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Are Corporations
Inherently Corrupt?
The
decision by former Enron chief executive, Kenneth Lay, to decline to testify
before Congress regarding the apparent fraud and deception practiced by his
company, whose discover led to its collapse, has profoundly troubled many of
our elected representatives. According to the Duluth News Tribune (February 4, 2002), Senator Byron Dorgan, D-ND,
for example, has observed, in response to new disclosures, "It is almost a
culture of corruption", where "Once you start peeling away the layers
of this onion, it starts to look pretty ugly." The especially troubling question remarks such as these may raise
in the minds of Americans is the possibility that corruption might be inherent
to corporations. After
all, if corporations are inherently corrupt, then we should have every reason
to expect that this Enron may be followed by many other Enrons and that there
is really no good reason to suppose that the situation should get better on its
own. Indeed, the thought has crossed
more than one rational mind that, if corporations as prominent as this one have
been able to exert such vast influence in political and economic affairs, then
perhaps the only reason we haven't heard of more cases of this kind--apart from
the occasional savings and loan scandal, for example--has been a function of
ignorance, where we haven't known because our nation's press has failed to keep
us informed. What are Corporations? The
reasons, however, may run deeper than that.
One problem that has arisen within this context has been a matter of
understanding what the word "corporation" should be understood to
mean. The alternatives range from that
of a nexus of contracts to a person, where the first reflects a function of
corporations (to enter into contracts) and the second a legal fiction (since a
business is not a person). One place
to start to come to grips with this problem is the dictionary, which offers the
following conception(s): (D1) corporation =df 1
a legal entity, consisting usually of a group of people who have a charter granting it
perpetual life, that is invested with many of the legal
powers given to individ- uals: a corporation may enter into contracts, by and sell property, etc. 2 a group of
people, as the mayor and alder- of an incorporated town, legally
authorized to act as an individual. 3 any of the
political and economic bodies forming a corporative state,
each being composed of the employers and employees in a
certain industry, pro- fession, etc. 4 a large, prominent belly (Webster's New World Dictionary, 3rd College
Edition 1988). Imagine
my surprise to discover that, contrary to my sincere belief that corporations
are not persons, there are definitions, such as 4 above, according to which a
mere part of a person can qualify as a corporation, especially since I had
never before thought of myself from that point of view! The evidence in my case may be indisputable,
but the sense at stake here is not 4 but rather 1, which identifies
corporations with a group of people who are organized for the conduct of
business by entering into contracts, which assigns the function (entering into
contracts) with those who exercise it (the owners). The
owners of corporations are not necessarily the same as their officers or
employees, of course, except in cases in which the officers or employees own
stock in the company. A rather important distinction must therefore be drawn
between "stockholders", who are the owners of the company in the
strict sense, and "stakeholders", who are persons or other entities
having interests that may be affected by its conduct of business, for better or
for worse. That includes employees,
customers, creditors, and suppliers as well as stockholders, not to mention the
community, the environment, and the world. Just
to sharpen our focus and avoid misunderstanding, the conception of corporation
that appears to matter within this context can be captured by the following
definition: (D2) corporation =df a
legal entity consisting of an arrangement of people and property (roles and assets)
interacting together for the
purpose
of conducting business by a nexus of contracts. Although
this definition may appear to be neutral with regard to the question before us,
it fails to take into account the historical context of the times. As Marjorie Kelly, The Divine Right of Capital
(2001), has astutely observed, the standard conception of
corporations--the prevailing paradigm within American society--accepts the
crucial principle that "the only social responsibility of the corporation
is to make a profit", which was initially enunciated by a Nobel Laureate
in Economics, Milton Friedman. Lest
we not recognize the importance of this principle, Kelly elaborates its
meaning: In
corporate society, good is what is in the interest of stockholders. That is the
primary criterion of morality.
It means the corporation has the right to do
financial violence to its employees or the environment (conducting
massive
layoffs, clear-cutting forests), or to attack other corporations (brutal
competition,
hostile takeovers), if that increases the well-being of the ruling
tribe, the
stockholders. Indeed,
according to Kelly, prominent philosophers, including Karl R. Popper, have
characterized (what he calls) "the totalitarian theory of morality"
as maintaining that "good is what is in the interest of my group; or my
tribe; or my state". Thus, such
states, for example, are permitted to attack other states, or to do violence to
their own citizens, if it benefits the ruling tribe. Or, alternatively, such corporations are permitted to attack
other corporations, or to do violence to their own employees, if it benefits
the stockholders. These states and
corporations are explicitly amoral. What Makes Something Immoral? If
Popper is correct, then corporations certainly appear to be inherently corrupt.
