It bothers me no end to
hear Bernie Sanders, Elizabeth Warren, Tom Steyer, AOC and other Democrats
castigating corporations as "blood-suckers", "criminals",
"corrupt", and "greedy". These are the same people who rail
against the legal fiction that corporations are persons yet they attack
corporations as if persons -- personal misbehavior, personal crime,
personal sins. Amoral? Sure, corporations are amoral because corporations
are not persons, neither moral nor immoral; neither ethical nor unethical.
Corporate ethics is an oxymoron.
In my adulthood (some of
my friends challenge that), I have worked for four employers: three large
corporations and myself. The corporations -- General Mills, Marriott, and
Westin Hotels -- were and are not criminals, not bloodsuckers, not corrupt.
They are enterprises that unabashedly pursue self-interest as they define it,
taking advantage of every law and loophole they can. They protect their
self-interest with lobbying and lawyering. But that does not make them
criminal; they are, in a sense, law-abiding.
Yes, they were/are often
misguided in their definition of interest and priorities, their values and
goals sometimes warped by the personal interests of management vis-a-vis
customers, employees, community, and shareholders. It is not corporations
but the rules under which they play on which we need to focus. Change the
rules and you will change their behavior.
To reform corporate
behavior and our economy, focus on six subjects and set up the rules and
regulations to achieve our goals:
1. Clarify Corporations’
Rights and Responsibilities
Strategy: deny to corporations the rights of
"personhood." This is especially important in First Amendment matters. Corporate
officers, in person, as individuals, enjoy all the rights specified in the Bill
of Rights. But corporations have long outgrown the pattern of the 17thC
when English Common Law protected them, most of which were not-for-profit
churches and colleges, and granted them, as if private persons, the protection
of privacy from government takings. From that grew the illogical
extension to all private persons' rights to all corporations -- for-profit or
whatever. Congress needs to spell out what corporations are in the eyes of law,
what accountabilities we demand and what protections we accord them. (Not a
Constitutional Convention, that would be dangerously open-ended; do it by Act
of Congress.) Citizens United cannot be overturned until the status of
corporations is defined by Congress.
2. Broaden Charters and
Constituent Representation
Strategy: give voice to multiple constituents and build
representation of them into corporate mission and governance structure. At least four constituents are
common to every corporation: customers, owners, non-executive employees and
community. A corporate mission statement should reflect accountability to
these four and to whatever other is appropriate to the company. At least
one representative of these four constituent groups belong on the Board and on
the Corporate Executive Committee. In the case of "owner",
distinction should be made between investor persons and impersonal funds driven
by algorithms; investor persons are what is needed for input to corporate
directors and officers. An Act of Congress should mandate such structure
in every State Corporate Charter under the Commerce Clause of the
Constitution?
3. Constrain Political
Influence
Strategy: make political lobbying costly. To explain corporate interests to
lawmakers is important, but today when lobbyists overwhelm lawmakers in sheer
numbers and have better access to lawmakers in capitals than do constituents,
some constraints need to be imposed. Suggestion: remove lobbying from
deductible business expenses, making the expense of offices and lobbyists,
whether employee or contractor or consultant, a non-deductible, after-tax
expense taken out of retained earnings and earnings per share.
4. Deter Concentration and
Congregate Mergers
Strategy: renew and invigorate anti-trust enforcement. Anti-trust enforcement has been
lax since the Ford Administration. A meme has taken hold: so long as
consumer prices are lowered, or not raised, competitors can merge with or
acquire competitors no matter how large the resultant corporation becomes. Few
players in a game are an oligopoly. I was at General Mills when the FTC
attempted to find the cereal industry an oligopoly not in the public interest.
I and many of my associates thought they were right: pricing in concert did not
need illegal collusion. One or another of the big three, Kellogg, GMI,
and Post, could announce a price increase confident, from history and
experience, that the others would follow. In industry after industry, the
number of players is reduced and the cost of entry for new competitors
increased. Conglomeration yields leverage on distributors and suppliers.
Witness Disney allowed to acquire Marvel, Pixar, The Muppets, 20th Century Fox
and others. In social media, witness Facebook's acquisition of Instagram,
What's App and 50 others. In the airline industry, a boiling down through
gobbling up competitors to five national competitors.
A second meme is that congregate mergers, i.e., horizontal mergers
into a new industry, are OK because they do not increase market share in a
given market. The idea is that size
alone is not a problem. Wrong: with size comes barriers to entry, concentration
of systems and research that provides each division an advantage in its
industry, leverage that can change an industry in ways that harm the economy
even while bringing lower prices. Witness how Amazon and Walmart have
brought benefits of price and accessibility while creating problems in labor,
environmental impacts, and community values. Behemoths need to be
examined on multiple metrics, not just on efficiency.
5. Deny Tax Havens
Strategy: collect tax revenues where a corporation truly makes its
profits. Corporations
take full advantage of the opportunities to lower their taxes -- as they
should. But false realities are created. Is Carnival really a Panamanian
company when its physical headquarters are in Florida; its officers and owners
US Citizens who work and live in the US, its board of Directors dominated by US
Citizens, whose administrative employees are Americans, and whose customers of
their various cruise lines are predominately Americans? Why do we tolerate Carnival
paying its corporate taxes to Panama instead of to the US? Transfer
pricing is another way to create a false reality. Transfer a component at
cost to a subsidiary operating in a low-tax country, like Luxembourg or
Ireland, which then adds a large margin, books the profit and pays the tax
there rather than here. Transfer prices rightfully should include value
added by labor and capital at its source with a profit margin included. How
best to mandate this? Congressional action re accounting rules and IRS
regulation is required.
6. Break Up Hoards of Cash
Strategy: make dividends deductible and tax recipients at ordinary
income rates. Cash
is useful only when in motion. During WWII, the US imposed "excess
profits" taxes on corporations to get them to share war profits with
shareholders and labor. Today, trillions are locked away in corporate
treasuries. A structural change is needed to unlock those treasuries and get
that money moving -- as dividends, wage and hourly raises, investments in new
businesses and so on. Hand-in-hand with anti-trust constraints on mergers and
acquisitions, corporations could be encouraged to take on risk of
researching and investing in new ideas and opportunities. Sitting on cash
helps neither owners nor employees, and dulls creativity. A hoard of cash
reflects a scarcity of imagination. How to encourage movement of
that money? Make dividends a deductible business outlay just as is
employee compensation, thus reducing a corporation's taxable income. Dividends
are in a sense double-taxed, first as part of taxable corporate profits, from
which they are paid; second, as income of their recipients. Stop the first by
considering dividends a deductible business expense and continue to tax
recipients of dividends as if earned income. Even more radical might be
mandating a ceiling on cash as a percent of capital assets. (Earnings on
capital and earnings on one's labor ought to be taxed alike, but that's a
different story than reforming our corporations.)
I have now amply demonstrated
that I am neither lawyer nor accountant. But I do know corporations and how they adapt to
their environments. Change the laws, tax rules, and regulations that
describe the playing field and you will create responsible corporations
overnight.
