Regulation vs. Dollar Voting

In my last post about Wal-Mart, I mentioned the concept of “dollar voting.”  Among those who are seeking a change to corporate behavior, there are two main arguments about what venue will best achieve this change.  The first approach, regulation, relies heavily on government power.  After the Great Depression, government regulation of corporations and the economy in general greatly increased.  Presidents Franklin Roosevelt, William Howard Taft, and Woodrow Wilson passed many laws (most famously, FDR through the New Deal package) regulating big businesses.  These laws focused on issues like trust-busting, higher wages, shorter working hours, union rights, and social safety nets.  But in the 1970s, this trend was abruptly reversed, largely due to a shift in the prevailing economic mentality of the time (such as those of Milton Friedman).  One of the four main pillars of President Ronald Reagan’s economic policy (famous nicknamed “Reaganomics”) was a reduction of government regulation.  America still has yet to see a turnaround from the widespread deregulation which occurred during ’70s and ’80s and even afterwards.  Many think that, based on past corporate behavior, that it is necessary for the government to intervene and impose some degree of regulations upon corporate America.  Without a binding legal impetus, they argue that corporations will have no incentive to change their practices into behavior that is more socially responsible.

But others think that we cannot rely on government intervention to solve our corporate problems.  Large corporations have much more money than the vast majority of average citizens. They use some of their profits to contribute to campaigns or to pay huge numbers of lobbyists (for more information, check out “The Road to Riches is Called K Street“).  Due to the wealth discrimination that is built into the U.S. system of government, this cash lends corporations more influence than concerned consumers could ever hope to equal on their own.  And even if consumers pooled their resources through nongovernmental organizations, changing national law (especially in such a huge way) would be costly, challenging, and time-consuming.  If such organizations started submitting bills now, it could well be years before they see any of the results of their labor…and that’s only if they’re successful.  But don’t give up hope just yet!  There is another solution (although not without its own flaws).  Advocates of a free market economy (i.e. one with no government regulation) or even those who are just plain tired of waiting for Washington to do something suggest that it is time for consumers to take matters into their own hands.  If we can’t make corporations listen through the political or other arenas, we can still get them to pay attention to one thing: profit.  We, as consumers, gain an immense though often unrecognized power through our spending.  If corporations want to make the most profit, we can “train” them to make better products by purchasing only goods that are made sustainably.  By refusing to buy goods from unethical corporations or non-green products, we can use our dollars to control corporations. This method of “dollar voting” is the main alternative to government regulation.  So be informed!  Use the links and information on this site to find out how to be an aware consumer.  Even if you support government regulation, this is a way that you as an individual consumer can start on the road to change.

Wal-Mart: The Cost of Low Prices

As America’s largest corporation, Wal-Mart occupies a large part of our daily consciousness.  We are bombarded by its presence in the form of billboards, television commercials, and radio ads.  Many consumers praise the store, endorsing it for living up to its motto of “Always Low Prices. Always.”  But some think that a more accurate slogan might be the one below:

As with any large corporation, Wal-Mart frequently occupies the headline spot in our newspapers or online blogs.  As the cartoon above indicates, one of the corporation’s greatest sources of controversy is worker compensation.  Not only does it pay workers unusually low wages (an average of $17,000/yr. in 2005, according to Paul Krugman’s New York Times article “Always Low Wages. Always.”) but it has also been sued an astonishing number of times for worker discrimination in the past decade.  In 2001 alone, it paid $6 million to settle 13 cases in some of which it reportedly violated the Americans with Disabilities Act.

In 2000, worker Betty Dukes sued Wal-Mart for denying her the training she needed to advance to a higher corporate level on the basis of her sex.  The case, Dukes v. Wal-Mart Stores has passed through to court circuits up to the Supreme Court, where oral arguments were presented on March 29, 2011.  The Court’s verdict could has the potential for a huge impact on America, one affecting over half a million women workers and measured in millions of dollars.  For more details on the Court proceedings, check out this article.

When faced with such a huge corporation, you might be asking how can we, as individuals, hope to bring about a change?  The answer centers around promotion of CSR.  Organizations such as Walmart Watch are working hard to educate consumers about the ethics of corporations like Wal-Mart as well as to hold them accountable for their actions.  For more information, check out the link to Walmart Watch under “Blogroll.”  And remember, you do have the power to make a difference.  By educating yourself about corporate behavior, you can learn to shop only at ethical stores.  Although one person’s business might seem infinitesimal to a large companies such as Wal-Mart, a mass movement of consumers would force it to change its business practice.  It is time for us to make a stand.  We need to let corporations know that we want more than high stock values or low prices prices from consumers.  “Dollar voting” through careful and aware consumption can teach companies that they must be responsible in order to survive.

