A Fault in Our System &Public Perception

SOC/ECO 935Bryan Carlson

October 16th 20014

Observations

• Corporate reform is unattainable at this time due fundamentally to our globalized capitalistic system.• The public’s perception of corporations is skewed to alleviate the

blame from all parties equally involved to those of the highest profile.• The CEO plays a role in income inequality but not as big of one in

the rampant growth machine that is corporate capitalism.; they are limited by the board and their stockholders.• Local governments can do very little to reform without a change in

the current world system and the mindset of the public consumer.• Maybe a public hostile takeover movement could bring about

change.

Creation of Artificial Entities: World’s 1st Multinational

• The Dutch East India Trading Company 1602-1799• March 20th 1602: Acquired the Dutch monopoly on all trade in

Asian waters(1), basically controlling the world through the trading of commodities (spices, textiles, metals & opium).

• Created the worlds first stock exchange in 1602.

• Spread its reach through war and conquest.

Creation of Artificial Entities: First Stage of Corporate America

• The early corporations of America were meant to be to devoted to public service.• These companies included such public services as

canal, transportation and insurance companies. • Were given monopolistic power by the government in

order to perform their chartered function.

Creation of Artificial Entities: Corporations Gaining Power

• “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.” • Chief Justice John Marshall, Dartmouth College v.

Woodward 1819(2)• “A corporation can have no legal existence out of the

boundaries of the sovereignty by which it is created. It exists only in contemplation of law and by force of the law. ... It is indeed a mere artificial being.” • Chief Justice Roger Taney, Bank of Augusta v. Earle

1839(2)

Creation of Artificial Entities:Paving the Way

• 1886 Santa Clara v. Southern Pacific Railroad: Corporate lawyers used the 14th amendment which was passed to protect freed slaves. Corporations were granted equal-protection and due-process rights when necessary to protect the property interests of the human persons who constituted their shareholders (2).• 1978 First National Bank of Boston v. Bellotti: Corporations were

granted free speech rights under the 1st amendment to spend monies to influence politics. • Used in Citizens United v. Federal Election Commission 2010 to further

and reinforce these free speech rights (3).

• Burwell v. Hobby Lobby: Corporations now have religious rights

Re-Introduction of Multinationals in Today’s Capitalistic Society

• During this period of courtroom battles and lobbying the American corporation had shifted from for the stakeholders to the stockholders.• Corporate charters now mandate that their pursuits be

for profit rather than public welfare.• “…[T]he nature of capitalism [went] from classical to

‘managerial’ – and of markets – from rural, agrarian and commercial to industrial and urban. (4)• Multinationals began to reemerge in popularity during

the Industrial Revolution and dominated the globalized marketplace after the World Wars.

American Multinationals: History Repeats Itself

• A quote from a Noam Chomsky speech in 1970 :

• “These multinational corporations are the beneficiary of the mobilization of resources by the federal government and its worldwide operations and markets are backed ultimately by American military force, now based in dozens of countries. It is not difficult to guess who will reap the benefits from the integrated world economy, which is the domain of operation of these American based international economic institutions.” (5)

Multinationals In The NewGlobalized Economy

1. Mercantilism is no longer our governing economic theory. Profit for the individual is now the major driving force of the corporation. Allegiance is held only to the stockholder.

2. Globalization has brought about an interconnectedness between corporations and GDP growth. It is no longer about conquest of land but of capital both human and monetary.

3. Technological innovation has brought about the information age but the consumer has no way to ascertain how a corporation functions and who ultimately controls its decision making.

Assumptions About Corporations

• CEOs and executive officers run corporations based on their own bottom line (annual income) and not by profit maximization for the stockholders.• Inequality is perpetuated by the Wall St. short-term

profit mentality, we should put all the blame on the executive officers and Wall Street.• The government either does not do enough or is in

collusion with the wealthy.• We as consumers cannot promote a change

The CEO

• The Capitalism Papers brings up the point of the natural human emotion of the CEO vs. their limitations based upon their job description. • In the U.S., 47% of the general population identifies CEOs as among

the most powerful people in society, but only 9% view them as among the most respected. Marsteller Corporate Perception Indicator (15)• The CEO is the highest position attainable within the corporate

organization but yet they are a sort of middleman between their organization and the board of directors.• No matter the intentions of the CEO they are at the mercy of the

stockholders. The most relative and current example would be the ousting of Arthur T. Demoulas.

