For-profit Corporations


Last updated: February 2017

 

 


Phasing out the for-profit corporation 


Some of the biggest organisations in the world, originally designed by humans to fulfil their needs, are now beginning to turn on their creators. Rob Harrison explains why for-profit corporations need to be consigned to the past if humanity is to have a future.


For-profit corporations are everywhere. They provide our food and clothing, they look after our money, and they organise our working days. There may be as many as 200 million of them around the world – from small businesses to giant multinationals. And in most cases, they exist without a moral purpose.

 

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They may have been useful in the past, but many corporations – financial corporations particularly – have grown so big as to have slipped the shackles of meaningful regulation. It has long been apparent that, unregulated, they can be dangerous for workers, consumers and communities. It is now becoming clear that they also pose a danger to our democracies and to the biosphere of the planet itself. 

 

Increasingly self-interested behaviour
 

Being alarmed by the behaviour of for-profit corporations is not a contemporary phenomenon nor one exclusively expressed by political radicals. Teddy Roosevelt described corporations as:

"Indispensable instruments of our modern civilisation, but I believe they should be so supervised and so regulated that they shall act for the interests of the community as a whole."[1]

More recently, arguing that for-profit corporations, particularly giant multinationals, are a danger to human societies has become more common. David Korten's 'When Corporations Rule the World' and Joel Bakan's 'The Corporation' were both key texts and best-sellers in this space in 1996 and 2003 respectively. 


Climate change

However, the levels of self-interest which corporations have been willing to display since then has become, if anything, more extreme. These developments have confirmed just how dangerous to life corporations have become and how urgent it is to attempt to reign them in. Perhaps the core example of taking a step too far in this respect is the increasingly well-mapped role of corporate lobbying to prevent effective regulation of carbon emissions.[2] Corporations, with no physical form, may not need a stable climate – but humans surely do. 


Tax

A second 'step too far' is the increasingly disdainful approach of corporations to tax regimes, which collect revenue to support the human lives around them. Corporations may not need people beyond a slimmed-down workforce and a viable number of customers. But to define 'people not useful to corporations' as no longer deserving of any support displays a machine-like lack of compassion in its focus on short-term financial gain.

 

Corporate lobbying

It is also, now, widely accepted that corporate lobbying, bribery and corruption, and cynical media manipulation is creating great damage to many of the systems of democratic governance we have come to rely on. It is not difficult to make a link between recent growth of the new right in Europe and America and the indifference shown by corporations to the effects of their lobbying over the democratic institutions of the West.

Furthermore, the direction of travel demonstrated by these behaviours does not bode well for trying to maintain some idea of human equality in the future. The next generation of robotics and computerisation on the horizon look set to take ever more jobs from an 'inefficient' human workforce.[3] And with the wealth this creates benefiting an ever-smaller pool of owners, the rising inequalities we are seeing in the West now may be nothing compared to what is to come.

 

Increasing failures of regulation
 

The commonest response to this danger posed by corporations is that we just need to regulate them better. However, the globalisation of markets and companies, and the lack of a proper international legal structure, has led to a weakening of nation states, and it is important to acknowledge how difficult, in practice, regulation is appearing to be by both national and regional governments.[4]

Even civil society campaigns like boycotts and social labelling that we are familiar with in Ethical Consumer are constantly being undermined by corporations acting relentlessly to seek to bypass, ignore and undermine any attempts to interfere with their pursuit of competitive advantage. 

Of course, one of the reasons that regulation is failing to reign in corporations, is that corporations themselves are everywhere attempting to stop such regulation whenever their financial interests are threatened. A whole language has emerged to try to track and understand this, from the notion of 'corporate capture' of whole government departments,[5] to the idea of 'regulatory arbitrage' where companies calculate the cost of taking steps to avoid certain laws instead of obeying them.[6]

We are therefore in a catch-22 situation. Large corporations are damaging human health and wellbeing. But we cannot effectively fix this because corporations have also damaged the regulatory systems designed to stop this occurring. 

 

A crazy ideal?
 

Surely it is unrealistic, or just plain crazy, to propose that the world’s dominant institution needs to be phased out? 

