Corpo

WHAT IS A CORPORATION?

Adapted from “How Corporate Law Inhibits Social Responsibility” by Robert Hinkley, Jan./Feb. 2002 www.business-ethics.com

If you pick up a dictionary or encyclopedia, a corporation is a “specific legal form of organization of persons and material resources, chartered by the state, for the purpose of conducting business.” The corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation–usually a board of directors–and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, for example, this duty of directors is in Section 716 of the business corporation act, which reads: the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders. Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. Distilled to its essence, the provision says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders. Section 716 dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder selfinterest). No mention is made of responsibility to the public interest. Section 716 and its counterparts explain two things. First, they explain why corporations find social issues like human rights irrelevant—because they fall outside the corporation’s legal mandate. Second, these provisions explain why executives behave differently than they might as individual citizens, because the law says their only obligation in business is to make money. This design has the unfortunate side effect of largely eliminating personal responsibility....