From the January/February 2002 issue of Business Ethics: Corporate Social Responsibility Report:

How Corporate Law Inhibits Social Responsibility

A Corporate Attorney Proposes a ‘Code for Corporate Citizenship’ in State Law

Robert Hinkley

After 23 years as a corporate securities attorney-advising large corporations on securities offerings and mergers and acquisitions-I left my position as partner at Skadden, Arps, Slate, Meagher & Flom because I was disturbed by the game. I realized that the many social ills created by corporations stem directly from corporate law. It dawned on me that the law, in its current form, actually inhibits executives and corporations from being socially responsible. So in June 2000 I quit my job and decided to devote the next phase of my life to making people aware of this problem. My goal is to build consensus to change the law so it encourages good corporate citizenship, rather than inhibiting it.

The provision in the law I am talking about is the one that says the purpose of the corporation is simply to make money for shareholders. Every jurisdiction where corporations operate has its own law of corporate governance. But remarkably, the corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation—usually a board of directors—and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, where I live, this duty of directors is in Section 716 of the business corporation act, which reads: ...the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders....

Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. This provision is the motive behind all corporate actions everywhere in the world. Distilled to its essence, it says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders.

Section 716 dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interest. Section 716 and its counterparts explain two things. First, they explain why corporations find social issues like human rights irrelevant—because they fall outside the corporation’s legal mandate. Second, these provisions explain why executives behave differently than they might as individual citizens, because the law says their only obligation in business is to make money. 

If you've ever complained about giant corporations taking over our lives, but wondered what you could do about it, this is the book for you. In Defying Corporations... the US activists behind the Programme On Corporations, Law and Democracy have drafted what is, in effect, a manifesto for anti-corporate action.

Writers Richard Grossman, Jane Anne Morris and Ward Morehouse, among others, provide an encyclopaedia of subversive essays, speeches, sermons and letters that turn over the stones under which pale, anonymous corporate executives normally conduct their business in secret. And the authors call for a democratic offensive to oppose this malign corporate influence.

The 70-odd short chapters cover subjects such as 'Ending Corporate Governance', 'Citizens Over Corporations', 'Justice For Sale' and - leaving us in no doubt as to their preferred solution -'Revoking The Corporation'. The book's main strength is its thorough grounding in law, both current and historical, and its grasp of just how corporations play the legal game to outsmart us, the citizens.

The legal case the authors make against corporations and their undermining of democracy is so thorough and so devastating that it leaves one hungry for more concrete details of this or that company subverting the democratic process, bribing elected officials or corrupting the judicial process. A few corporate crooks are named and shamed here, but perhaps there is room for a companion volume listing the guilty and indicting them for their crimes.

Richard Milton is the author of Bad Company: Behind the Corporate Mask

This article first appeared in The Ecologist Vol 32 No 1.





Book review:



THE APEX PRESS 2001/$17.95 ISBN: 1891843109