As I have often written, corporations are a creature of the law. The law developed to allow corporations and gave them various benefits because corporations served a public purpose.
Let me backtrack … before the law created corporations, all business concerns were partnerships or sole proprietorships. Under this system, the individuals who owned the business were personally liable for the actions of the business. The law of corporations, however, generally shields the owners (whether private or public/shareholders) from liability for the acts of the corporation. Over the years there came to be many more benefits that accrued to corporations.
Why did the law allow individuals to incorporate and thereby shield themselves from liability? Why were other benefits bestowed on corporations? Because corporations were seen to serve a public purpose. They were seen to be key to economic expansion and advancement, to increasing the power of the United States internationally, and to providing jobs for an ever-increasing work force thereby increasing the standard of living of Americans.
Once the age of the robber barons ended with the progressive policies of Republican President Teddy Roosevelt, while corporations still were always about making money for the owners/shareholders, corporate management became more conscious of their responsibility to the communities in which they were located and to the workers they employed, up to a point.
Part of that was good public relations; part of it was necessitated by the National Labor Relations Act and other laws that gave real power to labor unions. But where the law did not constrain them, where the public’s guard had not been raised, they acted with no concern as before, befouling the local environment and endangering lives. Corporations literally got away with murder.
During this period, there was no felt need to cater to shareholders as they had little power over management. Then in the 1980s, after a decade of lagging corporate profits due to increased competition and the beginning of globalization, corporations found themselves under attack by corporate raiders and others. The mere threat of a possible takeover moved corporate executives to focus more on shareholder value to insure shareholder happiness.
In the years since, the concept of maximizing shareholder value has become the mantra of all corporations. This perspective of corporate management is supported by the business schools who train future executives. It is this perspective that has encouraged the short-term profit outlook which has caused many of the problems we face today … the loss of jobs (first to cheaper parts of the country and ultimately overseas), the stagnation of wages, increased income inequality, and even the increased volatility of the stock market.
At a minimum, we must return to a more worker/community/consumer focused corporate management perspective. But can’t we do more; can’t we elevate that perspective as never before? Since we’re talking about culture and behavior here, this will not be easy. Especially given the nature of the corporate beast. The dynamic is not going to change on its own. It will require leadership from the top.
It will require a change in the curriculum of business schools that train our future executives. It will require changes in the law: one which makes the public good part of every corporation’s mission; one that includes workers and a public ombudsman on the management team, as has been done in Germany; and one that limits the amount of profit a corporation can make, which will help encourage corporate management to better reward workers, not reduce the workforce through automation, protect consumers, and be better citizens … all of which are in the corporation’s best long-term interest.
As I noted in my post, “The American Dream?” changing our corporate culture is critically important to the future our country, if young people are to have hope again and have the drive to push the envelope of what is possible.
