The Multinational Monitor


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Tyranny of the Bottom Line:
Why Corporations Make Good People Do Bad Things
By Ralph Estes
San Francisco: Berrett-Koehler Publishers
1996, 296 pages, $27.95

TYRANNY OF THE BOTTOM LINE begins with the rarely discussed origin of corporations. Chartered by monarchs, they were formed to serve a public purpose, or at least one favored by the king. Chartered corporations initially constituted churches, municipalities and universities. Subsequent corporations were charted to explore, trade with and claim and colonize foreign lands -- all presumably in the interest of the sovereign. By the nineteenth century, corporations were increasingly chartered to undertake an array of industrial functions, including transport, banking and manufacturing.

Through the beginning of the nineteenth century, at least, the notion that corporations were a state creation, accountable to the sovereign people in a democracy, was taken seriously. U.S. states limited the duration of corporate charters, imposed full liability on corporate investors and reserved the right to amend corporate charters for any reason.

But the increasing political power of big business led to the subordination and practical elimination of the corporate duty to serve the public interest.

Today, Ralph Estes writes in his accessible and important book, "We charter our corporations through state action, and state action can only be justified in the public interest. But corporations no longer claim to serve the public interest. Their purpose has been perverted to where they now seek only profit."

The perversion of corporate purpose -- and the absence of any meaningful system to assure corporate accountability to the public -- has had devastating consequences.

Estes documents in some detail the aggregate cost in the United States of corporate crime, workplace hazards, environmental degradation, union-busting, unsafe products, manipulation of public opinion and employment discrimination.

Estes' central concern is figuring out how the public can reorient corporations to serve public ends. He approaches the matter of what constitutes public ends from a stakeholder model. To serve the public, he argues, a corporation should serve not just the profit-seeking goals of shareholders, but equally the interests and needs of consumers, employees and communities.

Estes is not naive. He does not believe that a recovery of corporations' public purpose will come from appeals to managerial good will. Indeed, the subtitle of Tyranny of the Bottom Line is "Why Corporations Make Good People Do Bad Things." Corporate executives are by and large decent people, he contends; the problem is that they serve the wrong ends.

Estes' proposal for reorienting corporations and corporate executives is to insist on an extensive reporting requirement that requires disclosure of information of relevance to consumer, worker and community stakeholders equivalent to that now required to be made available to investors. In a series of appendices, he specifies what the proposed disclosure rules would entail. He would require full disclosure on matters ranging from the risks associated with particular tools and equipment to every product liability case brought against a company, from where the corporation purchases its supplies and inputs to estimates of the number of vehicles and annual mileage driven in a locality.

The reporting requirement would ensure that corporate managers are measured by more than the profits they generate, Estes argues. When the bottom line is transferred into several bottom lines -- shareholder performance, worker performance, community performance, consumer performance -- overall corporate performance will change. Pollution prevention programs, for example, will appear as pluses in the report to the community, no longer as merely a deficit in the financial report.

Estes may overvalue the benefits of corporate disclosure. At times, he even seems to suggest that implementation of his proposal would eliminate most corporate abuses. And certainly disclosure rules would not solve the destructive dynamics of the global economy and its competitive pressure. But Estes' zeal for the disclosure concept should not blind readers to its genuine value.

Consider the case of existing federal pollution emission disclosure requirements, imposed as part of the Community Right-to-Know Act. Major manufacturing facilities in the United States must disclose the amount of hundreds of toxins they release into the environment every year. The reporting requirement certainly has not been a panacea; industry has not suddenly agreed to adopt an across-the-board pollution prevention strategy. But the simple act of disclosure shamed some corporations into a substantial reduction of emissions; and, even more importantly, disclosure of the information galvanized communities across the country to demand that local factories clean up.

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