The concept of legal personage dates back to English common law; in the USA, the status of a legal person as being equivalent in some senses to a natural person goes back to at least 1844 in terms of Supreme Court decisions, but really, it goes back to the Bill of Rights. Contrary to what seems to be amazingly common belief, most of the Constitution doesn’t confer rights on people (of any sort) - it prohibits Congress (and the states) from doing things. The First Amendment states, with respect to free speech, “Congress shall make no law… abridging the freedom of speech.” The plain meaning of that is that the government cannot inhibit free speech. It doesn’t give people the right; it says Congress cannot get in the way of speech. The plain text reading is that Congress cannot stop political speech no matter who expresses it. If one simply goes by what it says it makes no difference if the speech is uttered by a single person or by Citizens United.
If you want to pass an amendment saying “The First Amendment shall apply only to natural persons/citizens” or some such thing go ahead, but consider the implications of such a thing. The unintended consequences could be dire indeed.
Agnostic Pagan, a few questions for you. I’m not sure I understand your views regarding the performance of cooperatives compared to the performance of conventional corporations. In one post you said…
In another post you said…
The first quote seems to imply that you think cooperatives don’t perform as well (in financial terms) as corporations. The second quote seems to indicate that you think cooperatives perform better than corporations in all areas (including financial). With regard to financial performance only, which form of business do you think performs better?
With these posts it seems like you’re saying…
“Most small and medium privately held enterprises are ran in a conscientious manner. However, when a corporation gets to a sufficient size, the incentives inherent in the corporate structure make it more likely for a corporation to act in a manner which causes the corporation to place more value on profit making and less value on equity/social justice issues.”
Is this an accurate restatement of your views? If not, would you please clarify? If it is an accurate restatement then, in your opinion, what is the proper balance a business entity should strike between the goals of profitability and social justice/equity? Should a corporation value social justice/equity over profitability (i.e. is it ok for a business to be unprofitable as long as its fair)? Also, at what size would you say that a corporation typically starts experiencing these negative effects?
In these quotes you acknowledge that there are some advantages to the corporate model. However, it isn’t clear to me what you think the NET effect is of the corporate model. Once all social, financial, etc. issues are considered do you think that there is a net benefit to the use of the corporate model (i.e. society is better as a whole)? Or do the net benefits (if you believe there are some) only occur with small/medium firms? Or something else?
I think it is partnerships who have the best record as far as financial performance (on either a per capita or per share basis, but I cannot find the cite to recall which). IMHO, there is nothing inherent in cooperatives or corporations that either is a better financial performer. Some coops perform better than corps, and vice versa. I do think that cooperatives perform better in non-financial areas, primarily social justice and worker development, and some co-ops have forsaken better financial performance to meet those other goals. Too many studies on employee ownership focus on firm performance when I would like to see a few more that compare the affects of the firm on their employees/members success (home ownership, health, education, net worth, etc.) The few I have seen show that cooperatives and partnerships are more successful at that metric. It is still inconclusive as to causation. It needs to be determined if cooperatives/partnerships make people successful, or successful people make better cooperatives/partnerships. Either way, I still want to encourage them.
I would say the above quote is accurate. I think the proper balance is something that should be determined by all the stakeholders in an enterprise, and I feel cooperatives do a better job of ensuring that representation. Commerce should serve for the mutual benefit of all parties - the owners, management, labor, customers, community, etc. Not for the benefit of one party at the expense of the others.
Small and medium-sized firms will tend to be more focused on their effects on ‘Main Street’ as opposed to Wall Street. These businesses are more usually controlled at the local level and their owners tend to be more active in their communities. They do not just work with their employees, but may attend the same church, root for the same teams, shop at the same grocery store, etc. The business structure they choose is just a means to run the business which were generally started to deliver a good product, and not to maximize profits. Their stock is either not traded or very little, and so they pay less attention to investment criteria such as dividend yields or P/E ratios.
A good rule of thumb I learned is that large businesses focus on the bottom line - how much net profit. Small and medium business focus on the top line - generating sales. I would prefer businesses value social justice/equity over profits or sales, but not to their exclusion. Businesses do need to make money - except for one-off productions or joint ventures, most want to be a going concern. But breaking even is sufficient for that purpose, and many small businesses consider it a very good year if they are able to do that. Even ‘non-profits’ need to generate a sufficient return to keep going (which is why many in the NPO sector do not like that label.) Most still rely on donors (which has no small expense attached to that), but many are trying a service-fee model.