The first answer is that the problems humans face are currently very severe. We have record levels of species extinctions, growing extremes of inequality and failing democratic systems. We appear to have a whole-system problem that requires a whole-system solution.

The second answer is that it may not be as complicated as you think. For example, the recent rapid growth of B-corporations shows how it is possible for for-profit corporations to ‘convert’ into something different if they choose.[7]

The same people have the same jobs making the same things, but the purpose that the management must consider quarterly is broader, and must include social and environmental impacts. Around 30 US states – and now Italy too – have changed company registration laws to accommodate the B-corporation movement.[8] Legal changes have apparently also been under consideration in the UK according to the government's recent 'Mission Led Business' review.[9]

 

Other corporate forms

 

There are many not-for-profit corporate forms: mutuals, social enterprises, charities and state-ownership are just four. For each, there is an example of a large successful organisation operating with a functional efficiency and access to capital at least as good as one you will observe inside a for-profit machine.

The BBC, Co-op supermarkets in Switzerland, Liverpool University, the WordPress Foundation and Deutsche Bahn are just five examples of many thousands of high-performing not-for-profit corporate forms we could choose from. With such examples, it begins to be possible to conceive of a world run entirely by organisations of this type.

The various not-for-profit forms we have available may not be perfect yet. And the not-just-for-profit model offered by B-Corporations may not be a step far enough. But all of these can be modified and improved or added to. The important thing is to begin this discussion now. In many people’s eyes the problems we face are urgent. What are the best forms to convert everything into? Where is it important to begin the pressure?

 

Conclusions and taking it forward

 

It has now got to the stage where we need to say that we can no longer risk tolerating the existence of giant corporations which do not, in their constitutions, have a specific requirement not to undermine human rights or upset eco-systems.

We need to go into the very heart of corporate purpose and change its DNA. 'Upgrading the corporate software' or 'reprogramming corporate DNA' may not only help rid societies of the dangerous machines in their midst, but it may also help combat the urgent problem of how markets can exist with social and environmental sustainability. 

Does phasing out the for-profit corporation provide the critical changes to the core programming of capitalism to create the future we need? And how might we get there? These broader questions are just a few being considered in a new project for 2017 called 'Dangerous Machines' and, other than a few brief notes, are beyond the scope of this short extract.

Some governments will be supportive and will introduce tax advantages for not-for-profit forms which will permit them to compete in markets with for-profit companies. This is already happening in some countries.[10] In other cases, 'millennial entrepreneurs' will simply grow bored of the narrowness of the solely for-profit form and chose social enterprise models as the way forward.[11]

Most of all though, we will need consumers and companies and local authorities and buyers of all types to choose not-for-profit producers when they can. This kind of movement is already well under way in many places.[12] Looking for a 'star' in the Company Ethos column in Ethical Consumer's Product Guides is just one of many ways of finding not solely for-profit producers. They are everywhere, and they are the future.

 

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References (Websites viewed 27/1/17)

1. Cited in THE COMPANY: A Short History of a Revolutionary Idea 2003. John Micklethwait, Author, Adrian Wooldridge, Author, Adrian Wooldridge at p 174

2.  see e.g. www.theguardian.com/environment/2015/nov/26/paris-climate-change-conference-circus-comes-to-town

3.  The Rise of the Robots. 2015.  Martin Ford. OneWorld.

4. Alternatives to Economic Globalisation. Mander and Cavanagh (eds) 2004 

5. Captive State: The Corporate Takeover of Britain. 2001 George Monbiot 

6. www.investopedia.com/terms/r/regulatory-arbitrage.asp

7. https://ssir.org/articles/entry/has_the_b_corp_movement_made_a_difference

8. www.socentlawtracker.org/#/bcorps

9.  On a Mission in the UK Economy: Current state of play, vision and recommendations from the advisory panel to the Mission-led Business Review 2016. Dec 2016

10.  The most obvious advantages are those created in many states for charities, but there are other examples such as the UK's social investment tax relief.

11. The Deloitte Millennials Report in 2013 showed that young people believe that the number one purpose of business is to benefit society, and the 2014 report showed that fifty% want to work for a business with ethical practices.

12. See e.g. The Co-operative Alternative to Capitalism. 2013.  Rob Harrison Ed.