Solutions

Our laws about corporations clearly aren’t working.  They force corporations to constantly grow and to chase after profits without regard for anything else.  Shareholders get the benefits of these profits, but almost everyone else loses.  Employees rarely get rewarded when them time comes to distribute profit.  The community suffers too when corporations dump chemicals into the air or water because it’s cheap or fills landfills with its waste instead of recycling.  Corporations take a huge and unfair toll on everyone involved as well as their environments.  We can’t possibly hope to fix these urgent problems while corporate structure remains the same.  But how should we fix such an overwhelming and complex problem?  Some solutions are offered below.

Solution #1: Eradicate Corporate Personhood

As established in my post “Corporations Are People Too…Wait What?” it makes no sense to treat the modern corporation as an individual person.  This legal concept leads corporations to claim rights to which they should not logically be entitled.  But there are legal precedents which hold the potential for reversing the damage done by Clara Scott.  In 1950, United States v. Morton Salt case established in its ruling that “corporations can claim no equality with individuals in the enjoyment of a right to property.”  Decisions such as this one, which implies placing heavier responsibility on corporations, are often ignored.  If America is to shake off the disproportionate power of corporations and force them to be more accountable, it needs to removed the idea of corporate personhood.  There have been several attempts to do so already.  Consider Professor Carl Mayer’s 1990 proposal for a “constitutional presumption favoring the individual over the corporation.”  Similarly, Ralph Estes drafted a 1999 amendment which stated that “a corporation is not a natural person under the U.S. Constitution.”  Perhaps the most extensive suggestion has been Rabbi Michael Lerner’s Social Responsibility Amendment.  In it, he proposes that every U.S. corporation which makes over $20 million annually to apply for a new corporate charter every 20 years.  The charter would only be granted to corporations that prove they serve the common good by producing an Ethical Impact Report every 5 years.

Solution #2: Equate Employees and Shareholders

In most corporate balance sheets, employee income is treated as an expenditure.  But some, such as early 20th century economist John Bates Clark, think that employees have a right to the profits which they create.  After all, it is their labor which leads to corporate prosperity.  Yet in many companies, employees are on a fixed salary or wage and never see the benefits that flow when their labor pays off.  In her book The Divine Right of Capital, Marjorie Kelly proposes a new mentality which embraces the importance of employees.  She suggests that perhaps a better accounting equation is one that lists employee income not as a cost but rather places it on the side of profits: employee income + capital income = revenue – costs.  Although some companies have started to embrace this mentality, profit sharing is still uncommon, especially at the lower levels of labor.  Some companies have tried to rectify this problem through employee ownership.  This ownership can be direct, such as occurs in companies that are entirely employee-owned (an increasingly popular trend in America). Other companies allow employees to share repurchase obligations, making them semipublic firms.  Some other firms offer employee stock options plans (ESOPs), with the idea that employees who own stock will be more motivated to work harder since they may be directly impacted by the results of their efforts.  However, these plans are common predominantly within the IT sector and among the higher tiers of management.  They also usually come with no voting rights, so employees don’t get much control over their ESOPs.

Solution #3: Communal Property Rights

Perhaps one of the most widely recognized effects of corporate power is the huge toll which companies have been taking on our environment.  But how do we stop corporate pollution and resource abuse?  The first thing that must change is the idea of corporate personhood, since as ‘individuals,’ corporations have rights to public resources.  But even after U.S. law changes, what is to keep corporations from running rampant over the environment just like they have for decades?  Some suggest that dividing public resources into private shares may be the answer.  Peter Barnes (author of Capitalism 3.0) suggests giving each American a share of the sky.  Then, when corporations pollute the air, they would be forced to pay individual citizens compensation.  This is just one example of the broader concept of forcing corporations to economically realize the impact of externalities (costs to society that the corporation does not recognize when making its business decisions because it does not financially have to account for them).  This idea suggests that by using market forces (i.e. economic incentives), we can force corporations to respond to their external impact.

Solution #4: Stakeholder Law/Expanding Fiduciary Duty

The concept of stakeholder law is an important one in the CSR movement.  In Solution #2, I introduced the concept that employees, as creators of profit, should naturally be entitled to some of the benefits of their labor.  In Solution #3, I suggested that corporations should also consider communal interests when making decisions.  But in order for these two changes to happen, a larger revolution in corporate mentality needs to occur.  The idea of the ‘fiduciary duty’ of a corporation needs to be expanded.  Kelly defines the traditional sense of fiduciary duty like this: “if I take your money for an investment, I shouldn’t be careless with it.  I am acting as your fiduciary, your financial representative, and this have a responsibility to be loyal to your interests.”  This rule, of course, makes sense.  But its view of corporate responsibility is extremely limited.  The economic rights of a corporation’s employees or of its surrounding community should be made equal to those of stockholders.  As Kelly goes on to say, “If I take your full-time labor, I have a duty to pay you enough to live on.  If I am a member of a community, I have a duty to pay taxes and protect the community’s well-being.”  Corporations often overlook these duties, despite the fact that employees, communities, and others are deeply affected by corporate actions.  As I mentioned in my posts about stakeholder law, there are legal precedents for corporations to consider stakeholder interests as well instead of focusing solely on maximizing shareholder value.  The resurrection of old stakeholder law coupled with the creation of new law could greatly widen the definition of fiduciary duty.

