=======================Electronic Edition========================
RACHEL’S HAZARDOUS WASTE NEWS #308
—October 21, 1992—
News and resources for environmental justice.
——
Environmental Research Foundation
P.O. Box 5036, Annapolis, MD 21403
Fax (410) 263-8944; Internet: erf@igc.apc.org
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CORPORATIONS ARE EXTERNALIZING MACHINES, THE WAY
SHARKS ARE KILLING MACHINES.
The modern corporation defines our world. The invention of the
modern corporation has allowed us to become the wealthiest people in
all of human history. It has also allowed us–in just 100 years of
industrial enterprise–to march to the brink of collapse, rapidly
destroying the planet as a place suitable for human habitation.
Today, when the top 2 percent of us hold as much wealth as the
bottom 90 percent, it is an open question whether our democratic form
of government can survive in any meaningful way. Here again,
corporations are key. How to control the behavior of corporations has
become the central question we must all address.
A corporation is a group of people who have been granted a bundle of
rights and privileges guaranteed by the government. The government
grants those rights and privileges by issuing a piece of paper, a
certificate of authority called a corporate charter.
Before there was a United States of America, kings granted corporate
charters, creating organizations such as the East India Company and
the Hudson’s Bay Company.
As American colonists fought to throw off the rule of English kings
beginning in 1776, and created the world’s first constitutional
democracy in 1789, they carefully placed the right to charter
corporations in the hands of state legislatures. Today every state
legislature still has the power to grant, to amend, and to revoke,
corporate charters.
Corporations chartered in other states are called foreign corporations.
Corporations chartered in other nations are called alien corporations.
Legislatures allow foreign or alien corporations to go into business in
their states through the same chartering process. An important new
booklet,[1] published this month, describes some of the changes that
have taken place in corporate rights, privileges, and behavior, during
the last 200 years. Called TAKING CARE OF BUSINESS:
CITIZENSHIP AND THE CHARTER OF INCORPORATION, by
Richard Grossman and Frank T. Adams, the booklet describes how
citizens controlled corporations before the civil war of 1861. Up to that
time corporations were chartered for a specific limited purpose (for
example, building a toll road or canal) and for a specific, limited
period of time (usually 20 or 30 years). At the end of the corporation’s
lifetime, its assets were distributed among the shareholders and the
corporation ceased to exist. The number of owners was limited by the
charter; the amount of capital they could aggregate was limited. The
owners were personally responsible for any liabilities or debts the
corporation incurred, including wages owed to workers. Often profits
were specifically limited in the charter. Corporations were not
established merely to “make a profit.” Each corporation was chartered
to achieve a specific social goal that a legislature decided was in the
public interest.
Early Americans feared corporations as a threat to democracy and
freedom. They feared that owners (shareholders) would amass great
wealth, control jobs and production, buy the newspapers, dominate the
courts and control elections.
After the civil war, during the 1870s and 1880s, these fears began to
be realized. Owners and managers of corporations pressed relentlessly
to expand their powers, and the courts gave them what they wanted.
Perhaps the most important change occurred when the U.S. Supreme
Court granted corporations the full constitutional protections of an
individual citizen. Congress had written the 14th amendment to the
constitution to protect the rights of freed slaves, but the court in 1886
declared that no state shall deprive a corporation “of life, liberty or
property without due process of law.” Now corporations had real legal
muscle.
By the early 20th century, courts had limited the liability of
shareholders; corporations had been given perpetual lifetimes; the
number of owners was no longer restricted; the capital they could
control was infinite. Some corporations were given the power of
eminent domain (the right to take another’s private property with
minimal compensation to be determined by the courts). Of course a
corporation cannot be jailed. It cannot even be fined in any real sense;
when a fine is imposed, it is the shareholders who pay it and it
becomes just another cost of doing business.
With limits on liability, perpetual life, and the same rights as every
citizen, corporate growth was guaranteed.
A corporation brings together three groups of people–investors
(shareholders), who are the legal owners; labor; and management,
which includes a board of directors.
In theory the shareholders are responsible for all decisions. But a
recent book on the modern corporation by Robert Monks and Nell
Minow[1] makes it clear that this theory has been an empty fiction for
many years. Ownership is now fragmented into shares so small that
“the concept of ownership has been diluted to the point of
disappearance.” Increasing the number of shareholders reduces the
incentive and ability of each shareholder to gather information and
monitor management’s performance.
Historically, labor has not sought control of decision-making, leaving
that to management. Instead, labor has settled for a growing share of
profits. In the past decade, labor’s share and its power have steadily
diminished.
The board of directors is appointed by management. Its compensation
is set by management. The average corporation director puts in less
than three weeks each year but draws compensation ranging from
$20,000 to $60,000 or more.
“Since they are selected by management, paid by management, and–
perhaps most important–informed by management, it is easy for
directors to become captive to management’s perspective,” say Monks
and Minow.
Management has the Board of Directors in its pocket. This leaves but
one remaining check on management–the shareholders. Management
is directly accountable to the shareholders; at least that is what the
theory says. But the reality is quite different. Monks and Minow trace,
step by step, court case by court case, the disintegration of
accountability in the modern corporation. Particularly during the
1980s (when Monks was a top Reagan appointee), corporate managers
cut their last remaining ties of accountability to shareholders.
People like to think that the power of management is balanced by the
power of shareholders. “This remembered sense of balance is so
powerful that it persists despite unmistakable proof that it no longer
exists,” say Monks and Minow. “Management accountability to
shareholders is more than an economically beneficial arrangement; it
is the basis on which we, as a matter of public policy, give legitimacy
to the impact that private entities have on our lives. We would no more
create a private entity without accountability than a public one; we
don’t want corporate dictators any more than we want political ones.
But today, any remaining accountability is little more than a vestige of
the original contract, the last remaining trace of the myth that no one
seems to want to give up.”
Monks and Minow describe in detail the tools that corporate managers
developed during the 1980s to diminish the decision-making power of
shareholders. They argue persuasively, and in detail, that today the
modern corporation is run by management chiefly for the benefit of
management. Though shareholders continue to benefit from profitable
decisions, shareholders no longer call the shots. Management rules the
roost.
But even management is not entirely in control. Monks and Minow
argue at length that the modern corporation has a life and a logic all
its own. The main goal of a corporation is to gather benefits for its
members, and to pass costs on to others–to “internalize” benefits and
to “externalize” costs.
“Despite attempts to provide balance and accountability, the
corporation as an entity became so powerful that it quickly outstripped
the limitations of accountability and became something of an
externalizing machine, in the same way that a shark is a killing
machine–no malevolence, no intentional harm, just something
designed with sublime efficiency for self-preservation, which it
accomplishes without any capacity to factor in the consequences to
others.”
What about government regulation? Monks and Minow argue that
governments do not have what it takes to control corporations. “In
fact, government is now as much a creation of business as the other
way around,” they say. Historically, they argue, corporations have
turned government controls into corporate shields. And: “…the actual
impact of all the laws, all the regulations, and all the bureaucrats on
large corporations is surprisingly small.”
What is left?
Grossman and Adams suggest that anyone concerned about justice–
anyone skirmishing with corporations to stop them from doing harm–
should focus attention on the corporate charter, the original source of
control created for us by the earliest Americans–a source of power still
available to us today, if we will only explore it and put it to use.
All state legislatures still have the right to grant, to amend, and to
revoke corporate charters. Legislatures are still responsible for
overseeing corporate activities through the chartering process.
Citizens can define and control corporations. It will require some
homework, examining state histories and precedents, examining the
charters of existing corporations, thinking creatively about how to
assert control, focusing, and organizing.
Grossman and Adams say, “Our right to charter corporations is as
crucial to self-government as our right to vote. Both are basic
franchises, essential tools of liberty.”
WE STAND IN PERIL OF LOSING OUR LIBERTY AND OUR
LIVES–THE HEALTH OF OUR PLANET AND OF OUR
CHILDREN–IF WE DO NOT LEARN TO CONTROL CORPORATE
BEHAVIOR. THIS MUST BECOME A CENTRAL FOCUS OF OUR
WORK, LOCALLY, NATIONALLY, AND WORLDWIDE. THE
BEHAVIOR OF CORPORATIONS IS CENTRAL TO EVERY
DANGER THAT THREATENS US. THERE IS NO MORE
CRUCIAL CHALLENGE THAT WE FACE.
–Peter Montague, Ph.D.
===============
[1] Richard Grossman and Frank T. Adams,
TAKING CARE OF BUSINESS: CITIZENSHIP AND THE CHARTER OF INCORPORATION
(Cambridge, Mass.: Charter, Inc., 1992). To
inquire about copies, write: Charter, Inc., P.O. Box 805, Cambridge,
MA [22140.]22140.
[2] Robert A.G. Monks and Nell Minow, POWER AND
ACCOUNTABILITY (N.Y.: HarperCollins, 1991).
Descriptor terms: corporations; corporate charters; shareholders;
labor; management; corporate accountablity;