Introduction
In the book, The Corporation: The Pathological Pursuit of Power and Profit, Bakan (2004, pp. 34-53) provides a critical analysis of modern day organizations. His arguments revolve around the power and the objectives of companies and organizations. He traces the foundations of corporations to the 17th century and asserts that the objectives of the corporation have changed tremendously.
His main aim is to prove that corporate organizations exist purely to maximize their profits to increase the wealth of the shareholders (Carroll & Buchholtz 2011, p. 204). Given the fact that the law treats an organization as a human being, Bakan (2004, pp. 12-19) says that the personality of corporations fits that of a psychopath.
Despite his critical analysis of corporations, other renowned authors have presented various arguments regarding the role of corporate organizations. In particular, Friedman (1970, p. 39) argues that corporate organizations exist solely to make profits and increase their revenues.
He absolves all corporations of wrongdoing citing that they subsist for profit reasons and should not engage themselves in redressing or addressing societal issues. This paper explores the concept of the corporation as elucidated by Bakan and other authors.
The Corporation
According to Bakan (2004, p. 11), a corporation is a business entity of massive size. It operates within a society to capitalize on the maximization of profits at the expense of society. His definition draws inspiration from the notion that corporations have continued to cause unprecedented harm to many societies. Like human beings, corporations have individual and legal rights.
Besides, he argues that the law protects the corporations when they cause harm to society by granting them a ‘limited liability’ status. To that end, Bakan (2004, p. 18) perceives organizations as too powerful to criticize or go against. The rationale is that corporations have continued to demonstrate their influence on the law and governments. Despite calls by lobby groups to hold corporate organizations to account, corporations have superior lobbying ability.
This ensures that they are never held accountable for their misdeeds and other harmful actions. Bakan (2004, p. 23) makes a distinction between the shareholders and managers (officers) of an organization. He says that managers play the role of serving the interests of the owners (shareholders). In most instances, the interests of shareholders are to increase their profits and value by appointing managers who are accountable to them.
As such, managers cannot embark on socially responsible strategies because they will not be acting in the interests of the shareholders (Friedman 1970, p. 37). This implies that corporations are made up of people who make decisions that align with the interests of the shareholders. However, not all people in an organization have the desire to exploit societies.
On the one hand, Bakan (2004, p. 43) traces the classical corporations to the rise of the industrial revolution. Specifically, he says that the invention by Thomas Newcomen at the beginning of the 18th century played a crucial role. His steam engine that was critical in pumping water out of coalmines signified the onset of corporations. The rationale is that the invention led to an increase in such inventions across the world.
Due to the seemingly high capital investment on the machines, corporations became a reality as people joined to create partnerships. This was also witnessed in the United States and England. During this time, Bakan (2004, p. 15) asserts that corporations were subjects of random market forces.
Due to unregulated competition, some business failed while others thrived. As corporations emerged, there was the need to incorporate them for them to contribute significantly to the national budgets. Until then, corporations’ owners (shareholders) had a modest amount of power and influence in corporate management. This classical picture of corporations is distinguishable to modern corporations.
On the other hand, modern corporations started at the onset of the 20th century. They have used various means to assert their dominance. In particular, corporations have used branding and other strategies to become unique and attract numerous consumers. Bakan (2004, p. 17) says that it is common to encounter common phrases such as ‘corporate world’ that reflect the power and dominance of corporate entities in the modern world.
Also, corporations have used their power to create value and profits for their respective shareholders. Besides, the corporations have begun to control natural resources and wealth of various societies. Bakan (2004, p. 24) points out that the rise and domination of corporate entities are so much that some corporations posts revenues that are larger than Gross Domestic Products (GDP) of many developing nations.
Bakan (2004, p. 25) sees this as an illustration of the way modern corporations have acquired immense powers and influence. As such, they can control virtually everything within the context of their operations. For example, Wal-Mart, which is one of the largest retail stores in the world, has continued to make profits that surpass GDPs of numerous countries according to the World Bank.
In other words, if Wal-Mart was a nation, it could rank higher than 40% of the world nations in terms of GDP (Carroll & Buchholtz 2011, p. 235). To that end, it is apparent that the modern corporate entities have accumulated insurmountable powers over the societies in which their operations are located. Modern corporations are therefore more powerful than the classical corporations were.
Legal personhood of a corporation is the view that corporations have similar rights as human beings. Corporations have rights like human beings, and as such, the owners cannot incur any liability as a result of the corporation’s misdeeds. In the United States, the Supreme Court granted and recognized corporations’ rights.
This ended the initial theoretical frameworks that showed that organizations’ legitimacy was subject to the state (Bakan 2004, p. 19). To this end, legal personhood of corporations reduced the influence of the state over the corporations in terms of their operations and conduct.
