The Scum at the Top

Commentary on the Rats in Washington

Meet The Corporation

By Chris Warren
Sierra Club Magazine
© September / October 2005
Pages 24-29

It Has No Conscience. It's Pathological. And It's In Your Neighborhood. How Can We Stop The Juggernaut?

In April 2003, a group assembled outside the capitol in Richmond, Virginia, to celebrate the chartering of a new tobacco company: Licensed to Kill Incorporated. Cofounder Robert Hinkley bluntly declared the company's purpose: to manufacture and market its products in a way that "generates profits for investors while each year killing over 400,000 Americans and more than 4.5 million other people worldwide."

Licensed to Kill (motto: "We're rich, you're dead!") was formed as a stunt but with the serious goal of demonstrating how states sanction and protect corporations, even those dedicated to making money at the expense of public health and the environment. "We told the Commonwealth of Virginia that we were going to kill people," says Hinkley, a corporate attorney. "To their credit, they didn't want to set this company up, but there was nothing they could do about it."

Obtaining a corporate charter in Virginia - and most other states - is as easy as filling out a short form and paying a modest fee. Only if it planned to break the law would a company not receive a charter. (Despite its name, Licensed to Kill wasn't illegal: The tobacco company merely had the audacity to plainly state its products' effects.) But then again, applicants don't usually even have to list the purpose of their business.

Once chartered, corporations are granted a long list of benefits under state and federal law, including the ability to exist forever (there's no expiration date for charters) and the right to influence elections and shape legislation through campaign contributions. Additionally, their shareholders and directors are shielded by limited liability. Meant to encourage investment in business ventures by ensuring that an individual's assets cannot be seized by creditors if a company fails, limited liability also insulates stockholders and directors, in most cases, from personal responsibility for the company's potential debts or even misdeeds.

Many of these rights stem from a series of court decisions over the past 120 years that have, in effect, established corporations as legal "persons" - often powerful ones with little accountability to society. Their widely accepted purpose is simple: to maximize return to shareholders. (This does not, of course, apply to not-for-profit corporations like churches, schools, and charities.)

Thus it has been for at least a century. Professor Jesse Choper, an expert on constitutional and corporate law at the University of California at Berkeley, points to a 1919 case in which automaker Henry Ford was sued by his shareholders for proposing to sell his cars at a below-market price. Ford said he wanted to do it to create more jobs - thereby "spread[ing] the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes" - but the Michigan Supreme Court ruled in favor of the shareholders. Later cases in other states have broadened corporations' ability to contribute to public welfare but generally followed the Michigan court's opinion that business should be conducted "primarily for the profit of the stockholders."

Obligations to workers, customers, the environment, or the communities in which a company operates generally take a backseat, if they are considered at all. "Nothing in its legal makeup limits what [the corporation] can do to others in pursuit of its selfish ends," writes Joel Bakan, a law professor at the University of British Columbia and author of The Corporation: The Pathological Pursuit of Profit and Power. Indeed, "it is compelled to cause harm when the benefits of doing so outweigh the costs."

Corporations' accumulation of unbridled power - and the way they often misuse it - has inspired myriad efforts to restrain them: boycotts, protests, lawsuits, legislation, and shareholder actions to change company policies from within. But after witnessing corporations riding roughshod over local communities' rights to regulate everything from cell phone towers to trash dumping, activists like Hinkley are calling for a new approach. He and others realize that such battles will be endless unless citizens challenge the corporate system itself. "We've created this entity; it's like a monster," says Jim Price, a member of the Sierra Club's Corporate Accountability Committee. "We've given corporations more power than we reserve for ourselves."

That Might Sound Hyperbolic to some, but not to members of the communities that have tried to challenge corporate power. In 1996, for example, the voters of Montana, worried about the influence of money in politics, passed a ban on corporate participation in ballot-initiative campaigns. The federal courts struck down the ban, saying it went against the corporate "person's" constitutionally protected free speech - a right the Supreme Court had affirmed for corporations in the 1970s.

