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Inherent Rules of Corporate Behavior

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Published May, 2000

In his 1991 book, In the Absence of the Sacred, writer Jerry Mander included a self-descriptive list, “Eleven Inherent Rules of Corporate Behavior.” His insights have never been more timely, as they illustrate the severe limitations of seeking “corporate responsibility” and illustrate the essential truth that corporations must be redefined and subordinated to democracy, not merely regulated or pleaded with to do the right thing.

These “rules” don’t distinguish between publicly-traded and privately-owned corporations. To a degree, privately-held companies are more easily guided by individual standards of morality, but competition eventually will pressure all but community-serving or small-niche businesses toward similar behavior. Taken together, these rules make a compelling case that many of the most destructive corporate impacts on our society and environment are necessitated by the form and power that we have permitted corporations to assume. Primary among the rules are:

The Profit Imperative
Because maximizing return to shareholders is legally required of corporate officers, profit must be the ultimate measure of all corporate decisions. Profit necessarily takes precedence over community well-being, worker safety, public health, peace, environmental preservation, and national security.

The primacy of profit over ethics may have moderately destructive impacts, as with Enron’s manipulation of electricity markets to maximize profit on the backs of California citizens. In other instances, it can mean the deaths of many innocent people, as when Ford and Firestone executives continued selling a product combination that they knew was killing many of their customers, while withholding the danger from the public. Their decision stemmed from a “rational” cost-benefit analysis which indicated that settling lawsuits resulting from fatal accidents was less costly than a recall.

If you were to knowingly withhold such information when selling your personal vehicle, you could be convicted of manslaughter in the event of a fatality; yet those executives will never see the inside of a prison cell because they effectively enjoy corporate immunity.

In both of these examples, the natural human reaction is outrage toward the decision-makers, but we should work past our visceral response. A thoughtful analysis that recognizes the profit imperative tells us that we can best prevent future harm by focusing on restoring citizen control over corporations systemically, not tackling one offender or harm at a time.

Consider this: the much-publicized financial fraud cases have occurred in the most highly scrutinized and regulated realm of corporate behavior. What might be unearthed if we adequately staffed and funded investigations into other areas where the profit imperative has more serious consequences, such as violations of workplace safety or compliance with laws to keep our drinking water and air free of toxins?

The Growth Imperative
Corporations live or die by whether they grow. For a publicly-traded corporation, there is no such thing as “big enough.” The growth imperative fuels the corporate drive to continually pursue new resources and markets around the world. As natural resources are depleted, new frontiers continually are sought. The effects of this imperative are visible now, as more of the world’s few remaining pristine places are targeted for commercial exploitation.

Corporate planners relentlessly lure “less-developed societies” into the global corporate economy to tap new sources of consumers and cheap labor while institutions like the World Trade Organization and International Monetary Fund supplement enticements with coercive power.

Corporations generate propaganda, claiming that global corporatization (promoted as “free trade“) raises living standards. But this story is contradicted by global economic data which demonstrate corporate colonialism–the siphoning of profit from the country or region of production–is having a debilitating impact on many developing countries.

Structural Amorality
Corporations are artificial creations, shielded from obligations of personal morality and responsibility by their very design. As a result, decisions that may be antithetical to community interests, workers’ welfare, or public and environmental health are made without risk of personal liability. Furthermore, having no real commitment to a particular locale, corporations can relocate easily to escape taxes, unionized employees, and environmental protection laws.

In light of growing public awareness and resistance to environmental and societal harm, more corporations are seeking to veil their amorality and appear altruistic. This practice of “greenwashing” is intended to coax more people to buy their products, services or stock, but if corporate benefits do not accrue, altruistic poses are dropped. For example, when Exxon Corporation executives realized that their spending to mitigate damage to Alaskan shores after the Valdez oil spill was not swaying public opinion enough to benefit the company’s bottom line, they dropped the pretense of moral obligation and stopped the cleanup.

