NEW: Help plan a groundbreaking, action-oriented summit: “Rules Change: Resetting the Playing Field for Corporations, People and Democracy” — May 3-5, 2013, Amherst, Mass.
RESTORING DEMOCRACY AND CHANGING CORPORATE RULES:
A new taxonomy/synopsis/overview
Introduction — Genesis, Purpose and Contents
Changes in the way we govern corporations are required to revitalize participatory democracy in the United States. One barrier may be a perception that these changes are new or radical.
In fact, dozens of books have been written over 20 years that address key principles of policy rules changes. These changes will lead to a more just and sustainable free-market, capitalist democracy. In this essay, we offer a “A New Taxonomy of Corporate Rules Changes.”
For people concerned about inadequate oversight of large public corporations and financial institutions and big-money domination of Washington politics, this paper provides a rationale and suggestions for consideration.
It is based upon literature review and discussions with many experts.
- We define a total of 15 key rules-change initiatives and document their citation and exposition in at least 22 popular non-fiction books published since 1994.
- We spotlight significant ongoing, scholarly, mainstream consensus on the need for reform to make our democracy more just and sustainable — less dominated by corporations, lobbying and the influence of political contributions.
- We advance proposals for rules and incentives for corporations to respond to broad, public benefits rather than the special interests of shareholders.
- We provide an environment for real-time interaction among citizens concerned that our system is heading in the wrong direction, and ready to help thoughtfully to turn it.
The author is a retired corporate vice president and division general manager of a Fortune 300 manufacturing company. He became interested in the need for changes in corporate behavior through membership in Boston-based United for a Fair Economy (www.faireconomy.org)
In 1997, he attended the founding conference of the Responsible Wealth program of United for a Fair Economy, met author David Korten, and read Korten’s bestselling book, “When Corporations Rule the World.” This prophetic book raises awareness of the threat of corporate domination of governance and the need for changes.
Since 1997, much has been said and written, but little has been accomplished to provide appropriate rules and oversight for large, public corporations. But the economic near-meltdown since 2008, the Occupy Wall Street initiative begun in fall 2011, more evidence of unusual climate change and the continuing disruption in world capital markets have focused new attention on how we might thoughtfully change standards of corporate governance and ethics to ensure genuine progress toward longterm world sustainability and revitalized participatory democracy.
Why rules and rule changes are needed
Corporations play by rules that need to be changed. The “rule change” framing comes from Chuck Collins, founder of United for a Fair Economy and its Responsible Wealth Program, and now director of the Program on Inequality and the Common Good at the Institute for Policy Studies in Washington, D.C.
As the history of the United States demonstrates, market-based capitalism can produce goods and services efficiently. To function fairly and as intended, market-based capitalism requires appropriate “rules of the game” with government oversight and enforcement. Beginning in about 1980, government oversight has eroded. It has become clear that rules are often vague or non-existent and are often not enforced. The public has come to fear that the game is rigged. Major changes in rules and full enforcement are needed.
Preaching and teaching about corporate ethics won’t get the job done. The public stock-market system creates demands for ever increasing short-term earnings. It does not reward concern for employees, community or the environment. Without appropriate rules, corporations with high standards are at a disadvantage in competition with those that don’t care. Joel Baken’s 2004 book “The Corporation” is subtitled “The Pathological Pursuit of Profit and Power.” Page 56 notes that “the corporation is singularly self-interested and unable to feel genuine concern for others in any context.”
Consequences of inadequate rules and inadequate enforcement
Short-term earnings pressures trump concerns for employees, customers, community and the environment and make USA firms vulnerable to ex USA competition. The results:
- Financial system in crises because of deregulation.
- Growing gaps in income and wealth; suppression of wages and benefits.
- Ruthless exportation of jobs via “free” trade without concern for human rights violations in the supplying country or the impact on job losses in the USA.
- Resistance to appropriate health and safety standards.
- Antitrust rules ignored, hence concentration, loss of choice, higher prices
The spontaneous eruption of the Occupy Wall Street movement in late 2012, the disruption in European equity markets, increasing financial inequality and mounting evidence of unusual climate changes all suggest that the status quo is not sustainable.
Action plan for rule-change legislation by the U.S. Congress
For our system to keep working for all, we need to use the tools of democracy at our disposal to change the rules. Our overall recommendation is a call for a bipartisan, public-private task force with a decent budget to bring forth well-considered, feasible changes such as the four listed below.
