The Corporation

Corporations have “inauspicious beginnings” (5). They diverge from partnerships, where a small group of men together own and direct a firm, into a new form that “separated ownership from management” (6), which invites corruption. In 1690s London, “jobbers” sell phony stock to unsuspecting investors; most of these businesses fail. Adam Smith’s 1776 book The Wealth of Nations warns that managers of such entities “could not be trusted to steward ‘other people’s money’” (6).

The most notorious example is the South Sea Company, touted in 1710 as a way to get rich through an exclusive trade agreement with Spain. The agreement never comes to pass, and the company collapses: “Fortunes were lost, lives were ruined, one of the company’s directors, John Blunt, was shot by an angry shareholder, mobs crowded Westminster” (7). Directors are fined; some are imprisoned. The Bubble Act, passed in 1720, bans nearly all corporations. Three hundred years later, however, corporations flourish because they “have amassed such great power as to weaken government’s ability to control them” (8).

Corporations have a distinct advantage: Unlike the limited funding available to partnerships, they can raise monies from “unlimited numbers of people” (8), which allows for large-scale industrial development. Beginning in 1564, British corporations grow slowly; when steam power is invented in 1712, industrialization begins, and by the late 1700s, corporations flourish in America. Britain in 1825 once again allows corporations within its territory; unfortunately, “shady dealing and bubbles were once again rife in the business world” (9). Investors can buy their company’s products, becoming their own customers, which creates strange incentives.

The corporation comes into its own during the railroad era of the 19th century: “[R]ailways were mammoth undertakings requiring huge amounts of capital investment” (10). In England between 1825 and 1849, investment increases “more than one-thousand fold”; in America between 1865 and 1885, “more than one hundred thousand miles of track” are laid (10). To protect middle-class investors from possible ruin, the laws are changed so that liability is limited to the amount invested; this is also intended to end “class conflict by co-opting workers into the capitalist system” (12). However, “critics believed it would undermine personal moral responsibility” (12) and lead to irrational speculation.

The late 19th century in America sees a further loosening of legal restrictions on corporations, with the result that “1,800 corporations were consolidated into 157 between 1898 and 1904 […] The era of corporate capitalism had begun” (14). The largest corporations now have hundreds of thousands of investors who are no longer able “to influence managerial decisions as individuals because their power was too diluted” (14). Corporations begin to act legally as persons, going their own way with little interference from investors, and “were now widely viewed as soulless leviathans—uncaring, impersonal, and amoral” (17).

Responding to growing fears about corporations as coldly impersonal behemoths—and concerned about the rise of labor unrest—AT&T launches an advertising campaign that presents itself as warmly human, so that people will “hold real affection for it” (17). General Motors calls itself “a big congenial household” (18). Other large corporations follow suit. Goodyear Tire’s president even “forged ahead with programs designed to promote the health, welfare, and education of his workers and their families, and to give his workers a greater voice in company affairs” (18).

When the Great Depression hits, people blame big business and want government to regulate corporations, and “[i]n response, business leaders embraced corporate social responsibility” (19). Franklin Delano Roosevelt’s administration nonetheless moves forward with the New Deal, which tightens business regulations: “For fifty years following its creation […] the growing power of corporations was offset, at least in part, by continued expansion of government regulation, trade unions, and social programs” (20).

In the 1970s, the OPEC cartel raises oil prices, and “[h]igh unemployment, runaway inflation, and deep recession soon followed” (21). New Deal–era regulations can’t cope: “Governments throughout the West began to embrace neoliberalism, which […] prescribed a limited role for government in the economy” (21). Improved transportation and communication, along with reduced trade tariffs, allow corporations to “scour the earth for locations to produce goods and services at substantially lower costs” (21). This untethers corporations from their home countries, and governments must compete to keep them; in the process, they “ratchet down regulatory regimes […] often with reckless disregard for the consequences” (21).

In 1993 the business-friendly World Trade Organization (WTO) is established to regulate international commerce. It has real authority over member nations: “On numerous occasions the organization has required nations, under threat of punishing penalties, to change or repeal laws designed to protect environmental, consumer, or other public interests” (24).

Globalization of commerce has, more generally, “substantially enhanced corporations’ abilities to evade the authority of governments” (25). In response, corporations today use branding to influence public opinion in their favor: “‘Family magic’ for Disney, ‘invent’ for Hewlett-Packard, ‘sunshine foods’ for Dole are a few examples” (26). To head off the idea that they have become “a dangerous mix of power and unaccountability” (27), corporations promote themselves as good citizens. 

Pfizer Inc. is the world’s largest pharmaceutical corporation; it is also one of the corporations most dedicated to making positive change. Senior VP Tom Kline, as Brooklyn plant manager in the early 1980s, decides “to make a change to make this community better” (29). Pfizer establishes a local school, increases safety at the nearby subway station, builds middle-income housing, and performs extensive local outreach. It also “donates hundreds of millions of dollars worth of products and cash around the globe” (30). Pfizer is an example of corporate change: “Corporations are now often expected to deliver the good, not just the goods” (31).

