The Corporation: The Lawless Man

A socialist view on the corporation. Personified, the corporation is indeed a lawless man. How do we deal with this?

Date : 02/02/2018

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Uploaded by : Nancy
Uploaded on : 02/02/2018
Subject : Law

INTRODUCTION

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Challenging the integrity of Corporate Social Responsibility (CSR) and the integrity of the efforts of amelioration in and amongst the corporate society has always been the motivating tote of discussion amongst peers. This dissertation does not deviate from such discussions.

Corporations are being portrayed as a wholly beneficial structure^{^[1]}, both domestically and internationally. In attempt to argue that this notion is untenable and this dissertation will address and challenge that idea. There will also be a discussion on how contemporary society, at the urge of neoliberalist ideologies^{^[2]}, has allowed the corporation to grow into an uncontrollable structure and has accursed it further by equipping it with tools to circumvent its activities.

lt;/p>The purpose of this dissertation is three-fold. First, is to make a strengthening contribution to the body of knowledge already in place in the area of CSR corporate realism. Second, is to provide an inherently controversial solution in the form of a new statute law and reforms. In doing so, brings me to the third purpose& the analogy used throughout this dissertation. Developing from the ideas of separate legal personality,^{^[3]} and corporate realism, I seek to identify corporation as a separate legal citizen as only through complete personification, will we be able diagnose and produce a remedy for the issues that have arisen from it.

lt;/p>The main issue raised is that the very nature of a corporation is antithetical to the idea of maintaining any form of CSR. CSR, as defined by the Department for Business, Innovation and Skills, is the voluntary action taken by businesses over and above legal requirements to manage, and enhance economic, environmental and societal impacts .^{^[4]} Another definition relevant to the UK s lawmakers^{^[5]} is one provided by the European Commission. They define CSR as a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders, on a voluntary basis .^{^[6]} &The key term to be scrutinised in both definitions is the word voluntary. This dissertation will highlight how our society s ideological subscri ptions have allowed such a significant aspect of our society, CSR, to become a voluntary act and further to this exemplify the negative outcomes of voluntary responsibility in this aspect.

lt;/p>Writers have diagnosed the corporate citizen as a psychopathic entity,^{^[7]}with no aspect of moral recognition and weak legal consequences that do not effectively deter. Joel Bakan, law professor and writer, describes the corporation as an externalizing machine, with nothing in its legal makeup [to] limit[s] what it can do to others in pursuit of its selfish ends, and it is compelled to cause harm when the benefits of doing so outweigh the costs. ^{^[8]} And with the neo liberal stance - ripe from its divorce from conservatism governance of the corporation is proving to be ineffective.

Using criminological theories, I will explain why corporations see the benefits of their actions to their stakeholder value, and regardless of the severity of potentially damaging externality, will pursue this course of action. & And on the topic of pathological pursuit I highlight the danger of Multinational Companies (MNCs), to the developing world and how they exploited countries with fragile, and corrupt governing systems.

lt;/p>Unlike most commentators on this topic who simply explain what we all have already commonly identified as the issue, I will attempt to provide a solution. Corporate nominalists, who disagree with corporate realism, would see these proposals as a drastic reach. Like-minded commentators^{^[9]} however, will see this as the natural development the corporate world ultimately needed, as every type of society must have firm governance in order to reach a civilized status.

lt;/p>The structure of this dissertation will be as follows. Part I will explain CSR, its origins and current stance in contemporary society. This part will also explain how the very nature of the corporation is antithetical to any form of CSR in accordance with statute law and the duty the corporation has to itself. Part II, will pinpoint conception, birth, and the failed rearing of the corporate citizen and give example to how it now operates in society as a lawless man. This part will also bring attention to the most dangerous tool that we have equipped the corporation with, resulting in the further lack of consideration for CSR. Lastly, Part III will highlight the reform proposals. They will prove to be controversial and the implications even more so, however based on my analogy of the corporation - as a human citizen - it will be understood why such drastic action should be taken.

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PART I

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& & & & & & & & & & &

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CORPORATE SOCIAL RESPONSIBILITY

lt;/p>One could argue that the forming of CSR began during the early twentieth century. Writers such as J.M. Clark wrote on the topiclt;sup>^[10]if men are responsible for the known results of their actions, business responsibilities must include the known results of business dealings, whether these have been recognized by law or not. His quote, amongst others, is what motivated me to analyse the corporate society against the human society. Like men, businesses should be responsible for their actions. & This idea of business responsibility was later reintroduced by Professor Theodore Kreps^{^[11]} as the social audit, shortly after this, renowned educator, Peter Drucker, argued in support of this idea, in his book.^{^[12]} He suggested that companies not only have an economic dimension, but a social one too. However, evidence of CSR can be traced as far back as to the eighteenth century. An excellent example of this is seen with notable companies such as Cadburys Chocolates,^{^[13]} who tasked themselves with the external care of their employees and established a department to see to a green environment. Such positive actions are what should have set the tone for what corporate social responsibility is today. Unfortunately our economical climate had alternative plans.

lt;/p>The term Corporate Governance, that we ve coined into our language, is used to describe the duties and regulation of the corporation. Corporate Governance and Corporate Social Responsibility does not differ in the sense that they both seek to ensure the corporation to which they are instructed on, act or practice in a particular manner.

