How Corporations Behave

Posted on September 3, 2012 in Debates

Source: — Authors: – opinion/Sunday/letters/Sunday Dialogue
Published: September 1, 2012.   Editor

Readers discuss business ethics and priorities over the years.

The Letter To the Editor:

There was a time in the not so distant past when many, if not most, publicly held corporations, including the one for which I worked, embraced in their mission statements, codes of conduct and similar pronouncements a responsibility to serve multiple stakeholders: their stockholders, of course, but also their employees as well as customers, suppliers and the community in which they operated. Today, all too many companies, in deed and often in word, articulate a single-minded obligation to serve only their investors by focusing exclusively on profitability.

As a result, we have witnessed corporate downsizings and outsourcing of jobs; restructuring of pension plans or their complete termination; reductions in health care benefits; and wage stagnation in spite of increased productivity. Domestic suppliers have been squeezed or, more often, replaced by cheap foreign sources. Customers seeking service are confronted with automated answering machines and foreign call centers. Environmental concerns are viewed as obstacles to profitability.

At the same time, the senior managers of these enterprises have seen their compensation grow exponentially as a reward for their perceived contributions to the bottom line.

Sadly, what these corporations fail to appreciate is how their obsession with the bottom line is shrinking their markets, both domestic and foreign. The large number of people unemployed, underemployed, afraid of losing their jobs or without the means to pay all their bills perpetuates the present worldwide economic crisis.

Add to this the unwillingness of businesses to pay their fair share of taxes to support education, health care and the infrastructure that is critical to their success. In the end, these self-serving practices endanger the very profitability their practitioners seek to enhance.

We need to return to the earlier model of the corporation as a good citizen. Doing so can help ensure the long-term viability of our free enterprise system.

, Port Washington, N.Y., Aug. 27, 2012

The writer is a retired corporate lawyer.

Readers React

Mr. Feldman seems to yearn for the good old “Mad Men” days when companies ranging from General Motors to I.B.M. dedicated some of their profits to supporting civic engagement in their corporate headquarters’ town and paid higher wages and benefits to deserving employees.

While economists celebrate the efficiency gains from “perfect competition” in our globalized economy, Mr. Feldman points out this system’s costs. But he plays down the benefits of international competition. Consumer prices are lower (think of Walmart), and products are of higher quality. The international scale of the market encourages innovators to invest in costly and risky new projects because of the potential huge market for those who succeed.

Would Mr. Feldman really be willing to pay for a time machine to take him back to 1962?

, Los Angeles, Aug. 29, 2012

The writer is a professor at U.C.L.A. and a research associate at the National Bureau of Economic Research

Mr. Feldman describes the predations of global corporations on their workers, customers, the environment and communities. But he doesn’t ask why historical restraints on corporate recklessness and crimes are so weak. Institutional safeguards failed to stop the recent Wall Street collapse of our economy because of perverse incentives and regulatory decay.

Boards of directors, outside corporate law and accounting firms, giant ratings agencies, state and federal banking regulators, and legislative and oversight committees all failed to detect or prevent abuses that led to trillion-dollar losses in pensions, millions of unemployed workers and taxpayer-funded bailouts.

Why? Because they were “paid” to look the other way, through lucrative fees, campaign contributions or future employment opportunities.

Individual and institutional shareholders didn’t restrain the corporate bosses because over the decades corporate managers have rendered shareholders powerless. State and federal laws have been gamed to shield the bosses from their companies’ owners.

These brilliant strategies of privileges and immunities were developed by corporate law firms that failed in the first place to properly instruct their corporate clients about their responsibilities to their stakeholders. These law firms didn’t push for proper prudence, compliance or the adequate exercise of fiduciary duties.

Washington, Aug. 30, 2012

I hear the rousing chords of the “William Tell Overture” and the announcer intoning, “Return with us now to the thrilling days of yesteryear.” To 1984, when a gas leak at the Union Carbide plant in Bhopal, India, killed almost 4,000. To 1972, when the Pittston Coal Company’s slurry dam burst, killing 125 and injuring more than 1,100. To 1892, when Carnegie Steel Corporation cut wages and hired 300 strikebreakers.

To the belching smokestacks, to the fallen snow turning black with coal dust, to the sulfurous air around the refineries and mills. Ah, yes, the good old days of responsible corporate citizenship.

