cleanup costs? Or the overall corporate entity which handles the operations and has the funds to cover cleanup costs? Obviously suing the corporate entity would have the greatest effect, and most likely the management would then reprimand the ship's crew as well."

I disagree. I exactly think it should be the shareholders who should be sued, as a group. If the ship's route and scheduling, crew size, and oil spill first response measures are dictated by "maximizing the shareholder's profit" at the (implied) bidding of those shareholders. The shareholders are owners of the company, they should be involved in any legal proceedings against it. If a million different people own the company, then a million different people will be pissed when they have to write a check to pay for the poor behavior of that company, and they will be more likely to take action to prevent future poor behavior then if they are barely aware of the problem, because all they every look at is the stock price.

Re:So, basically

[Lord Ender]

Letter to shareholders:

As part of our new mandate to be better corporate citizens, this quarter's dividend payment will be canceled, so that the money can be donated to the White House's new "family values" public service campaign. This campaign seeks to save our children from the evils of homosexuality by demonizing the lifestyle of these non-family groups.

There will be no shareholder vote to cancel the dividend and donate to the family values campaign; this action is being mandated by the new Department of Corporate Citizenship.

Re:So, basically

[ZJVavrek]

Do you have a source for that quote? I've often seen it thrown around, but never seen any hint about a reliable source for it. Wikiquote* claims that it does not appear in the Enciclopedia Italiana (which it also claims is often given as the source).
It seems like the kind of line that people will use to decry corporations merely because it evokes strong feelings, not because it has any kind of factual basis. (I would enjoy being proven wrong about this--it's a good line and I like decrying corporations.)

*A part of the Wikimedia Foundation and therefore the bastion of all human knowledge.

Re:But who is making the straw man argument?

[Russ Nelson]

Geez. Oak is a moron. Corporate entities are accountable to the citizenry most when markets are free, and yet he's calling for less free markets. Did somebody buy him the special shoes with the targets drawn on the uppersoles?

Re:So, basically

[xappax]

<i>Personally, I think most of these "havens" will disappear over time anyway. Look at India. Was the major outsourcing center for the support and call industry. But as competition for skilled employees increased, wages increased, and suddenly other countries were "cheaper".</i><br>
<br>
Unlikely. That's kind of like saying ghettos will disappear over time. Sure, when property is cheap, businesses and high paying jobs show up in a neighborhood. And soon it stops being a ghetto. But 30 years later, the businesses move out, rich people leave, city services decline, crime starts, people become homeless, and urban decay sets in. Ever notice how ghettos often have beautiful old architecture? In another era they were nice neighborhoods, but not nice enough to sustain themselves.<br>
<br>
So it goes with third world nations. Sometimes they're graced with business and high-paying jobs, but never enough to actually get out of debt and start stabilizing their own infrastructure. Then, when the business moves on, their economy crashes from the loss of jobs which people had grown dependent on. They decline into abject poverty until they're the cheapest workforce around again.

Re:So, basically

[ccmay]

Or maybe it should be treated like the individuals who run corporations (and make decisions) but who never seem to be punished for their egregious misdeeds, because, "oh, it was the corporation that did it"?

Whom would that be? Bernard Ebbers of Worldcom, now serving 25 years in the Federal pen? Or maybe Jeff Skilling of Enron, serving 24 years. Jamie Olis, Dynegy? 24 years. John and Timothy Rigas of Adelphia? 15 years and 20 years respectively. Dennis Kozlowski of Tyco? 8 to 25 years. Joseph Nacchio of Qwest? 6 years. Even silly Martha Stewart got almost a year.

Take note, all of the crimes committed by these corporate chieftains took place under the watch of party boy Bill Clinton, who received huge donations from many of them, and looked the other way while the good times were rolling. It fell to George W. Bush to actually put these men in jail.

Do not buy in to the Left's anti-corporate bullshit. There is plenty of accountability these days.