But is he correct? The answer depends
upon which theory of morality is correct. There are many claimants to that
role, including subjective theories, family-value theories, religious-based
theories, and culture-related theories, according to which actions are right
when you (your family, your religion, or your culture) approve of it. So if you (your family, your religion, or
your culture) approve of incest, cannibalism, or sacrificing virgins to appease
the gods, such actions cannot be immoral.
They are moral, necessarily. All
of these approaches make morality a matter of power, where right reduces to
might. If someone approves of killing, robbing, or raping you, you have no
basis to complain on the ground that those actions are immoral, if subjectivism
is correct. Similarly for family, religion, and culture-based
alternatives. Every person, every
family, every religion, and very culture is equal, regardless of their
practices, respectively, if such theories are true. As
James Rachels, The Elements of Moral
Philosophy (1999), explains, on any of these accounts, the very ideas of
criticism, reform, or progress in matters of morality no longer apply. If attitudes about right and wrong differ or
change, that is all there is to it, even when they concern your life, liberty,
or happiness. If some person, family,
or group has the power to impose their will upon you, these theories afford you
no basis to complain. Philosophers
have therefore sought to establish some less-relative and more-objective
framework for understanding morality, including what are known as
consequentialist and non-consequentialist theories. According to consequentialism, an action is right if it produces
as much GOOD (usually taken to be happiness) as any available alternative. But the problem remains of deciding FOR WHOM
that happiness ought to be produced. According
to Ethical Egoism, for example, an
action is right if it brings about as much happiness for you personally as any
available alternative. Consequences for
others simply don't count. So Ted
Bundy, John Gacy, and Jeffrey Dahmer, for example, are home free--morally
speaking--though few juries would be likely to be impressed by the argument
that killing gave them more happiness than any available alternative. According
to Limited Utilitarianism, moreover,
an action is right when it brings about as much happiness for your group as any
available alternative. This is good
news for The Third Reich, the Mafia, and General Motors. If no available alternative(s) would produce
more happiness for Nazis than territorial acquisition, military domination, and
racial extermination, then those qualify as moral actions if Limited Utilitarianism
is true. Classic Utilitarianism, among consequentialist theories, is the only one
that dictates encompassing the effects actions have upon everyone rather than
some special class. But this virtue
does not guarantee the right results.
If a social arrangement with a certain percentage of slaves, say, 15%,
would bring about greater happiness for the population as a whole--because the
increase in happiness of the masters outweighed the decrease in happiness of
the slaves--then that arrangement would qualify as moral. Necessarily! So
if theories that qualify manifestly immoral behavior as "moral" ought
to be rejected, perhaps a non-consequentialist approach can do better. According to what is known as Deontological Moral Theory, actions are
moral when they involve treating other persons with respect. More formally expressed, it requires that
other persons should always be treated as ends (as intrinsically valuable) and
never merely as means (instrumentally). This
does not mean that persons can never treat other persons as means, which
usually happens without thereby generating immorality. The relationship between employers and
employees is clearly one in which employers use their employees as a means to
conduct a business and make profits, while employees use their employment as a
means to make a buck and earn a living.
Within a context of mutual respect, this is moral conduct. When
employers subject their employees to unsafe working conditions, excessive
hours, or poor wages, however, the relationship becomes exploitative and
immoral, which can also occur when employees do not perform their duties, steal
from their employers, or abuse the workplace.
Similar considerations apply to doctors and patients, students and faculty,
or ministers and congregations, which may explain our dismay at their betrayal.
Are Corporations Inherently Immoral? If
these considerations are correct, then it would appear to be the case that
corporations qualify as limited utilitarian entities. When exemplified by states such as Germany during The Third
Reich, they qualify as instances of what Popper calls "the totalitarian theory
of morality". Since corporations are not states, however, it would seem to
be more appropriate and less prejudicial to classify the morality exemplified
by these entities instead as limited utilitarianism. Since they satisfy the conditions that define an indefensible
moral posture, it seems to follow that they also qualify as amoral, at least in
the sense that their behavior does not have to satisfy conditions of morality. The
conclusion that corporations are inherently immoral appears very plausible, but
it might be a good idea to investigate the matter further to ascertain whether
or not corporations can be moral, in which case they are not necessarily
inherently corrupt. If we assume the prevailing paradigm of corporations as
profit maximizing entities, then since profits are generated as the difference
between net income (as a function of prices for products or for services) and
net costs (of producing those products or services--schematically, where profits
= ( prices -
costs )--the principle of profit maximization implies the obvious
desirability of inflating prices and deflating costs. Costs
themselves tend to be a function of the cost of natural resources, the cost of human
labor, and (local, state, and federal) taxes.
