9
Protecting the Common Welfare

THE PRINCIPLE OF THE PUBLIC GOOD

As semipublic governments, public corporations are
more than pieces of property or private contracts.
They have a responsibility to the public good.

In devising changes to our economic system, the real issue is one of choice—of learning to see the invisible choices we don’t realize we have. The idea of unseen choice is a lesson my friend Laura taught me, and she did so quite offhandedly one evening, when I saw her confront a toddler who was refusing to go to bed. She rolled her eyes in exasperation and told him—in a routine I could tell was well-rehearsed—“OK, Marcel, the choice is yours. Do you want to wear blue pajamas or red pajamas?” He thought long and hard in his toddler mind and settled on blue, heading off to bed confident he was in control.

Like Marcel, when we purchase shares in corporation A rather than corporation B, we believe we have made a real choice. We don’t see the invisible choices denied us: Would we like to buy shares in a bank with a mission of serving the local community, or a bank that extracts the equity from people’s homes through predatory lending? We don’t have this choice, because in many ways public corporations themselves don’t have it. As legal scholar Kent Greenfield of Boston College has commented, “‘Corporate social responsibility,’ in the eyes of U.S. law, is an oxymoron.”¹

Shore Bank in Chicago is one bank with an overriding commitment to developing deteriorating neighborhoods, but it’s privately held. As a representative put it, “If we were publicly traded, we couldn’t have as our mission to do community development.” After a progressive natural juice company went public, its CEO-founder lamented, “I used to be in the business of making great juice. Now I’m in the business of making money.”²

The problem is that prevailing legal thought says serving the public good—in a central way, not in a 1-percent-after-taxes kind of way—is not an option for public companies. This is odd in a nation like America, for it contradicts the essential meaning of the very word republic. Although in common usage this term refers to representative government, in its deeper meaning it embraces an overriding concern for the common welfare. Republic stems from the Latin res publica, the public affairs, or the public good.

Concern for the public good is the animating force of the democratic order—and it must become the animating force of our emerging democratic economy. We must have a conscious and deliberate concern for the public good built into the system design.

Economic theory may suggest that competing self-interests alone will guide actions to serve the broader good, but democratic theory embraces no such delusion. In the United States, we do not deem it sufficient simply to have broad voting rights, so that vigorous factions might pursue their own interests at the expense of the community at large. We also have a system design called the Constitution, with civil liberties protections, guarantees of due process, and protection of minority rights. Even the highest power in a democracy—government itself—faces institutional restraints on its own power.

Democracies accept self-interest—and harness it—and a democratic economy must do the same, for serving one’s own interests is often the engine of prosperity. But self-interest has its limits. In our highest democratic ideals (if not always in practice), democratic cultures seek to protect those who have no power to look after their own interests, like children, the poor, the elderly, or future generations. Government serves public needs not represented by powerful interests—with funding for public parks, public schools, public arts institutions, public maintenance of roads, and public justice systems.

Just as democratic practice does not allow self-interest alone to serve as the force creating and maintaining a just social order, we must no longer allow our economy to embrace this same fallacy. We need a new theory. We need a new economic principle that says public corporations have a responsibility to the public good. As we now ironically preclude public corporations from service to the common welfare, in the future we must require such service. At the very least we must require that the common welfare not be harmed.

AMERICA’S FOUNDING TRADITIONS BETRAYED

While I call this a new principle, it more accurately represents a return to America’s oldest economic traditions. At the time of America’s founding, corporations were created by state charters only to serve the public good. As an 1832 treatise on corporate law put it, “The design of the corporation is to provide for some good that is useful to the public.”³ Or as the Pennsylvania legislature in 1834 declared, “A corporation in law is just what the incorporation act makes it. It is the creature of the law and may be molded to any shape or for any purpose the Legislature may deem most conducive for the common good.”⁴

By the midnineteenth century, this original and public purpose of corporations began to be eroded in the courts. As activist Richard Grossman has documented, that erosion was at odds with the intent of America’s founders—which we can see in a dissenting opinion in the U.S. Supreme Court’s 1855 Dodge v. Woolsey case. “Combinations of classes in society … united by the bond of a corporate spirit … unquestionably desire limitations upon the sovereignty of the people,” that opinion said. “But the framers of the Constitution were imbued with no desire to call into existence such combinations.”⁵

Again in the late nineteenth century, the Nebraska Supreme Court in the case of Richardson v. Buhl warned of the danger of allowing private entities to escape control by the public, writing: “Indeed it is doubtful if free government can long exist in a country where such enormous amounts of money are … accumulated in the vaults of corporations, to be used at discretion in controlling the property and business of the country against the interest of the public … for the personal gain and aggrandizement of a few individuals.”⁶

The phrases here are telling: “the sovereignty of the people,” “the interest of the public,” “the common good.” The corporate form was clearly intended in America’s early years to be subject to the sovereign will of the people and to serve the common good. It could not be otherwise, for serving the public good was, as one general put it, the “polar star” of the American Revolution. Serving private groups at the expense of the public was anathema. In a letter to Thomas Jefferson, Horatio Gates wrote that Americans opposed a system holding “that a Part is greater than its Whole; or, in other Words, that some Individuals ought to be considered, even to the Destruction of the Community.”⁷

But the waters of wealthy self-interest continued rising in the nineteenth century, and erosion of the democratic tradition could not be held back. As D. Gordon Smith commented in The Journal of Corporation Law, by the midnineteenth century a new corporate purpose of serving stockholders emerged in the common law.⁸

This new shareholder primacy norm was augmented by new financial statements dating to the same era. Ralph Estes, former accounting professor, observes that the statements we use today began as a “simple system that stockholders’ agents had first set up to report to their principals on how well their investments were doing.” This report “was never intended to show the performance of the corporation as a whole, in terms of its chartered purpose.” But these reports ultimately became the standard measure of corporate performance.⁹

Still another notion—that a corporation is a private entity—also arose in the nineteenth century. It was embodied in the novel concept that corporations were the result not of public charters but of private contracts. A seminal case here was the Supreme Court’s Dartmouth College decision in 1819, which said a grant of incorporation was a contract that could not subsequently be altered by the government.¹⁰ The larger meaning of this became clear with the 1905 Lochner case, which struck down a law limiting working hours as an infringement on private contracts.¹¹

CORPORATIONS AS PRIVATE GOVERNMENTS

The notion that corporations are private is still a legal lynchpin of the stockholder-focused corporation, even though it stretches the word private beyond recognition. The original French terms privé or priveté referred to objects in the family household or to domestic acts not subject to public authority. According to the Oxford English Dictionary, the word private pertains to the individual body—“private parts”—or to things “peculiar to oneself,” as in a “private staircase.” It also refers to “a small intimate body or group of persons apart from the general community.”

It is valid that our nation protects the genuinely private sphere, allowing individuals religious freedom or the freedom to do largely as they like in their own homes. But imagining that public corporations are private—that they are like households or small intimate bodies—is bizarre. The shares of public companies trade hands among a faceless public every day. These companies may have more investors than a state has persons, have revenues larger than the gross domestic product of nations, and employ legions of lobbyists intent on bending public legislatures to their will. Their power is so great today and their influence so large that they are in effect private governments, when what they should be is semipublic governments, with all the responsibilities that entails.

The idea that corporations are governments is an observation that has often been made. In a 1970 economics text, for example, Robert Lekachman wrote, “In many ways, giant corporations exercise the power of private government, subject to fewer checks than are applied to legislatures and presidents.”¹² Adolf Berle made the same point in different language when he called the corporation “a nonstatist political institution.”¹³

Similarly, corporate theorist Earl Latham in The Corporation in Modern Society called the corporation “a body politic,” with all the characteristics of such bodies, including systems of command, systems of rewards and punishments, and systems for collective decision making. “A system of organized human behavior which contains these elements is a political system,” he wrote, “whether one calls it the state or the corporation.”¹⁴

As private governments, major public corporations today represent the private realm swollen so large as to threaten the public realm. Instead of calling these bodies private, we might use the more proper term, which is feudal.

“Feudalization represents a privatization of power,” Georges Duby wrote in A History of Private Life. The classic example of this process occurred in tenth- and eleventh-century Europe, when public power shrank after the fall of the Roman Empire, and private power grew. “Each great household became a private state unto itself,” Duby wrote.¹⁵ It was an era when great barons overshadowed kings.

