Why I Pirate - An Open Letter to Content Creators

[tranglos]

Are you aware of any place in the western world where a business is required at all times to maximize profit under penalty of law? I've been searching for such a thing for a long time (more out of personal curiosity than anything else) and I haven't ever been able to identify such a jurisdiction or law. Not surprising when you're as ignorant about international business law as I am.

Any input would be greatly appreciated.  

-40hz (March 08, 2012, 02:24 PM)

Canadian author, professor at University of British Columbia Faculty of Law, has a fantastic (IMO) short book "The Corporation" (there's a 3 hour documentary film to go with it), where he does make that claim. In fact it is fundamental for his thesis. The thrust of the book is to show that the pathological behaviors of big corporations (of which he gives good examples, but you don't need to look far) do not happen because their CEOs are sociopaths. Rather, he says the corporation itself behaves as a sociopath since the law requires that profit be its primary goal and motivation.

If a person behaves like that, it's generally regarded as evil. We'd say a person like that would "sell their mother down the river" and it's never a good thing. Somehow the same behavior becomes a virtue when a corporation does it. Bakan shows plenty of examples where "shareholder value" trumps any ethical or moral considerations, like when the bosses at GM decided that they would rather pay compensation to victims of exploding gas tanks in Chevy Malibus (that was back in the 70s) than fix the design flaw, because fixing it would be much more expensive. They actually used an equation:

500 (estimated) fatalities x $200,000 per fatality / 41,000,000 cars = $2,40 per car.

This is what it cost GM to pay compensation, and apparently it was less costly than fixing the issue. Again, if a human being made a calculation like this, it would be considered very nearly psychopatic. For a corporation it's all in a day's work.

My personal favorite example (not from the book) is this quote from CEO of Roche Korea:

"We are not in business to save lives, but to make money. Saving lives is not our business."
http://naturalhealth...of-saving-lives.html

In the book, Bakan lists a behaviors that are understood to be indicators of clinical psychopathy (utter disregard for the well-being of others, inability to assume responsibility, there's a whole list of markers) and demonstrates how your typical corporation fits all of them. I

think the book is quite solid, though I am not a lawyer an the book itself is not lawyerly, either. But IMO it does lay a very solid foundation for a new way of thinking about corporate behavior, and the premise is the idea that yes, corporations are required to increase value for shareholders before anything else. I highly recommend the film as well.

I would also add that something does not have to be a written law in order to be a de-facto standard and expected behavior. There is no law anywhere that says corporations are persons, and yet this is what's being argued all the time. There was a case a few years ago where a court decided a company had a right to lie to its customers since it was a freedom of speech issue. (No link at hand, sorry). The history of the "corporate personhood" idea is traced in another book I highly recommend, "Unequal protection" by Thom Hartmann. He digs in historical court records and finds out it was a court clerk that overinterpreted/misinterpreted a judge's ruling. The judge was already on his deathbed by then, and the clerk was a friend of big railroad corps at the time. No-one contested what he wrote (since it was so convenient for the interested parties) and the idea stuck, although it is not and never was a law.

[Innuendo]

Lots of great stuff snipped

-tranglos (March 11, 2012, 08:53 AM)

What a sobering post, tranglos. What is truly worthy of thought are not the examples you gave, but the hundreds (thousands?) of decisions like that corporations have made that have been carefully kept out of the public eye.

[40hz]

and the premise is the idea that yes, corporations are required to increase value for shareholders before anything else.

-tranglos (March 11, 2012, 08:53 AM)

Possibly. (I still don't see where it says that in the law itself BTW.) Most of the argument is by extrapolation and assertion that "this is so" rather than actual wording in the law. And in this particular context it borders on applying reductio ad absurdum to the legal concept of "fiduciary responsibility." In short, a great way of thinking about it - except that's not what the law actually says - even if some people running some corporations might think so.

The reason this distinction is important is because it still doesn't give a business or corporation carte blanche to break the law in the name of maximizing profit. The judicial system has been very clear about that in numerous cases.

If corporations were always required to pursue maximization of profit under law, it would be allowed as an absolute defense in court , much like truth is defense against the charge of libel.

Just to be clear on US law, I bounced it off an attorney. She said it was a common misunderstanding of what the law requires of corporations and fiduciaries. "Just because most people might think the same way about something doesn't make it the law," she said. "As many people learn the hard way when they land in court."
 

[Renegade]

What a sobering post...

-Innuendo (March 11, 2012, 10:49 AM)

I am sooo tempted to interject some very not-sober demagoguery, but I shall refrain.

[Carol Haynes]

tranglos - I agree. Brilliant film by the way (if incredibly scary).

To prove the point you only have to look at businesses that deliberately target children with products that are not only not good for them but harmful.

Famous case in the UK where MacDonalds got its arse whipped for selling unhealthy food and marketing it directly at children. Two people who objected published a pamphlet. It was MacDonalds policy to sue anybody who criticised them at that time and they used the law without mercy. The case dragged on for years but eventually the two protesters won the substantive points and MacDonalds no long sue people in the UK for criticism any more (they realised how bloody minded the Brits were). It didn't stop them, however, using illegal methods to undermine protest groups, attempted bribery, coercion and outright threats to try to kill the case.

See http://www.mcspotlig...ase/trial/story.html for a summary of the full story - but also get the film MacLibel and see what went on!

