Virtual Learning Resource Centre
The corporation: The pathological pursuit of profit and power
by Joel Bakan, Constable and Robinson, 2004.
Abstract
Is the corporate mandate to pursue relentlessly and without exception its own self interest, regardless of the harm to others, perhaps using CSR as a mere mask for selfish interest (companies doing good to help themselves)? All this is challenged and solutions offered.
(Reviewed by Kevin Barham in December 2004)
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Corporate social responsibility is a mask that the modern corporation assumes to hide its pathological, selfish nature. So says Joel Bakan, a Canadian law professor at the University of British Columbia. His book is published to coincide with the UK release of his film of the same name, a documentary on the role of corporations in the modern world that has been winning awards at various international film festivals. According to the citations on the book’s cover, the Independent newspaper describes it as a ‘Fahrenheit 9/11 for people who think’. The Economist says that ‘unlike much of the soggy thinking peddled by too many anti-globalisers, it is a surprisingly rational and coherent attack on capitalism’s most important institution.’ With endorsements like that, we should take a look at what Bakan is saying.
Failures such as Enron, says the author, are not just the result of a few bad people pursuing a few bad practices. The faults within the corporate system run much deeper. His basic premise is that the corporation cannot behave otherwise because its legally defined mandate is to pursue relentlessly, and without exception, its own self-interest regardless of the often harmful consequences it might cause to others.
The corporation’s rise to dominance
The author starts by tracing how, over the last 300 years, the corporation has risen from relative obscurity to become the world’s dominant economic institution. He shows how key features of today’s corporate form have developed, including the concept of limited liability and the notion of the corporation as a ‘person’, a free and independent being with its own legal identity, separate from the real people who are its owners and managers. Corporations have now amassed so much power that governments are no longer able to control them. Their power has been given a particular boost in the last two decades of the 20th century with the rise of neoliberalism and its core policies of deregulation and privatisation. At the same time, economic globalisation has substantially enhanced corporations’ abilities to evade the authority of governments. (The author sees the World Trade Organization as ‘a significant fetter on nations’ abilities to protect their citizens from corporate misdeeds’.)
The corporation now attracts mistrust, fear, and demands for accountability from an increasingly anxious public. Today’s corporate leaders understand that work is needed to regain and maintain the public’s trust. They are seeking to soften the corporation’s image by presenting corporate social responsibility as an answer to such concerns.
The corporation as a ‘psychopath’
Although corporate social responsibility is the new creed of business leaders today, the corporation itself has not changed, says the author. It remains ‘a legally designated "person" designed to valorize self-interest and invalidate moral concern’. While Enron’s troubles can be blamed in part on the corporation’s flawed institutional character, the company was not unique in having that character - all characters have it, even the most respected and socially responsible ones among them.
Corporations have always been philanthropic but traditionally their generosity was practised quietly and was peripheral to their main goal of making money. Now, however, large corporations have put corporate good deeds at the heart of their business plans. Corporate advertising now portrays corporations as caring about communities and the environment, not just the soulless pursuit of profit.
Not everyone is convinced of corporate social responsibility’s virtue. The author interviewed economist Milton Friedman, for example, who says that there is only one social responsibility for corporate executives - they must make as much money as possible for their shareholders. That is a moral imperative. Executives who choose social and environmental goals over profits, who try to act morally, are in fact immoral. Corporate social responsibility is only moral as a means to maximise shareholders’ wealth.
The reason for the corporation’s selfishness is the way it is constituted under law. The corporation, as created by law in the US and other countries, compels executives to put the interests of their companies and shareholders above all others and forbids them from being socially responsible - or at least genuinely so. The ‘best interest of the corporation’ principle, now a fixture in the corporate laws of most countries, compels corporate decision-makers always to act in the best interests of the corporation, and hence its owners. It forbids any other motivation for their actions. From this perspective, corporate social responsibility is illegal. It can only be tolerated when in the service of corporate self-interest.
The fundamental test and imperative for any company is performance. By implication, social responsibility is not appropriate when it could undermine a company’s performance. For all big business leaders, social and environmental goals are, and must be, strategies to advance the interests of their companies and shareholders. Such goals can never legitimately be pursued as ends in themselves. The author does not deny that corporate social responsibility sometimes has good effects but we should not expect too much from it, he says. A corporation can do good only to help itself do well, a profound limit on just how much good it can do.
The author acknowledges that the people who run corporations are ‘for the most part’ moral people, many of whom want to make the world a better place and believe their jobs give them an opportunity to do so. However, their duty as corporate executives is clear. They must always put their corporation’s best interests first and not act out of concern for anyone or anything else (unless the expression of such concerns can somehow be justified as advancing the corporation’s own interests). In the face of the contradictory moral demands of their corporate and private lives, managers are often compelled to disassociate themselves from their own values when at work and have to compartmentalise their lives.
The corporation itself, as an entity, is singularly self-interested and unable to feel genuine concern for others. It is irresponsible, because in an attempt to satisfy the corporate goal, everybody else is put at risk. Corporations try to manipulate everything, including public opinion. They often refuse to accept responsibility for their own actions and are unable to feel remorse. They relate to others superficially - their goal is to present themselves to the public in an appealing way which may not in fact be representative of what the organisation is really like. Human psychopaths are notorious for their ability to use charm as a mask to hide their dangerously self-obsessed personalities. For corporations, social responsibility may play the same role.