It is apparent that the legal personhood status of corporations has led to domination and rise of powerful business entities that render the shareholders and society unable to regulate or control the operations of a corporation. Central to legal personhood of a corporation is the legal concept of limited liability.
Limited liability is the recognition of the fact that corporations have diminished their accountability to society in cases of misconduct (Carroll & Buchholtz 2011, p. 109). It protects the shareholders from any form of loss that the corporation may incur. This is because the shareholder and the corporation coexist as separate entities according to the law.
This has allowed investors in limited liability corporations to invest without the fear of losing part of their investment to losses that the company may incur (Friedman 1970, p. 37). Limited liability law absolves the managers and shareholders from the liability that they would suffer in cases of litigations.
Bakan (2004, p. 23) says that the ability of corporations to operate with limited liability status has diminished the culpability of the shareholders and the managers because corporations operate like human beings. This has also allowed corporations to operate without following the law and with impunity. Bakan (2004, p. 20) also articulates that corporations enjoy corporate powers.
They refer to powers endowed to a corporation in special circumstances. Corporations cannot enjoy corporate powers when faced with circumstances that regulatory authorities regard as, ‘normal.’ However, the companies that have these powers can engage in infrastructural development in the societies of their operations. Indeed, their operations traverse both the public and private sectors.
Since this phenomenon is rampant in developing countries, Nace (2005, pp. 55-70) argues that the corporations assert their dominance by engaging in economic well being of these societies.
As such, they become a significant part of the decision-making processes of the countries and use this power to influence the policy-making processes to their favor. This leads to the rise of powerful multinationals that become the ‘juries and judges’ of their conduct and operations.
Corporate Social Responsibility
Corporate social responsibility (CSR) has become a common phenomenon in the modern business environment. CSR is a doctrine that emphasizes the need for corporations to take up the responsibility of addressing problems faced by members of the society. It may also refer to a strategy that corporations use to maintain a positive image held by their customers by engaging in problem-solving activities within the societies of their operations.
Contrary to many perceptions, corporate entities use CSR strategy to their advantage since the public will tend to associate and identify with the company’s products. Bakan (2004, p. 56) says that corporate entities invest a negligible percentage of their revenues in engaging in society’s activities such as contributing towards education trust fund, charity, sponsorships and setting medical camps among many others.
This does not only give corporations a competitive advantage over other companies but also enhances customers’ loyalty and satisfaction. As such, the corporations stand to gain more when they engage in CSR activities than when they overlook their purpose. Although some proponents argue that the corporate entities engage in CSR activities to address issues of all stakeholders, it is apparent that the corporations have an entirely different motive.
However, they can mask their intentions by engaging in a seemingly ‘humanitarian’ cause in the name of CSR. Bakan (2004, p. 38) says that various governments have engaged corporations in emphasizing the need for CSR and the amount that every corporation should contribute towards the initiative. This is in recognition of the central role that the corporations play in the economic development of a particular country.
Nonetheless, the corporations are at the heart of every policy-making decision, and as such, their primary motive entails further exploitation of the society through their operations (Friedman1970, p. 37). It is also important to mention that some of the activities that some corporations undertake are aimed at redressing their initial misconduct.
For instance, companies that pollute the environment during their operations dedicate part of their earnings to help the affected community to clean the environment. To that end, corporate social responsibility is intrinsically impossible for the companies since their main motivation is profit maximization (Carroll & Buchholtz 2011, p. 42).
One of the most profound modern economists, Milton Friedman, criticized the use of corporate resources to engage in CSR activities. His theoretical framework is entrenched in the premise that corporate organizations exist for the sole objective of making the shareholders wealthier. Bakan (2004, p. 27) says that Friedman was opposed to the idea that corporations ought to address society’s issues.
As such, Friedman arguments revolved around the role of managers and owners (shareholders). Managers who utilize some of the company’s earnings to help society are indeed going against the will and wishes of the shareholders. According to Friedman (1970, p. 104), such managers are not committed to serving the interests of the shareholders, and therefore, they should not manage a corporation.
Like Bakan, Friedman concurs that corporations are not in the business of addressing welfare issues that society faces. Corporations pay taxes, which could be used to better the well-being of society. To him, CSR is an irresponsible strategy according to the principles of a free society, and it aims at reducing the powers of the corporations.
Friedman (1970, p. 37) points out that the economy and society are two separate and distinct institutions that should exist as such. Any form of CSR will, therefore, diminish the essence of the free market and society. Bakan (2004, p.36) tends to agree with Friedman and argues that CSR serves the interests of the shareholders as opposed to the interests of the society.
Corporations as Externalizing Machines
Bakan (2004, p. 56) refers to corporations as ‘externalizing machines.’ He articulates that corporations have individual rights similar to human beings. Despite their rights, they act like psychopathic characters without remorse and apologies. As such, they use this psychopathic nature to externalize their costs. This makes the society, which is not a direct shareholder to contribute towards the corporation’s profits (Friedman 1970, pp. 35-36).