How much more should a firm be able to earn above that point? For myself, when increased profits come at the expense of someone else, e.g. Wal-Mart requiring suppliers to meet certain price points if they want Wal-Mart to carry their products, a demand too often made when Wal-Mart has become their primary customer. When a firm starts dictating terms, as opposed to negotiating them, I think the line has been crossed. That business now believes its concerns outweigh any others. So when a firm becomes of sufficient size that it can start to engage in anti-competitive behavior is when it is too big. What that size is can vary widely depending on the industry and the location. How to measure is important also. Size as determined by revenue or assets is actually the poorest indicator I have seen. The number of workers was the main determinant in most of the behavior studies I read.
Sadly, from what I have seen, it is those qualities that make a business a ‘success’ - having a broad enough product line, or serving enough markets/locations that the firm is no longer dependent on the success of any one product, location, client, etc., and is only subject to the macro issues that affect everyone, that create the anti-competitive behavior. The independence a firm obtains from that level of success can warp its attitude toward its commercial partners and the firm starts to ‘set’ terms instead of negotiate them.
From a governance perspective, there is definitely an optimal size where the leader of an organization can actively keep tabs on each area of the firm but not micromanage it either, and relationships can still be personal (though professional), but there are no ‘nameless faces’. From the studies I remember, it was generally no more than 500 employees or more than a dozen locations. At that point, parts of the organization can become unaccountable to the larger organization. The left hand may no longer know what the right hand is doing since the costs of watching it will start to outweigh the benefits.
I think the net effects of the corporate model are no longer beneficial. I think there was a golden age in the post-war era where corporations did achieve incredible results and helped increase everyone’s standard of living - in both the industrial and non-industrial world.
I think several things helped that occur. We had stronger government involvement (both in and out of the US) to prevent abuses which was also helped by a very strong labor movement. Also corporations had less power. Lastly, it was just a much smaller world. The global population was only 3 billion and the OECD countries were only about 700 million. There were less people to share the wealth with. And most countries were barely developed and so to increase the standard of living was a fairly easy achievement. Corporations just happened to be at the right place at the right time. They were not the only means of achieving development. I think technical standardization (railroad gauge, mains power, etc.,) and trade policies were far more important as well.
Watching how corporations evolved in the 1970s and 1980s, any net benefits that they helped provide were lost as Wall Street took more active control in many companies and demanded short-term gain at the expense of long-term development, and too many corporations became multinational behemoths that lacked any personal connection to any people or any place.
Strangely, the disease also helps the cure. The large multinationals such as Adidas and Nike were targeted in the '90s since they did have power over their suppliers to enact better labor standards and encourage more social responsibility. Adidas has done some great work with CSR in helping formulate real standards and audit-able reports. But the fact remains that it took outsiders to hold them accountable in the first place. They had no internal incentives to do so, and far too many incentives to do otherwise.
So to clarify, I feel the benefits of locally-owned small to medium enterprises outweigh the costs of using the corporate model. But when a corporation reaches a certain size, the dictates of using that model start to outweigh the benefits. When it has an IPO and surrenders to institutional investors, the game is lost. So the key question is how to structure and manage large-scale organizations such as GE, GM or Toyota. And the answer is still being determined, but I doubt that corporations will win out as the best method. I think the answer will come from either cooperatives or the civic sector as they start to grow into multinational behemoths as well. I certainly believe they will behave better than corporations even if their effect on GDP is less (which is a piss-poor measure of prosperity anyway.)
Left-wingnuts frequently use the DSM IV definition of “antisocial personality disorder” (AKA “psychopath”) to attempt to predjudice people against big business. In reality using a diagnosis for a human medical condition makes about as much sense as the outrage in this thread about “corporate personhood”.
Why is that? You can compare the inherent behavior of corporations with psychopathy and discover some alarming parallels, such as the inability to take a truly remorseful stance over wrongs committed, the reckless disregard for the physical well-being of workers (except that the law forces them to respect their safety*), and of course the pursuit of profit without regard to the damage they do to a community in the process.
