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#388 - The Corporation -- Part 1, 04-May-1994

Anyone who reads beyond the daily newspaper must be aware that the
environment is in deepening trouble worldwide. For example, year after
year, Lester Brown and his colleagues at the Worldwatch Institute in
Washington, D.C., quietly catalog the world's deteriorating
environmental conditions:[1] clean water growing scarcer, forests
dwindling, marine mammals declining, indigenous human populations
disappearing, the oceans' fisheries collapsing, protein shortages
emerging, productive topsoil diminishing, contamination by pesticides
and industrial chemicals steadily growing, species loss accelerating,
chronic diseases rising throughout the industrialized world... And this
short list only brushes the surface.

Increasingly, citizens are searching for root causes of the world's
environmental decline, seeking pressure-points where focused attention
might make a fundamental difference. Here we examine the legal entity
called the corporation.

Corporations are legal fictions created by law to engage in business
for the purpose of returning a percentage on investors' capital. This
legal purpose requires that sufficient growth must occur each year (on
average) to produce a surplus that can be returned to investors; and it
requires that costs must be "externalized" (passed along to outside
parties, such as workers or the general public) to the extent possible.
As a former Ronald Reagan economist, Robert Monks, has said, "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."[2]

Individuals who make decisions for corporations are not free to do what
they personally believe is right. They must do what will externalize
costs and promote sufficient growth to provide a decent return on
investment. If corporate decision-makers make decisions contrary to
these narrowly-and legally-defined corporate goals, they can be sued by
shareholders for breach of fiduciary trust. Suppose Dow Chemical, or
DuPont, decided to use a significant portion of its assets to reverse
environmental damage. How long would it be before they found themselves
in court for breach of fiduciary trust? These corporations are
chartered to pump out chemicals profitably; legally, that is about all
they can do.

A corporation's narrow financial purposes strictly limit the range of
decisions possible within corporate culture. The legal framework of the
corporation strongly favors decisions that foster short-term gain over
decisions that protect public trust resources upon which humanity
depends for sustenance, such as the oceans or the atmosphere.

Finally--and this is the most important aspect of the corporation--
individual investors and managers are legally protected from liability
for the corporation's actions. Indeed, limiting individual liability
was the purpose for which the corporation was invented. Furthermore, as
a matter of U.S. law, since 1886 corporations have been accorded many
of the rights and Constitutional protections of an individual, without
the responsibilities of an individual.[3] In addition, of course,
modern corporations have perpetual life, and can accumulate assets and
influence on a scale that no individual could ever hope to acquire.
Many international corporations have annual budgets larger than the
annual budgets of many developing nations. (See RHWN #308 and #309.)

Because corporations cannot feel pain when the corporation hurts
someone or damages the environment, the fundamental constraint on human
behavior (personal pain) is missing from the corporate form.

This is a point worth emphasizing. It is principally through pain that
humans learn to control themselves and civilize their behavior. A baby
tries to crawl through a solid door; the resulting bump on the forehead
teaches something fundamental about limits imposed by the external
world. Later, the baby wants someone else's ice cream cone, takes it,
and gets punished--a painful but important lesson on the limits of
personal behavior. As we grow, we develop an individual conscience;
antisocial behavior begins to hurt us because we feel guilt and
remorse. Thus do we learn to control our selfish impulses.

Corporations cannot feel pain. After they grow to a certain size, no
penalty or fine can effectively hurt them. They simply pass the cost on
to shareholders and customers. Even if a handful of executives are put
in jail, the corporation itself goes on, largely untouched.

You can think of a corporation as a smiling giant that has perpetual
life, cannot feel pain, must constantly grow larger (doubling in size
every decade or so), must deposit its excreta in public places and do
everything else it can to make its neighbors and compatriots pay all
its costs of living. Its legal form requires the corporation to spend
billions hiring armies of talented specialists in law, public
relations, media manipulation, and the science of persuasion, all aimed
at making the corporation appear as nothing more than an ordinary
concerned citizen. This smiling colossus is a frightening alien indeed.

We have many thousand such creatures among us now. Legally prohibited
from sharing in the milk of human kindness, and increasingly free of
social (regulatory) constraints because of modern "free trade"
legislation (NAFTA and GATT --see RHWN #303, #304, and #305),
corporations are now poised to transform the planetary ecosystem on a
scale and at a pace unimaginable just 30 years ago.

There seems little doubt that the majority of corporate decision-makers
are well meaning people, as individuals. Nevertheless, the need for
constant growth (on average), and the need to externalize costs,
combined with an enforced freedom from personal responsibility and
liability for the corporation's actions, add up to a corporate culture
that is prone to cut corners, shrug off responsibility toward its
neighbors, and exhibit behavior that could only be called, at best,
selfish and antisocial and, at worst, sociopathic.