Most specifically, corporations use externalities to increase their revenues. These externalities have negative effects on society. They include environmental externalities like pollution and carbon emission. Non-environmental externalities include such strategies as increasing the prices of their products when faced with litigations.
For instance, General Motors (GM) increased the pricing of their vehicles after facing a lawsuit about the safety of their products. Instead of making safer products, the company directed litigations to the consumers.
This way, it was able to remain profitable by involving the consumers who are third parties to the corporation. Other strategies that corporations use to externalize their costs are cuts on labor costs by retrenching workers and making working conditions difficult for the employees.
Referring to corporations as externalizing machines means that the corporate entities have external costs that are met by society. In April 2010, the oil spill occurred in the Gulf of Mexico depriving numerous residents of New Orleans of their economic and recreational activities. The responsible company, Shell BP continued to post profits despite having destabilized the livelihoods of numerous people.
This is an example of the extent to which corporations will go to make profits and increase the value of their shareholders. Besides, corporations (especially in the US) have expressed their discontent in policies enacted to enhance the reduction in carbon emissions. The companies were able to lobby the US government not to sign the Kyoto Protocol that gave countries ultimatums in reducing carbon emissions.
Large manufacturing companies in the country cited reduction of profits as the reason behind their resistance to environmental custodianship. Undoubtedly, the effects of climate change are typical of famines and droughts. Ironically, the effects of climate change are felt in developing countries whose industries emit negligible percent of greenhouse gases.
Corporate Power and Democracy
Corporations have undermined the rule of the majority in many societies (Bakan 2004, p. 78). The rationale is that organizations have an overwhelming influence on how various countries formulate and implement policies and laws. Instead of the fact that democracy is a system of governance where every member of the society contributes to the decision-making processes, corporations have hampered the realization of these democratic principles.
They can form cartels and lobby groups that contradict the decisions made by the government of the societies they carry out their operations. Besides, various governments have enacted uncompetitive policies that are against the principles of the free market. This is to protect small and local industries from the whims of international corporations. Corporations have created monopolies in many sectors especially in developing countries.
Bakan (2004, p. 67) posits that strategies to protect local industries culminate to undemocratic principles. This implies that democracy is almost impossible amid the rise and dominance of corporations. It is, therefore, an illusion for anyone to suppose that corporations adhere to and are part of democratic dispensation. Their sole motive remains to make insensible profits at the expense of society.
This explains the rationale behind the increase in corporate activities in countries ruled by tyrants and dictators. Corporations, therefore, have no mandate to increase democratic space in society since their main aim is explicit – to make momentous profits (Friedman 1970, p. 34).
In particular, political activism by corporations has been apparent in many countries. For instance, AT &T supported Augusto Pinochet (dictator) in Chile to capture the presidency through a coup de tat. The rationale was that the company wanted a regime that could enhance its profitability.
Curtailing Corporate Powers
Bakan (2004, p. 120) says that it is important to reduce the power of corporations in the modern business environment. He cites the fall of Enron as the starting point where stringent and strict restrictions ought to be imposed on corporations that refuse to comply. Due to the overwhelming powers of Enron then, it becomes impossible for the authorities to question their accounting standards and procedures.
This led to the collapse of the company that had employed thousands of employees. Other than enacting laws, it is important for society to hold all corporations accountable for their actions. Bakan (2004, p.123) points out that punitive measures to compensate society ought to apply to various corporations.
This way, the corporations will reduce their powers and abide by the law. The governments should also minimize instances where corporations play an important role in economic development.
Conclusion
In sum, corporations are large business entities with rights like human beings due to their legal personhood. They have ‘limited liability’ and operate to maximize profits for the owners. Due to their huge profits and revenues, they have corporate powers and take part in the economic development of a country. Until recently, corporations have recognized the importance of CSR in improving their profitability.
This is contrary to Friedman assertion that corporate entities should not engage in such activities. Corporations externalize their costs to the society and as such, make profits at the expense of the people. The rise of corporations has diminished the democratic space. Hence, it is important for governments to make laws that curtail the influence and powers of corporations.
References
Bakan, J. (2004). The Corporation: The Pathological Pursuit of Profit and Power. Ontario, Toronto: Penguin Group. (240)
Carroll, A & Buchholtz, K. (2011). Business & Society: Ethics, Sustainability, and Stakeholder Management. New York: McGraw Hill Publishers. (268)
Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. New York Times, 5(3), 34-39.
Nace, T. (2005). Gangs of America: The Rise of Corporate Power and the Disabling of Democracy. Washington: Berrett-Koehler Publishers. (176).