Quantification
Corporations require subjective values to be translated into objective quantities that are easily tallied on balance sheets. Forests, for example, are valued only in terms of “board feet.” Their immense value in sustaining life or providing clean water and spiritual nourishment goes uncounted. This carries over to government institutions that are heavily influenced by industry; hence the U.S. Forest Service considers trees worth thousands of dollars to timber companies as economically worthless unless they are cut down.

Such accounting without human values allows corporate cost/benefit analyses to be the measuring stick for many public health policies. The resulting policy of “risk-assessment” inflicts sickness and death from easily preventable pollution or toxic pesticides to avoid the “excessive” costs of healthier alternatives.

Corporate political powers succeeded in pushing Congress to effectively abandon the Precautionary Principle (addressing or preventing probable health hazards proactively, rather than waiting for definitive scientific proof of public harm) when it repealed the Delaney Amendment in 1996. Delaney simply required that our food be free of proven carcinogens.

Exploitation & Homogenization
Corporate profit depends not only on minimizing employee compensation but also on shifting costs created by business onto society as a whole, commonly called externalization. We all foot the bill for such externalized costs of pollution, illness, health care, public infrastructure to support corporate expansion, and much more.

Corporate employees often are dehumanized–seen as replaceable parts in a machine. For managers in the corporate workplace, personal morality must not interfere with profit-based decision making, though these decisions often carry deep personal, community, or environmental consequences. A CEO who resists moving a factory overseas to evade environmental regulations or refuses to cut workers’ pay soon will be replaced if these actions result in an unexploited opportunity for profit.

Corporations have a tremendous stake in fostering homogeneous consumers and conformity. Consumption accelerates as more people believe that certain commodities bring material satisfaction. Inner satisfaction, self-sufficiency, and contentment in nature are subversive to corporate goals. As transnational chains increasingly dominate commerce, native societies are pressured to give up their traditional ways and join the corporate global culture–uniqueness is gradually vanquished.

Lack of Limitations
Our country’s founders and many subsequent generations recognized the danger in allowing corporations to grow in size and power. Corporations initially were given a limited lifespan, barred from engaging in any activity not expressly permitted, and relegated to a narrow range of permissible actions. Corporations were deemed appropriate tools to serve a public benefit through engaging in commerce but were fully subordinate to democracy and prohibited from legally attempting to influence elections, education, public policy, and other realms of civic society.

But it’s easy to forget lessons not learned through personal experience. For more than a century, we have permitted corporations to elude democratic control and escape our limitations on their lifespan, size, and activities. We have yielded to them immense power to weaken citizen sovereignty over business and to shape our laws and government.

As a result of vast political power, the majority of harms caused by corporations are perfectly legal, rendering even rigorous enforcement of the laws governing corporate actions inadequate. Banishing corporations from political participation is a necessary first step to reclaiming our democracy.

We must abandon the absurd notion that corporations can reform themselves. Such notions deceive and distract us from our fundamental work. This does not mean we should fail to support the efforts of those working to improve corporate actions from within; but merely asking for greater “corporate responsibility” makes little more sense than asking a bulldozer to act responsibly.

Even Business Ethics magazine founder Marjorie Kelly now writes “it won’t be enough to rely on voluntary initiatives, codes of conduct, enlightened leadership…we must change the fundamental governing framework for all corporations in law.”

It is We the People who must be responsible, as we have not been for more than a century, and relegate corporations to their proper role–a tool for serving the public interest. Only by disillusioning ourselves can we hope to see the roots of our problems and recognize our responsibility: to restore our authority over corporations as citizens and re-program the machine.

The writer, Jeff Milchen,  served as the Executive Director of ReclaimDemocracy.org at the time of writing before moving on to co-direct AMIBA, the American Independent Business Alliance.

Our Hidden History of Corporations in the U.S.

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When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country’s founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.

Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end. The states also imposed conditions (some of which remain on the books, though unused) like these*:

  • Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.
  • Corporations could engage only in activities necessary to fulfill their chartered purpose.
  • Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.
  • Corporations were often terminated if they exceeded their authority or caused public harm.
  • Owners and managers were responsible for criminal acts committed on the job.
  • Corporations could not make any political or charitable contributions nor spend money to influence law-making.

For 100 years after the American Revolution, legislators maintained tight control of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.