Incidentally MacDonalds knew the health risks and decided they were worth taking (with other peoples' children) because they were making a profit - after the various law suits they introduced a 'healthier' range of food - including salads that had even higher fat and slat content than the burgers and fries!

[wraith808]

I just watched an interesting movie too Repo Men (2010)^w.  It's decent movie, if a bit gory.  But a couple of the quotes stuck with me, and reminded me of the excuses given to justify the behavior that goes on towards copyright.

Repo Man justifying what he does

"Now what do you think keeps a world like this ones' sh*t together. It's not magic. It's not. It's rules. It's people abiding by the terms of the deals they sign themselves. It's rules. You know what is more important that the rules though? It's the enforcement of those rules."

Repo Man in his memoirs

"So what is it I'm writing? It's not just some cranky memoir or even an attempt to apologize indirectly for what I've done. This is a cautionary tale. I hope that you might learn from my mistakes because in the end, a job is not just a job. It's who you are. If you want to change who are you have to change what you do."

You can't absolve the people that make the decisions because the company and the rules tell them that this is required.  If you see such decisions being made, you have to have the moral fortitude to stand up to them.  But, when placed in a position where morality conflicts with career, most ignore the morality of the situation.

[tranglos]

and the premise is the idea that yes, corporations are required to increase value for shareholders before anything else.

-tranglos (March 11, 2012, 08:53 AM)

Possibly. (I still don't see where it says that in the law itself BTW.) Most of the argument is by extrapolation and assertion that "this is so" rather than actual wording in the law.

-40hz (March 11, 2012, 11:15 AM)

This is why I said at the end that whatever the law is (in different countries), the de facto standard is what it is. And there are good examples of similar legal constructs being treated as set in stone, even though they have never been the law - such as the concept of corporate personhood.

The reason this distinction is important is because it still doesn't give a business or corporation carte blanche to break the law in the name of maximizing profit. The judicial system has been very clear about that in numerous cases.

-40hz (March 11, 2012, 11:15 AM)

You are correct, it doesn't give them carte blanche. They are supposed to maximize profit within the confines of applicable law, I don't think anyone is arguing otherwise. But, (a) they have a lot of money to influence what the law is, (b) too often the politicians making the law and the corporate leaders are the same people, and (c) they have good lawyers.

No-one has ever been held responsible for what Union Carbide did in Bhopal, for example. Their US workers got compensation, but not the survivors in India. Likewise, no-one has been held responsible for the financial disaster engineered by the largest investment banks. Either the law is dysfunctional in these scenarios or it doesn't exist or it is not enforced.

Just to be clear on US law, I bounced it off an attorney. She said it was a common misunderstanding of what the law requires of corporations and fiduciaries. "Just because most people might think the same way about something doesn't make it the law," she said. "As many people learn the hard way when they land in court."
 

-40hz (March 11, 2012, 11:15 AM)

Yep, so for show, a CEO or some minions occasionally land in court , while the corporation continues to exist and do as it pleases. Courts can revoke the corporate charter, which is effectively a "corporate death penalty", but it is never invoked. Instead, we're always told it's the fault of some "bad apples" at the top or just below it. It isn't. Replace the convicted jailbirds with new hires and they will continue to act in exactly the same way, only be better at hiding it.

Two and a half years ago, a girl here in Poland was walking by a bank and got severely injured when a slab of concrete fell off and hit her directly on the head. Sounds like a parable about a big bad bank, doesn't it, but it's what really happened. The left part of her body was paralyzed, she spent many months in rehabilitation but will never return to full health. Not one person has been held responsible. The bank refuses to pay compensation. Instead - and this is why the story is on the news right now -  the bank's insurer has hired a private investigator to spy in the girl at the college where she is studying.

This is not the behavior of a sane, rational, emotionally stable person. This is the behavior of a serious sociopath. Of course the bank is now paying some dues in the horrible PR they're getting on the net, but this will pass and, who knows, maybe they accounted for that in their profit and loss sheets just like GM did 40 years ago.

[40hz]

No-one has ever been held responsible for what Union Carbide did in Bhopal, for example. Their US workers got compensation, but not the survivors in India.

-tranglos (March 11, 2012, 04:42 PM)

There's a bit more truthiness than truth in that statement.

Bophal was discussed in an earlier thread. See this post about halfway down.

Come to think of it, much of the thread touches upon these exact same issues (justice vs the law, limits of corporate responsibility, etc.) so it might be worth rereading the entire thing. I think it was one of the more interesting discussions ever conducted on this forum. Top of the thread can be found here.
 

Yep, so for show, a CEO or some minions occasionally land in court , while the corporation continues to exist and do as it pleases. Courts can revoke the corporate charter, which is effectively a "corporate death penalty", but it is never invoked. Instead, we're always told it's the fault of some "bad apples" at the top or just below it. It isn't. Replace the convicted jailbirds with new hires and they will continue to act in exactly the same way, only be better at hiding it.

-tranglos (March 11, 2012, 04:42 PM)

That is a major problem and one that really does need to get addressed by the legal system. In the United States there's a bad habit of allowing corporations to reach a settlement with the government over an alleged crime. It remains "alleged" because it never gets to court. A business is allowed to consent to whatever the government demands (fine, change of practices, industry reforms) without admitting wrong doing. It's virtually identical to the Alford Doctrine which allows you to plead guilty without admitting guilt. They call this the "I did it - but I didn't do it!" plea.

