Corporate Irresponsibility

Corporate Irresponsibility: America`s Newest Export

LAWRENCE E. MITCHELL
Copyright Date: 2001
Published by: Yale University Press
Pages: 320
https://www.jstor.org/stable/j.ctt1nph4d
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  • Book Info
    Corporate Irresponsibility
    Book Description:

    Corporations are often so focused on making short-term profits for their stockholders that they behave in ways that adversely affect their employees, the environment, consumers, American politics, and even the long-term well-being of the corporation, says Lawrence Mitchell in this provocative book. This is a significant issue not only in the United States but also in the world, for many countries are beginning to emulate the American model of corporate governance. Mitchell criticizes this emphasis on profit maximization and the corporate legal structure that encourages it, and he offers concrete proposals to bring about more socially responsible corporate behavior.Mitchell declares that managers should be freed from the legal and structural constraints that make it difficult for them to exercise ordinary moral judgment and be held accountable for their actions. He suggests, for example, that earnings reports be required annually rather than quarterly, that the capital gains tax be increased on stocks held for fewer than thirty days, and that elections of corporate boards of directors be held every five years rather than every year. Mitchell places the problem of corporate irresponsibility within the broader context of American life and demonstrates the extent to which contemporary corporate behavior represents a corruption of our cherished liberal values of personal freedom and individuality.

    eISBN: 978-0-300-13776-7
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. [i]-[vi])
  2. Table of Contents
    (pp. vii-x)
  3. INTRODUCTION
    (pp. 1-16)

    The modern American business corporation has been a subject of wonder and horror for much of the past century. Wonder for the limited liability and liquid shares that have given entrepreneurs and professional managers the power to concentrate and use capital for innovative and risky projects that create technological miracles and human comforts. Wonder for the corporation’s specialized structure, which encourages millions of people to invest their money and go about their daily lives, leaving to skilled managers and workers the responsibility for the businesses they have financed. Wonder for the fabulous wealth that this protected capital has produced, freeing...

  4. PART I. GROUNDWORK:: THE PHILOSOPHY OF THE AMERICAN CORPORATION
    • Chapter 1 AMERICAN LIBERALISM AND THE FUNDAMENTAL FLAW—THE FOUNDATION OF THE CORPORATE PROBLEM
      (pp. 19-48)

      How widespread are our corporate problems? How severe is corporate irresponsibility? Sometimes we know it when we see it: Firestone makes exploding tires and Ford knowingly allows them to remain on SUVs; Hooker Chemical pollutes Love Canal; Union Carbide builds a substandard factory in Bhopal. Sometimes it’s less easy to see: General Electric lays off tens of thousands of workers and in the process destroys entire communities; Mattel’s board of directors grants itself obscenely valuable stock options so complex that their value is hidden from the stockholders, who vote to approve them; some of America’s largest corporations abuse federal tax...

    • Chapter 2 THE PERFECT EXTERNALIZING MACHINE
      (pp. 49-65)

      I began chapter 1 with some examples of what might generally be considered corporate misbehavior: Coke’s disregard of its employees’ well-being, Unocal’s use of slave labor in Myanmar, GM’s exploding Malibu, Marriott’s theft of money from preferred stockholders and bondholders, and Allied Signal’s tax evasion, all for the purpose of jacking up stock prices. In a general way, we then saw how the kind of thinking that led to the cavalier attitudes of these companies can be found in some basic truths about American culture, and how the corporate context exaggerates its effects. The rest of part 1 will focus...

    • Chapter 3 CORPORATE PSYCHOLOGY 101, OR ALL THE CORPORATE WORLD’S A STAGE: THE CONSTRAINTS OF ROLE INTEGRITY
      (pp. 66-83)

      Limited liability forms the background structure of the problem. But the issue is not just limited liability. There are other ways in which we have built the corporation to be irresponsible. The legal constraints we’ve constructed around modern American corporations are completely inconsistent with prevailing psychological understandings of free moral development, whether as described in the work of Jean Piaget and Lawrence Kohlberg or in the feminist revision of those theories made so influential by Carol Gilligan.¹ These constraints take two related forms: one is the combination of law and structure that narrowly constrains the corporation in the ends it...

    • Chapter 4 IS WEALTH A VALUE?
      (pp. 84-94)

      If our defense of the role of the corporation and its directors and managers is to rest on our approval of the purpose of that role, we must first determine whether the goal of the corporation is one of which we approve. That goal is stock price maximization. Put more directly, the goal is to create wealth. So the question is whether the pursuit of wealth is a legitimate goal.

      At first blush (especially in turn-of-the-century America), the answer appears obviously to be a resounding yes. Wealth is good; more wealth is better. Money makes the world go ‘round, and...

