Criticisms of Corporations
Encyclopedia
The notion of a legally sanctioned corporation remains controversial for several reasons, most of which stem from the granting of corporations both limited liability on the part of its members and the status and rights of a legal person. Some opponents to this granting of "personhood" to an organization with no personal liability contend that it creates a legal entity with the extensive financial resources to co-opt public policy and exploit resources and populations without any moral or legal responsibility to encourage restraint.
in the Wealth of Nations criticized the joint-stock company corporate form because the separation of ownership and
management could lead to inefficient management.
The context for Adam Smith’s term for “companies” in the Wealth of Nations was the joint-stock company. In the 18th century, the joint-stock company was a distinct entity created by the King of Great Britain as Royal Charter trading companies. These entities were awarded legal monopoly
in designated regions of the world, such as the British East India Company
.
Furthermore the context of the quote points to the complications inherent in chartered joint-stock companies. Each company had a Courts of Governors and day-to-day duties were overseen by local managers. Governor supervision of day-to-day operations was minimal and was exacerbated by the geography
of the 18th century.
The sailing time from India to Great Britain was many months and round trip routes often took a year or longer. It was during the interim time period that local managers took advantage of the time delay by plundering the local population at the expense of the interests of shareholders. Bribery and corruption were inherent in this type of corporate model as the local managers sought to avoid close supervision by the Courts of Governors, politicians, and Prime Ministers. In these circumstances, Smith did not consider joint-stock company governance to be honest. More importantly, the East India Company demonstrated inherent flaws in the corporate form. The division between owners and managers in a joint-stock company, and the limited legal liability this division was based on guaranteed that stockholders would be apathetic about a company's activities as long as the company continued to be profitable. Just as problematic, the laws of agency
upon which the corporate form was based allowed for boards of directors to be so autonomous from and unconstrained by stockholder wishes that directors became negligent and ultimately self-interested in the management of the corporation.
Joel Bakan
describes the modern corporate entity as 'an institutional psychopath' and a 'psychopathic creature.' In the documentary The Corporation, Bakan claims that corporations, when considered as natural living persons, exhibit the traits of antisocial personality disorder
or psychopathy
. Also in the film, Robert Monks, a former Republican Party
candidate for Senate from Maine
, says:
and others have criticized the legal decisions that led to the creation of the modern corporation:
Chomsky contends that corporations transfer policy decisions out of the hands of the people and into corporate boardrooms, where public oversight is limited. The extensive financial resources of corporations and the extent to which they're employed to influence political campaigns in the United States has also been implicated as a way in which corporations undermine the democratic institutions in a society.
“No other institution in American history—not even slavery—has ever been so consistently unpopular...with the American public. It was controversial from the outset, and it has remained controversial to this day.”
John D. Rockefeller was one of the first to experience that paradox in a spectacular and personal way. By the last decade of the Nineteenth Century, Rockefeller found that he had become “the most hated man in the world.”
Around the middle of the Twentieth Century, the economist John Kenneth Galbraith noted that the corporate businesses which foreign visitors came to see and marvel at, as “showpiece[s] of American industrial achievement,” were the very same ones that government attorneys scrutinized in their search for monopolistic wrongdoing.
argue that corporate law serves the general welfare by mimicking, without the heavy cost of negotiation, the contractual agreements that would be reached by shareholders, managers and employees. For example:
Divisions between labor, management, and owners
Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
in the Wealth of Nations criticized the joint-stock company corporate form because the separation of ownership and
management could lead to inefficient management.
The context for Adam Smith’s term for “companies” in the Wealth of Nations was the joint-stock company. In the 18th century, the joint-stock company was a distinct entity created by the King of Great Britain as Royal Charter trading companies. These entities were awarded legal monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
in designated regions of the world, such as the British East India Company
British East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
.
Furthermore the context of the quote points to the complications inherent in chartered joint-stock companies. Each company had a Courts of Governors and day-to-day duties were overseen by local managers. Governor supervision of day-to-day operations was minimal and was exacerbated by the geography
Geography
Geography is the science that studies the lands, features, inhabitants, and phenomena of Earth. A literal translation would be "to describe or write about the Earth". The first person to use the word "geography" was Eratosthenes...
of the 18th century.