Mr. Feldman inveighs against corporations, thereby failing to recognize that a corporation is composed of people, some of whom are selfish, some altruistic, some avaricious, but most generous. Contrary to Mr. Feldman’s experience, mine has been that people today are at least as caring in their business and other pursuits as ever and probably more so.

, Chicago, Aug. 29, 2012

The writer is a corporate lawyer.

Mr. Feldman’s call for a “return to the earlier model of the corporation as a good citizen” is certainly timely, given the antisocial practices of corporations that he details. But unfortunately, for now, I don’t think it’s an idea whose time has come — not yet, in any case.

The corporations of the “not so distant past” that Mr. Feldman upholds were themselves a far cry from the corporations of his grandparents’ days — which looked a lot more like the ones we deal with today. Standard Oil, the transcontinental railroads, U.S. Steel, the American Tobacco Company — their corporate practices often underserved their customers and communities, and their workers made out worst of all.

The “bad” corporate citizens were turned into the “good” citizens that Mr. Feldman recalls by the pressure of a growing labor movement, successful campaigns for reform and regulation by progressive activists inside and outside of government, and the ideological pressures created by the existence of countries that called themselves “socialist,” an alternate system that claimed, however hollowly, to put people before profits.

To return to an improved version of corporate citizenship, such checks on corporate power need to be forged and imagined anew.

New York, Aug. 29, 2012

The writer is an assistant professor at the Murphy Institute for Worker Education and Labor Studies, CUNY.

While Mr. Feldman recognizes the need for a “return to the earlier model of the corporation as a good citizen,” he does not address how we shall effect such a return. It is unrealistic to believe that we can exhort current corporate leadership away from their single-minded pursuit of profit.

A number of states have now provided for the formation of “benefit corporations,” which are organized beyond profit-seeking to have a material positive impact on society.

If our goal is widely shared prosperity, we should require all for-profit corporations to reorganize as benefit corporations.

Rockaway, N.J., Aug. 29, 2012

The Citizens United case held corporations are persons. A corollary of corporate personhood is that corporations have the responsibilities, and not merely the rights and privileges, of citizens.

When I last taught business ethics 25 years ago, the running joke among undergraduates was that “business ethics” is an oxymoron. Their unshakable assumption was that the sole responsibility of publicly owned corporations was to maximize shareholder profits.

The field of business ethics, however, has been influenced by the growing awareness of the role played by communities in enabling businesses to succeed, not to mention the importance to corporate health of addressing environmental degradation and social inequalities. As President Obama pointed out, the infrastructure that enables businesses to succeed is built by communities and not solely by corporations themselves. That was the context of his remark that entrepreneurs “didn’t build that.”

We are all stakeholders. We are all in it together.

, Montclair, N.J., Aug. 29, 2012

The writer is a lawyer and an adjunct professor of philosophy at Rutgers.

The Writer Responds

Some readers suggest that the “good old days” were not nearly that great. Others recognize the need for reform, but note the difficulty in achieving that objective. Somewhat in the middle, Mr. Kahn proposes a cost-benefit analysis.

Certainly, as Mr. Abrams notes, the economic and social gains of the past were achieved at significant human costs. Moreover, the reform movements cited by Ms. Lewis can be attributed to a unique period of American exceptionalism unlikely to be replicated in our globalized economy.  More recently, as Mr. Nader writes, structural restraints on corporate recklessness and crimes have been weakened in the name of global competitiveness.

Nevertheless, a century ago we were able to turn an agrarian/handcraft/sole proprietor-based society into the leading industrial nation in the world. Today, the challenge is to find a way to usefully employ the displaced work force of the 20th century and those coming into the work force ill equipped for the jobs of the 21st century. Failure to do so can only lead to widespread economic and social unrest.

To do that will require significant investments in education, technology and infrastructure. Corporations need to play a major role through research and development, which places long-term enhancement of the enterprise above short-term profitability. If our corporate titans won’t make those investments, then the job will fall to government, and that would require higher taxes.

A recent column by Joe Nocera quotes a Harvard Business School professor, Jay W. Lorsch: “The function of business in a society is not just a return to investors, but to provide goods and services, provide employment, pay taxes, and so on.” In the end, corporate reform is not only a moral imperative, but also an economic and social necessity.

, Port Washington, N.Y., Aug. 30, 2012

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