Deconstructing the Corporation (DRAFT)

This essay builds on talk given at a recent teach-in on globalization at Smith College in Northampton.  The purpose of the talk was to introduce some very basic information about corporations so that people could see the machinations of the World Trade Organization as a logical outgrowth of the corporate structure.

In recent years corporations have come to be perceived as the villains of the piece because they have exceeded what many people feel are reasonable limits to exploitation of labor and resources, to pollution, and to control of elected and appointed officials .  But what are these things we call corporations?  How are they structured?  How did they come into being?  How have they evolved?

If we can answer these questions, perhaps we can gain some insights into how corporations can be controlled and eliminated.  Perhaps we can learn how corporations can be made to serve human needs instead of exploiting them, and eliminated if they don't.  Perhaps we can learn how corporations can fit into the natural environment instead of destroying it, and eliminated if they don't.

THE PLAYERS

Basically the corporation is an idea, a concept.  The concept involves a product or service, and the means to produce and deliver that product or service.  Legally, the corporation is a legal fiction which is legitimized and protected by the state for the benefit of its owners, the stockholders.

There are machines that produce the product, or that facilitate the delivery of the service.  The technologies embodied in these machines are the product of technical evolutionary processes financed by corporations and by government (read taxpayers).  These machines and the buildings which house them are the actual physical or productive capital of the corporation. 

There are employees, managers and executives who run the machines and do the marketing.  There is the marketing system itself--a system of delivery of products and services to consumers or clients.  The people who do all this work could be considered human capital .

There are communities where the production facilities and natural resources are located; communities provide capital in the forms of roads, schools, water, sanitation and other essential municipal services.  Corporations are structures that rest on community infrastructures.  They could not exist without systems of transportation, communication, education, sanitation, health care, law enforcement, and legal authority.  These systems could be considered social or community capital .

Communities themselves, and indeed all forms of life, rest on another form of capital: intact ecosystems.  Without intact ecosystems, we don't have the essential ecosystem services that life depends upon.  Intact ecosystems provide clean air, water or soil.  Corporations, as well as human communities, depend on these resources to function.  When these resources are degraded or destroyed, they function inefficiently or not at all. Intact ecosystems could be considered natural or ecological capital.

Last, but unfortunately not least, there are the owners of corporate stocks and bonds.  Their interests are represented by the managers and directors of corporations.  The managers of large investment funds also act to represent the interests of stockholders simply by buying and selling stock on their clients' behalf.  These people and entities represent the interests of financial capital , which currently dominates all other forms of capital.

It has been argued that the primary purpose of the corporate legal vehicle/fiction is to separate ownership from responsibility.  Owners of stock in limited liability corporations are liable only for the value of their shares, not for the total potential liabilities of the corporation itself.  This inherent irresponsibility is the ultimate source of corporations' many destructive practices. 

A CLOSER LOOK AT THE "AUTHORITY" ISSUE

One aspect of community infrastructure deserves closer scrutiny, that of legal authority.  The existence of all institutions, including corporations, rests upon some sort of permission, or authority granted by the community or state.  Corporations have articles of incorporation and bylaws which define how they operate.  These articles and bylaws entitle them to charters by states.  Their charters give them the authority to operate.  Without charters, they have no authority to operate, and they cease to exist.  They die.

In centuries past, corporate charters were very parsimoniously granted by legislatures for very specific purposes that benefited the public.  Now they are routinely granted for any purpose.  In the past, corporate charters were periodically reviewed by legislatures to determine whether the corporations were adhering to their charters--their authorities to operate.  If they weren't, their charters were revoked.  Now such reviews do not occur.

Our current laws governing corporate charters are largely the creations of corporate lawyers.  Over the years, corporations have hired clever lawyers.  Corporations have bought state and federal legislators and judges.  After a century of tight control by communities and state legislatures, by the late 1800s the granting of corporate charters had become a race to the bottom where states were in competition to grant the most lenient terms of incorporation.  The state of Delaware won this competition. 

Another important aspect of community legal infrastructure is the regulations that have evolved over time to enable corporations to do the things they do, and to balance their interests against public interests.  Regulations have taken the place of legislatures' review of corporate charters.  Some say that corporate executives and lawyers invented the government regulatory agencies that emerged beginning in the 1880s (they didn't exist previously) to protect corporations from the angry public that wanted to put them out of business.

