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#309 - New Strategy Focuses On Corporations, 27-Oct-1992

Whenever we fight for clean drinking water, or clean air, or a safe
workplace, we are likely to find a corporation on the other side of the
issue. The goal of a corporation is, first, to survive, and, second, to
return a profit to its shareholders (its legal owners) and if the air
has to be fouled to accomplish these goals, then the air will be
fouled. The Business Council for Sustainable Development (a private
group made up of the heads of major corporations such as DuPont and Dow
Chemical) acknowledges that this is so: "Today, for instance, the
earth's atmosphere is providing the valuable service of acting as a
dump for pollutants; those enjoying this service rarely pay a
reasonable price for it," they say.[1] This is an example of
corporations "externalizing" their costs. By using the air as a free
dump, a corporation passes the costs of waste disposal along to the
public while the profits from dumping fill the corporate treasury. This
is standard business practice.

During the last 200 years, corporations have evolved into huge
organizations wielding trillions of dollars to achieve their goals. In
theory, corporations are held in check by the marketplace. If they do
something bad, they will incur penalties that hurt their profits.
However in practice, society has found no effective way of imposing
penalties on corporations, so society today has lost control of
corporate behavior. Instead of effective control, we have the concept
of regulation.

In their 1991 book, POWER AND ACCOUNTABILITY, Robert Monks and Nell
Minow [M&M], argue that corporations thrive under regulation: "The
ultimate commercial accomplishment is to achieve regulation under law
that is purported to be comprehensive and preempting and is
administered by an agency that is in fact captive to the industry,"
they say.[2] In other words corporations WANT regulation. Regulation
limits their liability and in many cases shields them from competition.
Notice how tobacco companies claim that the warning label on cigarettes
absolves them of liability for lung cancers. Corporate polluters WANT a
permit system that regulates their emissions; such a system LEGALIZES
the dumping of poisons into air, land and water. The large waste
haulers FAVOR regulations that require double liners and leachate
collection systems in landfills; such regulations drive the small waste
hauler out of business, thus limiting competition. From a corporate
point of view, the best regulations are those that appear to cover
everything, can't be set aside or undercut by other regulations, and
are administered by an agency that is captive to the corporate

It is not difficult for corporations to capture a regulatory agency.
(See RHWN #210, #289.) Who will staff the agency? Often an "expert"
from the regulated community. Even the most vigorous opponent of an
industry soon becomes coopted; perhaps he or she wants to expand the
agency's jurisdiction or budget, for which industry support is needed.
Perhaps he or she wants a job with industry when the administration
ends. Perhaps all the information coming into the agency is prepared by
industry itself.

As Robert Monks says, "When Nell and I worked with the Presidential
Task Force on Regulatory Relief, during the Reagan Administration, we
found that business representatives continually sought more rather than
less regulation, particularly when it would limit their liability or
protect them from competition." [M&M pg. 131.] Regulation was supposed
to make corporations accountable, but corporations have turned
regulation into a shield against accountability.

It is this ability to mold the environment to its own purposes that
causes Monks and Minow to say, "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." [M&M pg. 24.]

Several things happened during the past decade to make a bad situation

When Michael Milken and his associates discovered that "junk bonds"
could raise enormous amounts of money easily and quickly, this paved
the way for "hostile takeovers" by "corporate raiders." As Monks and
Minow describe it, "Corporations are ideally suited for self-
preservation, which is the definition of the externalizing machine.
When they saw what Milken was doing, corporate management proceeded to
do whatever was necessary to protect their capacity to direct
enterprises, and they found that protecting themselves from raiders
meant protecting themselves from shareholders and squeezing any
semblance of accountability out of the system." [M&M pg. 47.] Since
corporate raiders gained control by buying shares, corporate management
protected its turf by taking control away from shareholders. This
protected corporations against hostile takeovers, but it also insulated
management from accountability to shareholders.

With their new-found control over everything, corporate managers began
to pay themselves higher and higher salaries. Between 1973 and 1975,
CEOs' [chief executive officers'] after-tax pay averaged 24 times that
of the average manufacturing worker. By 1987 to 1989, the differential
was 157 times the average manufacturing worker. But taxes for CEOs
declined from 50 percent to 28 percent, while worker taxes increased
from 20 percent to 21 percent." [M&M pg. 166.]

