The Variety of Evils in Corporation - Case Study Example

The Corporation If a corporation was a human being, then what would have been its personality or character? In his challenging volume, The Corporation, Prof. Joel Bakan fights that a corporation would be a psychopath. Corporations have turned into vehicles through which well brought up men and women cause havoc to society due to the way the corporation is developed and safeguarded by law (Bakan, 2004; Klein & Coffee, 2004 and Micklethwait & Wooldridge, 2003). The author takes his audience through the beginning of the corporation in form, as well as its legal status. The author then provides terrible tales, which indicate the variety of evils that the corporation has committed on this earth. These evils vary from low income in the third world, oppressing the masses, environmental damage, a heap of corporate crimes plus many others (Bakan, 2004). He then shows how the corporation has been weakening the democratic process by lobbying and donations. Insidious or subtle marketing by corporations does not flee Bakan’s wrath, and he concludes through calling for corporate responsibility. The author proposes a number of reforms, which he considers will bring the balance of authority from corporations back to the normal citizen. Bakan’s volume takes this issue with numerous aspects of the contemporary corporation. The book is worth reading thoroughly in order to experience its effect, and this paper will be based on some of the arguments that Bakan puts out. These are the arguments that the contemporary corporation has caused its mischief since this is the initial time limited liability has successfully existed. The second argument is his hit on the application of cost-benefit analysis by corporations when settling on health and safety matters. I will discuss his main worries in this paper and offer some opinion on them. The Legal and Structural Origin of the Corporation In attempting to elucidate the influence of the contemporary corporation, Bakan (2004) argues that the requirement for capital to fund the railroads in the U.S. and the U.K. caused the formation of limited liability corporations across the Atlantic. This was assisted by the passing of a number of laws in the U.S. and the U.K. Especially, Bakan (2004) points to the race between the various laws, such as Delaware and New Jersey, to attract huge corporations through passing permissive laws, which did not limit their performance. The U.S. Supreme Court’s jurisprudence, according to Adler & Posner (2001), recognized corporations as people and granted them rights, which, the authors agree with Bakan (2004), secured corporations at the cost of the freshly freed African Americans. This terminated the grant theory of the corporation, an assumption that corporations were offered their legality by the state, and; therefore, only had limited permission for what they could carry out and the period they could function (Clements, 2012). Through permitting corporations to survive as if they were humans, the corporation has gone to dominate society rendering its societies and shareholders helpless against the influence, which characterizes the modern corporation (Adler & Posner, 2001; Bakan, 2005; Block, 2010; Heilbroner, 2005; Klein & Coffee, 2004 and Micklethwait & Wooldridge, 2003). Whereas Bakan (2004) does offer both sides of the debate as to why the limited liability corporation is a suitable type of business association, the author sways his audience to his perception that the notion that liability is restricted for the shareholder together with the division of control and ownership has caused the corporation to operate with no accountability and impunity (Clements, 2012). Limited liability corporations, as Khanna (2006) argues, cannot survive without a grant (permission) from the state and that contemporary limited liability, in some way, granted the contemporary corporation to rise to eminence. As to the argument that devoid of the state, the corporation does not survive, the declaration is very true just like the statement that devoid of the state criminal regulation or, in addition, any statutory law, would not survive (Khanna, 2006). However, no one would argue that by missing the state, lawlessness would thrive. In reality, there have been numerous events in history where order and peace prevailed in spite of the lack of any strong power (Clements, 2012). Therefore, the notion that the corporation could not survive without statutory approval is suspect, as well. A corporation, in its contemporary structure, maybe, would not survive, but other forms certainly would exist – in reality, they have throughout history (Clements, 2012). There are basically two traits, which a corporation has: separation from its shareholders and limited liability (Khanna, 2006). Whereas limited liability can be perceived as permission from the state, liability has, at all times, been virtually limited through the wealth and affluence of the shareholder. Even if draconian, bankruptcy laws can never remove more than the existing assets from a debtor – similar to the no water from rock rule. Secondly, the law of partnerships, which has been present since ancient days, as well as the law of trusts, which has been in the Anglo-American law system since the 16th century, has always indicated that there can be a corporation separately operating in personality from its main owners (Khanna, 2006). Whereas unlimited liability might have been appealing to creditors, it forced huge expenses on the shareholders, which implied that only the really rich or those capable of lobbying for a unique charter from the state offering them limited liability would put their money in any enterprise (Khanna, 2006). It was exactly the advent of the railroad and the large startup costs related to operating them, which demanded access to capital markets, as well as a much wider shareholder base (Clements, 2012). The rise of the current corporation is quite entangled with the railroad, as Bakan and many other authors (Adler & Posner, 2001; Bakan, 2005; Block, 2010; Heilbroner, 2005; Klein & Coffee, 2004 and Micklethwait & Wooldridge, 2003) correctly argue. It was the view of numerous social reformers, as well (comprising of Christian Socialists who desired to develop the poor and ease class conflict), that permitting the masses access to investment chances through limited liability corporations would be extremely beneficial (Clements, 2012). Endorsing limited liability implied that investors could buy shares without worrying concerning losing their savings. Instead, an average individual could also partake him/herself in the wealth (Khanna, 2006). A number of organizations, in reality, forced their workers to take part in the wealth through offering pension plans, which were deeply invested in the organization’s shares – an exercise, which continues up to today. In addition, the development of corporate law from the partnerships law and trusts implied that various concepts, which were