Humanity is clearly endangered, and we face two hard paths: business as
usual, or real change adopting pollution prevention with its attendant
dislocations. Down the one path very likely lies the eventual
destruction of our species. Down the other, at least a hope of
salvation.

Naturally corporations will not sit by while fundamental controls are
imposed upon their behavior. It is their nature that they must fight to
retain their present privileges. They have to. Corporate managers are
not bad people. On the contrary, they are, most of them, good people.
But they are ethically imprisoned by the corporate form. Even if a
majority of decision-makers inside American corporations agreed that
they were destroying the planet, industry would not be able to make the
needed shifts. Existing incentives are simply all wrong.

Now, therefore, the time has come to liberate our friends and
compatriots trapped inside the ethical perdition of the corporate form.
They know what is right, just like the rest of us. Like the rest of us,
they understand some of what must be done. Yet they are powerless to do
the right thing and make the needed changes.

We could liberate our compatriots from the corporate form by providing
corporations with at least two key changes, to give them real
incentives to curb their own worst tendencies:[4]

One: we could remove from corporations the Constitutional protections
of a natural person (for clearly they are nothing like one).

Two: we could revoke the corporate charters of those that insist on
doing major harm. "Three strikes and you're out," is the current phrase
advocated for individual criminals, and it could be applied to
corporations. Three felony convictions and you lose your corporate
charter. The corporate charter is the paper, issued by state
legislatures, that bestows upon any corporation the privilege of doing
business.

Denying a corporation the full Constitutional protections enjoyed by a
natural person is only logical. Natural persons can go to jail or face
fines that bring ruin. But corporations cannot go to jail or even be
effectively fined. Corporations cannot feel embarrassment, guilt or
remorse. To restore to corporations some human dimension, they could be
denied the Constitutional protections of the individual citizen.

Legal historian Carl Mayer suggests a new amendment to the U.S.
Constitution, as follows:[5]

THIS AMENDMENT ENSHRINES THE SANCTITY OF THE INDIVIDUAL AND ESTABLISHES
THE PRESUMPTION THAT INDIVIDUALS ARE ENTITLED TO A GREATER MEASURE OF
CONSTITUTIONAL PROTECTIONS THAN CORPORATIONS

FOR PURPOSES OF THE FOREGOING AMENDMENTS, CORPORATIONS ARE NOT
CONSIDERED "PERSONS," NOR ARE THEY ENTITLED TO THE SAME BILL OF RIGHTS
PROTECTIONS AS INDIVIDUALS. SUCH PROTECTIONS MAY ONLY BE CONFERRED BY
STATE LEGISLATURES OR IN POPULAR REFERENDA

The second reform --allowing for revocation of the corporate charter --
would permit corporations to mold their behavior in response to a real
threat of capital punishment, counterbalancing the short-term need to
externalize costs and make a profit. Charter revocation spells
corporate death. Such a threat would give everyone in the corporation
an enormous incentive to check corporate crimes and harms before they
got out of hand.

Outfitting corporations with a perpetual threat of death would
concentrate the minds of management, shareholders and workers
wonderfully, providing a strong, continuing incentive for ethical
behavior. Such a perpetual threat would humanize and civilize the
corporate form, which in recent years has arguably emerged as our most
rogue and dangerous institution.

--Peter Montague

=====

[1] Lester R. Brown and others, STATE OF THE WORLD 1994 (New York: W.W.
Norton, 1994); Lester R. Brown and others, VITAL SIGNS 1993 (New York:
W.W. Norton, 1993).

[2] Robert A.G. Monks and Nell Minow, POWER AND ACCOUNTABILITY (New
York: HarperCollins, 1991), pg. 24.

[3] Richard Grossman and Frank T. Adams, TAKING CARE OF BUSINESS;
CITIZENSHIP AND THE CHARTER OF INCORPORATION (Cambridge, Mass.:
Charter, Inc., 1992). For a copy, send $5.00 plus self-addressed,
stamped envelope containing 52 cents postage to: Charter, Inc., P.O.
Box 806, Cambridge, MA 02140.

[4] For 50 ways to reform corporations see Russell Mokhiber, CORPORATE
CRIME AND VIOLENCE (San Francisco: Sierra Club Books, 1988), pgs. 38-
65.

[5] Carl J. Mayer, "Personalizing the Impersonal: Corporations and the
Bill of Rights," HASTINGS LAW JOURNAL Vol. 41 No. 3 (March 1990), pgs.
577-667.

Descriptor terms: global environmental problems; corporations;
liability; corporate reform; nafta; gatt; personification; fines;
personhood; penalties; us constitution; bill of rights;