It's a lousy way to do things and it really does have to stop.

Some States are now beginning to see the problem and danger of allowing businesses to "consent" without an admission of guilt. Legislation is being drafted in a few places (it remains to be seen if it ever becomes actual law) that forbids such a plea to be accepted by the courts. If this legislation passes, businesses that refuse to plead guilty to a criminal charge will have a plea of "not guilty" entered on their behalf by the court - after which the case will proceed to trial.

Two and a half years ago, a girl here in Poland was walking by a bank and got severely injured when a slab of concrete fell off and hit her directly on the head. Sounds like a parable about a big bad bank, doesn't it,

-tranglos (March 11, 2012, 04:42 PM)

Not really. At least not to me. Did the bank deliberately toss the slab down on that unfortunate girl? Or did it's management have some culpability due to negligence or lack of other reasonably prudent behavior that might have prevented this accident? Sometimes bad things happen through nobody's direct fault.

I do know some country's legal systems have provisions for what would be called "unlimited liability" over here. (The USA, for the most part, doesn't.) So if that's how the law works where this incident occurred I can understand why people living there might feel outraged. I don't necessarily agree since I don't know all the particulars in this case. But I can understand why some people in other places with different expectation from their legal system might be upset.

The bank refuses to pay compensation. Instead - and this is why the story is on the news right now -  the bank's insurer has hired a private investigator to spy in the girl at the college where she is studying.

-tranglos (March 11, 2012, 04:42 PM)

This again might be differing expectations. Although it would be considered bad form to do that here, it would also be more likely than not. But that's because whatever compensation gets paid out is based on calculations of what has 'actually' been lost. So over here it's not unusual to investigate and attempt to ascertain the true extent of someone's injury. If you're claiming to be no longer able to work or have a normal life because of an injury sustained through someone else's negligence - and then post a bunch of photos on your Facebook page showing you skiing or partying your brains out - that might raise doubts as to just how injured you are or how large your personal loss actually is.

In the US, you only get compensated based on the extent of your demonstrable injury and loss. For example: If you're left unable to earn a livelihood, the courts tend to award up to what they considered your reasonable earning potential was for the number of years you might be expected to work. Plus provision will be made for medical and related care expenses such that it won't cut into what was awarded for your financial loss. They refer to that as "being made whole." Awards for subjective "pain and suffering" are usually limited under statute. My own state puts a cap of something like $200K on what can be awarded to a plaintiff purely for their pain and suffering.


Different countries, different laws. Along with differing understandings - and expectations.

[IainB]

...
Canadian author, professor at University of British Columbia Faculty of Law, has a fantastic (IMO) short book "The Corporation" (there's a 3 hour documentary film to go with it), where he does make that claim. In fact it is fundamental for his thesis. The thrust of the book is to show that the pathological behaviors of big corporations (of which he gives good examples, but you don't need to look far) do not happen because their CEOs are sociopaths. Rather, he says the corporation itself behaves as a sociopath since the law requires that profit be its primary goal and motivation.
...etc.

-tranglos (March 11, 2012, 08:53 AM)

Yes, superb film - though I never realised there was a book! The film changed my paradigms and helped to explain why I had always had an uneasy feeling about some of the companies/industries that I work/worked in.

In the film The Corporation, they reviewed the personality disorder "psychopathy". (A psychopath is a person with chronic psychopathy, esp. leading to abnormally irresponsible and antisocial behaviour.)
They gave this checklist of criteria to identify the disorder:
    1. Callous unconcern for the feelings of others.
    2. Incapacity to maintain enduring relationships.
    3. Reckless disregard for the safety of others.
    4. Deceitfulness: repeated lying and conning others for profit/financial gain.
    5. Incapacity to experience guilt.
    6. Failure to conform to social norms with respect to lawful behaviours.

In the film, these criteria were shown to be met by many/most of the legal entities (legal persons) known as "corporations", thus demonstrating that society has legalised these special kinds of psychopaths to operate in society, where they can and do cause tremendous harm - e.g., including such things as economic dependency and control of communities, or a deadly (toxic) environmental footprint - sometimes both, as in the case of the US corporation Exide in their factory in Mexico.

Anyone watching this roughly 3-hour film documentary  - I think originally made or intended as 3 TV documentaries stitched together (and you can watch it in 23 parts on YouTube) - would find it rational, constructive, pragmatic and crammed full of facts and no religio-political ideology (e.g., greenism, warmism, anti-capitalism or communism). The film has speakers in it from various areas, including one notable corporate mogul (carpet manufacturing) who had not realised just what his huge creation was doing in the name of profitability until he happened by chance to see how one of his factories that he was visiting opened its sludge (waste) gates into the local river after dark. His management did this to conceal its pollution of the environment with its effluent. The discovery changed his entire management perspective.

Essentially, the film makes the point that a good/profitable corporation is a psychopathic legal person driven by the objective to maximise shareholder returns.
The film shows how communities depending on these monsters can, with a bit of collaboration, alter things for the better without frustrating the effective operation of the capitalist wealth-building enterprise.

Highly recommended.  

[Carol Haynes]

Different countries, different laws. Along with differing understandings - and expectations.