The Yes Men Fix the World

Impersonating top executives and giving out false “company statements” simply in order to make a point about the wrongs of corporate America?  All in a day’s work for Andy Bichlbaum and Mike Bonanno.  These two bold and cheeky journalists of sorts compose a group called the “Yes Men.”  As their website says: “Armed with nothing but thrift store suits, the Yes Men lie their way into business conferences and parody their corporate targets in ever more extreme ways – basically doing everything that they can to wake up their audiences to the danger of letting greed run our world.”  In a market-driven world where doing the right thing seems virtually impossible, this dynamic duo provides a wake-up call for us all, reminding the people of the world that we cannot simply allow corporations to commit terrible injustices (such as climate change and the Bhopal catastrophe) while we passively watch.  Their hilarious but simultaneously serious adventures are catalogued in their new film, “The Yes Men Fix the World.”  To watch a trailer, click here.  The entire movie can also be found on YouTube.  For more information about the Yes Men and their mission, check out the link to their site under “Blogroll.”

Social Responsibility Research Network (SRRNet)

While I was doing some research today, I came across the website for a nifty organization called the Social Responsibility Research Network (SRRNet).  Although their site the most aesthetically impressive, I quickly realized that SRRNet is a pretty cool group.  Founded in 2004, it is headed by David Crowther, a CSR professor at De Montfort University (UK) and Yildiz Technical University (Istanbul, Turkey) and author of multiple textbooks about CSR.  SRRNet identifies itself as “a body of scholars who are concerned with the Social Contract between all stakeholders in global society and consequently with the socially responsible behavior of organisations.”  Their mission is “to promote collaborative, cross-cultural and international research on any aspect of its social responsibility agenda, to disseminate such research globally and to improve knowledge.”  In this vein, SRRNet shares research online, hosts conferences, and publishes the Social Responsibility Journal (2008-present).  Anyone who shares its objectives can join the SRRNet simply by following the instructions on its website.

For more information, check out SRRNet for yourself!  You can find a link to it on the right hand side of the page, under “Blogroll.”

More About Corporate Personhood

Just this January, the Supreme Court ruled to overturn limitations on corporate spending in U.S. elections.  This decision overturned laws which regulated ‘independent expenditures’ in more than 22 states.  It allows corporations to donate as much money as they please to political campaigns, allow them virtually unlimited power to manipulate politics to their liking.  This gives them an unfair advantage over individual citizens with limited funds or even small consumer organizations attempting to lobby for their interests.

Understandably, there is large outrage over this decision.  Corporations have used their legal personhood to not only gain rights that they do not deserve but also to challenge the constitutional rights of Americans.  For more about the debate, see the article “Corporate Personhood.”

Also, see the website MovetoAmend.org for information about a growing movement to amend the Constitution to end corporate personhood.

Corporations are People Too…Wait, What?

This may sound ridiculous, but under American corporate law, corporations are actually treated like individuals.  Strange, right?  Although this idea may have made sense back when corporations were just a few machines owned by a family, it is completely outdated today.  How can thousands of manual workers (both in and out of the U.S.), managers, CEOs, machines, and raw materials be considered “a person”?

 This legal concept began in 1886 with the case Santa Clara  County v. Southern Pacific Railroad.  Although the final  ruling of the case did not depend on corporate personhood,  a statement made by the court reporter has transformed  corporate law since.  Reporter J.C. Bancroft Davis wrote,  “The court does not wish to hear argument on the question  whether the provision in the Fourteenth Amendment to the  Constitution, which forbids a State to deny to any person  within its jurisdiction the equal protection of the laws,  applies to these corporations. We are all of the opinion that  it does.”  Although the 14th Amendment was intended to  protect African American citizens, its primary use has been  to shield corporations from the law.  Many corporate  lawyers used to precedent of Santa Clara to claim  constitutional rights under the Bill of Rights.  Corporations  have used the Fourth Amendment (protection against unreasonable search and seizure) to prevent OSHA protections and the First Amendment (freedom of speech) to refuse to label products as containing bovine growth hormone.  In the next 50 years, only .5% of the cases concerning the 14th Amendment cited it to protect African Americans.  Compare that to the whopping 50% of cases which instead invoked the amendment to benefit corporations.  From 1905-1930s, this legal pretext invalidated 200 economic regulations.

Since corporations are clearly not people, why should they be treated as such?  Corporations have a much larger impact on the environment and surrounding community than an individual does.  Therefore, they should also be more responsible and held more accountable.  Giving them legal personhood is completely illogical.  Modern scholars realize this, and many are suggesting a change.  For more information on ways to fix this problem, see the “Solutions” page.

