The Corporate Reform Moment

Even George Bush now agrees that it is important to promote "corporate responsibility."

The Enron, WorldCom and related corporate scandals have created a unique opportunity to talk and think about corporate power, corporate form and the rules governing corporate behavior.

In this special issue of Multinational Monitor, we hope to help kickstart a discussion that has -- in the mass media, and on Capitol Hill, at least -- remained too confined to the financial sphere, too timid and too remote from structural proposals. In the articles and interviews in this issue, corporate accountability strategists of different stripes offer an array of diverse approaches to confront and control corporate power.

We have our own favorites, and think some strategies are more promising than others. But our interest in this issue of the magazine -- and in a second set of essays and interviews on the same set of topics which we will publish in our October issue -- is in putting serious proposals on the table for broad consideration.

One set of proposals suggests demarcating certain grounds as off-limits to corporations. Some economic activities might be proscribed altogether -- the trade in human beings, for example. Some economic transactions, services or resource management issues may be handled by non-corporate or non-market mechanisms.

In this issue, David Bollier discusses the commons -- shared assets owned and managed on non-market principles by a distinct community of users -- as an alternative to the corporate-dominated marketplace. As Bollier points out, not only do commons embody a separate set of values from the market, they are frequently more efficient than markets, whether that efficiency be measured by preservation of natural resources or development of computer software.

Patrick Bond introduces the concept of "decommodification," another approach to mark certain services as outside the sphere of the market and corporate control. The decommodification strategy, as its name suggests, is to demand that a set of services -- including provision of a minimum supply drinking water and electricity, as well as healthcare -- be provided to all citizens as a basic right, rather than be treated as a commodity available only to those who can pay. Because this demand calls for free provision of services sufficient to meet people's basic needs (or at least provision at a price affordable to all, varying by country context), it effectively precludes service delivery by for-profit, corporate operators. Like Bollier, Bond emphasizes the many ways that non-market approaches can be more efficient than corporate transactions -- in particular, for-profit water or electric corporations do not capture, and therefore do not care about, the public health benefits of providing people with adequate amounts of water and electricity (nor do they care about the public health costs of service cutoffs).

A second set of strategies draws lines around what particular corporations can do and how they can grow. These approaches are grounded in a reinvigorated anti-trust law, and competition policy. For example, mergers over a certain size could be flatly prohibited, or mergers over a certain size in a particular sector -- say, agriculture -- could be barred.

Antitrust and competition policy should also have a lot to say about structural limits on cross-sectoral involvement by a single company.

In the financial arena, it is now widely recognized that consolidation of distinct functions in single enterprises created fundamental conflicts of interest that helped spur the current scandals. Accounting firms turned a blind eye to cooked books, so they could get consulting contracts with the companies they were auditing. Financial analysts gave rosy projections on company stock, because their investment banking divisions wanted to maintain or attract contracts with the companies the analysts were evaluating. In an interview in this issue, Robert Monks explains how a similar conflict pervades pension fund management, to the detriment of pension fund beneficiaries. All of these conflicts could simply be outlawed, by proscriptions on companies doing business in both auditing and consulting, stock brokering and investment banking, pension fund management and conflicting financial businesses, and so on.

Structural divisions between businesses need not, and should not, be confined to the financial sphere. To mention just a couple possibilities: In an initiative to address the growing power of agribusiness, farmers in the United States are urging that meat packers be barred from owning cattle. To preserve small and local business, large retailers could be banned from a jurisdiction on the basis of size.

A third group of approaches seek to hold the corporation accountable to an expanded set of "stakeholders," or to redefine the corporation's mission. In this issue, Robert Hinkley proposes a Code for Corporate Citizenship that would prohibit companies from taking actions that harm a range of stakeholders, including employees, consumers and communities. Others have proposed giving stakeholders certain powers over or within corporations, such as a position on the board of directors.