-40hz (March 11, 2012, 10:02 PM)

Turn the bank story round - suppose the bank CEO is crossing the street and the handbrake on a parked car fails and knocks him over causing severe permanent damage.

Do you think the teacher who owned the car would get away with the 'shit happens' defence - not only would they be sued to within an inch of their life by the *anker and/or his spawn but the local authorities would also be on it like the metaphorical ton of bricks with probable jail time.

[40hz]

Different countries, different laws. Along with differing understandings - and expectations.

-40hz (March 11, 2012, 10:02 PM)

Turn the bank story round - suppose the bank CEO is crossing the street and the handbrake on a parked car fails and knocks him over causing severe permanent damage.

Do you think the teacher who owned the car would get away with the 'shit happens' defence - not only would they be sued to within an inch of their life by the *anker and/or his spawn but the local authorities would also be on it like the metaphorical ton of bricks with probable jail time.

-Carol Haynes (March 12, 2012, 05:00 AM)

You can advance hypotheticals endlessly. However, in the US you wouldn't necessarily face a criminal charge unless it could be shown that there was some personal culpability for that failing handbrake. If people could be held criminally liable for anything and everything that ever occurred, from any product they ever owned or used, then nobody would buy or use anything.

Not to say you might not be charged. (Criminal prosecutors can be as guilty of grandstanding as any personal injury attorney.) But it's a tough thing to prove in court that somebody knowingly and deliberately did something such that they should be held culpable. Especially for a product failure. (Not  remembering to set the handbrake would be an entirely different matter, because you could be held to be criminally negligent for failing to do so.) But usually for something to be considered criminal in the US there has to be clear indications of reckless disregard or criminal intent. So surprise, surprise - "shit happens" can be a valid defense against criminal charges, depending on the circumstances. Not so for civil torts however.

As far as civil suits go, there doesn't need to be a good (or even a real reason) to sue anybody in the US. You can sue somebody because you're having a bad day and you don't like their eye color.

Our court system is clogged with cases totally devoid of legal merit because of it. And even a complete lack of merit (or logical sense) is no impediment to getting a gullible jury to find for a plaintiff. Or to get a defendant to settle in order to avoid the cost of litigation. (Yet another example of risk management.) Such is the 'comedy' of liability litigation in the USA.

The unfortunate side-effect of this is that the bogus cases have introduced so much noise into the system that legitimate claims for redress have gotten devalued in the process. And since so many liability claims are a complete joke, those sued (and their attorneys) have learned to adopt a no-holds barred defense strategy. A strategy that's arguably even more important to take if you are being unjustly accused.

Shame really. Except for the attorneys. As one told me: Law and justice are all well and good. But at the end of the day - be it right, wrong, or something in between - its ALL billable time.

So again: Different countries, different laws. Along with differing understandings - and expectations.

As a society, we get what legal systems we're willing to tolerate.  

[40hz]

Canadian author, professor at University of British Columbia Faculty of Law, has a fantastic (IMO) short book "The Corporation" (there's a 3 hour documentary film to go with it), where he does make that claim.

-IainB (March 11, 2012, 11:03 PM)

Watched the first few installments on YouTube. Very good presentation. Definitely going to make time to watch it all with friends and discuss. +1 w/IainB - highly recommended.

Ironically, it's available on iTunes! $9.99 to buy, $2.99 to watch. (Why do I find that so funny?)

They also have an extended two DVD set with 6 hours of additional footage available for purchase for $25 USD.

I'll probably buy it eventually.

[Deozaan]

You can't absolve the people that make the decisions because the company and the rules tell them that this is required. If you see such decisions being made, you have to have the moral fortitude to stand up to them.  But, when placed in a position where morality conflicts with career, most ignore the morality of the situation.

-wraith808 (March 11, 2012, 03:14 PM)

Could this be because many people today don't understand what morality even is? Consider this article from the New York Times, "If It Feels Right," from last September:

During the summer of 2008, the eminent Notre Dame sociologist Christian Smith led a research team that conducted in-depth interviews with 230 young adults from across America. [...] Smith and company asked about the young people’s moral lives, and the results are depressing.

It’s not so much that these young Americans are living lives of sin and debauchery, at least no more than you’d expect from 18- to 23-year-olds. What’s disheartening is how bad they are at thinking and talking about moral issues.

The interviewers asked open-ended questions about right and wrong, moral dilemmas and the meaning of life. In the rambling answers, ... you see the young people groping to say anything sensible on these matters. But they just don’t have the categories or vocabulary to do so.

When asked to describe a moral dilemma they had faced, two-thirds of the young people either couldn’t answer the question or described problems that are not moral at all, like whether they could afford to rent a certain apartment or whether they had enough quarters to feed the meter at a parking spot.

[...]

Again, this doesn’t mean that America’s young people are immoral. Far from it. But, ... they have not been given the resources — by schools, institutions and families — to cultivate their moral intuitions, to think more broadly about moral obligations, to check behaviors that may be degrading. In this way, the study says more about adult America than youthful America.

-http://www.nytimes.com/2011/09/13/opinion/if-it-feels-right.html

Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

[J-Mac]

I can't accept that 40hz. "Normal" humans still have that thing we call a conscience, and it still tends to give a twinge when you ignore it. I still see that in young people whom you would think don’t have one. Of course it has been posited by more than one psychologist and psychiatrist that corporate CEOs have a higher incidence of psychopathy than the general population, so that may account for a lack of moral consideration when making such decisions as described above.