In the nineteenth century’s redefinition of the corporation, America underwent a similar process of feudalization. This was, not incidentally, a new aristocratic era, the age of the railroad kings, the lords of capital—men like Rockefeller, Morgan, Carnegie, Vanderbilt, and Gould. Historian Matthew Josephson described their feudal revolution in his 1934 work, The Robber Barons:

The members of this new ruling class were generally, and quite aptly, called “barons,” “kings,” “empire-builders,” or even “emperors.” They were aggressive men, as were the first feudal barons…. When [they] arrived upon the scene, the United States was a mercantile-agrarian democracy. When they departed … it was something else: a unified industrial society, the effective economic control of which was lodged in the hands of a hierarchy … the country’s natural resources and arteries of trade were preempted, its political institutions conquered, its social philosophy turned into a pecuniary one, by the new barons.¹⁶

These men exercised power over vast holdings “in a manner which closely paralleled the ‘Divine Right’ of feudal princes,” Josephson wrote. Thus George Baer, the president of the Philadelphia & Reading Company, could declare that industrialists like himself were those “to whom God has given control of the property rights of the country.”¹⁷

As the old aristocracy had looked out and seen peoples fit to be ruled, the industrial barons looked out and saw workers obliged to be obedient. In the 1870s, Carnegie Steel began systematically hiring immigrants because of their docility and their willingness to work long hours without complaint. After breaking the five-month Homestead strike, John D. Rockefeller said that henceforth only “company unions” should be allowed, in the time-honored relationship of “obedient servants and good masters.”¹⁸

If calling the members of this new ruling class “barons” and “kings” was once commonplace, so too was the practice of combating them with the language of democracy—a practice that we might fruitfully revive today. The Great Strike of 1877 was called the “Second American Revolution,” and labor leader Samuel Gompers hailed the Clayton Antitrust Act of 1914 as “labor’s Magna Carta” (although, sadly, this turned out not to be true). Theodore Roosevelt similarly disparaged the “mighty industrial overlords,” writing of the vulgar “tyranny of mere wealth.” But industrialists claimed democratic legitimacy for themselves as they attacked what they termed the “tyranny” of labor. In just one example of their victories, in 1888 a federal court put down the Western railway strike as a “conspiracy in restraint of trade.”¹⁹

That case illustrates a second mechanism used to protect the private corporate order: the notion that trade must not be restrained, that the private sector must self-regulate, that barons must not be ruled by anyone but themselves—and that this is for the good of all. Free market theory thus plays a covert political function, and because of that function, the theory has shrugged off even the most blatant real-world tests that disprove it—like the colossal system failure of the Great Depression.

There was a time in the 1930s when the business community at large recognized that business could not in fact self-regulate, that what failed in the Depression “was the doctrine of laissez-faire,” as the editors of Fortune wrote in a June 1938 editorial. “Every businessman who is not kidding himself knows that, if left to its own devices, Business would sooner or later run headlong into another 1930,” the editorial added.²⁰ Yet because this realization did not serve the powers that be, it in time disappeared.

In the post-Depression years, free market theory rose from the dead, and found its perhaps preeminent expression in Nobelist Milton Friedman’s 1962 work Capitalism and Freedom, which made the democratic ideal of liberty the cornerstone of the capitalist edifice. Friedman’s work is today a standard text in business schools, where memories of the failure of laissez-faire are lost in a kind of collective amnesia.

But what we forget we are doomed to repeat. The industrial barons’ first feudal revolution has been renewed in recent decades—with the revived enthusiasm for free markets since the Reagan era, combined with strengthened stockholder control of corporations, and a new frontier in global markets. As a result of this new feudalism, sweatshops are back, environmental damage continues globally, and progressive laws are attacked under the banner of free trade. We have snapped back to the nineteenth century, as though bound to it by a bungee cord.

THE BEQUEST OF THE ROBBER BARONS

Free market theory provides the smoke screen, but the real problem is what that theory conceals, which is structures of power. The problem is that we have never fundamentally altered the corporate structures that the Robber Barons bequeathed to us, which harken back to the aristocratic age. We’ve yet to reach these core structures effectively with legislation, so in enacting laws we’ve been like homeowners chopping down nuisance trees that continually spring back because we have failed to eradicate the roots. Our laws have focused on specific symptoms while leaving the underlying illness untouched. That illness is the corruption of the free market known as shareholder primacy, which is made incurable by the legal notion that corporations are private and may not be altered.

In corporate governance theory, this notion takes form in the concept of private contracts: shareholders are said to have contracted for their rights, and since this is considered a private arrangement, the public may not intervene. This one-sided contract is seen as both eternal and unchanging. We shouldn’t be surprised to find something familiar in this idea, for it echoes the old notion that the king was above the law, holding power both eternal and divine. Central to both stockholder and monarchical power is the dubious concept of eternal contract.

Edmund Burke invoked such a contract in defending the monarchy after the French Revolution. The monarchy, he wrote, was part of “the great primeval contract of eternal society,” emerging from “a fixed compact sanctioned by … inviolable oath” (italics added).²¹ He may as well have stamped his foot and shouted, “No one can ever change it!”