To increase profits, therefore, at least three broad avenues of approach
are available related to decreasing costs, namely: (a) decrease the cost of natural resources; (b) decrease the cost
of human labor; and (c) decrease the cost of (local, state, and federal)
taxes. Alternatively, increase prices
to the optimal point where sales produce maximal profits, where the term
"profits" should properly be construed broadly to include such forms
of profit as retained earnings, stock options, reinvestments in companies, and
such). The
modes of operation that tend to maximize profits thus include (a) decreasing the
cost of natural resources by, for example, (i) exploiting the environment, (ii)
converting public land to private use, and (iii) evading the expenses of
pollution cleanup or costs of environmental restoration; (b) decreasing the
cost of human labor by, for example, (i) paying minimal wages, (ii) offering
minimal benefits (health coverage, dental plans, and such), and (iii) opposing
the organization or diminishing the influence of labor unions that engage in
collective bargaining. Alternatively,
(c) decrease the cost of taxes, for example, by (i) resisting paying corporation
taxes, (ii) seeking to reduce income tax rates and (iii) attempting to abolish
inheritance taxes; or (d) increase the price of your product, for example, by
(i) reducing competition, (ii) promoting monopolies, and (iii) manipulating markets
(by contriving shortages, disseminating misinformation, and the like). These
techniques are morally acceptable to corporations because, as limited utilitarian
entities, they are obligated to consider the consequences for no one but
themselves. The consequences of their
acts for others simply do not matter. Indeed,
the situation is so drastic that corporations operating as limited utilitarian entities
can even resist supporting the social safety net that has been developed since
the days of The New Deal, including unemployment insurance, workmen's compensation,
Social Security, Medicare, Medicaid, and similar programs, which tend to defeat
profit maximization for at least three reasons: (1) they increase the cost of (local, state, and federal)
taxation; (2) they create alternatives to low-paying, menial jobs; and (3) they
thereby empower the workforce with options.
The
current trend toward globalization appears to extend the reach of American corporations
around the world, where the potential benefits are enormous as a as a new form
of (or a new name for) colonialism and imperialism, for example, by (1)
reducing the cost of natural resources; (2) reducing the cost of labor; and (3)
reducing the cost of (local, state, and federal) taxation. Thus, it should come as no surprise that the
diminution of sweatshops in the United States should be taking place with a
commensurate increase in sweatshops around the world! What Can Be Done? It
should be apparent that, when their conduct is controlled by the principle of maximizing
profits, corporations are inherently corrupt.
The problem results from the operation of corporations on the basis of
Friedman's principle rather than from the definition of corporations themselves. Consequently, it may be said that
corporations are inherently amoral, which means that they can, but are not
obligated to, operate on the basis of principles of morality that involve treating
other parties with respect. The situation
can be changed, therefore, only by adopting a different paradigm than the
prevailing corporate paradigm. Kelly,
for example, suggests that corporate responsibilities should be redefined to
maximize benefits, not merely to stockholders, but to stakeholders, where the responsibilities
of corporations include taking into account the consequences of their actions
for the parties that they affect by not violating their rights. From a moral point of view, this is
analogous to abandoning limited utilitarianism and adopting deontological
principles as binding on corporations in their relations with stakeholders and
only seeking to maximize profits to an extent consistent with deontological
morality. This represents a change in
corporate paradigms. The stakeholders, remember, include every
party with interests that are affected by the actions of the corporation, that
is, which is causally affected, for better or for worse, by its mode of
operation, including employees, customers, suppliers, and stockholders, but
also the community, the environment, and the world. This approach forsakes short term gains for long term planning,
where decisions are made taking into account the answers to questions such as
the following three: * How do corporate actions affect the qualify
of life of employees? * How do corporate
actions affect sustainability over the long run? * How do corporate
actions affect the survival of the human species? Such
a change represents a shift toward corporations that serve the public good and
do not merely promote private greed, as we have seen in the case of Enron. ________________________________________________________________________
Jim
Fetzer is a professor of philosophy at the University of Minnesota,
Duluth. |