Corporate socialization

[teddywolf]

This is a small collection of thoughts about society and economy.

Over a century ago came the modern concept of the corporation: run by a very few, with limited legal and financial liability for those who run it. This prompted investors to want a larger return on investment and bascially encouraged sharks at the helm and more accountants.

A number of businesses have been run by sharks in the past. Their names are legend in their industries: J P Morgan and Rockefeller top my list. It takes a lot of nerve to run a large company, but it requires less nerve if you don't have as much responsibility for your actions.

The practical upshot of this is that the people we most encourage to run companies are the ones who will least regard their fellow humans as, well, human.

I believe people from across the political spectrum would agree that most crimes against others are the result of the criminal not respecting the inherent value of the person they are harming. For many people this may be a result of circumstances at the time - a crime of passion, if you will. For others, there is a simple lack of regard, and that's a more-or-less full time perception.

Most corporations don't care much about human cost. They care about bottom line. Some of them do look at bottom-lin as enlightened self-interest, and I can deal with that; but there are plenty of others that just don't care. And they don't care because they are run by people who don't care.

My cable company doesn't care, so long as I watch TV, play on the Internet and pay my cable bill.
My electric company doesn't care, so long as I run lots of electric stuff and pay my bill.
My car company doesn't care unless I buy more of their cars.

It's now pretty easy for people who don't care to get into business and to not care about their customers or their employees. I find this more than a little disturbing.

Enron, Worldcom, Microsoft, McDonalds, none of them operate in a corporate vacuum. Abuses of power which are called "deviations" and "not the status quo" are in fact normal and part of the status quo, to be fair on the harsher side of each. I am not saying that large companies can't be good citizens - Ben and Jerry's is still well run, as is Malden Mills and Trader Joe's - but I am saying that some changes need to be made to encourage more good citizens and fewer Kenneth Lay's. The worst excesses should be stopped, and stopped cold.

The real question, of course, is how? How can a change be made that is effective, fair, and legal?

Comments

[twfarlan.livejournal.com]

Fair to whom? Investors? The public? The workers of the corporations? It isn't just the consumer who carries the cost of government crackdowns; often, companies will preserve their profit margins at the cost of the employees, either in their jobs, their pay, or their benefits. Corporate executives will preserve their own salaries at the expense of the employees, so are we bothering to be fair to them?

Effective and legal, as the laws in this country stand right now, aren't compatible. If you want change to be mandated (because they're not going to suddenly become enlightened and change of their own free will) and be effective, you have to change the laws. If you want to preserve the laws as they stand, you're going to have to deal with inefficient, ineffective measures as your only roads to change.

Yup

[shmuelisms.livejournal.com]

The real question, of course, is how? How can a change be made that is effective, fair, and legal?

This is what I call "Capitalism as a Culture", meaning how the ramifications of the business-world capitalist ideal "spill-over" into everyday-life (as if the two were ever separate). Personally, I don't think that this can be changed. It is an inherent flaw in the system, because, no matter what you do, there will always be someone who is less caring about the law, and greedy enough to work around whatever limitations you impose (like Microsoft). There will always be areas of business where this type of behavior will pay off.

You have also left out the most scrupulous of the mega-corporation, that has the strongest incentive to maintain this sick status quo - The Government. While the President and Congress do get voted in and out of office, with some relation to their competence. This is not true of the "real" government - The Civil Service, the actual people who do the work. They don't even have to directly justify the bottom line, as they don't need to show a profit, only keep things going, on a "well-enough" basis. They are fed by the actual mega-corps. So they are the least likely to want things to change.

government-supported companies != capitalism

[happyfunpaul.livejournal.com]

A few thoughts:

* It really doesn't sound like you have much appreciation for the up-side to having legal corporate entitites, or, more generally, for how capitalism works. The gist is, people *aren't* going to be "good"-- so the ideal is to set up the system so that people, acting not "for good" but simply in enlightened self-interest, nonetheless behave in such a way as to provide better goods and services at lower prices. Separating out personal from corporate liability makes it possible for financial risks to be taken in the first place; otherwise innovation would be nearly impossible.

Capitalism doesn't provide optimal solutions; it merely provides less-bad solutions than any other system that's been tried. But I think you're blaming capitalism per se for ills occurring due to failures of capitalism. More on those failures, below.

* IMO, most business *do* care about their customers and investors (and their community-- *if* they think it gains them something). So if a corporation (or government entity) "doesn't care," the first question to ask is "why not?" In my experience, the answer is often because (1) it doesn't worry about competition, because it has a de facto monopoly or partial monopoly, or (2) the topic at issue doesn't affect their bottom line.