Jim

[40hz]

I can't accept that 40hz. "Normal" humans still have that thing we call a conscience, and it still tends to give a twinge when you ignore it. I still see that in young people whom you would think don’t have one. Of course it has been posited by more than one psychologist and psychiatrist that corporate CEOs have a higher incidence of psychopathy than the general population, so that may account for a lack of moral consideration when making such decisions as described above.

Jim

-J-Mac (March 12, 2012, 09:13 PM)

@J-Mac - I'm sorry, but you lost me there. What is it I said that you're responding to? 

My entire point is that there is no such law that requires a corporation, by law, to put making a profit above all other considerations in its day to day operations. And furthermore, in actual practice (since reality so often diverges from what the law says) acting in a manner that goes against the public good is generally frowned upon by the judicial system and the public at large. And arguing for doing wrong in the name of profit is not accepted as an absolute defense in any legal context I'm aware of. Which indicates (to me at least) that individuals and society do have a conscience and underlying moral framework that goes beyond the letter of the law.

Was it possibly somebody else's comments you were responding to?

[IainB]

My entire point is that there is no such law that requires a corporation, by law, to put making a profit above all other considerations in its day to day operations. And furthermore, in actual practice (since reality so often diverges from what the law says) acting in a manner that goes against the public good is generally frowned upon by the judicial system and the public at large. And arguing for doing wrong in the name of profit is not accepted as an absolute defense in any legal context I'm aware of. Which indicates (to me at least) that individuals and society do have a conscience and underlying moral framework that goes beyond the letter of the law.

-40hz (March 13, 2012, 06:50 AM)

I'm not sure that's completely true, so it could be an entirely false argument.
The film The Corporation covers this point comprehensively.

From experience (scratching my memory re my training in corporate law in the UK) the Companies Act 1948, or something, stipulated that any limited liability company had to have a Charter, and that the Charter was to include the objective to operate at a profit in the interests of shareholders. (OWTTE.)

I think the situation in the US is very similar, and that it is common throughout the Western economies.

For example, I googled the subject and found post this here by one Robert Hinkley:
HOW CORPORATE LAW INHIBITS SOCIAL RESPONSIBILITY

After 23 years as a corporate securities attorney-advising large corporations on securities offerings and mergers and acquisitions-I left my position as partner at Skadden, Arps, Slate, Meagher & Flom because I was disturbed by the game. I realized that the many social ills created by corporations stem directly from corporate law. It dawned on me that the law, in its current form, actually inhibits executives and corporations from being socially responsible. So in June 2000 I quit my job and decided to devote the next phase of my life to making people aware of this problem. My goal is to build consensus to change the law so it encourages good corporate citizenship, rather than inhibiting it.

The provision in the law I am talking about is the one that says the purpose of the corporation is simply to make money for shareholders. Every jurisdiction where corporations operate has its own law of corporate governance. But remarkably, the corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation-usually a board of directors-and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, where I live, this duty of directors is in Section 716 of the business corporation act, which reads:

…the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders….

Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. This provision is the motive behind all corporate actions everywhere in the world. Distilled to its essence, it says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders.

Section 716 dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interest. Section 716 and its counterparts explain two things. First, they explain why corporations find social issues like human rights irrelevant-because they fall outside the corporation’s legal mandate. Second, these provisions explain why executives behave differently than they might as individual citizens, because the law says their only obligation in business is to make money.

This design has the unfortunate side effect of largely eliminating personal responsibility. Because corporate law generally regulates corporations but not executives, it leads executives to become inattentive to justice. They demand their subordinates “make the numbers,” and pay little attention to how they do so. Directors and officers know their jobs, salaries, bonuses, and stock options depend on delivering profits for shareholders.

Companies believe their duty to the public interest consists of complying with the law. Obeying the law is simply a cost. Since it interferes with making money, it must be minimized-using devices like lobbying, legal hairsplitting, and jurisdiction shopping. Directors and officers give little thought to the fact that these activities may damage the public interest. Lower-level employees know their livelihoods depend upon satisfying superiors’ demands to make money. They have no incentive to offer ideas that would advance the public interest unless they increase profits. Projects that would serve the public interest-but at a financial cost to the corporation-are considered naive.

Corporate law thus casts ethical and social concerns as irrelevant, or as stumbling blocks to the corporation’s fundamental mandate. That’s the effect the law has inside the corporation. Outside the corporation the effect is more devastating. It is the law that leads corporations to actively disregard harm to all interests other than those of shareholders. When toxic chemicals are spilled, forests destroyed, employees left in poverty, or communities devastated through plant shutdowns, corporations view these as unimportant side effects outside their area of concern. But when the company’s stock price dips, that’s a disaster. The reason is that, in our legal framework, a low stock price leaves a company vulnerable to takeover or means the CEO’s job could be at risk. In the end, the natural result is that corporate bottom line goes up, and the state of the public good goes down. This is called privatizing the gain and externalizing the cost.

