Using Bees To Effect Vengeance

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Wednesday, January 23, 2002
It's always struck me that people who indict "corporate greed" as the source of societal ills miss the point -- making money is literally the corporate raison d'etre. In fact, under the corporate charter, if management does not exploit every opportunity in their power to make money, they can be sued by shareholders. Social responsibility simply does not enter into it.

Robert Hinkley's article How Corporate Law Inhibits Social Responsibility articulates all this much better than I ever could. However, while Hinkley correctly defines the problem, I'm not sure I agree with the his conclusion that the solution is to make directors personally liable for harms done. It seems to me that this would seriously crimp business's ability to hire competent management and would subject every corporate decision to the endless legal back and forth that characterizes the issuing of a prospectus (cited approvingly by this author!) Actually, thinking about it, his solution (make directors personally liable) does not even address the problem he articulates (that corporations' only legal obligation is to make money).

I would probably lean towards revising the corporate charter to make corporations liable for harms done, with any ensuing claims given priority over other creditors (this could be disastrous if implemented incorrectly, but I think the principle is sound). The revision would be paired with a new willingness to revoke the charters of corporations that do not meet basic social responsibility criteria -- something that almost never takes place these days, no matter how badly corporations behave.

These revisions would dissuade corporate naughtiness without impeding their ability to hire smart people, plus would have the same net effect of dampening the stock prices of transgressors and generally encouraging better corporate citizenship. There would need to be strict oversight to ensure that the government workers responsible for prosecution are not conjuring up infractions in order to keep their jobs, but such a caveat is true for any government regulation of business. Sprinkle in tax incentives for pro-active environmental responsibility, benefits policies, etc. and you may be onto something.


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