Of late, this blog has been looking at the role corporations
play as entities within a federal arrangement.
Yes, corporations, especially those that are listed as public, do take
on a federal structure. That is, they
are owned by a group of investors who buy shares in that corporation. While not every shareholder in relation to
that corporation is equal, each share is and within certain regulations,[1] each
person is free to buy as many shares as he/she wants and can afford to buy;
only limited by the number of shares issued by the corporation.
But as
entities, corporations, due to their ability to accumulate inordinate amounts
of capital – investment dollars – and other assets, they can command relatively
high levels of influence within a nation’s political landscape. One can argue that that is what constitutes
what people generally mean by the political swamp characterizing the nation’s –
and the individual state’s – capital.
There, the competing players go after zero-sum prizes. That’s what happens when one lives in an
environment with limited resources; i.e., this type of arena is ubiquitous.
The last three
postings look at the natural result of such a situation. They address the question: what, if any, are the responsibilities of
corporations in a federated environment – such as that of the US? The last posting left the reader with
somewhat of a question. In running a
business, one dependent on shareholder investments, should that business be
about doing – and spending to do – socially beneficial activities at the
expense of shareholder dividends? There
is a debate over this question.
The firm
natural rights view is that they should not.
Shareholders are well able to make up their own minds as to what
socially beneficial efforts they want to support. They do not need corporations to make such
contributions in their names. On the
other hand, defending the position that corporations should make such
contributions are those that argue that by doing so, they bolster the image of
a corporation and, in turn, up their esteem in the eyes of their consumers –
their buyers – and that translates in higher sales, higher revenues, and higher
profits.
But in a way,
this question steers the debate away from what this blog is really asking. However, regardless of how one feels about corporations
making contributions for public, social efforts, the real question posed here
is: should the interests of a
corporation go contrary to the interests of the general or the common
good? And that decision can affect any
public spending a corporation does.
For example, a
drug company that knowingly promotes an addictive drug – say an opioid – that
results in scores of people addicted and dysfunctional – no amount of charity
giving – probably done to offset negative publicity their business decisions
cause – will change their anti-federal standing. In such a case, that corporation is generally
placing self-interest above the common interest.
To be a proper
federated partner, in other words, an entity – be it a corporation, a person,
or some other body of actors – needs to, at least, not align its interests as
being contrary or antagonistic to the general welfare of the commonwealth. And within this context, what the American
Bar Association (ABA) deems is a fiduciary duty, the obligation of corporate
management and board of directors have toward shareholders as being atop all
others, is anti-federal.
Take the drug
companies that made billions of dollars producing, promoting, distributing, and
selling opioids to pain-suffering patients.
The decisions that led to such a policy and allowed such behavior was in
the financial interests of their shareholders; but was it a way for a federated
partner to act? One can say, yes, it is,
as long as the corporation obeys the law.
Really? If the goal is to protect
the commonwealth, such an expectation falls woefully short.
To date, there
have not been any prosecutorial action against these companies. Apparently, they did not break any laws. But one might add, they are subject to civil
or negligent tort action. In that realm
there has been highly publicized court action that is proving to be highly
expensive to, at least, some of these companies. The highly esteemed company, Johnson and
Johnson, was just hit with a court directed award against it for nearly $600
million in just one state, Oklahoma.[2]
A day or two
later, after the Johnson and Johnson decision was announced, another drug
company heavily involved in the opioid drug market, Purdue Pharma, offered to
settle all its pending legal liabilities for $10 to $12 billion dollars.[3] In both instances, one can say, “all well and
good,” but at what cost to the federation?
These parties did not come to these reckonings till untold damage had
befallen whole regions of the country – particularly the Appalachian region, – the
deaths of hundreds of thousands of people, and the ruination of millions of
lives.
This fiduciary
view can be explained by what ABA states it is:
[T]hat as fiduciaries, corporate
directors owe the corporation and its shareholders fiduciary duties of
diligence and fidelity in performing their corporate duties. These fiduciary obligations include the duty
of care and the duty of loyalty … the duty of care consists of an obligation to
act on an informed basis; the duty of loyalty requires the board and its
directors to maintain, in good faith, the corporation’s and shareholders’ best
interests over anyone else’s interests.[4]
To these untrained eyes – at least, in terms of legal
language – this sounds fuzzy and subject to wide interpretations. But this writer cannot see why the above
statement could not, at least, add “within the parameters of criminal law” and
“under the auspices of what reasonably can be construed to be the common good
of the communities in which they operate as well as the states and nation.”
But for the
development of this main concept, some legal scholars fall back to what one
sees in tort law, a concern for the “slippery slope.” That is, according to Steven Bainbridge, for
example, if corporate leadership were free to spend money on or otherwise
support non-profit-maximizing activities, how does one impose any
accountability in relation to those activities.
Bainbridge cites eBay Domestic Holdings, Inc. v. Newmark (2010)[5] decision
to back up this concern, although this case has a mixed precedent.
But this
position is opposed by others. One such
criticism is offered by Lynn Stout.
Citing the Hobby Lobby case (mentioned in a previous posting[6]), she
argues that that previous case allows one to consider what generally can be
described as ethical rules, policies that do not damage the environment, and that
do not harm employees, etc. And that
should include not doing medical harm to patients rending them dysfunctional in
meeting federalist obligations.
There seems to
be oscillating opinions from the courts.
This blog chooses to describe that oscillation as between a natural
rights position and a federal position.
In a time when natural rights view holds the upper hand, in terms of
cultural beliefs and political biases, one can expect that that bias would more
often be reflected in court decisions.
This blog hopes the oscillation
shifts and remains with a federalist bias.
Its whole train of argument points in that direction. It does not see this argument as one of
indoctrination to a foreign mode of thinking, but to reestablishing its
original view – albeit updated – to better maintain and bolster the assumed
beliefs of its founding agreement – i.e., the US Constitution. And that, at its core, is to maintain and
bolster a federated union.
[1] Generally, corporations determine the number of
shares its policymakers decide to make available.
[2] Katie Thomas and Tiffany Hsu, “Johnson and Johnson’s
Brand Falters over Its Role in Opioid Crisis,” The New York Times,
August 7, 2019, accessed August 29, 2019, https://www.nytimes.com/2019/08/27/health/johnson-and-johnson-opioids-oklahoma.html
.
[3] Laura Strickler, “Purdue Pharma Offers to Settle
Opioid Claims for $10 to $12 Billion,” CNBC, August 12, 2019, accessed
August 29, 2019, https://www.cnbc.com/2019/08/27/purdue-pharma-offers-10-12-billion-to-settle-opioid-claims.html
.
[4] “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/ . Most of the information
of this posting is derived from this source.
[5] This convoluted and complex case does demonstrate how
difficult corporate life can get when mixing profit motives with cultural ambitions. eBay filed suit against craigslist for eBay’s
attempt to steer that corporation away from its pro-social culture the founders
of craigslist initiated. Through various
structural maneuvers, craigslist attempted to maintain its original corporate
culture, but at the expense of its shareholder’s, eBay, financial returns. Therefore, eBay sued based on the fiduciary
duty craigslist had in relation to eBay.
eBay won on two of its claims and lost on another (the one relating to
its legal fees). This case, in sum, was
decided to bolster the pro-fiduciary duty role directors and board members are
expected to maintain.
[6] Robert Gutierrez, “Corporations As Good Citizens,”
August 20, 2019, https://gravitascivics.blogspot.com/2019/08/corporations-as-good-citizens.html
AND “Business Ethics: Corporate Law and
Corporate Responsibility,” BC Campus.
