Legal Approaches

LEGAL APPROACHES

By Roland Watson

The call for government oversight of corporations in the last article raises a deeper question: should we go so far as to encourage the government to implement changes to a corporation's charter, to its limited liability? Said another way, the first means by which the government can improve its regulation of corporate behavior is through making changes to such legal structure.

A corporation's legal foundation is actually quite complex, and there are many possible avenues by which it can be approached and reformed. Foremost of these is that companies must not be allowed to go transnational. In the country in which they have their home registration, they must be held accountable for unethical behavior in any other country. But, if they choose a country for a base that has a weak legal system, they must be held accountable in any nation that is linked to or affected by such unethical behavior. (Such a choice for a base is akin to ships flying a flag of convenience, and of investment funds being registered in small island states.) In addition, such companies, and their executives, must be judged according to developing international standards of justice, such as for human rights violations, both in nascent international courts and also in such domestic courts.

Other approaches to corporate legal reform, as discussed in the article, Define One Corporation, Define 'Em All, Jane Ann Morris, Earth First! Journal, March-April 1998, pages 3,26, include the following:

- "Prohibit corporations from owning stock in other corporations." (Cut the legal ties that underlie the old boy network.)

- "Prohibit corporations from being able to choose when to go out of business." (Eliminate the possibility of dissolution before all liabilities are fulfilled.)

- "Make stockholders liable for a corporation's debts." (Eliminate the distinction of stock and debt; allow only one ownership vehicle.)

Interestingly, "these provisions were once common features of state corporate codes." They were also "quite effective, which is why corporate lawyers worked so hard to get rid of them."

Another legal approach is to restrict a corporation's participation in the democratic process, and also its freedom of speech. They are not, or they should not be, "persons," hence they should not have full constitutional rights, particularly First Amendment rights. Indeed, their most frequent use of the latter is to abuse us, to abuse real persons, hence it should be circumscribed.

Prior to a judicial decision in 1886, corporations were not persons. Furthermore,

- they were not immortal: they were incorporated for a limited duration.

- they did not have limited liability: shareholders were responsible for all of their actions and consequences.

- they were required to provide a list of the specific reasons why they were being formed.

- they were not allowed to make political contributions.

- they were not allowed to own other corporations.

Like similar judgments validating slavery, this decision needs to be reversed. However, such a change will face great resistance, hence it should not be our only approach. Also, we have picked capitalism over communism. We do want to allow for wealth creation, hence some limits on investor liability - at least initially - must be maintained. (Individual investors should not be bankrupted by the behavior of a company in which they have only a small holding.)

On the other hand, it is worth noting that many people reject capitalism as well. They recognize that all extant social structures - capitalism, socialism, communism and theocracy - are based on large institutions, and hence involve inequality and dictatorship. The only real solution, then, is to eliminate all such structures. Regarding economic institutions - producers/employers - we need to reduce their size and scope, and also ensure that they can be held fully accountable.

Since this will require a complete reshaping of our social fabric, it is effectively a long-term goal.