In 1998, Omnipoint Communications (now part of T-Mobile) sought a permit to install a wireless tower in the steeple of a historic church in Wellfleet, Massachusetts, a tiny Cape Cod town. After deliberating, Wellfleet's planning board said no. Undeterred, Omnipoint sued the town for violating its rights under the Telecommunications Act. Faced with the prospect of paying the company for damages (as well as its legal fees), the town relented. In Virginia in 2001, a federal court threw out a state law that had attempted to restrict the dumping of trash from other states in its own landfills. The court's reasoning? The law violated trash hauler Waste Management Corporation's constitutional rights under the Commerce and Supremacy Clauses, which were designed to prevent state and local governments from obstructing the flow of goods.

And just last May, Wal-Mart, the world's largest retailer, thwarted the Flagstaff, Arizona, city council's efforts to regulate land use and limit sprawl. Wal-Mart poured some $300,000 into an initiative campaign that convinced voters to overturn a council-approved ordinance to restrict the size of big-box stores. The campaign attracted national attention when a Wal-Mart-funded political action committee ran ads featuring a photo of a Nazi-era book burning that asked, "Should we let government tell us what we can read? Of course not. . . . So why should we allow local government to limit where we shop?"

"The Authority To Govern in this country is theoretically in the hands of the people," notes activist and historian Richard Grossman. But if that's the case, how can a company nullify a state law? Why does a corporation have the power to overturn a local planning decision? To Grossman, it comes down to one basic question - who gets to make the rules? - and one not-so-simple answer: People can only begin to regain control over their communities by confronting corporations' "illegitimate claims to constitutional rights, powers, and authorities."

An activist most of his life, Grossman has helped pass laws, elect people, and stop many instances of corporate abuse. A former Peace Corps volunteer and director of Environmentalists for Full Employment, he has also brought community groups together to fight environmental injustice. But despite the individual victories, he felt his side was losing the war. A successful fight to save one forest, say, was soon followed by a hard slog to protect another. "If you're upset about toxics in the air and water, for example, eventually you want to write a law," Grossman says. "But it's not enough to just write an environmental law, or a labor law, or a consumer law, because the fundamental law - the Constitution - is a stacked deck against us." His search for a more comprehensive approach led him to help found the Program on Corporations, Law, and Democracy, a small group of organizers, activists, and writers from around the country who are educating the public about how corporations have become more powerful than the intstitutions that created them - and what people can do to right the scales.

These beliefs have taken hold in rural Pennsylvania, where Grossman now works for the Community Environmental Legal Defense Fund. In the late 1990s, large corporate hog farms were generating a mountain of manure that threatened to seep into the area's groundwater and wells. Instead of protesting these specific conditions, citizens in some of the area's townships - many conservative, lifelong Republicans - worked with Thomas Linzey, head of the defense fund, to pass local laws that banned corporate farms altogether. In two cases, they declared that corporations don't have the same rights as people.

Agribusiness firms have fought back by pushing for a plan - unveiled last year by Governor Edward Rendell (D) - to set up a board of political appointees with the power to overturn local ordinances. "The establishment of this board is nothing less than the state being used by agribusiness and sludge corporations to eliminate those 'pesky' Townships and rural communities who continue to believe in local, democratic control over issues affecting their lives," a group of township supervisors wrote. A bill based on Rendell's initiative was signed into law in July.

A similar battle is being waged on the other side of the country, where residents of the Northern California city of Arcata were struggling with the economic impact of fast-food franchises. In 1998, the city passed an ordinance that prohibited any more of these businesses from opening. "Local businesspeople were very much in favor of it," says David Cobb, a Humboldt County activist and the Green Party's 2004 presidential candidate. "So much so that they said, Why only do restaurants?" The city is considering a prohibition on all chain retailers, while the county weighs a ban on nonlocal corporate involvement in elections. Last year Arcata voted (in a nonbinding resolution) to oppose corporate personhood altogether, declaring that "only persons who are human beings should be able to participate in the democratic process."

The conviction shared by these disparate communities - that democracy is impossible unless corporations are subordinate to citizens - is nonpartisan and proliferating. And its biggest advertisement is the corporations themselves: Every time big business comes into a community and effectively declares that its citizens don't have the right to govern themselves, Grossman says, more people will understand what is at stake.

