Changing The Design Of The Corporation

By Robert Hinkley, June 2004

A new film, The Corporation, is a must for any one who wants to understand why corporations pollute the environment, endanger the public health and safety, violate the dignity of their employees and sometimes ruin our communities. Based on a book by corporate law professor Joel Bakan, "The Corporation: The Pathological Pursuit of Profit and Power", the film says such behavior is inherent in their nature.

No, the devil doesn't make corporations do it, our state legislatures do--by designing them in a way that makes the pursuit of profit their only priority. This causes corporate personnel from the board room to the factory floor to behave in a way that furthers that goal even if their behavior causes damage to the public interest. If they don't, they will find themselves out of step and possibly out of a job.

State and federal officials try to restrict this behavior by passing laws that protect the environment, the rights of employees and other elements of the public interest. However, corporate personnel tend to view these laws as a cost. They then do whatever they can to reduce this cost, including lobbying, jurisdiction shopping and even taking a chance they will not be prosecuted for behavior they know or suspect is illegal. These actions undermine the concept of a government of the people, by the people and for the people.

Neither the film nor the book suggest a solution to the problem for which they correctly identify the cause. This is somewhat puzzling. The solution is obvious. If state law designs corporations in a way that encourages them to abuse the public interest, then we should change the law to encourage them to protect it.

The book says that to reform the corporation meaningfully, "[c]orporations would have to be reconstituted to serve, promote and be accountable to broader domains of society than just themselves and their shareholders." (Emphais added) As a corporate lawyer, I do not think we need go so far.

We should try something less revolutionary more evolutionary. We do not have to make corporations serve or promote the public interest. We merely have to make them respect it. Profits and promotion of the public interest may be mutually exclusive goals, but profits and protection of the public interest are not. The design of the corporation can be changed to reflect this by allowing corporations to continue to serve shareholders so long as their behavior does not abuse the public interest in the process.

All corporate abuse of the public interest stems from the same source, the corporate law which says directors have a duty to pursue profit for shareholders. It's time to start thinking about changing that obligation so that directors know from the moment their company is organized there are certain things they must no longer do in the pursuit of profit. Adding 28 simple words "but not at the expense of the environment, human rights, public health and safety, dignity of employees or the welfare of the communities in which the coproration operates" would be a good start.

Obviously, you can't make a sweeping change such as this on Tuesday and expect existing corporations to be in compliance by Wednesday morning. I would suggest a time period of 15 years. If we can significantly reduce corporate abuse of the public interest in 15 years, we will have accomplished a great deal for our children and future generations. For some on the left this time period will appear too long. But they should honestly assess the likelihood of achieving similar results within that time frame without making this or a similar change.

Many on the right will say that 15 years is too short. My question to them is, "if not then when?" If we begin today, when should we expect corporate abuse of the environment and other elements of the public interest to cease?

In a sense, The Corporation tells us something we already know. The unqualified pursuit of self-interest--greed--tends to result in harm to the interests of others. Unfortunately, the most powerful institution in our society, the corporation, is dedicated by law to the unqualified pursuit of its own interest. Fortunately, the power to change those laws and that institution rests in our hands. The question for our generation is whether we are going to do anything about it?