But he was outshouted by Thomas Paine, who attacked the idea that some past generation had struck a contract we must honor for eternity. The “vanity and presumption of governing beyond the grave is the most ridiculous and insolent of all tyrannies,” he wrote.²² His attack on eternal contracts in The Rights of Man is memorable:

There never did, there never will, and there never can exist a parliament, or any description of men, or any generation of men, in any country, possessed of the right or the power of binding and controlling posterity to the “end of time,” or of commanding for ever how the world shall be governed, or who shall govern it; and therefore, all such clauses, acts or declarations, by which the makers of them attempt to do what they have neither the right nor the power to do, nor the power to execute, are in themselves null and void. Every age and generation must be as free to act for itself, in all cases, as the ages and generations which preceded it…. Man has no property in man; neither has any generation a property in the generations which are to follow (italics in original).²³

Every generation is free to act for itself, Paine reminds us. We are free, as were previous generations before us, who succeeded in overturning some Robber Baron precedents. Even if there is some hypothetical contract that grants stockholders a right to maximum returns, that contract has been shown to be subject to change.

When wage and hour laws were enacted during the New Deal, the Lochner decision was effectively overruled. The Supreme Court in the 1930s initially struck down these laws, but ultimately upheld them. The private contracts of the corporation turned out to be subject to legitimate public intervention.

The right of regulating property has of course often been upheld by the Supreme Court—even if in some cases this means “taking” property, supposedly prohibited by the Constitution. The Fifth Amendment stipulates that the federal government shall deprive no individual “of life, liberty, or property, without due process of law,” and the Fourteenth Amendment places the same constraint on the states.²⁴ But the Court has said the demands of due process can be met by the legislative process itself. In other words, legislatures can take property through legislation.²⁵

In the 1877 Supreme Court case of Munn v. Illinois, where Justice Waite invoked this principle, he wrote that when an individual “devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good.”²⁶ Building a further case for regulation was the 1937 West Coast Hotel v. Parrish case, where the Supreme Court upheld the constitutionality of state legislation establishing a minimum wage for women—rejecting a corporate claim that its freedom of contract had been violated. As the Court wrote, the community may use its lawmaking power to “correct the abuse which springs from … selfish disregard of the public interest.”²⁷

After 1937, the Court began regularly to uphold new kinds of regulations on private property. The era of unilaterally protecting property or private corporate contracts—what has been called substantive economic due process—was effectively at an end.²⁸

Due process protections would in new guises be reborn decades later—a topic to which we’ll return in chapter 11. The point I wish to make here is that regulation of property in the public interest is clearly permissible. As William Letwin, professor of political economy at the London School of Economics, wrote in the 1970s, “To regulate property certainly deprives owners of its previous or potential value, but such deprivation the Court regarded as constitutional.”²⁹

In more simple terms, Supreme Court Justice Owen Roberts wrote in the 1934 case of Nebbia v. New York, “Neither property rights nor contract rights are absolute.”³⁰ Nor, we might add, are they eternal.

BROADENING FIDUCIARY DUTY

The idea that corporations are private entities, immune to government control, is today outmoded. Corporations are routinely subject to legal intervention, even in their most internal operations. In a 2000 racial discrimination lawsuit against Coca-Cola, a legal settlement created an independent race task force with the power to change all key human resource policies. A similar task force was earlier put in place at Texaco.³¹ In another case involving abusive lending by Delta Funding, a settlement with the Attorney General of New York put in place for three years a neutral monitor with the power to review Delta’s loan file, to ensure compliance with the law.³²

Similar public intervention occurs with antitrust enforcement. The government can require corporations to break up, as it did with AT&T.Or it can make mergers contingent on steps to serve the public interest, as with the recent merger of AOL and Time-Warner, when the federal government required instant messaging and high-speed cables to be opened to rivals.³³

But now here’s the contradictory point. Although government intervention to protect public interests is constitutionally permissible, historically common, and often desirable, state courts continue to act helpless in the face of some imagined immutable legal mandate to maximize returns to shareholders.

This mandate is less firmly grounded than we might think. As legal scholar D. Gordon Smith has written, this concept of fiduciary duty developed in common law, and only in recent years has it been written into state incorporation statutes, where directors are generally required to act “in the best interests of the corporation.”³⁴ You’ll notice Smith does not say “in the best interests of shareholders.” In fact it is judges—reflecting a widespread bias toward wealth—who have narrowly defined corporate interests to mean stockholder interests alone. But new interpretations are possible. And common law can easily be overturned by legislation.