Tobacco-Industry Provocateur Hinkley is less troubled by the rights of corporations than by their lack of responsibilities. Legally designed to "valorize self-interest and invalidate moral concern," as author Bakan writes, the amoral corporation behaves in ways that most people would find "abhorrent, even psychopathic, in a human being." Current environmental regulations, Hinkley says, do little more than tell companies how much damage they can legally do. A law that limits the amount of mercury and other toxic emissions, for instance, essentially allows a certain level of pollution. As entities dedicated to the pursuit of profit, corporations naturally regard these rules as impediments to making money and try to circumvent them any way they can.

To change that dynamic, Hinkley wants to add a coda to the laws that govern corporate charters that says, yes, corporate directors should be focused on profit but not at the expense of "the environment, human rights, the public health and safety, the welfare of communities . . . [or] the dignity of employees." The essence of capitalism - the profit motive - would remain intact. But corporations would have to serve interests beyond the bottom line. Just as potential profits are already limited by specific laws against, for example, child labor and false advertising, harm to the environment and communities would no longer be an acceptable part of competition.

Under Hinkley's proposed changes to state business laws, pollution would be flatly prohibited - after companies were given 15 years to develop and implement the technology they need to meet that requirement. Any violations after that deadline would be illegal, making large corporations and their directors subject to criminal or civil charges for their misdeeds.

State legislators in California, Maine, and Minnesota have already introduced bills based on, or similar to, Hinkley's ideas. "My goal is to make social responsibility and social responsiveness and social benefit integral to the nature of corporations," says California state senator Richard Alarcón (D). But the going is slow. The Maine bill, sponsored by Representative John Eder (G), was quickly voted down in committee. The Minnesota version, championed by Senator Sandra Pappas (D), received a hearing and was tabled for further review. Alarcón's bill received a hearing in early 2004. But the California Chamber of Commerce and other business groups dubbed it a "job killer," and it did not make it out of committee.

In a letter to Alarcón, the Chamber said that the bill would act as the "ultimate disincentive" for people to serve on corporate boards and that a flood of litigation could result. Its language, the Chamber argued, "could render the corporation and its directors liable for the economic and environmental consequences of any number of legitimate business decisions, such as closing a facility within a community or engaging in a regulated activity that has some adverse environmental consequences."

Hinkley believes the 15-year transition period would allow companies and their directors to avoid unfair liability by retooling their operations so they won't damage the public interest in the first place. He's watched corporations respond in this way to the demands of corporate securities law, his specialty as an attorney. "Companies basically err on the side of caution" when disclosing financial information to potential investors, Hinkley says. "It's not so they'll win a lawsuit, but so they'll never face one."

What he says his proposal would do is change the rules of the game: Build in an obligation to be socially responsible and let companies compete, and profit, on that basis. Even with new rules, few companies would abandon the profitable U.S. market altogether, and their operations conducted and products sold here would be subject to these restrictions, regardless of where the companies were based. Many might find it more cost-effective to just follow the same rules everywhere.

The European Union is already moving businesses in this direction, passing strict environmental regulations that require manufacturers selling their products in Europe to conduct extensive tests on common chemicals and limit dangerous materials in electronic products. (See "Old Europe's New Ideas," January/February 2004.) If adopted widely in the United States, Hinkley's proposal might even become a model for other countries, just as California's clean-car regulations have paved the way for other states to demand more environmentally friendly options.

Hinkley is convinced that once corporations accept that they can no longer damage the public interest in pursuit of profit, they'll innovate and evolve. "When businesses see this is what consumers want - and they'll see this if we stand up and pass a law - they're going to say, OK, the profit motive is still what we're about. We're just going to have to do things a little better." Not requiring them to change, he insists, is not an option.

It's too early to tell whether corporations can be reined in by Hinkley's attempts to broaden their responsibilities or Grossman's challenge to their rights - or something else entirely. But these efforts are unquestionably helping to forge a broad movement for reform. "More than two centuries of government 'of the people, by the people, and for the people' in the United States came to an end at the beginning of the twenty-first century," businessman Robert Monks wrote last year in a report for the London-based Centre for the Study of Financial Innovation. "Instead, what we have today is a new phenomenon, one that I deplore: the corporate state."

Monks should know. He served on the board of Tyco International before scandals engulfed the company and its CEO. Now a shareholder activist working to influence other corporations, he says reform is urgently needed. "We're like a frog in the water that's boiling away. We're not cooked yet, but my God, when history looks back, people will say, Where were you? Didn't you understand what was happening?"

Chris Warren is a freelance writer based in Santa Monica, California.