- Form a coalition of supporters and legislators develop consensus on changes to consider.
- Prepare a cogent statement of need and benefits for each such change.
- Review the losses and difficulties that each change would create.
- Drop changes where benefits don’t outweigh the losses.
- Consider how to counter the objections that will be raised for each change included.
- Prepare a bill or bills for filing, utilizing staff of members of Congress and the Congressional Research Service.
- File bill, refer to committee, hold hearings, develop support, move through the process for enactment.
The four most important rule changes
Here are the four rule changes we think such a commission should most carefully examine:
1. Make lear that Corporations do not have the Constitutional Rights of People
Sources such as the book, Corporation Nation, and the publications of the Program on Corporations, Law and Democracy (POCLAD) point out that through a series of Supreme Court decisions, corporations have been granted the constitutional rights of individuals. The Court has declared that under the law, corporations are persons. For example, corporations claim rights to First Amendment freedom of speech in order to block regulation on corporate lobbying and electioneering. At the state and local levels, several legal challenges are proceeding. Action is needed at the federal level. Of special note is the Move to Amend program – see http://movetoamend.org - and bills filed by in November by U.S. Rep. James P. McGovern, D-Mass., and U.S. Sen. Bernie Sanders, I-Vt., declaring that corporations are not people under the Constitution.
2. Require Federal Corporate Charters to Include Public Good
There has been a widely-held view that the obligation of corporations is to owners only. For example, a 1999 report by the National Association of Corporate Directors asserts: “The objective of the corporation (and therefore of its management and board of directors) is to conduct its business activities so as to enhance corporate profit and shareholder gain.” The corporate structure shields owners from liability for corporate debt and damage claims. Directors should have an obligation to consider the corporation’s impact on other publics. In early America, corporations were viewed as institutions to serve the public and accountable to the public through the democratic process. Corporate charters were required to define a specific purpose benefitting the public, and were revocable. For more background, see www.poclad.org or www.reclaimdemocracy.org
However, some legal and business scholars, such as Lynn Stout in her 2012 book, “The Shareholder Value Myth,” are now arguing this shareholder-only obligation argument is not well grounded in history and may not even be in the best interest of shareholders.
We need federal legislation which defines the responsibilities of large, public corporations and their directors and officers to include public good, including employees, customers, communities and the environment. Some states have such statutes, but the concept of public obligation needs to be embodied in federal law and enforced via federal charter requirements, at least for large public corporations engaged in interstate commerce.
3. Curtail Influence of Big Money on Elections and Legislation
Corporate money and high-wealth individuals have excessive influence on legislation and elections via campaign contributions that are rewarded by access, and the purchase of services high proportion of the 12,000 congressional lobbyists with and lobbying spending of about $13 billion annually. Reasonable reform legislation has been overturned by the assertion of “First Amendment rights of free speech for corporations. A constitutional amendment may be needed to settle the the interpretation of the U.S. Constitution by declaring that it refers only to natural people.
4. Act for World Sustainability; Replace GNP as the Measure of Prosperity,
and Accept Limits to Growth
It is beyond reasonable doubt that the world is moving towards a state of permanent shortages in many critical materials – fuel, water, arable land, scarce minerals, etc. arable land. Our economic system and reporting judge success by short term growth in consumption, profits and employment. This dilemma must be resolved. There is hope; research shows that once basic needs are met, relationships are the source of fulfillment or happiness rather than consumption. Employment is shifting from consumption to infrastructure, alternative energy sources and government-sponsored research and development.
These four changes are fundamentally necessary to restoring a balance between public good and private gain. At least 10 other promising areas for rules-change consideration, supported by numerous authors cited, are found in the following appendix.
What we hope to produce is an unemotional, rational consideration of the benefits and losses of each proposed change leading to legislation. Many of these suggestions are part of established practice in nations such as Germany – one of the world’s strongest economies – where there are extensive worker protections, long vacations and free college tuition. The process we are suggesting will permit appropriate elimination or modification of those suggestions that would significantly hurt the United States’ world competitiveness. Legislation could emerge from an unemotional, rational consideration of the benefits and losses of each proposed change. The alternative is continued polarization, gridlock and short-term, private gain and public loss. Our literal survival requires more.