The externalising machine
As a psychopathic creature, the corporation can neither recognise nor act upon moral reasons to refrain from harming others. Only pragmatic concern for its own interests and the laws of the land constrain its predatory instincts but often that is not enough to prevent it causing damage to lives and communities and endangering the planet as a whole. Enron was a dramatic event but far less exceptional are the regular and routine harms caused to others - workers, consumers, communities, the environment - by corporations’ psychopathic tendencies. These tend to be viewed as inevitable and acceptable consequences of corporate activity - ‘externalities’ in economic jargon. Corporate externalities have enormous effects upon the world at large. They can be positive - as in creating jobs and useful products - but the corporation’s built-in impulse to externalise its costs is at the root of the many of the world’s social and environmental ills.
Like the psychopath it resembles, the corporation feels no moral obligation to obey the law. For a corporation, compliance with the law, like everything else, is a matter of costs and benefits. Executives, when deciding whether to comply with or break a law, behave rationally and make cost effective decisions as to whether the chances of getting caught and the penalty are less than it costs to comply. The regulatory system often fails because of lax regulations and ineffective enforcement. Until that changes, we shall continue to suffer unnecessary disasters and harm to people, communities and the environment.
Democracy Ltd
The author warns that corporations are acquiring disproportionate influence in the political process. As institutional psychopaths, corporations seek to remove obstacles that get in their way. Through lobbying, political donations, and public relations campaigns, corporations seek to influence the democratic process to ensure that governments do not restrict their freedoms. Yet many corporate insiders believe that they are performing a public service when they seek to influence the political process on behalf of the companies that employ them.
Today corporations feel that they are partners with governments. It seems a compelling idea, says the author, until you think about what it really means. Partners should be equals. One should not wield power over the other, should not regulate the other, and should not exert sovereignty over the other. They should share the same mission and goals and should work together to solve problems and plan courses of action. Democracy, on the other hand, requires that the people, through the governments they elect, have sovereignty over corporations, not equality with them. Governments should have the authority to decide what corporations can, cannot and must do. If corporations and governments are indeed partners, says the author, we should be worried about the state of democracy for it means that government has effectively abdicated its responsibility over the corporation.
Corporations unlimited
Today practically all economic activity is carried on under the corporate form. One large barrier remains, however, to corporations’ control of everything: the public sphere. In the 20th century, it was believed that democracy required governments to protect citizens’ social rights and meet their fundamental needs. Institutions essential to human health and survival, human progress and development and public safety were deliberately placed beyond the corporation’s exploitative grasp. The resulting public sphere is now under attack. Over the last two decades, corporations have waged a determined campaign to push back its exclusionary boundaries. Through privatisation, governments have capitulated and handed over to corporations control of institutions once thought to be inherently ‘public’ in nature. Virtually every part of the public sphere, apart from the judicial system and the military, has undergone, or is being considered for, full or partial privatisation. As a result we are moving towards a new kind of society where nothing but the most basic functions - the judicial system and the military - will be under government control.
Though privatised services might sometimes prove more effective than public ones, privatization is flawed as a general and long-term solution to society’s problems for its reliance on for-profit corporations to deliver the public good. Unlike public institutions, whose only legitimate mandate is to serve the public good, corporations are legally required to put their own interests above everyone else’s. They may act in ways that promote the public good when it is to their advantage to do so, but they will just as quickly sacrifice it, when necessary to serve their own ends, because it is their legal obligation to do so..
These concerns also extend to the commercialisation of society which involves corporations infiltrating areas from which, until recently, they were excluded. Marketing to children is one area of concern. Children, as ‘evolving consumers’ represent a huge market. The author warns that a kind of corporate ‘enclosure of childhood’ is taking place with children living more and more of their lives inside ‘brand enclosures’. We are producing kids as consumers first and rather than creating competent citizens and moral human beings.
As the corporation comes to dominate society, its ideal conception of human nature becomes dominant too. The corporation is designed, after all, to be a psychopath - purely self-interested, incapable of concern for others, amoral and without conscience. From the point of view of the corporation, the ideal citizen is a kind of ‘insanely rapacious consumer. The modern business corporation, an artificial person made in the image of a human psychopath, is now seeking to remake real people in its image.
The result of all this is that the notion of the public interest, a common good that transcends our individual self-interest, is slipping away. Increasingly, we are told, commercial potential is the measure of all value, corporations should be free to exploit anything and anyone for profit, and human beings are creatures of pure self-interest and materialistic desire. These are the elements of an emerging order that may prove as dangerous as any fundamentalism that history has produced.
Solutions
After the South Sea Bubble scandal in the early 18th century, the English Parliament prohibited the corporate form, a ban which remained in place for a hundred years. Today, it is unthinkable that a government would ban the corporation. The author proposes some less draconian solutions for mitigating the corporation’s ‘potential to cause harm’ (although some of them would have far-reaching consequences). These include measures to reconceive and revitalise government regulation as the principal means for bringing corporations under democratic control. Regulations, for example, should be made more effective by staffing enforcement at ‘realistic’ levels, setting fines sufficiently high to deter corporations from committing crimes, and strengthening the liability of directors and managers for their corporations’ illegal behaviours. Political democracy should be strengthened by, for example, phasing out political donations and placing tighter restrictions on lobbying and the ‘revolving door’ flow of personnel between government and business. We also need to create a robust public sphere in which social groups and interests important for the public good should be governed and protected by public regimes. Finally, the author calls for a challenge to international neoliberalismin whereby nations should work together to shift the ideologies and practices of international institutions like the WTO away from market fundamentalism and its facilitation of deregulation and privatisation. Most important, he says, we should recognize that corporations are our creations. They have no lives, powers, or capacities beyond what we, through our government, give them.
The author’s analysis is an uncomfortable one for any corporate manager (and particularly for those responsible for corporate social responsibility programmes who will need to respond to his arguments). Many managers will recognise the schizophrenic quality in their lives that the author describes. He may be right in suggesting that Enron was not an isolated instance. But whether increased regulation and a bigger public sector are the right solutions is open for debate.