The Board Of Directors

• A group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation. Every public company must have a board of directors. (7)• An independent board is a corporate board that has a

majority of outside directors who are not affiliated with the top executives of the firm and have minimal or no business dealings with the company to avoid potential conflicts of interests. (8)

XOM: Exxon Mobil Board and Holders

The Stockholders

• On its inception the market was used to acquire capital by a company to expand their business by selling shares. The Dutch used this model to buy more boats, men and supplies for trade.• Speculation began not long after, short-selling was invented in

1609 and was promptly banned for some time.• Now the world of finance is filled with derivatives, quants,

black-box trading and illegal practices. High frequency trading done by computers accounts for over 50% of trades taking place a day. (6)• The need for short-term gains has dehumanized manyinvestors.

The example given in The Corporation on the 9/11 is just one of many examples.

The Public

• We have been lulled into being complacent and inert, the perfect consumer.• People will complain on social media but will not take the next

step for change• Individual investors will invest on a whim or without due

diligence and proxy their votes.• If something does not directly affect the individual or their

surrounds they have little incentive to strive for change.

Ultimately the public, the consumer, supports this system with their wallet and lack of action towards change.

Government

• The current world system would cease to function without this current infrastructure.• Our economy relies on cheap inputs, profitable outputs

and short-term planning. • Governments may have dismantled monopolies, enacted

laws and closed loopholes to regulate corporations but it is only if it will not harm our GDP. • For our corporations to maximize profit they must have an

innovative product or be a quasi-monopoly. Governments intervene not to help society but to keep the market from being perfectly competitive. (11)

Share the Blame

• The fundamental problem is our capitalistic society. If the corporations are the machines that run this system then we are all the cogs that keep it functioning. Not just the government, executives, and stockholders. • We all have our faults that collectively make reformation not viable to

benefit society as a whole.• Corporations today are the epitome of today’s capitalistic society.

They are profit driven by the greed of the stockholder and the consumer holds little qualms about the underlying costs. • Historically these systems have oppressed since mercantilism, the

problem is consumers still have not realized their power. • Our need to quantify everything has detached the social and

historical aspect from our social science models and practices.

Why B-Corps Will Stay a Minority

• Benefit “B” Corp certification is a new movement whose goal is to redefine what it means to be a successful business. The B Corporation law [] allows businesses to pursue a “triple-bottom line”: profits and environmental and social benefits. (12) • On July 17, 2013, Delaware became the 19th state (plus D.C.)

to enact benefit corporation legislation, but as home to most venture-backed businesses, 50% of all publicly-traded companies, and 64% of the Fortune 500, it is the most important state for businesses that seek access to venture capital, private equity, and public capital markets. The path is now clear to scale business as a force for good. (13)

Public Hostile Takeover

• The public takes a page from activist investors and uses their votes to force change. • Proxy Fight: When a group of shareholders are

persuaded to join forces and gather enough shareholder proxies to win a corporate vote. This is referred to also as a proxy battle. (14)• Public operated activist investors fund could bring

personal financial control back to the people, force reformation of corporate policies, and stimulate the economy by allocating large corporate cash reserves back into the market.

Thank You For Your TimeEco/Soc 935

October 16th, 2014

Bryan Carlson

Resources

(1) http://entoen.nu/voc/en

(2) http://www.slate.com/articles/news_and_politics/jurisprudence/2014/03/hobby_lobby_and_corporate_personhood_here_s_the_real_history_of_corporate.html

(3) http://www.thenation.com/article/169915/citizens-united-and-corporate-court

(4) Davis, Gerald F., and Christopher Marquis. "The Globalization of Stock Markets and Convergence in Corporate Governance." THE ECONOMIC SOCIOLOGY OF CAPITALISM. N.p.: Princeton UP, 2005. 352-90. Print.

(5) http://tangibleinfo.blogspot.com/2006/11/noam-chomsky-lecture-from-1970-full.html?m=1

(6) http://www.marketswiki.com/mwiki/High-frequency_trading

(7) http://www.investopedia.com/terms/b/boardofdirectors.asp

(8) http://markets.ft.com/research/Lexicon/Term?term=independent-board

(9) Board Data: http://investing.businessweek.com/research/stocks/people/board.asp?ticker=XOM

(10) Top Holders: http://investors.morningstar.com/ownership/shareholders-major.html?t=XOM&region=usa&culture=en-US&ownerCountry=USA

Resources

(11)Wallerstein, Immanuel Maurice, Randall Collins, Michael Mann, Georgi M. Derluguian, and Craig J. Calhoun. Does Capitalism Have a Future? New York: Oxford UP, 2013. Print

(12)http://billmoyers.com/content/what-is-a-benefit-b-corporation/

(13)https://www.bcorporation.net/what-are-b-corps/legislation

(14)http://www.investopedia.com/terms/p/proxyfight.asp

(15)http://www.cnbc.com/id/102020027