The Situationist

Archive for January 23rd, 2010

Our Stake in Corporate Behavior

Posted by The Situationist Staff on January 23, 2010

Situationist Contributor David Yosifon published a thoughtful and timely op-ed,  in yesterday’s San Francisco Chronicle. Here are some excerpts.

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Corporations are crucial institutions in our society. Consumers rely on them for everything from the basic provisions of food and clothing to the more dispensable delights of computers and cell phones. Workers rely on them for jobs. Communities need them for a tax base. Shareholders rely on them for profits that fund retirement, or entrepreneurial activity.

We all have a stake in effective corporate operations. Yet corporate directors are not required, indeed are not allowed, to put the interests of any party above shareholders in their decision making.

Now the Supreme Court has declared that the First Amendment forbids us from restricting corporate spending on political campaigns. If we cannot restrain corporations from influencing our democracy, then we must have more democracy in the management of our corporations. Directors of publicly traded corporations should be required to become informed about and to deliberate on the interests of all corporate stakeholders, not just shareholders.

The idea that we all have a stake in corporate behavior might seem at odds with the current “shareholder primacy” rule in corporate governance. But it could make sense. Most shareholders are highly diversified, with small investments in a large number of funds or corporations spread across the country and the world. The profit-maximization rule provides shareholders sufficient repose to invest their money at such a distance and with so little say in corporate decisions. Workers, on the other hand, can negotiate and monitor their wages and working conditions directly, or through unions. Consumers can manage their corporate interests at the cash register – they can buy at the offered price or walk away.

But corporations are often more powerful than workers or consumers. Firms can skimp on safety, for example, in ways that are difficult to observe – think asbestos in the factory or trans fats in the fries. Sure, sometimes the socially responsible corporate policy is also the most profitable – as when safer products attract more consumers. But it is naive to think that shareholder interests are always aligned with the rest of society. For a long time policymakers have argued that even where society is vulnerable to corporate overreaching, corporate boards should still focus on shareholder interests. We should rely, the story goes, on external government regulation – such as workplace safety, consumer protection or antipollution statutes – to safeguard social interests.

This approach assumes that government will be capable of developing regulations sufficient to constrain corporate misconduct. But corporations have the incentive and power to stunt such efforts. Firms accomplish this in part through lobbying, donations and direct spending in support of candidates. Because of their wealth, corporations can routinely best other constituencies in the competition for regulatory favor. This problem will only intensify with the new Supreme Court ruling.

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You can read the op-ed in its entirety here.

For a sample of related Situationist posts, see “Taking the Situation of Consumers Seriously,” “Against Freedom of Commercial Expression – Abstract,” “Merchants of Discontent – Abstract,” “The Changing Face of Marketing?,” Reclaiming Corporate Law in a New Gilded Age – Abstract,” “The Situation of Illusion,” “Hey Dove! Talk to YOUR parent!,” “The Situation of Our Food – Part II,” The Situation of Our Food – Part III,” “The Changing Face of Marketing?,” “The Illusion of Wall Street Reform,” “Reclaiming Corporate Law in a New Gilded Age – Abstract,” “Deep Capture – Part VI,” and “Deep Capture – Part VII.”

Posted in Deep Capture, Politics, Public Policy, Situationist Contributors | Tagged: , , | 1 Comment »

 
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