The sailing time from India to Great Britain was many months and round trip routes often took a year or longer. It was during the interim time period that local managers took advantage of the time delay by plundering the local population at the expense of the interests of shareholders. Bribery and corruption were inherent in this type of corporate model as the local managers sought to avoid close supervision by the Courts of Governors, politicians, and Prime Ministers. In these circumstances, Smith did not consider joint-stock company governance to be honest. More importantly, the East India Company demonstrated inherent flaws in the corporate form. The division between owners and managers in a joint-stock company, and the limited legal liability this division was based on guaranteed that stockholders would be apathetic about a company's activities as long as the company continued to be profitable. Just as problematic, the laws of agency
Law of agency
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
upon which the corporate form was based allowed for boards of directors to be so autonomous from and unconstrained by stockholder wishes that directors became negligent and ultimately self-interested in the management of the corporation.
Psychopathic behavior
Legal Scholar and Professor of Law at the University of British ColumbiaUniversity of British Columbia
The University of British Columbia is a public research university. UBC’s two main campuses are situated in Vancouver and in Kelowna in the Okanagan Valley...
Joel Bakan
Joel Bakan
Joel Conrad Bakan is a Canadian writer and Associate Professor at the University of British Columbia Faculty of Law.Born in Lansing, Michigan and raised for most of his childhood in East Lansing, Michigan where his parents, Paul and Rita Bakan, were both long-time professors in psychology at...
describes the modern corporate entity as 'an institutional psychopath' and a 'psychopathic creature.' In the documentary The Corporation, Bakan claims that corporations, when considered as natural living persons, exhibit the traits of antisocial personality disorder
Antisocial personality disorder
Antisocial personality disorder is described by the American Psychiatric Association's Diagnostic and Statistical Manual, fourth edition , as an Axis II personality disorder characterized by "...a pervasive pattern of disregard for, and violation of, the rights of others that begins in childhood...
or psychopathy
Psychopathy
Psychopathy is a mental disorder characterized primarily by a lack of empathy and remorse, shallow emotions, egocentricity, and deceptiveness. Psychopaths are highly prone to antisocial behavior and abusive treatment of others, and are very disproportionately responsible for violent crime...
. Also in the film, Robert Monks, a former Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
candidate for Senate from Maine
Maine
Maine is a state in the New England region of the northeastern United States, bordered by the Atlantic Ocean to the east and south, New Hampshire to the west, and the Canadian provinces of Quebec to the northwest and New Brunswick to the northeast. Maine is both the northernmost and easternmost...
, says:
Democratic criticisms
Noam ChomskyNoam Chomsky
Avram Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and Professor in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years. Chomsky has been described as the "father of modern linguistics" and...
and others have criticized the legal decisions that led to the creation of the modern corporation:
Chomsky contends that corporations transfer policy decisions out of the hands of the people and into corporate boardrooms, where public oversight is limited. The extensive financial resources of corporations and the extent to which they're employed to influence political campaigns in the United States has also been implicated as a way in which corporations undermine the democratic institutions in a society.
The Corporation: both a benefactor and a pariah
As a business institution, the corporation plays a crucial and indispensable role in the creation of goods and services.“No other institution in American history—not even slavery—has ever been so consistently unpopular...with the American public. It was controversial from the outset, and it has remained controversial to this day.”
John D. Rockefeller was one of the first to experience that paradox in a spectacular and personal way. By the last decade of the Nineteenth Century, Rockefeller found that he had become “the most hated man in the world.”
Around the middle of the Twentieth Century, the economist John Kenneth Galbraith noted that the corporate businesses which foreign visitors came to see and marvel at, as “showpiece[s] of American industrial achievement,” were the very same ones that government attorneys scrutinized in their search for monopolistic wrongdoing.
Corporate law
Influential scholars Frank Easterbrook and Daniel FischelDaniel Fischel
Daniel R. Fischel is the emeritus Lee and Brena Freeman Professor of Law and Business and former Dean of University of Chicago Law School, and a co-founder of Lexecon...
argue that corporate law serves the general welfare by mimicking, without the heavy cost of negotiation, the contractual agreements that would be reached by shareholders, managers and employees. For example: