CORPORATIONS AS GOOD CITIZENS

If the US is a federated union, shouldn’t its entities – its individuals, organizations, associations, corporations – be arranged and directed to further the common good?  According to Danial J. Elazar,[1] federalism has its processes and those, in turn, call on behaviors and protocols that place the common good above private or individual interests. 

Yes, entities can pursue private or individual ambitions; unlike socialism, federalism identifies individual or private motivations as essential to economic growth, but those interests should, at least, not be antagonistic to the common welfare.  Belief in this view, a view that offers an ideal, was the dominant view among Americans in terms of governance and politics up till World War II.  Since then, another view has taken dominance.  That is the natural rights construct.  This blog has repeatedly made and has described this dynamic.  It has offered evidence to its veracity.  This posting offers some more.

          Before sharing that evidence, a point needs to be made:  such a change – from federalism to natural rights – does not happen overnight.  It usually, at least, takes decades.  Past postings have listed historical developments during US history that have led to this shift in American thinking and feeling. 

Some of those developments include the Western expansion, the corporatism of government structures and processes, and modern technology like TV and the computer.  Generally, those series of events have shifted government viability away from local governance and have heightened individualism, leading to harmful effects on federalist perspectives, structures, and plausibility. 

Also, the rightful rejection among many Americans to earlier biases of federalism, under its more parochial / traditional form, has proven to be harmful to any form of federalist sensibilities.  This latter shift, it has been argued in this blog, was needed to purify American federalism away from unjustly depriving all Americans, such as African Americans or a recently arrived immigrant group, from full membership in the nation’s federation.  Such policies diluted or stifled senses of partnership among citizens that is central to federalism.

But to give parochial / traditional federalism its due, it did introduce the basic concept of a nation being formed by an agreement – a compact.  That agreement was formed by its peoples’ representatives – the peoples of the various states – coming together and ironing out the US Constitution.  That compact identified important goals in its preamble and those who signed it, in the nation’s name, committed the nation to achieving those goals.  Essentially, that format, that process, and those goals were set to form a republican arrangement – a grand partnership.

The claim here is that by so doing, the extension of that partnership to include the deprived or cheated populations was baked into the formula of such an agreement. Yes, it called for sacrifice, like a bloody civil war, but the march was initiated and continues till today.  The old adage comes to mind:  “two steps forward, one step back,” but always towards inclusion.

And with that context, this posting wishes to describe one of those developments that steered Americans away from this ideal view of the nation:  away from partnership and toward radical individualism – but then, from time to time, reels it back.  This forth and back is seldom balanced.  Instead, it is often awkward, aggravating, and even disheartening.  But as one looks back, Americans can see real, meaningful progress.

This blog has hinted at this development.  Earlier on, in describing how American tort law shifted in the nineteenth century away from strict liability toward negligent liability, the courts, in opinion of some legal scholars, pushed the nation to an individualist perspective to protect the interests of corporations.  Probably the business interests most affected was the railroads.[2] 

Under strict liability, every time a train ran into someone or its engines, due to some spark, caused a fire or some movement of a train car caused an injury, strict liability set up the railroad companies to be subject to costly suits.  Relying on negligence as a necessary pre-condition for a railroad to be held liable, saved those companies millions of 1800s dollars.  Hence, negligent liability became the standard to protect those business interests.

But that shift did not end in the nineteenth century.  There have been certain court decisions in the twentieth and twenty-first centuries that continued this trend.  As a matter fact, those more recent decisions have addressed more directly what are the responsibilities of corporations to uphold the common good.  Identified as corporate ethics, this has become a scholarly subject of interest and various analyses have investigated what exactly are the responsibilities of corporations and to whom are they owed.

When one looks at specific related factors, this question becomes complex.  One can find in one case a party supporting corporate heads being given leeway as to their funding decisions – decisions that does not place shareholders’ profits as prominent – and those same parties feeling with another set of factors, that they should not have leeway.  Three cases provide varied factors that demonstrate these inconsistencies.  The cases are Dodge v. Ford Motor Company (1919), Shlensky v. Wrigley (1968), and Burwell v. Hobby Lobby (2014).[3]

This posting limits its presentation to providing the basic facts of each of these cases.  The next posting will review the significance of each in determining how much a corporation can veer away from bolstering shareholder profits in its management decisions.  Running through these cases are two concerns:  corporate social responsibility and business judgement rule.  The reader is encouraged to think of these cases and see if he/she can “predict” how and why the courts decided each.

Most people have heard the story in their American history classes of how the founder of the Ford Motor Company, Henry Ford, favored providing good salaries to his company’s workers so that they could turn around and buy Ford cars – or so the story goes.  Apparently, Ford did have a concern not only for his employees’ wages, but for other social activities that would benefit the public as well as the workers at his plants. 

To fund those activities, he decided to purposely use the company’s revenues toward those more socially defined goals.  In turn, those funds were diverted from dividend payments that would have gone to shareholders.  Some of the expenditures did go to improving production facilities, improving the quality of Ford vehicles, and for expanding production facilities.  This last factor exemplifies how some of the issues involved can be quite complex; are some of these expenditures just those involved with running automobile plants? 

In any event, the shareholders sued the company.  Through their court action, they sought higher dividends; that is, that profits should be the prominent concern of a corporation especially when compared to socially defined expenditures to improve society.  But also, such a priority should be maintained when management compares the interests of shareholders against those of workers.

Another factor is that Mr. Ford’s decisions on these expenditures was very uncommon; most corporations in the early twentieth century would routinely attempt to raise dividends – or at least be able to report higher profits – to attract more investment that was essential for expansion.  One should remember, this case sprang up during the nation’s industrialization period when a lot of investment was being made.

To top off their argument, the shareholders claimed in court that what Ford was doing in expending revenues on worker pay and other “social expenditures” were not proper and were illegal.  In their decision, the court not only set a precedent concerning shareholders’ rights, but also made an influential decision concerning how a corporation should be run vis-à-vis the freedom management should have in making business decisions.

In the Wrigley case, the question before the court looked at this sense of responsibility from a different angle.  The Wrigley Company (of gum fame) owned the Chicago Cubs baseball team and the stadium in which the team played its home games.  By the late sixties, every major league team and just about every field upon which baseball was played had lights so that teams could play at night.  But that did not include Wrigley Field – the home of the Cubs.

A group of shareholders wanted the team to start hosting night games to enjoy anticipated, increased revenues.  Of course, that called for appropriate lights and their mounting structures to be installed at Wrigley Field.  But ownership, responding to the wishes of the surrounding neighborhoods and their fears lights would lead to noisy nights and increased crimes, refused to install the lights.  The question is:  should the courts, in effect, necessitate the instillation of those lights?

And the final case reviewed here is Burwell v. Hobby Lobby.  In that case, the owners of the retail chain – a relatively small group of businesspeople – wanted to abide by their religious beliefs and refused to provide that portion of the Affordable Care Act that covered various types of contraception.  Women workers sued the company for this coverage as the act provided.

The next posting will share with the readers how each of these cases was decided and how their precedents affected corporate responsibilities regarding societal welfare.  But one lesson one can draw just from the information already given is that not everyone defines societal welfare in the same way. 

Ford saw it in its more commonsensical way – society seeking improvements to the secularly defined benefits of selected or identified individuals or constituents.  Wrigley defined it in terms of being a good neighbor.  And Hobby Lobby used religious beliefs – and those religions’ definitions of morality and ethics.  With a little bit of imagination one can visualize other bases for defining what’s good for society. 

For one thing, when this question occurs to most people, one assumes that question revolves on how some civic group believes a corporation can and should be a better “citizen,” but in each of these cases, it is management that is attempting to serve its view of the common good.  But federation theory – in its liberated form – does provide a nuanced but directed sense of what societal welfare means.

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[1] Daniel J. Elazar, Exploring Federalism (Tuscaloosa, AL:  The University of Alabama Press, 1987).

[2] Edward K. Cheng, “Torts,” Law School for Everyone – a transcript book (Chantilly, VA:  The Teaching Company/The Great Courses, 2017) AND Robert Gutierrez, “Saving Huge Costs?”, Gravitas:  A Voice for Civics, September 21, 2018, accessed August 19, 2019, https://gravitascivics.blogspot.com/2018/09/saving-huge-costs.html .

[3] “Business Ethics:  Corporate Law and Corporate Responsibility,” BC Campus, n. d., accessed August 19, 2019, https://opentextbc.ca/businessethicsopenstax/chapter/corporate-law-and-corporate-responsibility/ .