However Corporate Governance is an umbrella term and its policy makers are broadly concerned with the& leadership of the company, long-term success, effective discharge of duties& accountability or transparency in the of transactions& the remuneration of its members, namely directors and shareholders& and the maintenance of satisfactory dialogue between the board of directors with its shareholders^{^[14]}. Effectors of such policies employ a comply or explain stance& this in effect means that corporations have the choice to yield to such policies, and if they choose not to, they must give a detailed reason as to why. In a most recent annual survey, it was found that only fifty per cent^{^[15]} of the FTSE 350 companies were in compliance with the policies set out in the UK Corporate Governance Code, two thirds of the non compliant companies gave meaningful^{^[16]} explanations, a third gave explanations but did not meet the meaningful requirements. Nothing was done about this.

CSR on the other hand, deals with the wider social impacts and consequences of corporate action. It governs the responsibility shown towards the surrounding environment and people in that environment, as well as other societal impacts. With this in mind, measure the magnitude of the risk imposed on society, when we see a corporation`s social responsibility become a code or policy they can choose when and where to subscribe to. This is contemporary society.

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Of course we cannot ignore the tortious liabilities that could be faced by the company, but as I go on to discuss, this is proving ineffective as most corporations still choose to ignore their responsibility and commit the most heinous acts. With safety nets such as insurance, limited liability^{^[17]} and the fact that the corporations are able to generate usually recover from such liabilities& this behaviour is only further enabled. & Such a stance should not be taken with such a fundamental aspect of social functioning i.e. the maintenance of the environment.

The comply or explain approach allows corporations, who are well-equipped for such circumstances, to explain their way out of compliance with the policies set out for all. If this lack of uniformity and firm governance, were mirrored in another aspect of society, it would result in complete chaos, further to what we already have experienced^{^[18]}. If, as members of society, we could all pick and choose what aspect of the law we wanted to follow this would result in fundamental functions of communities such as, provisions of basic needs, socialisation, social control and interdependence, falling into great jeopardy. And with no implementation of sanctions or penalties, how is criminal behaviour deterred? This is the problem with CSR.

lt;/p> lt;/p>THE DUTY OF THE CORPORATION

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Duty to itself

To assist my analysis of the issues raised in this dissertation, it is necessary to highlight what is considered to be the corporation`s duties.

Upon incorporation, a company has to provide an Articles of Association (AOA). & If they cannot provide this document, an applicable model of articles of association will be appointed to them.^{^[19]} This document contains the rules and regulations that govern the company identify share capital and the way in which directors are managed. The formation of its rules can be moulded around factors such as, domestic legislation, the culture and history of the market they participate in, and most importantly the company`s objects clause.^{^[20]} The objects clause is also an important part of the company`s constitution as it sets out the purpose of the company. These documents as well as the company`s resolutions and agreements^{^[21]} are what make up the constitution of the company. With this being said, it is important to point out the first duty of the director, as set out within the companies act. This duty is to act in accordance with the constitution of the company. ^{^[22]} This is fundamental to the understanding of the way in which company directors fulfil their role. & Another director`s duty that further explains a director`s decision-making process within the company is their duty to promote its success.^{^[23]} What is considered to be the success of the company will be provided within the articles of association. This usually amounts to the maximisation of shareholder value and the generation of profit.^{^[24]} Succinctly said, the constitution of the company, as required by law, is to contain the purposes and the functions of the company. Also required by law, is the director`s duty to act in accordance with the constitution, whilst promoting the success of the company. With directors being functioning and integral parts to the corporation, these requirements explain the duty the corporation has to itself. What is crucial to note here, especially in pursuant to my next point, is that all of these duties are embodied within statute law and breach of such duties will result in tortious liabilities. There are even some director s duties^{^[25]} that carry criminal convictions.^{^[26]} In effect, this highlights how important the corporation`s duty to itself is, especially when we see how deeply entrenched it is within statute law.

lt;/p>Duty to Society

On the other hand, the provisions for the duty of the corporation tor society, are held of s.172, (a) - (f).^{^[27]}These tell of what a director should have regard to when dealing with matters in pursuant to the company`s success. In terms of the duty owed to wider society by the corporation, s.172(d) states that the directors should have regard to the impact of the company s operations on the community and the environment^{^[28]}. The key issues I aim to highlight with this subsection are firstly, the uses of the term have regard to when discussing the duties owed by the corporation to wider society and how it has caused a lot of controversy. Secondly, I aim to highlight the intentions of lawmakers with the use of the term have regard to in comparison to the use of the word must just few words before. On the latter, old and recent case law has seen this phrase have regard to defined and further explained:

lt;/p> The phrase to have regard to means to take into account ^{^[29]}

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Lord Justice Jackson further reaffirmed this in a more recent case:

lt;/p> ...to have regard to any relevant provisions.... The phrase to have regard to means to take into account. It does not connote slavish obedience of deference on every occasion. It is perfectly possible to have regard to a provision, but not to follow that provision in a particular situation: ^{^[30]}

lt;/p>This brings me to the issue. The phrase have regards to implies that the s.172(a)-(f) provisions are an optional consideration. In line with the comply and explain approach, this duty is not by definition a duty at all, it is a fleeting thought in the mind of the corporation that they can explain their non compliance of with the backing of statute law that says they must promote the success of the company. Critics on observation, have called this requirement of people have to devote their work life to the profit maximisation of the company as unhealthy, demeaning and morally corrupting ^{^[31]}

lt;/p>Again, this begs the question, why is the care of society and the environment we thrive in, not a must consideration? With no implementation of harsh and deterring sanctions, this gives corporations the leave to act in accordance with their internal duties without consideration of the harsh and damaging externalities they produce. Whereas the considerations that were a must all reflect the shareholder primacy of the corporation. This lack of firm governance towards the latter provision was and is duly reflected in the subsequent (and even before Companies Act 2006) actions of the corporation. Its disregard for the provisions was so apparent, Lord Avebur s comments on their actions were to cautioned us. He said [if a company`s success is relying on] its ability to continue damaging the environment... within a fairly distant time horizon large parts of the globe [will become] uninhabitable ^{^[32]}

lt;/p>Critics question this stance by saying that the main purpose of the corporation is to make money, not to damage the community. Some even say that considering the immoral implications of the company s actions are unnatural and objectionable social engineering. ^{^[33]} My response is that, the means employed to attain the objects of the company may not be a reflection of the purpose - to make a profit - nonetheless the means are what achieve the purpose. And if those means are considered to be immoral, would it not be inherently wrong to ignore them. Here is an example of what I mean. Company A makes hard sole shoes. The directors, under pressure from the shareholders, need to increase their profit margin by the end of the financial year in order to sustain their market share. The cheapest and quickest way to do so would be to expand their factory to make and sell more hard sole shoes. The neighbouring land is an unclaimed fruitful forest - despite the fumes from their factories - and the local community members who are impoverished are restricted to the income provided by maintaining and picking from this forest. Nonetheless, Company A, with the permission from a corrupt local authority, who are pacified with financial incentives from the company, tears down the entire forest to expand their business and thus increase their profit margin.^{^[34]} The purpose of the company here is to increase their profit margin and the means employed to do so were what caused damage. Tearing down forests that feed the entire community is not the purpose of Company A, but it was the means employed to achieve their purposes.

Economical theorists call the by-product of these means, externalities. An externality is the consequence of a transaction that affects a third party, imposing little or no consequences, apart from the desired response of the parties involved. Costs are cut, so profit margins can grow. Such externalities are rife with the corporate world and show why the nature of the corporation is antithetical to any form of CSR.

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^{^lt;/o:p>}

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. This right was granted to the corporation in the case of Santa Clara County v. Southern Pacific Railroad Co.^{^lt;/o:p>}

^{Their sole
motivation points to the expansion profit margin and no other competing
interest}^{^lt;/o:p>}

^{^{^{^{For
the purposes of this dissertation the answer is yes. However I aim to go
further by illustrating the corporation as the man formed by law, but not
adequately governed by it.}}}}

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^{^{^lt;/o:p>}}

A year later Merrick Dodd, also a legal scholar, countered, also recognising the surge in powers, that we should This debate continued and eventually subsided, until almost twenty years later, when Berle announced the shift in stance. He wrote in support of Dodd highlighting that the values within the corporation that we have subjected ourselves to, such as shareholder primacy, are exactly the values Dodd warned would dominate the corporation. He also suggested that the state should seek to calibrate the focus, in regards to their values, of the corporation and see the shareholder value maximised alongside other stakeholders interest, i.e. the local community.

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^{its members. Once incorporated, the
members of that company enjoy the protection of limited liability - which sees
their personal assets protected - and due to this incentive, that most
entrepreneurs seek to incorporate their businesses. The corporate citizen, who
also enjoys separate legal personhood, can see another company incorporated and
own shares within it. Maintaining limited liability, the corporate citizen,
which would be known as the holding company, can incorporate new companies,
which are known as subsidiaries, where they could make risky business ventures
and if failed they affects would not be greater than the normally minimal
assets in that subsidiary. Just like a entrepreneurial individual could, a
corporation can go on to own multiple companies and those companies can then go
on to do the same. lt;/o:p>}

within our governing system as most of them are erected on the advice of the state.

Fetuses& Breach of Child Labour Laws& Breach of Slavery Laws& Causing Serious Injury and Harm to Humans& Reckless Endangerment& Causing Serious Harm to Animals.

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^{If the company are successful in doing so,
they will be allowed to continue undisturbed production. If they are not, they
will be wound up accordingly. Depending on the severity and impact, a company
should receive the death penalty immediately if they have committed a Category
A offence.}

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^{that drive the ideology of modern corporations being
wholly (economically, politically, socially) beneficial to society.
^[2010]
^lt;o:p>}

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