by Robert Hinkley
In his recent speech to Wall Street, President Bush
stated, "In the long run, there's no capitalism without conscience."
There is little doubt as to the truth of this assertion, but where is
the conscience going to come from that is necessary to assure capitalism's
Today's capitalism is driven by large corporations.
In addition to sometimes defrauding their own shareholders, big corporations
regularly despoil the environment, violate human rights and the dignity
of their employees, endanger the public health and safety with dangerous
or untested products and damage the welfare of the communities in which
they operate. These actions are more illustrative of an absence of conscience
than its presence.
President Bush has said that the barrel just has a
few bad apples whose shenanigans have called into question the trustworthiness
of everyone else. He wants to fix this by forming corporate SWAT teams
at the SEC and threatening CEOs and other corporate bigwigs with stiffer
criminal penalties for their misbehavior. We are deluding ourselves
if we think that this is going to bring (or restore) conscience to capitalism.
Corporations are managed by groups of people acting
collectively. Frequently, these people act on the advice of experts
from the legal, accounting and banking worlds. Still other groups carry
out the plans of the people making the decisions. Everyone knows that
pinning criminal responsibility on individuals in this situation is
almost impossible. Corporate managers are not going to change their
behavior out of fear of prison terms they know they will never have
Despite the president's assertion to the contrary,
there is something wrong with capitalism. What's wrong with it is that
its engine, the corporation, has no conscience itself.
Under the corporate law, the corporation is dedicated
to the unbridled pursuit of profit. The law in all fifty states says
that directors must use their best efforts to maximize profits for shareholders.
Directors may be sued if they violate this duty. Everybody who works
for a corporation knows it is their job to keep this from happening
by helping the company make money.
There is no element of conscience in this duty. Maximizing
profits is pure self-interest. This dedication to the pursuit of self-interest
is the reason corporations act without conscience and, ultimately, why
capitalism is largely without conscience.
For there to be capitalism with conscience, we must
change the corporation to promote respect for the environment and other
elements of the public interest. This change must promote socially responsible
corporate behavior throughout the corporation irrespective of who is
the CEO or whether he or she is a good apple or a bad one.
Capitalism with conscience requires that all managers
understand the pursuit of profits should not result in the destruction
of the public interest. For this to be achieved, the duty of directors
must be changed. I propose we do this by changing the corporate law
to include a legally enforceable Code for Corporate Citizenship. In
its most succinct form, the Code would simply add the following 24 words
to the duty of directors to make money:
but not at the expense of the environment, human rights, the public
health or safety, the welfare of communities or the dignity of employees.
The effect of the Code will be to create new duties for directors to
protect the environment, human rights, the public health and safety,
the welfare of our communities and the dignity of employees. These new
duties should be enforceable in much the same way that shareholders
are now able to hold managers responsible for not acting in the best
interest of the shareholders- -by civil lawsuits brought by or on behalf
of the people whose interest the corporation damages.
The Code will require directors to pursue corporate
profits only in ways that do not damage the environment or any of the
four other elements of the public interest it protects. In a sense,
it will free directors and other people in the corporation to follow
their conscience (sometimes sacrificing profits to protect the public
interest), without fear of being sued by shareholders.
The Code for Corporate Citizenship will improve the
profit motive not eliminate it. It will allow capitalism to evolve to
its next logical step by providing what the president has correctly
stated it cannot survive without--conscience.
Robert C. Hinkley is a corporate lawyer and former partner in the New
York law firm Skadden, Arps, Slate, Meagher & Flom LLP. He now resides
in Brooklin, Maine. His e-mail address is email@example.com