Why corporations should have their special status reviewed

Too big for their boots? George Rex, CC BY

Possession of power and a good reputation are often uneasy bedfellows. Many formerly respected and powerful institutions of society, including FIFA and many banks, have come to have a terrible reputation of late. The assumption, for the corporation especially, is that they are gigantic profit-making machines that steamroll anything in their path. The logic of profit is all, and corporations are sociopaths that pollute and lie, but call these things “externalities”.

But corporations have played a role in creating the wealth and employment that gives us easier lives and lifts millions, if not billions out of poverty across the world. It is, after all, very difficult to imagine our lives without Apple Inc (would you even be reading this article at all on your smartphone or tablet without it?). Many would be somewhat at a loss if the McDonalds Corporation, Tesco PLC or Google Inc were to suddenly disappear as a result of not having a legal basis that guaranteed continuing operation.

So what are we to do with these essential but increasingly debased institutions? One solution is to understand them better.

From monasteries to Monsters Inc?

From a legal-historical perspective, the first corporations were partnerships. They were organisations that were granted a “status of personhood” and were similar to monasteries and universities. Their special status ensured their existence would outlast that of a particular human individual member or partner of it. Corporations’ special status, or license-to-operate, could easily be revoked – and often was.

Over the past 150 years or so, however, corporations have evolved away from this relatively benign legal status. In this period, they have gained all sorts of rights, while evading responsibilities along the way.

For example, the privilege of “limited liability” promotes entrepreneurship and encourages corporations to provide goods and services. But it also grants the right of unlimited profit to shareholders without liability for any harm caused.

Corporations today are a far cry from their origins. Peter Reed, CC BY-NC

Corporations are now very powerful, even monstrously so, and many have much larger revenue levels than that of states – seemingly without any of the responsibilities that go with it. Corporations have naturally exploited the benefits of their economically and politically powerful positions in line with their own interests.

This of course also means that scandals do not come as a surprise, but are tinged with knowing sadness. People have become accustomed to the logic of limited liability being driven by profit.

TTIP

The most recent extension of corporate power comes in the form of the Transatlantic Trade and Investment Partnership (TTIP), the trade deal that’s currently being discussed by the US and the EU. The espoused goal of this agreement is to remove regulatory barriers which restrict the potential profits to be made by corporations on both sides of the Atlantic.

This may be a laudable entrepreneurial aim, but some of those so-called barriers could include social standards and environmental regulations covering labour rights, food safety, the use of chemicals and digital privacy. It could even include the barrier of those new banking safeguards introduced to prevent a repeat of the great financial crisis.

If passed, corporations could sue governments for maintaining these barriers and even prevent them from erecting safeguards that might not conform to their logic of profit. If this sounds incredible, it has already happened in Australia and Uruguay, where similar agreements have been used by a corporation to sue over the plain packaging of cigarettes. This is known as investor-state dispute settlements, which would enable corporations to sue governments if their actions lower their profit forecasts and interfere with their investments.

Reform is overdue

In one respect, the corporation is no different from any group of people: it should be understood as part of a larger social setting. Even such a multifaceted legal form as the corporation cannot be usefully understood as separate from society. And not only are corporations a fundamental part of society, they are heavily influenced by the people they serve.

Recognising this, global and national action for the reform of company law is overdue. At the supranational and financial level when it comes to the too-powerful corporation, intervention is required, whether it is shutting the gaping holes in the system that allow corporations headquartered in places like Luxembourg and Ireland to pay minimal taxation or introducing taxes like the Tobin Tax, which taxes financial transactions.

Other solutions include simplifying accounting rules and obliging corporations to disclose who they employ, where, and with what profit levels. This will help both society and corporations clarify who owns what and who owes what. Corporations could be held legally responsible for subsidiaries, and no longer able to claim that labour or environmental abuse is nothing to do with them.

The modern corporation is made up of people, but we have created monsters whose powers now far exceed that which were originally envisioned. The corporation rarely takes a step backward in terms of power. The conversation is left to academics or specialist technocrats behind closed doors in European corridors of power.

What can you do? A simple email to the group of MEPs who represent you asking them who they think benefits from TTIP and how they will be voting in the plenary session on June 9 would be a good first step.