working in the partnerships law, would shift to the corporate law (Clements, 2012). The most considerable would be the idea that board members are trustees for the company. They are similar to fiduciaries for a guardian for a toddler or an orphan (Khanna, 2006). Similar to the way people expect the fiduciary to take good care of the orphan’s or toddler’s assets, shareholders ought to expect the directors to take good care of the company’s assets. Eventually, the problem, hence, is not that the company is the vehicle (cause) of harm as Bakan (2004) claims it is. Instead, Bakan’s argument is against capitalism or free enterprise itself, as well as the pursuit of profit by any individual. The corporation has facilitated the pursuit of profit to become much more proficient and be conducted on a mass scale, but eliminating the corporate shape would perform little in withdrawing the pursuit of supremacy as limited liability vehicles have been conducting business since the prehistoric days (Khanna, 2006). The assault on capitalism, together with the pursuit, has always been there, and this paper is not the right avenue to discuss such a matter. A reader can find numerous texts, which have been authored protecting capitalism, but my point, as many other authors also think (The Economist, 2004; Micklethwait & Wooldridge, 2003; Klein & Coffee, 2004; Heilbroner, 2005 and Friedman, 2002), is to show that the actual object of attack is the system, which permits the pursuit of profit instead of the vehicle through which we pursue it. The Damage that Corporations cause through Cost Benefit Analysis The corporation, Bakan (2004) informs his audience in chapters two-five, is an externalizing engine. It causes havoc on our wages, our environment, as well as our health, plus it does so with great impunity. He offers several instances of corporate misdeeds, but his main argument lies on corporations applying cost-benefit analysis when settling on how much security measures to adapt. He gives the account of the mother who was driving her Chevrolet Malibu, the 1979 model, when another vehicle crashed into her as she was at a red light. The collision made the fuel tank explode, which caused an inferno that burnt her two children. She filed a suit against General Motors (GM) for the neglectful plan of their fuel tank. The woman argued that it was near the rear bumper and that the metal brace properly fitted to split the tank from the rear bumper. During the hearings, a GM engineer produced a memo maintaining that the fuel tank was much cheaper than designing a tank, which could not burst in a crash. The investigation was conducted presuming that there would be 500 victims and that each victim would cost $200,000. The engineer then projected that because there were over 40 million GM cars on the road, the price per vehicle to GM would be around $2.40. The price of creating a non-exploding fuel tank, on the other hand, was $8.59 per vehicle, and; therefore GM would save up to $6 per vehicle by keeping their status quo. It is this method of cost-benefit analysis, which has Bakan (2004) exercised, and, in his summarizing chapter, he requests for legislation, which prohibits companies from behaving in ways, which are sensibly likely to cause danger, even if ultimate proof that such dangers will happen does not exist. However, there are a number of notable arguments that Bakan did not mention regarding the GM case. First and foremost, the driver who crashed into the Malibu was driving under the influence with a blood alcohol level (BAL) of over twice the authorized limit of 0.08. Secondly, the woman’s care had an outstanding safety record, particularly regarding the fuel tank design (Block, 2010). In addition, no proof was presented to argue that the memo was the ultimate reason for the final design, which General Motors went with. However, that is all less important to the primary complaint that companies take part in a cost-benefit analysis. The reality is that everybody takes part in a cost-benefit analysis daily (Buford, 2009). There is a threat of death when people use the bus or drive to work each day, but they still make the spree. Not only is dying a risk to the people, but if they drive their own cars, there is a danger that they might cause another person’s death. However, no one would blame them of putting money before their and others safety (Buford, 2009). Many individuals eat at fast-food restaurants well aware that there is a prospect that the food might lead to an ailment or even worse, death. Likewise, GM could assemble a car, which would never roll over, never explode, or maybe never bear any dents when crashed into by drunken drivers (The Economist, 2004). The car, would maybe, be much stronger than a fuel tank, but the price can still be the same (Hacker, 2011). In reality, the law, at all times, has acknowledged that business actors need not work to eradicate all risk of endangerment, just that which is viable. In fairness to Bakan (2004), the author does argue that corporations use governments to ease their regulatory principles. However, this observation simply deteriorates his assault on corporations (The Economist, 2004). Eliminating the limited liability and corporation would simply channel the riches to the few people who could afford to face possible unlimited liabilities and would enhance their lobbying attempts. The consequences would be a few wealthy households instead of a proper distribution of wealth (The Economist, 2004). The few people would be capable of lobbying far more frequently and more successfully compared to hundreds of thousands of CEOs who exist today. In reality, the rising volume of corporate crimes belies the argument that corporations are growing more influential. References Adler, M., & Posner, E. (2001). Cost-benefit analysis: Economic, philosophical, and legal perspectives. Chicago: University of Chicago Press. Bakan, J. (2005). The corporation: The pathological pursuit of profit and power paperback. New York: Free Press. Block, W. (2010). (ed.), Economics and the environment: A reconciliation. Vancouver, Fraser Institute. Buford, B. (2009). Among the thugs. New York: Vintage Press. Clements, J. D. (2012). Corporations are not people: Why they have more rights than you do and what you can do about it. San Francisco, California: Berrett-Koehler Publishers. Friedman, M. (2002). Capitalism and freedom. Chicago: University of Chicago Press. Hacker, J. (2011). Winner-take-all politics. New York: Simon & Schuster. Heilbroner, R. L. (2005). The nature and logic of capitalism. New York: W. W. Norton & Company. Khanna, V. S. (2006). Politics and Corporate Crime Legislation. The Regulation, 27(1), 30-67. Klein, W. A., & Coffee, J. C. (2004). Business organization and finance. New York: Foundation Press. Micklethwait, J., & Wooldridge, A. (2003). The company: A short history of a revolutionary idea. New York: Modern Library. The Economist. (2004). The lunatic you work for. Retrieved from http://www.economist.com/node/2647328 Read More