Illustrations by Tavis Coburn

The Rise Of The Corporate State

The Battle Over Corporate Power long predates McDonald's, Microsoft, and Wal-Mart. To understand how such entities became so mighty, you have to go back to the Revolutionary War. Resentful at how their enterprises had been dominated by the king's corporations - like the East India Company, whose monopolistic activities sparked the Boston Tea Party - the newly independent colonists kept businesses on a short leash.

"Any firm that sought a corporate charter had to go specifically to the [state] legislature," says Richard Abrams, a history professor at the University of California at Berkeley. To be chartered, corporations had to serve the public good - most often by constructing a road, bridge, canal, or other public-works project. Their tenure was limited, and deviation from their original design was prohibited. They could not own shares in other corporations, lobby elected officials, or give campaign contributions. Those that strayed had their charters revoked.

The Civil War changed things. "In order to get enough war matériel to fight the Civil War, Lincoln had to loosen those restrictions and restraints on corporate behavior," says Thom Hartmann, author of Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights. "It was his intention to tighten them back up again after the war, but he was assassinated."

Corporations saw another opportunity a few years later with the 1868 passage of the Fourteenth Amendment, which ensured due process and equal protection under the law. If corporations could gain constitutional rights, they could use this amendment - passed to protect emancipated slaves - to claim that states and localities taxing and regulating them in differing ways amounted to discrimination.

Starting in the 1870s, attorneys for the railroads - the largest corporations of the day - aggressively pursued this goal, bringing four cases all the way to the Supreme Court in just one year. With the 1886 case of Santa Clara County v. Southern Pacific Railroad Company, they finally succeeded. Before oral arguments, Chief Justice Morrison Remick Waite declared that the judges were in agreement: Corporations were covered by the Fourteenth Amendment. Ever since, the courts have continually expanded protections for corporations as "persons" under the law - or, as Ambrose Bierce defined them in his Devil's Dictionary, "ingenious device[s] for obtaining individual profit without individual responsibility." - C.W.

The Great Powers

Big Companies Sometimes Act as if they are nations unto themselves, and if you look at the numbers, they practically are. In 2002, the Institute for Policy Studies compared business sales with countries' gross domestic products and found that 52 of the world's 100 largest economies are corporations. Here are the top three and their peers among nations:

2002 sales
Wal-Mart (#19) $246.5
General Motors (#25) $186.8
ExxonMobil (#26) $184.5

2002 GDP
Belgium (#18) $247.6
Poland (#24) $187.7
Turkey (#27) $182.8

(figures are in billions of dollars)

On The Web

To see the whole list and learn more about corporations and globalization, visit ips-dc.org/global_econ/index.htm.

Shareholders At The Wheel

The Sierra Club owns stock in Chevron, Tyson Foods, and forestry giant Weyerhaeuser. Surprising? It shouldn't be. Since money talks, many activists are deciding that the best way to make a corporation environmentally and socially responsible is to own a part of it. As shareholders, they can more easily get the ear of corporate officials, as well as introduce (and vote on) proposals at annual meetings.

"Activists are often relegated to standing outside the company fortress, but a relatively modest investment crosses the castle moat," says Bart Naylor, a member of the Sierra Club's Shareholder Action Task Force. "It allows us to engage a company's officers and shareholders on the inside."

The task force, part of the Corporate Accountability Committee, guides the Club's purchase of small amounts of stock (owning $2,000 worth continuously for more than a year generally gives an individual or group the right to introduce shareholder resolutions). The group also helps individual Club members review their own stock or mutual fund holdings and use their voices as shareholders to speak out - by writing a letter, attending an annual meeting, or introducing a resolution on an environmental issue.

Although the support such proposals garner among stockholders is still small, resolutions introduced by activist shareholders are becoming more common, and the media and public attention they generate can pressure companies to change their ways. According to the Wall Street Journal, about half of the 33 global-warming-related resolutions introduced this year were withdrawn after the companies agreed to take action. Says Naylor, "It's one of the most effective ways to confront corporate misdeeds."

Take Action

If you're one of the 90 million Americans who own shares in a mutual fund, you can have an impact. To find out how your fund voted on Sierra Club resolutions and learn how you can challenge it to be more socially and environmentally responsible, go to sierraclub.org/cac/shareholder.

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