Also, check out the article “Corporations Are People Too” for more information about recent developments in the legal battle over corporate personhood.

More Laws

The idea of activating dormant laws holds huge potential for the CSR movement.  Often, reformers get disheartened by the current state of affairs.  They think that America’s corporate governance is so far gone that the only fix is a complete system overhaul.  Realizing how huge and challenging of a task this is, they despair and even give up.  Luckily, as I discussed in my last post, there ARE precedents for CSR in U.S. law.  Recognizing these laws could provide a framework for change that comes from within the system.  My most recent post focuses mainly on specific stakeholder statues.  However, there are also broader laws which present solid grounds for reforming corporate behavior.

• Community Reinvestment Act: Although this law was passed in 1977, it was largely unused until about 20 years ago.  During its first 15 years, commitments to lend to low- and moderate-income neighborhoods totaled less than $1 billion. In the early 1990s, after community groups combined to for the National Community Reinvestment Coalition, the act finally was called into use.  From 1992-1997, these CRA agreements expanded to a whopping $353 billion.
• Alien Tort Claims Act: This law, passed in 1789, states that “the district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”  In 1998, Doe v. Unocal became the first Alien Tort Claims suit to proceed in U.S. court.  Judge Richard Paez ruled it was legal to try Unocal for human rights abuses in Myanmar.  The law was used again that year in Bowoto v. Chevron when Chevron was forced to account for its role in two deaths on an offshore oil rig in Nigeria.

Stakeholder Law: Tools for Change

One of the most important legal developments towards changing corporate law centers around the idea of stakeholder law.  Traditionally, corporations focus on their fiduciary duty to shareholders: those who hold company stock.  However, the CSR movement has suggested a new perspective.  Rather than focusing on shareholders, corporations should be required to consider the best interests of stakeholders: any party affected by the corporation.  In the 1970s and 1980s, stakeholder laws were first developed as part of a trend of increased antitakeover legislation.  These laws were intended to give corporate boards the ability to consider all stakeholders and not just shareholders when making decisions.  Some commonly named stakeholder groups include: employees, customers, creditors, suppliers and communities.  However, laws and cases that promote stakeholders and often overlooked or ignored.  If revived, they could provide a solid foundation for CSR.

Here are some examples of cases which give precedents for stakeholder-concerned law:

• Pennsylvania state law states that while considering “the effects of any action,” a corporate board must not consider the “interests of any particular group…as a dominant or controlling interest.”
• 1987: Commonwealth National Financial Corporation merged with Mellon Bank instead of Meridian Bancorp because employees would receive better opportunities at Mellon. The court quoted Pennsylvania stakeholder statutes to support its ruling that considering social issues is consistent with fiduciary duty.
• 1997: The directs of Conrail Inc. accept an offer from CSX instead of a higher bid from Norfolk Southern Corporation because CSX was better for both shippers and workers.  The presiding judge stated that it was nearsighted to focus on maximizing shareholder value and cited Pennsylvania stakeholder statute.

Corporate Law: The Facts.

We all know that corporations, while they undoubtedly benefit society, get away with terrible misdeeds on a regular basis.  Think of Arthur Anderson and Enron’s accounting scandal or BP and the oil it spilled in the Gulf of Mexico.  Often, practices which are harmful to many people come about because corporations are encouraged to “maximize shareholder value,” even if it is to the detriment of the rest of the community.  But why do corporations have this mindset?

The answer is somewhat surprising and startling.  It is actually the United States Law that orders corporations to seek profit above all else.  In 1916, John and Horace Dodge filed a lawsuit against Henry Ford, the founder of the Ford Motor Company (FMC).  The Dodge brothers, minority investors in FMC, disagreed with Ford’s decision to stop paying special dividends so that he could instead build cheaper cars and pay better wages.  The Dodges thought that the decision was an abuse of Ford’s control.  In defense of his choice, Ford said, “My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.”

In 1919, the Michigan state court’s decision regarding this lawsuit revolutionized corporate law.  The court ruled in the favor of the Dodge brothers, remarking that “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to . . . other purposes.”

So corporations are actually bound by law to seek profit and abandon all other purposes, no matter how charitable or communally beneficial they may be.  This loophole allows corporations to externalize its costs onto the community and abuse workers in the name of righteousness.  How can we stop corporations from running rampant and trampling our environment, our people, and our rights?  The answer lies with you.  The process of correction starts with awareness.  Now that you know what the problem is, check out other pages to view suggested solutions to enhance corporate social responsibility (CSR).