Or we can subscribe to denial, which is your argument.
Me, I’d rather try a test: assume the corporation is a psychopath, know what human psychopaths do, and use this as a means to predict how a corporation will respond to any given situation. Turns out that method more often than not confirms the evil left wing diagnosis of a corporation as a psychopath.
another reason why they often leave the country, specifically for places without workplace safety laws.
A single minded obsession with making money with no regard to environmental damage, harm to employees and economic harm to the country, does not qualify for pathological?
We have agencies with the single position of fighting legal corporate malfeasance and others who spend their existences trying to keep corporations from polluting the land, water and air. Does that seem like the actions of a benign entity?
The people and government are in a constant adversarial relationship with corporations. With their domination of the Republican Party, we are losing badly.
The test you advocate here will give you unreliable results. To illustrate the problem with this methodology consider the following question. What evidence would falsify your hypothesis (that corporations are psychopaths)?
If the members of a cooperative democratically decided that profit maximization was their primary goal would that be acceptable to you? Would such an organization be preferable to a non-democratic corporation with a equity/social justice balance at your preferred ideal? In essence what I’m trying to determine is whether you view democracy (a method) or equity/social justice (a result) as the dominant principle.
While I think I understand the sentiment you’re expressing here, I’m not sure I understand what that sentiment entails. It sounds like you’re saying that the benefits of a transaction should accrue equally to all parties involved. If so I honestly don’t know how this would be accomplished in practice.
For example let’s say it costs Widget Co. $9.50 to produce a single widget. Normally Widget Co. sells this widget to retailers (for resale) for $12.00 a widget. Walmart and Widget Co. come to an agreement whereby Widget Co. will sell 1 widget to Walmart for the discounted price (relative to their regular wholesale price) of $10 per widget. Let’s say that prior to the agreement with Walmart, Widget Co. sold, on average, 1000 widgets a year for an annual profit of $2,500 (i.e. $2.50 per widget * 1000 widgets). After taking advantage of Walmart’s distribution network and retail outlet chain, Widget Co. sells 500 widgets at $12.00 per widget (to it’s old customers) and 100,000 widgets at $10 per widget (to Walmart) for a total annual profit of $51,250 (2.50 * 500 + .50 * 100,000). Let’s say further that the normal retail price of a widget is $18.00 and that Walmart’s cost to distribute and store the widget is $1.00 per widget. So, in this example, if Walmart sold all of the widgets it would have made a profit of $7.00 per widget (i.e. $18.00 - $1.00 - $10.00) for an annual profit of $700,000 from these widgets. Clearly both Widget Co. and Walmart are better off by the arrangement. Equally clearly Walmart and Widget Co. receive a different amount of benefit in absolute terms. How could such a transaction be divided such that all of the parties to the transaction (Widget Co. and Widget Co.'s owners, management, employees, etc. and Walmart, Walmart’s owners, management and employees) and indirectly affected third parties (i.e. the community) receive an equal portion of the benefit? Or, if I’m misunderstanding your view, would you please indicate how the hypothetical transaction I’ve described above could be structured such that no one party is benefiting at the expense of the others?
I’m not sure that the ability to pursue anti-competitive behavior is a sufficient condition. Some loyalty programs, pricing policies, and customer discounts have been determined to have anti-competitive properties. These are all tactics that any enterprise (cooperative, corporation, LLC, etc.) may engage in successfully regardless of their size. Correct me if I’m wrong, but I’m assuming your point here was that larger enterprises have more economic clout and therefore have a greater temptation to pursue anti-competitive policies (i.e. it’s when they DO anti-competitive things that it is a problem not when they CAN do them).
There is one additional thing I’m genuinely curious about. Any discussion about the proper balance of an enterprise’s profit vs. social justice goals should include agreement regarding the appropriate metrics that should be used. Otherwise it would be extremely difficult to compare the performance of different companies, LLCs, cooperatives, etc. relative to each other. I think we all agree that profit is fairly well measured via Generally Accepted Accounting Principles (GAAP). In your opinion, what is the best metric (or group of metrics) we should use when measuring an enterprise’s level of social justice/equity?
In my view, the method and the results are equally important. I believe co-ops achieve both. If a cooperative did seek profit maximization over social justice, I would not necessarily be happy with that choice, but they made it freely, and the profits would be distributed more equitably than otherwise, so that in itself is an improvement.