One consequence of high salaries in business is that smart, aggressive
people are drawn into the corporate world, rather than into government
or education, thus further consolidating the power of corporations.
When the education system deteriorates, corporations educate workers
and potential workers for their own purposes; this may provide loyal
workers but it seems unlikely to produce well-rounded citizens ready to
question the proper role of corporations in a free society.

Directors of corporations have never provided an effective check on the
behavior of management. Directors are selected by management, paid by
management, and informed by management. As compensation expert Graef
Crystal says, boards are typically "ten friends of management, a woman
and a black." [M&M pg. 77.] Generally speaking, boards of directors are
captives of management. They provide little or no accountability.

Corporations now dominate our political life. There are 40,000
registered lobbyists in Washington--75 lobbyists for each senator and
representative. A run for federal office costs anywhere from $10
million to $150 million, and most of this money comes from corporate
PACs (political action committees). So every politician who gets
elected is beholden to corporate interests from day one. As Senator
Barry Goldwater has said, "PACs set the country's political agenda and
control nearly every candidate's position on the important issues of
the day. [M&M, pg. 124.]

Corporate crime is rampant. One study of America's largest 500
corporations in 1982 revealed that 23 percent of them had been
convicted of a major crime or had paid more than $50,000 in penalties
for serious misbehavior during the previous decade. And of course those
statistics merely describe the ones who got caught.

"Why do corporations engage in criminal behavior? It has to be because,
at some level, they find that the benefits outweigh the costs. Or, more
likely, management finds that the benefits accrue to the corporation,
while the costs are borne elsewhere--the externalizing machine at
work," say Monks and Minow. [M&M pg. 133.]

Corporate greed and abuse of power seem to have worsened during the
1980s, but it has been obvious to some people for a long time that
corporations exert an unhealthy influence over many aspects of American
society. As W.H. Ferry said in 1959, "As the most important single
factor in the lives of most Americans, the corporation should be
required to make affirmative contributions to freedom and justice as
our distinguishing values."[3]

Yet control of corporations has never been the focus of the
environmental movement, the women's movement, or even of the labor
movement. Activists have focused their attention everywhere but on the
corporation, the key institution of modern life.

As Richard Grossman and Frank T. Adams say,[4] "What passes for
political debate today is not about control, sovereignty, or the
economic democracy which many Americans thought they were fighting to

"Too many organizing campaigns accept the corporation's rules, and
wrangle on corporate turf. We lobby congress for limited laws. We have
no faith in regulatory agencies, but we turn to them for relief....

"How much more strength, time and hope will be invest in such dead
ends?" they ask.

To gain control over corporations, examine the corporate charter,
Grossman and Adams argue (see RHWN #308). The corporate charter is
granted by state legislatures; without a charter, a corporation ceases
to exist. The charter says a corporation must obey the law, serve the
public good, and do no harm. Corporations that fail to comply can lose
their right to do business.

Grossman and Adams suggest a wide range of controls that might be
exerted through the corporate charter, among them:

--corporate owners and officers must be liable for harms they cause;

--charters must be reviewed annually and corporate officers show that
all corporate harm has ceased;

--the corporation is an artificial creation and must not enjoy the
protections of the bill of rights;

--no corporation should exist forever.

It is a curious fact of history that the environmental movement has
never focused its attention on the corporate charter as a means of
controlling corporate behavior. Now that seems likely to change.

--Peter Montague


[1] Stephen Schmidheiny and others, CHANGING COURSE (Cambridge, Mass.:
MIT Press, 1992), pg. 9.

[2] Robert A.G. Monks and Nell Minow, POWER AND ACCOUNTABILITY (N.Y.:
HarperCollins, 1991), pg. 131. Hereafter cited as M&M.

[3] W.H. Ferry, THE CORPORATION AND THE ECONOMY (Santa Barbara, Calif.:
Center for Study of Democratic Institutions, [1959),] pg. 7. Single
copies available from us for $6.00.

[4] Richard Grossman and Frank T. Adams, TAKING CARE OF BUSINESS;
Charter, Inc., 1992). For a copy, send $4.00 plus a self-addressed,
stamped envelope containing 52 cents postage to: Charter, Inc., P.O.
Box 806, Cambridge, MA [22140.]22140.

Descriptor terms: corporations; business council for sustainable
development; corporate charters;

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