In an interview in this issue, Robert Monks offers a somewhat different perspective. He proposes that shareholders can re-orient the corporation to more socially responsible behavior, if the broad class of owners assert control of corporations and manage them for long-term gain.

A distinct, and fourth collection of corporate reform ideas suggests the importance of promoting new forms of corporate ownership, particularly emphasizing worker control. In an interview in this issue, Marjorie Kelly suggests several approaches toward this end. Emphasizing that shareholders only make a one-time contribution of capital to a company but in exchange receive perpetual control, Kelly raises the idea of diluting shareholder control progressively over time. She suggests, as one possibility, lodging residual control in employees. Another alternative, which Kelly does not suggest, is that a for-profit corporation could morph over time into a non-profit enterprise -- a reversal of the current trend to convert not-for-profit and mutual insurance companies (such as Blue Cross) to for-profit status.

A fifth approach revolves around mandated disclosure regarding corporate activities. In this issue, Ralph Estes elaborates the potential of the disclosure approach, and his amplified Sunshine Standards for corporate disclosure suggest the range of disclosures that could be required. The U.S. experience with pollution reporting has demonstrated the power of disclosure: mandated disclosures, without any additional regulatory requirements, have led to dramatic reductions in an array of pollutants. On the one hand, the disclosures themselves simply shamed the companies. On the other hand, the now-public information empowered communities to campaign effectively against corporate polluters.

A sixth set of reforms might involve affirmative mandates on corporations to perform certain tasks. In the United States, the Community Reinvestment Act (CRA) and related statutes are the most notable example of this kind of corporate obligation. CRA requires banks to make loans in minority and lower-income communities in which they do business. Utilities in the United States have certain obligations to provide service to low-income persons. Proposals have been floated to require banks to provide no-charge "lifeline" accounts to low-income persons who cannot afford the banks' minimum balance requirements. Pharmaceutical and other firms could be mandated to invest a certain portion of their income in new research and development. Most of these types of proposals are, by necessity, sector specific, but they can powerfully direct corporate activities.

A seventh category of reform involves limiting the rights or permissible behaviors of corporations. This approach encompasses a wide variety of possibilities, from stripping away corporations' constitutional rights in the United States and many other national systems, to adopting codes of conduct prohibiting certain kinds of activities. In an interview in this issue, Judith Richter discusses some of the international experience with codes of conduct, noting what has historically succeeded, and what has failed. She concludes that codes, if they are to be meaningful, must be binding.

Another approach is to focus on sanctions for corporate misconduct. What is clear is that current penalties are not sufficient, either to serve punitive or deterrent purposes. Consider the Names in the News item in this issue, where a Georgia-Pacific subsidiary cited for workplace hazards that led to the deaths of two workers was fined a mere $91,000. In this issue, Seth Morris discusses one of the most promising means to promote corporate compliance with the law -- denial of government contracts to repeat lawbreakers -- as well as the enforcement problems that have prevented effective deployment of this tool. Other important sanctions proposals meriting consideration include establishing private citizen rights to enforce regulations and collect fines from corporate lawbreakers, equity fines (with fines paid in stock rather than cash, making possible much larger payments, and directly impacting shareholders) and receivership, with crooked corporations placed under intensive and prolonged government or judicial oversight and control.

This is only a partial taxonomy. There are countless other issues related to corporate involvement in politics and culture, capital mobility, and international trade and investment rules. Especially important is the establishment and strengthening of countervailing institutions -- of which trade unions are the most important -- but that is a topic beyond the scope of this issue of Multinational Monitor.

The present challenge for those concerned about corporate power is two-fold: to push for reforms -- at all levels -- that can be won in the short- and medium-term; and to promote discussion and debate on more fundamental reforms that may only be achievable in the long run. While there are of course good and bad ideas, this is not the time to reflexively shunt aside proposals either for "not going far enough," or for being "unrealistic." We need to work to achieve the most that can be accomplished now, while also creating a climate in which more far-reaching reforms can be attained.