Milton Friedman, a “Nobel laureate and one of the world’s most eminent economists,” disagrees: “He believes the new moralism in business is in fact immoral” (33). Instead, their proper role is to “make as much money as possible for their shareholders. This is a moral imperative” (34). Business guru Peter Drucker concurs: “‘If you find an executive who wants to take on social responsibilities,’ Drucker said, ‘fire him. Fast’” (35). Even cognitive scientist and philosopher Noam Chomsky sides with them, saying corporations “‘must be concerned only for their stockholder and…not the community or the workforce or whatever.’” (35)

In the West, corporate law follows Friedman’s view: It “compels executives to prioritize the interests of their companies and shareholders above all others and forbids them from being socially responsible—at least genuinely so” (35). Henry Ford, trying to improve his workers’ lives with discounts on Ford cars, learns this the hard way in 1916 when the Dodge brothers sue him to return Ford dividends to stockholders instead of using them to create “further price reductions on Model T automobiles […] The judge agreed” (36). This ruling becomes known as “‘the best interests of the corporation’ principle” (36): “Corporate social responsibility is thus illegal—at least when it is genuine” (37).

Corporations can, however, engage in socially responsible behavior if it benefits their bottom line: “[C]haritable dealing must be in the interest of those who practice it—the corporation and its shareholders” (39).

One maverick is John Browne, CEO of British Petroleum (BP), who in the late 1990s turns the company around and dedicates it to environmental responsibility. Other oil companies ridicule him, but soon “Browne’s green agenda had become the industry’s agenda, embraced by Shell Oil and other big players” (41). Browne believes environmental concerns “are at least on a par with profit” (41), which flies in the face of the accepted standard of care for corporations. Friedman asserts:

‘If he pursues those environmental interests in such a way as to run the corporation less effectively for its stockholders, then I think he’s being immoral. He’s an employee of the stockholders […] he has a very strong moral responsibility to them’ (41).

Even with this focus on environmental responsibility, BP does not always behave selflessly. BP wants to drill for oil on the Arctic Slope, where the people of the Gwich’in Nation depend on migrating caribou for sustenance, but “[t]he Gwich’in say that drilling on the coastal plain will destroy the [caribou] herd, and their way of life along with it” (43). BP asserts that the caribou have thrived during oil development, but scientists and others believe further exploration will drive the herd into inhospitable regions; “the herd would thus be greatly diminished” (43). BP’s Browne “has rejected calls to refrain from drilling” and adds that “[t]he company’s good deeds are ‘in our direct business interest’” (44).

Pfizer CEO Hank McKinnell also stresses the bottom line with his company’s social initiatives. The safe subway station, improved housing, and convenient school attract the best employees. Free pharmaceuticals generate goodwill among doctors, inspire Pfizer workers, and generate a tax write-off—“a classic case of doing well by doing good” (48). However, “only those free drug programs that benefit the company will be pursued” (48). Doctors Without Borders, worried that Pfizer might suddenly cease donating to support African health care, rejects their offer of free pharmaceuticals and instead obtains a more stable supply of generic alternatives elsewhere.

One problem is that there is little money to be made in third-world countries: “[O]f the 1,400 new drugs developed between 1975 and 1999, only 13 were designed to treat or prevent tropical diseases and 3 to treat tuberculosis” (49). Corporations must focus instead on the bottom line. As one CEO puts it, “‘If you really did what you wanted to do that suits your personal thoughts and your personal priorities, you’d act differently. But as a CEO you cannot do that’” (51).

Anita Roddick begins a soap company, the Body Shop, that quickly becomes successful, and Roddick uses its profits to support progressive causes. When she incorporates, the Body Shop must conform to correct practices, and it backs away from her cherished social programs; she finally loses control of the company. As such, “Roddick’s story illustrates how an executive’s moral concerns and altruistic desires must ultimately succumb to her corporation’s overriding goals” (53).

Marc Barry is a spy who steals industrial secrets and has done so on behalf of one-quarter of Fortune 500 corporations. He finds that “[g]reed and moral indifference define the corporate world’s culture, which is why […] business is booming” (55). Barry and CEOs both must “compartmentalize” their work from their private lives: “[I]t is precisely this ‘schizophrenia,’ as Roddick calls it, that saves them from becoming psychopaths” (56).

Corporations themselves resemble psychopaths: They are “irresponsible […] manipulate everything […]are grandiose” and exhibit “lack of empathy and asocial tendencies […] refuse to accept responsibility” and are “unable to feel remorse (57). Psychopaths can be charming “as a mask to hide their dangerously self-obsessed personalities. For corporations, social responsibility may play the same role” (57). The energy company Enron touts its environmental responsibility and then collapses under the weight of “greed, hubris, and criminality. Enron’s story shows just how wide a gap can exist between a company’s cleverly crafted do-gooder image and its actual operations” (58).