Corporations are not evil, but the way public corporations are structured now does definitely encourage evil behavior.
First, we need to distinguish between private and public equity. Private corporations often have only a few owners who are also the managers; they pay the price for their own poor decisions. Often, too, the goal is not profits but solvency: the owner-managers make their money from their own salaries and do not retain much earnings for the future. A doctor’s practice is an example of this.
But public equity really is a problem now. A big problem. In fact, the way humanity deals with public corporations will be key to its very future. My belief is that, 100 years from now, the public corporation will not exist.
Or things may turn out like in the movie Rollerball in which the corporations themselves have become the government.
Here’s another thing that’s wrong with public corporations.
Public corporations are treated as an “investment.” That is, they are owned by shareholders that want a constant return on their investment (the stock price) in the form of dividends and capital gains. This rate of return must always be above the “risk-free” rate (interest rate on a US bond).
The investment model of the company is ethically questionable and mathematically ridiculous, however. It is ethically questionable because, in theory, it demands high growth on the part of all companies, which would in no time destroy the planet. It is mathematically ridiculous for the same reasons: the planet can’t supply the resources, and neither can the population of the species.
Of course, companies compete with each other, and they can’t all succeed. Yesterday’s high-growth firm is today’s failure. Some say the stock market is not a zero sum game because overall there is growth. True, but this total come from quite a mix of black and red ink. The stock market is, for that reason, something quite close to a miniscule sum game.
The true and acceptable purpose of a company is to provide an opportunity for people to cooperate and produce. It is NOT to provide a return to people who are merely “owners.”
At base, then, the modern public corporation does not serve the needs of the species. Other posters have noted that it doesn’t even serve its ostensible purpose as investment vehicle, since the execs use the corp as their own private playground.
More points later. As one poster pointed out, public corps are now quasi-governments in their own right that thoroughly control our lives and abridge our freedoms.
Before anyone calls me a socialist: yes, I’m a socialist.
The Economist posted a largely positive review of this film a few weeks ago. Unfortunately, the article’s gone pay since then.
A major point of the review - IIRC - was that if you think that something other than whatever happens to be profitable at the moment ought to be pursued, you’d better look to constrain the activities of companies. And that good people employed by companies can be relied upon to do things that they would recoil from in their private lives.
I wouldn’t contest any of that. Companies are out to make a buck. They are extremely useful in that role - seeking out what is profitable and squeezing costs - but imagining that there is such a thing as corporate responsiblity is giving hostages to the amoral even if the employees and managers of the companies are all good people.
Okaaaaaayyyyyy… that makes no sense whatsoever. What gets you from here to there is effort and work. Ethics are simply the limits one imposes on oneself so that your efforts don’t case more harm than necessary. Throwing a “meta” in there doesn’t help.
Eating when you are hungry isn’t so much an ethical decision as it is a logical one. By your definition, all animals and plants are ethical, which would reduce the concept of ethics to uselessness.
Out of curiosity, can you prove this? I find it hard to believe that noone lost their jobs over that fiasco.
But notice how this feedback mechanism worked. We still make jokes about ford cars, and their sales do suffer to some extent. The stockholders and customers have the ultimate power over the officers of a corporation.
Apparently you didn’t take Finance 101 in college. The purpose of a corporation is to maximize shareholder wealth. That is all. A corporation does not exist to protect the environment, provide jobs, promote social causes, donate to the local community, or anything else.
I think that is a pretty romantic perception of the mechanisms at work. Stockholders and customers, I think, generally have no clue what is going on in any particular company. Shit, employees barely know and they’re there every day.
You know, after I posted that, I regretted it so some extent. On re reading it, I see that it may have looked as if I said “see the system worked perfectly”. That’s not entirely what I meant. All I meant to point out was that the evil corporate officers made a bad decision. It did not happen immediately, and some do not think the punishment was severe enough, but the corporation and those officers were punished. That is there was a feedback from the system. I did not mean to suggest that the feedback was perfect nor that it may not need some changes. I think I mentioned several things that could change for the better throughout the thread. I was only trying to remind everyone that the example of the Ford Pinto is not exactly an example of unbridled capitalism running roughshod over an undefended population.
Your point about the knowledge of stockholders is well made. I agree that one of the big problems in our current system is the short term nature of most investments. Stockholders are no longer co owners of a corporation. They are simply speculators. We need to imporve the incentives for long term investments such that more people will think of stock purchases in this way. If you purchase stocks with the idea of building a fortune to leave to your grandchildren, you will be more interested in the behavior of that corporation. You might even vote against board members who allow CEOs to do things you don’t like.
Sounds good, but how would something like that be put into practice? I’m all for social regulation before government intervention. Why make laws if we don’t have to?
I think it would be interesting to set up disincorporation procedures to allow the general public (I.E. non shareholders) to revoke a company’s charter. If pissing off consumers suddenly had the liability to get the corporation killed, I think we might see more accountability and responsibility.
Thank you for proving my point. Apparently you also feel that having a corporation sell crack cocaine is acceptable as long as it maximizes shareholder wealth, that morality and responsibility are non-issues.
Apparantly you like to accuse people of things if they dsiagree with you.
The (for profit) corporation itself is a legal entity, a construct, with the narrowly-defined goal of maximizing investor return, but the corporation does not take actions by tiself, like some kind of android. The actions taken to further that goal can only be done by the officers, managers and workers of the corporation, and they are (or should be) bound by ethical standards, which have (or should have) a moral and responsible basis.
But if it makes you feel better to jump to the extreme conclusion of what we’re saying and then accuse us of favouring that conclusion, knock yourself out, sport.