  5. PART II. STRUCTURAL TRAPS IN THE NAME OF THE LAW
    • Chapter 5 CORPORATE MANAGERS: DR. JEKYLL OR MR. HYDE?
      (pp. 97-134)

      Corporate misbehavior is not especially the fault of corporate managers, stockholders, and employees. As I have shown, it is the result we should expect from the legal structure and rules we establish to create the corporation. And the legal structure and rules we create for the corporation derive importantly from America’s broader legal and social culture of radical autonomy. The corporation’s legal structure and rules result in the dictum to maximize stockholder profit within the confines of limited liability, a dictum which not only gives managers, stockholders, and workers the excuse to behave badly, but also encourages them to do...

    • Chapter 6 TRADITIONAL STOCKHOLDERS: THE NIGHT OF THE LIVING DEAD
      (pp. 135-164)

      How many times a day do you log on to the Internet to check your stock prices? How much do you know or care about the corporations in which you invest—how they treat their employees, where they do business, what their environmental record is? How much do you treat stocks like the day trader quoted in theWashington Post:“Who cares whether it’s a car company or a chemical company? Who cares what they’re going to be doing in 2000?” One study reports that there are approximately fifty thousand people engaged in day trading every single day. These investors...

    • Chapter 7 THE NEW STOCKHOLDER: KING KONG WITH A QUOTRON
      (pp. 165-184)

      The traditional stockholder still exists.¹ As frightening as I’ve made her appear, she’s at worst negligent, not, except for day traders, destructive. In this respect, as I’ve noted, she resembles the aggressively individualistic automaton that has come to caricature American social norms and behavior. As bad as this may be, however, there is worse. For the traditional stockholder has been substantially displaced by institutional stockholders, the massive growth of whom has occurred mostly over the past two decades. Mushrooming through the 1980s and 1990s, institutional stock ownership now accounts for some 58 percent of all equity of the top 1,000...

    • Chapter 8 ABANDONING THE STOCKHOLDERS
      (pp. 185-207)

      I have argued thus far that the key to unlocking long-term value in American corporations and to ensuring a governance and ownership structure that will provide for sustainable corporate productivity and profitability is to break the bonds that tie managers to stockholders and to create incentives to keep stockholders invested in the long term rather than as short-term speculators. The basic idea I have been promoting is to let managers manage; trust them to run their corporations in responsible and accountable ways, taking into account the moral and social propriety of their behavior as well as the profitability of their...

    • Chapter 9 THE DILBERT SOCIETY? AMERICA’S CORPORATE WORKERS
      (pp. 208-250)

      American corporate law ignores workers. They don’t figure into the structure of the corporation or its legal duties. But there is no one group of people more identified with a corporation and more responsible for its day-to-day conduct than corporate workers. Ensuring corporate accountability means making the worker the central actor in the corporate structure as the only real person who can make a difference. And as popular culture from Dagwood to Dilbert shows—backed up by management and behavioral studies and comparisons from countries like Germany and Japan—the way workers are treated within the corporation has a dramatic...

  6. PART III. AMERICANS ABROAD
    • Chapter 10 CAPITALISM, SOCIALISM, AND DEMOCRACY
      (pp. 253-261)

      I begin this transition from analysis of the flaws of the American corporate system to a brief examination of other systems with a tongue-in-cheek nod to the great economist Joseph Schumpeter. For I certainly lack the space, time, and insight to fully engage in the kind of study of the relations among capitalism, socialism, and democracy that he did. I do think it is important, however, in order to place in context what has come before and to set the stage for my conclusion, to reflect upon the relation between capitalism and democracy and the relation of both to the...

    • Chapter 11 AMERICA RIGHT AND WRONG: GROWING U.S. ECONOMIC IMPERIALISM
      (pp. 262-275)

      TheNew York Timesrecently reported at length on the war of attrition being waged against European business by American takeover artists and other cowboy capitalists. Operating in cultures in which patient capital and responsible management long have been the rule, cultures in which the ethic of autonomy is balanced by notions of individual and social responsibility, these U.S. businessmen, according to theTimes,aim “to cut costs, increase profits and then sell out.” And why Europe? Because “years of corporate downsizing and other measures have made it harder today to squeeze new savings out of already-lean American companies.” Lean?...

  7. CONCLUSION
    (pp. 276-278)

    The state of American corporate capitalism is the product of a structural and a legal system grounded in a uniquely American tradition and suited to that tradition. That system, however, while conceptually sound and consistent with our democratic ideas of power and responsibility, has gone seriously awry. The fault lies with nobody in particular and everybody in general. For the system has grown and developed in a way that reflects not careful, considered planning, but instead the unthinking forces of a relatively unconstrained capital market. It is both our benefit and misfortune that the corporate structure is highly sensitive to...

  8. NOTES
    (pp. 279-298)
  9. INDEX
    (pp. 299-302)