Ultimately, I believe we may want legislation expanding the legal concept of fiduciary duty to include a duty not only to stockholders but to employees and the community, and perhaps to other stakeholders as well. Under traditional interpretations, legal scholar Marleen O’Connor notes, “a fiduciary is a person who undertakes to act in the interest of another or a person who accepts entrusted property of another.”³⁵ But as she and other legal scholars have argued, stockholders are not the only ones deserving such protection. Corporate acts clearly have an impact on the financial well-being of workers and the community, and these interests deserve loyalty from the corporation.

Expanding fiduciary duty in state law may be one step in a process of returning the corporation to its tradition of serving the public good. What is particularly useful about fiduciary duties is that they are open-ended, often depicted as gap-filling devices. Laws need not stipulate every possible means of harm—pollution, relocation, unfair termination, and so forth—but can instead stipulate a broad loyalty to sets of interests. Corporations violating those interests can be subject to lawsuits.

While widened fiduciary duties may be one ultimate aim, it’s instructive to note that thirty-two states—including Illinois, Massachusetts, Minnesota, New Jersey, New York, and Oregon—have already enacted stakeholder statutes to move us in that direction.³⁶ These laws are worth exploring, because they show us that fiduciary duties in many ways have already been altered—though not in really effective ways.

Stakeholder laws began as part of a wave of antitakeover legislation in the 1970s and 1980s. They were designed to empower corporate boards to consider the interests of other stakeholders alongside the interests of stockholders. The stakeholders named in statutes vary, but generally include employees, customers, creditors, suppliers, and communities. Hypothetically, these laws give corporate boards legal cover for resisting takeovers. But in practice they have been little used.³⁷

Potentially, these statutes represent a Copernican revolution in corporate purpose. But it is primarily their critics who have recognized their possibilities. The American Bar Association’s Committee on Corporate Laws, for example, warned that stakeholder statutes represent a threat of radical change in corporate law. Others have similarly warned that the laws represent “a revolutionary break from past generations of corporate law.”³⁸

The case law on these statutes is sparse, but there are hints of small potential. In a 1987 case, for example, the directors at Commonwealth National Financial Corporation decided to merge with Mellon Bank rather than with Meridian Bancorp, in part because employees would have greater opportunity with Mellon. Citing the state’s stakeholder statute, the court ruled that considering social issues was consistent with fiduciary duty.³⁹

In a 1997 case involving the sale of railway giant Conrail Inc., directors chose to accept an offer from CSX rather than a significantly higher bid from Norfolk Southern Corporation, in part because the CSX deal was better for shippers and employees. Judge Van Artsdalen commented from the bench that the focus on maximum value for shareholders was “myopic,” and that Pennsylvania’s stakeholder statute allowed the board, in making its decision, to consider the railway’s role in the entire economy.⁴⁰

One might see a stirring of revolution in such cases. They represent small chinks in the supposedly impenetrable legal wall protecting shareholder primacy. Perhaps we might use these laws one day to drive a truck (or a Trojan horse) through that wall.

Doing so would probably require strengthening these laws—though even amendments may not succeed in making them effective. As law professor Lawrence Mitchell of George Washington University has written, the effect of these laws is “likely to be minimal,” because “stockholders continue to be the sole corporate constituents that have the right to vote for directors, to bring derivative litigation, and to sell control.”⁴¹

Because of these institutional constraints, even genuinely expanded fiduciary duties may not be enough, and we’ll look in later chapters at other changes in governance that may also be necessary.

But starting from where we are today, there may be one immediate, if incremental, step we can take, which is a drive to amend one state’s law, to give other stakeholders the right to sue when their interests are not considered. The amendment might say boards not only may but must consider stakeholder interests. This is already the case with Connecticut’s statute, though it only covers mergers and acquisitions. According to Terry O’Neill in Connecticut Law Review, the Connecticut statute “appears to impose upon corporate directors a fiduciary duty of loyalty to constituent corporate groups other than shareholders, at least when a merger is being contemplated.”⁴² Standing to sue may already be present in this state.