If forced to choose, I would consider democracy more important. Certain results are easier to achieve using certain methods. Social justice would be more likely to result from democratic organizations interacting with one another. I believe governmental actions have shown that to be the case. Human rights only blossomed under democratic regimes. If commercial enterprises were required to be democratic, I think we would see far more socially equitable results. Social accounting is playing a large role here also though within the corporate framework using governmental democracy over organizational democracy. More on that below.
This is where reality confronts idealism. One cannot ensure equality of results.
With a more comprehensive accounting scheme, it might be technically possible to ensure that everyone received an equal share of the total profits of a transaction, but the costs of that scheme definitely outweigh the benefits. Perhaps as information costs lower, it may be more feasible.
The goals for myself are equality of representation and opportunity in the pursuit of society’s benefits, of which commercial enterprises play a significant part, and so making sure all the stakeholders of an enterprise have the representation and opportunity to share in that enterprise’s benefits. The best way I have seen to ensure that is for everyone at the table to have equal access to sufficient information and power to determine how to distribute those benefits. Cooperatives achieve that more than corporations.
Using your example, both sides should share those numbers and be able to reach a fair decision on how to divide the gross profits. In your case, both sides do make more money in absolute terms, but Walmart claims 93% ( $700K/$750K) of the total profits of the deal. Considering that Walmart is not the manufacturer and is only able to achieve those profits because of Widgets ability to make the item for only 9.5, and while it may be true that Widget could only sell 100000 units by relying on Walmarts distribution network, I do not see that as a mutually beneficial arrangement. YMMV. The additional problem arises when next year comes and Walmart says they are only willing to pay $9.75 per unit. Widget will still make $25K profit. But they expanded their capacity on the expectation that they would be making $50K, and if they refuse Walmart, they are now stuck with major sunk costs and may have to walk away from their new factory and its workforce, so they pretty much have to take the ‘deal’. This situation occurs far too often. But hey, both sides made money, right?
It is a bit of both. It is not possible to stop all anti-competitive behavior, and that is a whole nest of worms in itself with a large stack of legislation and case law attempting to define it. Some is pure comparative advantage, i.e. Walmart’s logistics and distribution network; other is pure anti-competition - manufacturers requiring special terms for retailers. Some is still grey - retailers requiring special terms from manufacturers.
So how to prevent situations like above from occurring? ‘Iron-clad’ contracts are only worth what it costs a party to break them. For Walmart, that is minuscule compared to what it would cost Widget to enforce it. And while legislation is only as good as its enforcement, preventing firms from obtaining the capability to do anti-competitive actions, such as limiting the size, or placing much greater regulations and reporting requirements for firms that reach a certain size, should help diminish the occurrence of those actions. Social accounting is leading in this direction.
This is the crux of the matter, and where I see major developments. Social accounting (SA) is able to follow the road maps established by financial accounting and internal auditing and there are a few competing frameworks but I think that the Global Reporting Initiative and ISO 26000:Guidance on Social Responsibility will be the de facto standards. When I speak of stakeholders, I generally mean GRI’s definition. The AA1000 and SA8000 standards are reliable as well. I think the next decade will see a convergence happening, most likely within the GRI framework. The International Integrated Reporting Committee (IIRC) was just established in August to pursue this goal.
As far as professional development of practitioners, I think an international social auditor/accounting certification will be finalized over the next decade as well. Whether it will be an addition to CPA/CIA standards or a completely separate profession is still up in the air. A strong argument can be made either way, but I am partial to adding it to accounting programs rather than start up an entirely new curriculum. I would have the first four years/120 hours remain the same with an addition of a general social accounting class, and the final year/30 hours focused on one of those three sub-fields - financial reporting, auditing (external and internal), or social accounting. (Actually four - managerial accounting is distinct as well. Maybe five, I am undecided on AIS (accounting information systems) programs.)
So going back to your original question, I suppose I would rather see cooperatives mandatory before CSR reporting (which probably does ensure social justice more at every level except for employee-ownership), yet it looks like mandatory CSR will be achieved first - and some form already is in a few European countries. If that is all that occurs over the next couple decades, I will be very happy though. I would still rather just kill them, but it may be possible to tame them. We will have to wait and see. Europe, Brazil and India are definitely taking the lead on these initiatives. I do not see comparable legislation happening in the United States for some time, which is one reason I do not care to work here. We may be the land of opportunity, but we have never been on the leading edge of civil rights. Property rights, yes. Human rights, not so much.
The best sign I see is that while some consider the global financial crisis as an excuse not to follow through on these ideals, many also see them as a means to help prevent another crisis from occurring, or at least mitigate the effects of one.
ISO 26000 is not a standard, it’s a guideline. I know it doesn’t sound like a big distinction, but it actually is. (This sort of thing is my profession.)
If there’s call for it, they could create a social responsibility standard but you can’t be audited or registered to ISO 26000.
While firms can be audited or certified under the other CSR standards and for other ISO protocols, ISO 26000 specifically states:
But note I said “will be”. I think by the end of the decade (i.e. 2020) it will be comparable to ISO 9000 or 14000 and be a certifiable standard, or it will be superseded by either the GRI standard or future convergence among the existing standards (and there definitely is a need for such convergence). I do think using the ISO framework has its advantages though over creating a new governance body. It will be interesting to what effect the IIRC has as well.
It is important to note that I would like to see any standard remain voluntary for awhile (say a decade or so) in order to work out the kinks and study their effects before requiring compliance. But its formal adoption will likely happen far quicker than was the case for financial reporting or internal auditing.
Your entire proposal smacks of niave idealism. What in your mind makes Walmart any more or less “moral” than their suppliers? Because Walmart is frequently a target for left-wing anti corporation types?
The whole point of free markets is to prevent people like you from arbitrarily deciding what is “good and moral business” and what isn’t based on their own personal biases. Walmarts size may give them enough leverage to pressure their suppliers to reduce costs. It also allows them to sell their products much more cheaply which is great for the working and middle class people who shop there.
I can pretty much guarantee it, because ad hoc standards are already been applied and audited to. A number of major corporations are limiting their buying to suppliers that pass social responsibility audits.
The future of major management systems standards is unification; ISO 9001:2008 was designed with unification with 14001 in mind. I would guess that two or three versions from now there will be a single risk management system standard that allows for the management of quality, environmental impact, health and safety, and/or social reaponsibility, as applicable.
ISO standards are always technically voluntary but thousands of registered companies had to get them by virtue of customer insistence. It’s definitely headed towards more registrations. We anticipate years and years of increased demand across the spectrum of management systems standards.
Forcing standards compliance by givernment fiat isn’t a good idea, for a variety of reasons, but primarily because a voluntary management system is generally taken seriously and is much likelier to mean the company wants it, and seriously uses the certified system for its intended purpose. Having it forced on them will make it a paper chase where only the bare minimums are met.
Even though you would prefer that cooperatives be mandatory that doesn’t seem an especially likely scenario. In the future cooperatives may increase in prominence and corporations may decrease in prominence (we’ll have to wait and see…) but I haven’t heard of any serious policy proposal, lobbying group, etc. espousing the sentiment that cooperatives be the required form for all businesses.
It also doesn’t seem (to me) that it’s an especially popular idea with the general public. If the citizenry of a democratic country decline to make cooperatives mandatory isn’t that a good indicator that a variety of business forms is desirable by the public?
And these poor nations have no share in the blame here?
Corporations can only rape and pillage (being facetious here, folks) where they are allowed to. Third world nations let them come in and do their business (in both senses of the word), and third world workers flock to their corporate jobs. Everything that goes on is voluntary. Can someone define “exploit” for me?
I agree. I’ve been traveling and have been meaning to respond to this thread (and others) for a while now, but b/c of various limitations I’ve only been able to log on today. The best way to explain to the OP of the various shortcomings of cooperatives vs. corporation is to have him start one himself. We would not have the level of wealth today without the corporation. Or rather, it might exist if some other nation developed the corporation, and we as a country reaped the benefits of trade with the other countries, but continue to lag because we couldn’t grow much larger than a grocery store or farming commune. Either way, to prohibit corporations is analogous to literally cutting one’s own hamstrings and wearing a blindfold (or simply going blind).
A cooperative would work only if we could change the very essence of human nature (or we had more wealth than we knew what to do with, both scenarios highly unlikely.)