If #2, sometimes citizens can shine light on the abhorrent practices in hopes of shaming the company (for the sake of its bottom line, of course), or boycott. For example, Michael Moore shaming K-Mart into no longer selling ammunition. Other times it is the government that needs to step in, enforce regulations, or set up a system (e.g. pollution credits) whereby external concerns *become* part of the company's financial concerns.

#1-- monopoly and near-monopoly-- is the case for your cable company and electric company. (I'm not sure what you mean by "my car company doesn't care"-- if you mean that the dealer does not provide good service at a good price, that's not a problem-- you have plenty of alternatives.)

Sometimes, a monopoly may be inherent to the system. But usually not. A company can avoid competition via government lobbying for special treatment, subsidies, price supports, import restrictions, etc. Prime examples: Arthur Daniels Midland and the rest of agribusiness, or any sports franchise that gets public funds to build a new stadium. Sometimes the government's influence on the market is subtle. For example, auto regulations are so expansive that it's impossible for new companies to break in (except for foreign importers). (Not to say that safety and anti-pollution regulations are necessarily *bad*, just pointing out that they have side effects.)

Other times, a company just gets big enough through mergers that it can marginalize (or buy out) competition. Here's where I'm different than most libertarians; I think that the government should be more energetic in trust-busting.

But the point is, while the government has a role to play, it will be much more effective at fighting abuses by encouraging competition (or just NOT *dis*couraging it) than by attempting to regulate near-monopolies. Historically, the latter hasn't worked too well; it just stifles innovation while allowing existing companies to thrive. Unfortunately, that's the situation that often results, because the most powerful anti-evil-corporation crusaders generally dislike and distrust market solutions.

* There are *already* many laws regarding transparency of information, geared towards both consumers and investors. I generally regard disclosure as a good thing, laws requiring it can have unintended side effects too.

Enron executives broke the law as it existed. The company went kerflooie, many of the execs are being punished. Investors learned from the experience. What's the problem? It's just capitalistic feedback in action.

The worst excesses should be stopped, and stopped cold.

Never happen, not entirely. Failure is part of the system.

Re: government-supported companies != capitalism

[dustriderma.livejournal.com]

Do I hear Ayn Rand echo somewhere within you?

Re: government-supported companies != capitalism

[teddywolf.livejournal.com]

Capitalism doesn't provide optimal solutions; it merely provides less-bad solutions than any other system that's been tried. But I think you're blaming capitalism per se for ills occurring due to failures of capitalism.

Pure capitalism has *not* provided the best of a poor lot. To date, the best solution I've seen has been managed capitalism. The management level varies from country to country - some countries overmanage, some undermanage. Some types of management are at best band-aids and some are inappropriately punitive; but some are effective and yes, appropriately punitive.

I do respect that a corporation can do good, but I don't see how it is an inherently better form of business than a standard partnership or sole-proprietorship. It is perhaps better at gathering initial capital, but that's it.

Enron executives broke the law as it existed. The company went kerflooie, many of the execs are being punished. Investors learned from the experience. What's the problem? It's just capitalistic feedback in action.

The problem is that when people invest, they expect that the company is going to play by the rules. If it was just a matter of the company being poorly managed then that would have been one thing - that's a standard problem of the market. However, what happened was it was not only mismanaged but it broke the law repeatedly and *hid* all of this, thus not giving most investors a chance to make a decision based on an informed opinion. In the meantime, high-ranking execs who were big time investors unloaded their stock before the revelations *and* they *actively prevented* employees who were in the company retirement fund from selling *their* stock. So employees were stuck with worthless paper at the same time that these execs cashed out and stayed rich.

The worst excesses should be stopped, and stopped cold.

Never happen, not entirely. Failure is part of the system.

Honest failure is one thing. Massive abuse of the rules is quite another.

Re: government-supported companies != capitalism

[dustriderma.livejournal.com]

The problem is that when people invest, they expect that the company is going to play by the rules. If it was just a matter of the company being poorly managed then that would have been one thing - that's a standard problem of the market. However, what happened was it was not only mismanaged but it broke the law repeatedly and *hid* all of this, thus not giving most investors a chance to make a decision based on an informed opinion. In the meantime, high-ranking execs who were big time investors unloaded their stock before the revelations *and* they *actively prevented* employees who were in the company retirement fund from selling *their* stock. So employees were stuck with worthless paper at the same time that these execs cashed out and stayed rich.