States also limited corporate charters to a set number of years. Unless a legislature renewed an expiring charter, the corporation was dissolved and its assets were divided among shareholders. Citizen authority clauses limited capitalization, debts, land holdings, and sometimes, even profits. They required a company’s accounting books to be turned over to a legislature upon request. The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking directorates were outlawed. Shareholders had the right to remove directors at will.

In Europe, charters protected directors and stockholders from liability for debts and harms caused by their corporations. American legislators explicitly rejected this corporate shield. The penalty for abuse or misuse of the charter was not a plea bargain and a fine, but dissolution of the corporation.

In 1819 the U.S. Supreme Court tried to strip states of this sovereign right by overruling a lower court’s decision that allowed New Hampshire to revoke a charter granted to Dartmouth College by King George III. The Court claimed that since the charter contained no revocation clause, it could not be withdrawn. The Supreme Court’s attack on state sovereignty outraged citizens. Laws were written or re-written and new state constitutional amendments passed to circumvent the (Dartmouth College v Woodward) ruling. Over several decades starting in 1844, nineteen states amended their constitutions to make corporate charters subject to alteration or revocation by their legislatures. As late as 1855, it seemed that the Supreme Court had gotten the peoples’ message when in Dodge v. Woolsey it reaffirmed states’ powers over “artificial bodies.”

But the men running corporations pressed on. Contests over charter were battles to control labor, resources, community rights, and political sovereignty. More and more frequently, corporations were abusing their charters to become conglomerates and trusts. They converted the nation’s resources and treasures into private fortunes, creating factory systems and company towns. Political power began flowing to absentee owners, rather than community-rooted enterprises.

The industrial age forced a nation of farmers to become wage earners, and they became fearful of unemployment–a new fear that corporations quickly learned to exploit. Company towns arose. and blacklists of labor organizers and workers who spoke up for their rights became common. When workers began to organize, industrialists and bankers hired private armies to keep them in line — sometimes by killing key leaders. They bought newspapers to paint businessmen as heroes and shape public opinion. Corporations bought state legislators, then announced legislators were corrupt and said scrutinizing every corporate operation wasted public resources

Government spending during the Civil War brought these corporations fantastic wealth. Corporate executives paid “borers” to infest Congress and state capitals, bribing elected and appointed officials alike. They pried loose an avalanche of government financial largesse. During this time, legislators were persuaded to give corporations limited liability, decreased citizen authority over them, and extended durations of charters.

Attempts were made to keep strong charter laws in place, but with the courts applying legal doctrines that made protection of corporations and corporate property the center of constitutional law, citizen sovereignty was undermined. As corporations grew stronger, government and the courts became easier prey. They freely reinterpreted the U.S. Constitution and transformed common law doctrines.

One of the most severe blows to citizen authority arose out of the 1886 Supreme Court case of Santa Clara County v. Southern Pacific Railroad. Though the court did not make a ruling on the question of “corporate personhood,” thanks to misleading notes of a clerk, the decision subsequently was used as precedent to hold that a corporation was a “natural person.” (This story was detailed in “The Theft of Human Rights,” a chapter in Thom Hartmann’s Unequal Protection.)

From that point on, the 14th Amendment, enacted to protect rights of freed slaves, was used routinely to grant corporations constitutional “personhood.” Justices have since struck down hundreds of local, state and federal laws enacted to protect people from corporate harm based on this illegitimate premise. Armed with these “rights,” corporations increased control over resources, jobs, commerce, politicians, judges, and the law.

A United States Congressional committee concluded in 1941, “The principal instrument of the concentration of economic power and wealth has been the corporate charter with unlimited power….”

Many U.S.-based corporations are now transnational, but the corrupted charter remains the legal basis for their existence. At Reclaim Democracy!, we believe citizens can reassert the convictions of those who struggled successfully to free us from corporate rule in the past. These changes must occur at the most fundamental level — the U.S. Constitution.

We are indebted to our friends at the Program on Corporations, Law and Democracy for their research, some of which was adapted with permission for this article. Sources include:

Visit our Corporate Personhood page for a huge library of articles exploring this topic more deeply.