If another state law were amended, it could stipulate standing to sue, and where necessary extend that standing from takeovers to other decisions. Only a few states—among them New York, Iowa, and Missouri—limit stakeholder statutes to acquisition or merger issues. Most draw the statutes broadly, to refer to any board decision.⁴³

There may be special potential in Iowa, Indiana, and Pennsylvania, where statutes specifically provide that shareholder interests are not to be considered primary. The Pennsylvania law stipulates that in considering “the effects of any action,” the board shall not view the “interests of any particular group … as a dominant or controlling interest.”⁴⁴ Lawyers might attempt to use this wording to establish standing to sue, arguing that a layoff, say, or a merger is only in the interests of stockholders, and thus makes their interests illegally dominant. If standing cannot be established, the argument might be made to state legislators that the laws must be amended to realize legislative intent.

Even without amendments, there may be other ways these laws could be used, and I would recommend that specialists explore how. There is precedent for bringing life to dormant law, as happened with the Community Reinvestment Act, which was largely unused for over a decade after its 1977 passage. Only in the early 1990s, when community groups began forming—coalescing in 1992 into the National Community Reinvestment Coalition—did the act become functional. CRA agreements (commitments to lend to low- and moderate-income communities) from banks totaled less than a billion dollars in the first fifteen years of the law, but had reached a mammoth $353 billion by the end of the next five years, thanks to the NCRC.⁴⁵

Another law long considered dead that has been brought to life is the Alien Tort Claims Act, enacted in 1789, which in recent years has been used to establish U.S. jurisdiction for suing corporations like Unocal and Chevron for human rights abuses abroad.⁴⁶

There may be similarly nascent potential with stakeholder statutes. Certainly they have immediate instrumental use in consciousness-raising. For stakeholder statutes remind us, by their very existence, that an exclusive duty to shareholders is simply a state law and not only can be changed but has been changed.

Can courts overturn stakeholder laws as an unconstitutional infringement on private contracts or a taking of private property? It seems unlikely. It’s hard to imagine that laws requiring corporations to serve the public good could be unconstitutional, because that was the corporate design when the Constitution was written. Even if courts try to overturn these laws, we should remember that state judges are often elected officials and can be replaced.

Ultimately, the notion of corporations as private property or private contracts, impervious to public control, seems unlikely to prove an enduring hiding place for aristocratic privilege. The real contract is with the American people, who have the sovereign power to require public service from corporations.

If expanding fiduciary duties could be one key step to serving the public good, there may be other approaches as well. One example is the sweeping amendment to the Pennsylvania corporate code recently drafted by attorney Thomas Linzey at the Community Environmental Legal Defense Fund. His bill stipulates that a corporate director’s duty to the corporation is owed equally to stockholders, employees, and the “natural and human communities in which it operates.”To enforce public service, the bill would limit corporate charters to thirty years, and require corporations to request renewal by listing activities performed in the public interest. The request would be published in ten newspapers, after which the secretary of state would hold a public hearing. Renewal might be denied if the state found that the corporation’s continued existence was not in the public interest.⁴⁷

Linzey’s proposed law would not only change the fundamental corporate purpose but would effectively bring civil liberties protections inside corporations. His bill would prohibit corporations from abridging the privileges or immunities of employees guaranteed to them as citizens. And it states that corporations may not “deprive any employee or independent contractor of life, liberty, or property, without due process of law.” In yet another provision, it would outlaw corporate welfare by stipulating that neither the state nor any municipality could give money, property, or even loans to any corporation.

It’s a lot to take on in one bill, and whether it will be introduced remains to be seen; Linzey was hoping to begin searching for legislative sponsors in 2001. But as a gesture of what might be possible in changing corporate purpose, it’s intriguing and inspiring.

A PRINCIPLE WHOSE TIME HAS COME?

What is emerging—or reemerging—in our time is a democratic economic principle: corporations must serve the public good, or at least must not harm it. If this idea runs through stakeholder laws, it also can be seen in anti-tobacco lawsuits, labor laws, environmental laws, and health and safety laws. Corporate responsibility to the public good may well be a principle whose time has come.

That corporations have slipped away from this idea is not inevitable, but neither is it mysterious. We may picture the public corporation as a rational tool of accountants, but it is not. It is the brainchild of brutal men in a brutal age, hell-bent on amassing for themselves untold wealth, and leading a feudal revolt against the notion that corporations must serve the public good. But as Paine might remind us, the presumption that Robber Barons can govern us from beyond the grave is the most insolent of all tyrannies.

We can complete our undoing of the Robber Barons’ feudal revolt. We can again harness public corporations for the common welfare. It may seem today that the free market offers us valid choices as we invest in corporation A rather than corporation B. But we’re like toddlers choosing between blue pajamas and red pajamas. The real choice is between corporations that serve the public good and those that harm it.