THE PRESENT CONTEXT

Now we're at a watershed period of time in the evolution of corporate power.  Now we have international trade agreements that are intended to rework national regulatory infrastructures.  Infrastructures that were already hugely in favor of corporations are being rewritten to make them even more so, so that corporations can reap even greater profits and give even greater rates of return to stockholders. 

As in the late 1800s when there was a race to the bottom for chartering corporations, now there's a race to the bottom for regulating them.  The power and authority of local, state and national governments--the elected and appointed officials of the people--are being systematically eroded because they are seen by corporate leaders as obstacles to profit-making.  As in the late 1880s, many countries and states are very willing accomplices in this process.

Battles over regulatory reform that were once publicly fought in local, state and national legislatures are now being fought in private tribunals of trade authorities such as the WTO, NAFTA, etc.  Where once there were public records of debates and decisions, now there are only records of decisions by unelected trade tribunes, who are predominantly corporate lawyers .

THE FUTURE CONTEXT 

That's the bad news.  The good news is that any legal authority granted to corporations ultimately depends on public acceptance.  The ancient legal doctrine of quo warranto (by what authority?) recognizes this fact and gives the public the opportunity to question and challenge corporate and government policies and actions.  Although atrophied, we still have this right, and can still use it.

Since our legislatures and courts have abrogated their authority in regard to allowing quo warranto proceedings, perhaps it's time to have them take place elsewhere.  If transnational corporations can set up their autocratic tribunals under the WTO, what's to prevent us from setting up democratic tribunals on the Internet?  We could try and censure corporations for violations of environmental, labor and political rights.  If we can't actually revoke their charters, we could at least penalize them with boycotts.

We always have the right to refuse to buy corporate products and services.  They can't force us to buy them.  They can certainly limit our choices, but they can't force us to make any particular choices.  We can just say no.  Or we can say no to one, but yes to another.  We can reshape markets to fit our needs by making informed and conscientious purchasing decisions.  The same applies to investment decisions.

Corporations live and die by cash flow.  If they don't get the flow their accountants and fund managers expect, their profits decline, their stock values decline, and very quickly they cease to exist.  Their assets are usually purchased by another company, but the policies and practices that caused the decline in cash flow disappear.

Cash flow is the ultimate cut-off for corporate legitimacy.  It's the factor that is most critical to their existence and the one they have the least control over.  Thanks to their lawyers, their legislators and their jurors, they have significant control over regulatory processes and charters.  The game is really rigged against the people as far as regulatory procedures go.  But they don't own our wallets.  If we can convince large numbers of people not to buy corporate products, we can shut them down.

USING THE INTERNET

Another piece of good news is the Internet.  It's good because they can't control it.  It's too decentralized.  They can control TV, radio, and print media because they are very centralized.  But they haven't figured out how to control the Net.  It appears that the Internet has enabled us to defeat Monsanto.  If we can defeat Monsanto, we can defeat other corporations, and we can defeat the WTO.

Researchers and activists found and exposed the flaws in Monsanto's technologies and propaganda.  They used the Internet and eventually other news media to cut off the markets for Monsanto's products; they also shut down further research on those products.  The final blow came when major financial managers saw the writing on the wall, and advised their clients to take their money out of Monsanto . 

The same process could occur with other huge corporations.  It's simply a matter of making a case, a quo warranto case, against the corporation and then taking it to the public via the Internet and other news media.  How about some suggestions for other corporations to put on trial? 

How about Ethyl Corporation, for suing the Canadian government for its ban of Ethyl's toxic MMT gasoline additive?   How about Petroleos de Venezuela, for forcing the lowering of US clean air standards?

How about Chiquita Banana, for suing the European Union for subsidizing poor Caribbean banana producers?   How about Cargill, for trying to force European countries to import hormone-laden US beef imports?

How about Weyerhaeuser Corporation, co-sponsor of the WTO Seattle Ministerial gathering and co-author of the global free logging agreement?   How about International Paper, for also backing this agreement?

Karl Davies
People Against Corporate Takeover (PACT)
Northampton, MA
November 1999