Solution #5: Limit Corporate Lobbying and Campaign Financing

In recent years, there has been a growing public movement for reforming the nature of campaign financing in America.  In 1976, the Supreme Court cleared the way for corporate donations to campaigns through Buckley v. Valeo.  In this case, the Court declared that money is speech and therefore ruled that corporate campaign contributions are protected under Constitutional free speech rights.  (Remember, corporate personhood entitles corporations to all the rights of an individual.)  Although this decision might seem somewhat logical upon first consideration, it merits closer scrutiny.  The average corporation has profits incredibly bigger than the salary of the average person.  Therefore, it also has much more money to contribute to a political campaign.  Although democracy is theoretically based on the idea of one vote per person, if these “votes” are made through campaign contributions, it would seem that wealth allows corporations a disproportionate voice in politics.  Luckily, some states (such as AZ, ME, MA, and VT) passed Clean Money reforms in an attempt to level the playing field.  These laws allow candidates to receive full public funding if they choose to limit spending and refuse private contributions.  Similar reforms are being pursued in 40 of the remaining 46 states.  Corporations can also gain an unfair political advantage over individuals through lobbying.  Again, although individuals can theoretically lobby representatives to represent their interests, it is unlikely that they have access to resources on the same scale that corporations do.  In 1997, Philip Morris boasted 245 lobbyists; WMX Technologies, 240; RJR Nabisco and Dow Chemical, 100 each.  I can only imagine what those numbers are today.  If we want to be able to change corporate law, we first need to level the playing field and equalize the political power of corporations and individuals.

Solution #6: Increased Dollar Voting

Many consumers are interested in simple and immediately effective ways that they can take action to reduce corporate power.  As I mentioned in my post, “Regulation vs. Dollar Voting,” this causes people to shy away from attempts to alter the law.  Dollar voting provides a solution that is easily applicable in everyday life.  The idea is basically just what it sounds like: using consumer dollars to effectively “vote” on corporations and/or products.  If corporations can’t be controlled by the law or be made to listen to the pleas of activists, there is still one thing to which they must remain subordinate: profit.  By consuming wisely, you can “train” companies to engage in more responsible behaviors.  Use resources like GoodGuide to find safe and sustainable products, and then buy them!  Your dollars will send a message to the company that their product is in demand, effectively causing them to produce more of it.  At the same time, you are taking your demand away from less socially responsible corporations.  If enough people engage in dollar voting, unethical corporations will be so negatively impacted that they will be forced to change their business practices or else shut down.  Did you know that many make-up companies produce two separate lines, one for Europe and one for America?  The American products contain phthalates and other potentially harmful chemicals which are removed from the European line because they are banned by the European Union.  Since the capacity to make better products is clearly available, consumers simply need to show corporations that there is demand for them here in America as well.  The key to dollar voting is spreading awareness.  Obviously, the purchases of one person are not likely to noticeably affect a huge corporation.  So buy smart and tell your friends to do the same!

Solution #7: Increase CSR Reporting

A key component of CSR is accountability.  How can we make sure that corporations are being responsible unless we have some way of keeping track of their behavior and progress?  In the United States, CSR reporting is entirely voluntary.  No incentives are offered for companies who do produce CSR reports, nor is there any standard practice for checking the validity of such information.  Additionally, there is not yet any adopted standard for CSR reports.  The format of the report, the information which it includes, and whether or not it is checked for accuracy by a third party is entirely up to the corporation itself.  Although the U.S. government already requires corporations to participate in the Toxics Release Inventory (TRI) Program, this deals with only one very specific facet of CSR.  Just think what would happen if the U.S. government offered rewards to companies who produced regular, thorough, and third-party certified reports.  Better yet, what would happen if standard CSR reporting was mandated by the U.S. government?  It could easily improve existing guidelines like those of the Global Reporting Initiative (GRI)–which, while a wonderful program, grades reports on thoroughness rather than the implications of the data–and require corporations to report via this set of standards.  Corporate transparency would be greatly increased.  Concerned consumers would be able to get the information they need to make informed purchases (increasing the effectiveness of dollar voting).  CSR reporting is already legally required in other countries such as France, Malaysia, Denmark and Sweden.  CSR reporting is a growing movement in much of the world, and increasing its progress in the U.S. can only improve corporate behavior.