Enron has played by the rules. They have adhered to all GAAP standards as well as NYSE and Federal rules. Further more, everything they have been convicted for (i.e. lying to investors basically) has been disclosed in their financial statements. Enron has been punished for peoples inability and lack of intrest in reading public filings/statements. If anybody have read those before putting in their money, they would have seen the hugeley inflated sales and low NI and would have not touched that company with a 10ft pole. As for investors who got burned, well that is the price capitalism imposes when you are too lazy to do your job! For better examples, read Ayn Rand!!!

Re: government-supported companies != capitalism

[teddywolf.livejournal.com]

I would *not* say they held true to GAAP standards. Generally Accepted Accounting Procedures do not include massive shell games.

You still haven't addressed the point of Enron workers who were not allowed to sell their Enron stock in their retirement accounts whilst all the bigwigs dumped their stocks.

Re: government-supported companies != capitalism

[dustriderma.livejournal.com]

GAAP does not suggest it but than again it does not forbid it either.

As for adressing forcing the employess to hold on to their stock:
I did not familiarize myself with this part of the enron trial however my thoughts on this are that If 'bigwigs' did not break a contract of any sorts than they are not liable. if they did, than their ass should be kicked by the emploees' lawyers, not the govt.

Re: government-supported companies != capitalism

[acrobatty.livejournal.com]

Mrdmitri, where do you think those disclosure & trusteeship laws that the employees' lawyers will use come from? People create them so that companies can't pull crap like this. And we keep having to adjust them because people like you insist that the only thing that matters is to obey the letter of the law. And then you argue incessantly about what that letter is.

In any other area of the law, this sort of baloney would be laughed out of court. "Oh, you can't be prosecuted for driving a vehicle in the park next to the "no vehicles in the park" sign because your car says "not a vehicle" on the label? Yeah, right."

The laws are highly technical, yes. They reflect compromises, sure. But there are underlying ethical principles that most people find easy enough to comprehend, even when there's a loophole somewhere in the rules as written.


As for all the facts being buried in their financial statements, so what? The rules don't say, make it possible for an expert with infinite time to dig out the truth. Companies are supposed to have the information there in recognizable form, in the expected place. As for the Great Ayn Rand, bear in mind, please, that Enron fooled EVERYONE. Nobody saw it coming, no matter how smart or expert. So, what 'objective' ethical principle is it, exactly, that says I can sucker people into a Ponzi scheme if I am the cleverest financial-statement writer in town?

As you probably know, business works 90% on trust. Trust, but verify -- but you can't spend every waking moment verifying, so you have to count on the reputation someone has built up. Enron built up a great rep, then used it cynically to cheat the shareholders and employees. If everyone did this, the system would fall apart. Why are you defending this?

Re: government-supported companies != capitalism

[eleccham.livejournal.com]

Enron executives broke the law as it existed. The company went kerflooie, many of the execs are being punished. Investors learned from the experience. What's the problem? It's just capitalistic feedback in action.

Well, we'll see the answer to that in five or ten years, when we know whether or not anything's changed, right? :-S Indeed, as you and several other people mention, I strongly believe that one of the key problems is not the corporations themselves, but - like so many things we're seeing these days - the government that's set up to support them in this crazy cycle (build up at everyone else's expense, but not too big, 'cause then someone might notice that we're letting you get away with highway robbery, and then we'll come bust yer chops for it).

[acrobatty.livejournal.com]

Some changes haev already been made. The Sarbanes-Oxley Act was a step in the right direction, increasing whistleblower protection and giving more responsibility to independent directors. Also, the NYSE in self defense created some regulations for its members that encourage more transparency and audit committee independence.

But these are basically bandaids on a gaping wound. The real problem is that our society has accepted that it is good that a company do nothing but serve its shareholders' financial interests within the bare bounds of the law. In other words, a corporate exec or officer can get sued for doing the right thing if it costs the firm more money -- even if 90% of the shareholders approve. They are _supposed_ to stretch the rules, even if they wouldn't do it just for themselves. This is nuts.

One thing that might help a little is if there were a good enforcement mechanism against the very widespread practice of coercing corporate employees into contributing to the company's "voluntary" PAC. Corporate contributions to election campaigns are somewhat curtailed by law, but they come in thru the back door as PAC contributions. Ironically, the worker gives part of his/her paycheck to support lobbying that helps the corporation at his expense. There's really no effective way for him to complain, let alone a safe way. There should be. But obviously, everyone in office has a huge vested interest in not changing the practice.

The best book I've read on this general subject recently (tho I haven't finished it yet) is David Korten's "When Corporations Rule the World."