This system design helps explain why the war against corporate abuse is being lost, despite decades of effort by thousands of organizations. Until now, tactics used to confront corporations have focused on where and how much companies should be allowed to damage the public interest, rather than eliminating the reason they do it. When public interest groups protest a new power plant, mercury poisoning, or a new big box store, the groups don’t examine the corporations’ motives. They only seek to limit where damage is created (not in our back yard) and how much damage is created (a little less, please).

So, if I make the statement suggesting that "Corporations should have a social responsibility" then it is a statement of opinion which flies in the face of fact - that is, corporations are not charged with having a sense of social responsibility.
This is what makes Google's principle of "Do no evil" look rather like a cynical baby-pacifier (or dummy) for consumers, because there is little or nothing that obliges Google to adhere to that principle, whilst there is potentially a great deal to oblige them to operate to the contrary - e.g., Google effectively enabling discrete country Internet control and censorship of the Google services.

[J-Mac]

I can't accept that 40hz. "Normal" humans still have that thing we call a conscience, and it still tends to give a twinge when you ignore it. I still see that in young people whom you would think don’t have one. Of course it has been posited by more than one psychologist and psychiatrist that corporate CEOs have a higher incidence of psychopathy than the general population, so that may account for a lack of moral consideration when making such decisions as described above.

Jim

-J-Mac (March 12, 2012, 09:13 PM)

@J-Mac - I'm sorry, but you lost me there. What is it I said that you're responding to? 

My entire point is that there is no such law that requires a corporation, by law, to put making a profit above all other considerations in its day to day operations. And furthermore, in actual practice (since reality so often diverges from what the law says) acting in a manner that goes against the public good is generally frowned upon by the judicial system and the public at large. And arguing for doing wrong in the name of profit is not accepted as an absolute defense in any legal context I'm aware of. Which indicates (to me at least) that individuals and society do have a conscience and underlying moral framework that goes beyond the letter of the law.

Was it possibly somebody else's comments you were responding to?

-40hz (March 13, 2012, 06:50 AM)

Nope, it was your comment in the post just above mine, quoted here:

Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

Sorry for not quoting you in the previous post but I was on either my iPad or new and weird Android "Thinks it's smart" phone, so I was trying not to confuse the darned device! I just don’t think that there are many persons at all who truly don’t feel that twinge when they are ignoring the morality of an issue. And the ones who do are usually damaged in another way - emotionally, mentally, or maybe they are just new on this planet.    

Jim

[40hz]

Nope, it was your comment in the post just above mine, quoted here:

Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

-J-Mac (March 13, 2012, 10:34 AM)

@J-Mac - umm...Jim? You might want to check again. That was Deozaan's comment. Not mine. His post is what's directly above yours.

What 40hz really wanted to say! :-))

-Ed

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Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

-Deozaan (March 12, 2012, 07:31 PM)

Onward!

[40hz]

I think the situation in the US is very similar, and that it is common throughout the Western economies.

-IainB (March 13, 2012, 07:59 AM)

From what I do know of UK law (which is admittedly not very much) I think there are vast differences between our two legal systems despite their surface resemblance and common ancestry.

In the United States, the letter of the law holds sway. Some nod is given to judicial precedence and interpretation. But the bulk of our legal disputes revolve around an almost rabbinical level of debate on exactly what each word in a statute means. There's a big difference between "should" and "must" in our legal system. (That's why you can ask the question: Exactly what do you mean by "had sex"? and get away with it.)

So when you are required to "act in the best interests of the shareholders" there's considerable room for interpretation and individual discretion in exactly how that is to be done. When disputes arise, it becomes a matter for the courts, with a the judge presiding over material issues of law - and a jury determining material issues of fact.

And in practice, the American judiciary has been extremely reluctant to micromanage businesses. Unless gross and callous disregard for statute or fiduciary responsibility can be clearly demonstrated in a court of law, even a director-level decision that costs a business significant money (or results in bankruptcy) will not be questioned too closely. To be blunt, "fucking up royally" is not, in and of itself, a tort or crime in the United States.

Investors have the right to demand a publicly owned company act in a responsible and legal manner. They do not have an innate right to demand a certain level of performance (i.e. maximize profits at all times) unless they have negotiated a contractually binding agreement with the management of the company that they do so.

For the most part, courts have also frowned upon grass-roots activism when it comes to corporate governance. The feeling is if you are that opposed to what the company is doing, you have two main options available to you. You can: force a proxy vote and replace the management - or - divest yourself of your investment in the company.

Shareholders are generally NOT allowed to directly interfere or intervene in the day to day operations of a business. (If they could, any competitor could buy up a block of shares in a rival business and completely disrupt it's operation.) Nor are they automatically guaranteed access to internal corporate documents or records for the same reason.

As an investor, you can go in and request to "inspect" the pro forma financial statements and any other legally required (i.e. 10K, etc.) documents. But you wouldn't need to be given access to current internal operating statements; or things like the secretary's raw (as opposed to official) minutes of a board meeting. Or internal memos or other communications. If you wanted those, and the company balked about showing them to you, you'd have to go to court and show reason why you should be allowed to see them. Simply owning some stock in the business would not be considered sufficient reason.

Corporate boards and director-level management are not usually held to specific standards of performance. Except maybe by shareholders. But that's a very different thing than being held to it by law. Otherwise most corporate directors would face the risk of prosecution any time they made a bad judgement call. With the result you wouldn't be able find anybody with an ounce of brains in their head willing to run a public company or sit on a corporate board.

There have been cases (civil) where some management has been called to book for poor performance. But in every case I'm aware of the complaints were either dismissed outright or resolved in favor of the accused. Because the law recognizes business is an intrinsically risky activity. And as long as those engaged in it acted in a legal manner, and behaved as prudently and responsibly as the situation and their judgement allowed - there's no fault, liability, or foul on the part of the management.

And  that's because there's no US law against being unlucky, not smart enough, prescient enough, or clever enough to be successful at business. It's all just part of the game. And a risk the operators and investors take.

But anyway...this is really going on too long for me (plus I'm getting tired of typing all this) so I'm gonna wrap it up and bow out of this whole debate. I will restate that I am not aware of any US law that either states in word (or strongly and unmistakeably implies) that US corporations are required - as a matter of law - to maximize profit as a condition of executing their fiduciary responsibilities to their shareholders.

I'll even go further and say such a law (or laws) flat-out doesn't exist in the United States.

And although many people (and some businesses) may interpret the legal requirement that management "represent and act in the best interests" of their shareholders as being the same thing as a requirement that profit be maximized at all times, this interpretation is erroneous. And is furthermore not recognized by US courts as being a valid interpretation, in theory or in fact.

So, if anybody can point me to a state or federal statute that specifically says otherwise - or can show a case where a corporate board or management team was prosecuted solely because the profits they achieved were not in keeping with investor expectations, I'd be happy to read about it and modify my statements accordingly.

If there is such a law anywhere outside the United States I'd also be interested in hearing. Mostly because I'd want to make it a point never to conduct any business there.

[IainB]

So, if anybody can point me to a state or federal statute that specifically says otherwise - or can show a case where a corporate board or management team was prosecuted solely because the profits they achieved were not in keeping with investor expectations, I'd be happy to read about it and modify my statements accordingly.

-40hz (March 13, 2012, 02:23 PM)

Well, no pointers from me, sorry. I did say I wasn't sure about US law, and that's why I gave the long quoted example from that US lawyer, Robert Hinkley (above). That was the result of a quick google session. Maybe he is loopy, mistaken or being ambiguous? If so, then he's in for a surprise, because he's apparently left his lucrative day job to focus on getting corporations to be socially responsible - he at any rate seems to think that that objective could currently run contrary to their profit objectives.

The documentary The Corporation also identifies the profit-above-all-else sort of objective as a causal problem, and shows how some communities in the US have managed to reign in their local behemoth's socially damaging tendencies by local regulations that do not frustrate proper corporate operation and profitability.

Off-topic rant on corporate "social responsibility":

Spoiler

In any event, corporate social responsibility would seem to be a bit of a wish-fulfilment myth. We'd all like to see those nice corporates being "socially responsible" wouldn't we? So, when push comes to shove, why aren't they? Why does social responsibility seem to usually be the first casualty?

Presumably because there is no profit in it.
But doesn't it sound great when a CEO says how seriously they take their social responsibility, blah, blah? Of course it does. That's probably why they say it. Lip service. High-sounding and soothing phrases for the credible/gullible to lap up. "Social responsibility" is a cliché and can mean whatever you want it to mean anyway.

From my experience as a chief accountant, I think you would be hard-pressed to find a corporation that consistently is genuinely able to be "socially responsible" in its main drivers. I don't know of any currently, in these cold and uncertain economic times.
However, from history there are two that I know of - one of which I was an employee of. The first was the formation of Cadbury Brothers (Chocolate manufacturers) in Bournville, UK. The second was CDC (Control Data Corp).

Cadbury Brothers:
This company was started by two Quaker brothers and became a main textbook example (and I think it could even be the earliest) of a corporation that had an absolutely ethical and socially responsible attitude to its entire operation. (Not sure about Kellogg.)
From: Wikipedia Cadbury - 1824-1900 early history

In 1893, George Cadbury bought 120 acres (49 ha) of land close to the works and planned, at his own expense, a model village which would 'alleviate the evils of modern more cramped living conditions'. By 1900 the estate included 313 cottages and houses set on 330 acres (130 ha) of land. As the Cadbury family were Quakers there were no pubs in the estate;[7] in fact, it was their Quaker beliefs that first led them to sell tea, coffee and cocoa as alternatives to alcohol.[8]

CDC (Control Data Corp):
At one time, CDC was the second largest computer manufacturing and services company on the planet. Driven by its philanthropic founder and CEO William Norris (a brilliant computer engineer), it went bust after expending its financial resources across too many of his mandatory and diverse "social good" causes projects, resulting in underfunding and underdeveloping of the wealth-creating assets of its core business. It literally starved itself to death, financially.
Result, disaster. Happened over quite a short period too. I was there to watch it as it occurred, and got out before it sank in the early '80s. That was one seriously great corporation though. Even so, I recall that it wasn't without some egregious examples of management BS/buzzword doublespeak - in fact, CDC was where I came to understand the concept of "corporate BS" as an apparently deliberate US management tool for cynical psychological manipulation. (It was the first US company that I had worked for, in the UK.)
I recall that one of the "social good" programmes at CDC was a series of projects underway to increase food crop yields for various impoverished and starving parts of the world. Much as I admired the ethical objectives of this programme, I never could for the life of me figure out how to rationally prove that that had anything to do with running a business for profit, but there you are.

CDC was the sort of case study that fitted the class of case studies they called "BP" ("Big Project") corporate collapses in the book Corporate Collapse: The Causes and Symptoms by John Argenti (1976). (Great book, by the way! )

Note that CDC's collapse would have post-dated the book's publication by several years, so the management couldn't really have been reading the writing on the wall. Probably too busy reading about what successful corporations do, or just doing what their boss "inspired" them to do with his irrational "vision" - without arguing, of course, and regardless of how loopy it might all have seemed. Who wants to read or even think about collapse anyway, when your fat bonus probably depends on the completion of a huge and costly non-business, non-profit (i.e., loss-making) and non-sense project? Heck, anybody can make a loss! Let's do it!

[J-Mac]

Nope, it was your comment in the post just above mine, quoted here:

Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

-J-Mac (March 13, 2012, 10:34 AM)

@J-Mac - umm...Jim? You might want to check again. That was Deozaan's comment. Not mine. His post is what's directly above yours.

What 40hz really wanted to say! :-))

(see attachment in previous post)

-Ed

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Perhaps people ignore the morality of the situation because they don't realize there is a moral issue at all.

-Deozaan (March 12, 2012, 07:31 PM)

Onward!

-40hz (March 13, 2012, 10:54 AM)

Ouch! So sorry 40hz!  (That's what I get for posting from that damn Android browser! Site don’t look the same, formatted for the mobile browser; I miss on most of the tiny buttons and links with large finger aiming for miniscule buttons; etc.)

Heck, the reason I took so long to post back was because I decided to wait till I got back to a real computer! (Wanted to make sure you posted this one!!)

Thanks!

Jim

[40hz]

Ouch! So sorry 40hz!  (That's what I get for posting from that damn Android browser! Site don’t look the same, formatted for the mobile browser; I miss on most of the tiny buttons and links with large finger aiming for miniscule buttons; etc.)

-J-Mac (March 14, 2012, 11:59 AM)

 

No problem! I once made a fool out of myself in front of a client responding to something using Safari on my iPhone - so I can fully understand what you're talking about. (Who comes up with these "mobile" page layouts anyway?)

 

[mahesh2k]

I can confess too. At the risk of archival of my comments and getting found on the Internet later by other generations (after 2012) or perhaps government and those who know me.

1) The reason pirated movies are better than HBO streaming or DVDs is - because the subtitles in HBO are filtered as per region. So if there is any word like ass, c* t or boobs then Indian media replaces those words with "crap" as common word for all. Seriously, this is the case here. Sometimes those words are also removed in streaming while broadcasting original audio. Another thing to note here- kissing scenes, gore violence and extreme action scenes are also removed. Try watching movies like Hostel, Black swan and few other and you'll see what I mean. In some cases, if there is an actress in see-through dress flashing on movie, that scene is also removed. So tell me, why should one thinking mind bow down to these rules just for the sake of culture and avoid pirated movies?

2) There are some movies which are classic or as per your taste and hard to buy in local market. Be it anime, saturday morning cartoons, old movies with original subtitles or uncut scenes. In local market you get the edited versions and sometimes you don't get chance to buy them at all. They're either found on the Internet or not at all. This applies to many japanese animes, non-english movies, classic hollywood movies etc.

3) Cost. This is something people are forgetting. In third world country cost of the pay per view makes any online movie totally beyond pocket capacity. So does that mean one should stop watching movies or suck it up and blame the destiny? Sorry, that ain't happening. 1 USD =40 or higher amount in asian market so from here you can guess why pay per view is evil and not affordable at all.

This doesn't mean people who share pirated stuff don't want to pay for it. Heck, I can throw double the cost of DVD in USD in some cases for watching the stuff I want. It's just that it's not always possible. You can suck it up for not driving BMW or many other things that you can't do in life, but if there is an option even if it is illegal why you'll stop yourself from having the pleasure? It's just movie or media. It's not for disrespecting or insulting content creators, it's for enjoying life with that content as long as you're alive even though by means which are not allowed as per social rules. Ironically, many things on this planet are free, it's just that you capture it with human creation and the perfect time in image, voila you own the thing.

Rant over.

[bcpaladin]

Disregard

[Tinman57]

  Years ago I used to have a lot of problems with software being so loaded down with anti-piracy code that the program would either take forever to load or not load at all.  That's when I thanked the pirates out there for their hard work.  I was able to download "cracked" versions of the programs that would actually work and load in seconds compared to minutes.  And every program/game that I ever bought had that sealed EULA that tells you once you open the seal you can't return the program.  So I bought a game/program that don't work and my only recourse is what?  Can't return it....
  Same thing goes for CD's.  I can't remember how many CD's I've bought that wouldn't work because of the DRM.  Sony anyone?  What recourse to you have at that time?  Helllllooooo Pirates!  Thanks for being there when I needed you.....
  And then there's the games/programs you paid good money for that was just pure trash, not worth even $1.  I got so tired of getting crappy games that I finally learned to download the program/game from a pirate site first just to see if it was worth paying for.
  And I really hate buying a CD only to find that it only had one or two songs out of 14 that were worth listening to.  It got to the point that I would download the CD on a pirate site just to see if it was worth buying or not.  That was pretty much solved with being able to buy only the songs you like over the internet.