Perhaps we SHOULD execute corporations

For the Rio+20, United Nations Conference on Sustainable Development, I asked the conference via Twitter “How can we give corporations a conscience?” The question was answered by one of the Rio participants, but in a manner that I found unsatisfactory. I don’t really blame him. He had no idea the question was coming and that’s got to be one of the most loaded questions of our time.

I think that when trying to solve a problem, coming up with the right question is the best way to start. Why do I think this question is important?

It starts with the standard arguments between socialists and capitalists - socialists saying that classes have to be eliminated before we can progress and capitalists saying that the capitalism is self-correcting and should be left alone. I’m not in agreement with either. I see government as a point on a two-axis system.

One axis represents the governments respect for capital - the higher the respect for capital, the more capitalist the government and the lower the respect, the more socialist. The other axis indicates the respect for the individual with big government at one end (limited respect for the individual) of the axis and anarchism at the other (maximum respect for the rights of the individual). Of course, it’s a bit simplistic to separate them since respect for the individual goes hand-in-hand with respect for capital. But it’s my way of keeping the typical extreme right vs. left arguments in perspective.

The second thing that drives my political opinions is the Tao of Pooh, Benjamin Hoff’s introduction to Taoism based on A. A. Milne's Winnie-the-Pooh.  I think many people get different things from this book. What I got was a sense that when we mess with natural systems, we often get unintended and unhappy results. This is my motivation for having good confidence in capitalism. In many ways, it’s a natural system and we should leave it alone.

The problem is that pure capitalism doesn’t seem to be working. So I had to ask myself why? If we’re leaving it alone, and it’s not working, is the rule I got from Hoff wrong? I don’t think so, but capitalism isn’t strictly natural. I think it works well when it behaves naturally, but it is rarely natural in several respects.

The first issue is that government messes with the system a lot. In some cases, it’s arguably good. For example, government will break up monopolies. In other cases, it’s bad. For example, a government might try to protect their country's industries by subsidizing them.

The second issue is that sometimes corporations just get too big. They wield too much power. They can push governments to their benefit and use their enormous wealth to consume the smaller players. They can move to the least regulated country so that they can maximize their profits.

The third issue is that corporations are psychopathic.

The Wikipedia definition of psychopathy is “a mental disorder characterized primarily by a lack of empathy and remorse, shallow emotions, egocentricity, and deceptiveness.”

In other words, I'm saying that corporations have no conscience.

It’s no surprise. The raison d’être of a corporation is to make money. In addition, the way that investment in corporations happens, the investors (and their consciences) are a long way away from the decisions made by the company. 

Corporations are essentially one group of people hired by a group of investors to make money for them. In some cases, the investors don’t even know that they’ve invested in the company.

For example, in a mutual fund, you might know that you’re investing in resource-based corporations, but you have no idea that the mutual fund bought Freeport-McRoHan stock and that the company is polluting the environment and paying police forces to brutalize Papuans.

The nature of capitalism will likely always create instruments such as mutual funds. It’s unlikely that we can persuade individual investors to check into all the companies they’re investing in. It’s just not practical.

So this leads me to asking myself this question. How can we give corporations a conscience?

I see two ways that corporations can have a conscience. The first way is to develop it in the people running the corporation (the “internal” conscience). The second way is to have an external agency regulate it (the “external” conscience).

Both the internal and external mechanisms have problems. The internal conscience is the most likely to be sacrificed to profit. Corporations need to adapt to market pressures. Given two corporations in the same environment, one with an internal conscience and the other without, the corporation without a conscience will likely succeed.

The externally-enforced conscience is more likely to have an effect. A regulation will apply equally to all the corporations in an environment, limiting the ability of market forces to twist that conscience.  But the ability of a corporation to influence the regulation increases with its wealth. Governments are made of individuals and every man has his price. Even the best intentions of a politician can be influenced by the amount of money some corporations can bring to bear on a problem.

In addition, sometimes the punishments applied to corporations are just not appropriate. Some corporations are quite willing to accept the punishment as a cost of doing business.

It’s interesting that corporate personhood is so vilified lately. The decision the Citizens United v. Federal Election Commission seems to imply that corporations in the US now have very little limitation on their ability to influence elections. Many groups are pushing to have this decision overturned.

To me it seems like an opportunity. The more a corporation is a person, the more we should be able to apply laws to that person. The (unattributed) quote “I refuse to believe corporations are people until Texas executes one” presents some interesting perspectives.

Corporations are groups of individuals. They are the shareholders and the employees. These people have rights, but they seem to have very little liability in the group.

The Wikipedia definition of a corporation says “A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members.”

To simplify (perhaps too much), the shareholders of a corporation are not legally responsible for the actions of that corporation.

This means that we cannot force legal action against the shareholders for an ill-behaved corporation. The only action that will impact the shareholders is monetary.

My proposal to give corporations a conscience is very simple. We need to create a standard of financial liability for a corporation that executes a corporation if it shows that it has no conscience.

We do so by giving a corporation a global “criminal record”. We classify offenses as “summary” or “indictable”. Summary offenses yield standard fines as determined by the court. Indictable offenses yield impacts proportional to the profit of the company. An example of an indictable offense would be “bribery of a public official to influence regulation”.

As a corporation is shown to have more and more incidents of unconscionable behavior, its “repeat offender” index is increased. The fines applied by courts for indictable offenses are multiplied by this index. An index of 10% means a fine of 10% of the profits of the company. If the index reaches much higher than 100%, the corporation is dissolved (executed).

One interesting implication of such a mechanism is that corporations would have incentive to police their competitors. If they can prove their competitors have committed an indictable offense, they could potentially eliminate them.

This idea is mostly a “lark”. I’m certain that existing political and economic systems have too much inertia to change so dramatically. But what I hope is that it gets you thinking. Maybe someone will come up with a mechanism that gives corporations a conscience. Or maybe a corporation will do something so evil someday that someone will remember this thought, dust it off, and make it law.