Hence the little “(for profit)” qualifier. There are all varieties of corporations, with various goals as set by their founders. Rjung is (I presume) talking about for-profit corporations. There may be some rare for-profit corp out there that isn’t seeking to maximize investor/shareholder return, but that strikes me a contradition. Frankly, I’d like to see an example.
In any case, the corporation itself is morally neutral, and as a legal construct, it is massively useful. The people who work for the corporation, though, should be bound to ethical standards. If criminal activity is uncovered, the corporation can be fined, but it’s the workers who should be punished.
Absolutely not true. Individuals, and individuals alone make the concious decisions to act unethically, or even illegally. The way that an enterprise is structured will not make an honest man a crook, nor induce a crook to behave ethically. The issue is of personal ethics, not of corporate behavior. A corpoaration is unable to act, and has none of the qualities of a human. (despite the ridiculous assertion on the OP)
False. It is true that owners in [small] businesses have a more direct line between actions and consequences. There are many owners who are basically “working for wages” and the business is just large enough to support the owners and cover costs. But there are many, many ,many businesses that provide extremely well for their owners and put away significant retained earnings away. I’m guessing you’ve never been in business.
My gosh, what stunning hyperbole. The future of humanity hangs on this? Shhhhhheeeeeesssssshhhh.
Another thing? I re-read the post and I don’t see the first thing!
If you had a dollar and had 2 investment choices, both of which paid the same return, although one of them had siginficantly higher risk of losing your whole investment, which would you choose? From time immemorial anyone putting capital at risk has wanted his “investment” to provide a return. That’s whether that’s a dividend check or a healthy crop. That there is a correlation between risk and expected return should be a given. Further, no investment is “risk free”, there is only relative levels of risk. If everyone avoided risk the world ecomony would grind to a halt.
Pure hogwash, and more hyperbole. High growth is not expected of all companies by any stretch. Mature companies (think utilities as one example) have historically been slow growth, dividend rich, stable companies. New companies, or companies in growth industries, are expected to grow (sometimes rapidly) and often the investors (more on them later) will look for growth before earnings. (read:profit) Either way, the risk of ‘destroying the planet in no time’ is preposterous. Corporations will not for any length of time produce a good or service that the population can’t or won’t use. The amount of the world’s resources are more than abundant to meet the world’s current needs (although there is reason to be concerned) but that is a policy argument about population control, not corporations. If the population grew to 8 billion, corporations (rather the individuals running them) would be obligated to meet this need.
Huh? It is a wondeful thing that *some *companies fail. But that is not a function of corporations, or how they’re formed. That’s a function of politics in general, and caplitalism specifically. It is economic survival of the fittest. For the companies that fail it is a painful and sometimes devastating experience. But go ask the owners, managers and even workers in Eastern Europe who toiled in businesses that made products that nobody wanted. Ask them where they want to work.
False. The function of a corporation is to produce a return on the capital with a commensurate level of risk for the expected return. In makes good business sense to create opportunities for people to produce. many (most…) produce jobs and opportunities and many, many businesses produce excellent opportunities for non-owner workers.
False. The individuals at Encon, MCI, Martha Stewart, TYCO et al acted poorly, and are suffering for it. Unfortunately, average investors, many of them employees of those firms, are innocent victims and will suffer even more. But that has nothing to do with the ways companies are formed. It has everything to do with the ethical lapses in those individuals. Nonetheless, that is a function of the [Criminal] law and statutes.
The corporation is designed to serve it’s owners. Along the way, it makes good business to serve the needs of the customer and to recruit good employees and make opportunities for them. The owners will balance their own needs and expected return with the needs and expectations of those who have an interest in the business affairs of the business. Those “constituents” include customers, employees, vendors, bankers, etc etc. It is a balancing act, but if done correctly provides well for it’s owners.
The owners (or managers hired by the owners…) have a primary responsibility to maximize returns for it’s owners while minimizing risk. In some businesses higher risk is inherent to the industry, or because of the stage of development a given business is in. The higher the risk, the higher expected return. The relationship betwen risk and return are intertwined and inseparable.
Maximizing is not a dirty word. An intelligent owner (or manager) will recognize that if I “shortchange” my cistomers (in any of the many, many ways that can be done) short term profits will be outstanding. The profit differential between what the market will bear for that particular business and the actual profit that a business engaging in short term (unethical) profit taking, comes at the long term health of the business. Go ahead and screw your customers, or don’t give them a fair trade. The excessive short term profits you are collecting represent the “liquidation premium”—the trust you are liquidating from your customers. In time, customers wise up, and you’re out of business.
Businesses are not omnipotent. Many of the largest ones have failed, or diminished greatly. We decry WalMart or Microsoft but the landscape of business is filled with the husks of businesses that were mauch larger than stronger than they were. Ever heard of Burroughs, DEC, Sperry Univac? 25 years ago Sears could eat Walmart’s lunch. WalMart did a beter job of serving it’s customers.
Maximising return and the needs of the customers or employyes are not mutually exclusive, and the smart business owner recognizes that his best interest is to pay attention to the interests of those who have a stake in his business.
Well, either of those systems involves the confiscation of personal property for the good of the state, with the former involving collectivization and the latter needing heavy taxation. The individual is not free (or at least not entirely free) to make individual investment choices. Participation in a corporation, though, as a worker or investor, is completely voluntary.
Personally, I think communism is despicable and socialism can be tolerable, depending on degree. I think the Canadian formula is (mostly) adequate in that some social safetey net is in place, but individual investment choices are largely unfettered.