an excerpt from
The rhetoric says that businesses are accountable to their owners and are their property and their instruments. In both America and Britain, however, the law has always regarded companies as individuals, who can be sued and held responsible, not as inanimate pieces of property, whose owners are the ones to be held responsible. I think that the law has it right. A company is a person.
The concept of ownership is, I suggest, deeply flawed in this new era. For one thing, what is it that owners own? The value of most businesses these days lies in their invisible assets, their accumulated skills and experience, their brands, research, and managerial ability. It is hard to see how anyone can "own" such things, which are largely tied up with particular human beings, each of whom is free to walk away at any time.
Secondly, Most of the owners of any public corporation have, in fact, put no money into the business. The stock market is a secondary market in which shares change hands without any of the money going anywhere near the business. "Shareholders" is an accurate description of the notional owners, but they should, more truthfully, be regarded as investors rather than owners. As investors they need to be kept happy, not least to keep the share price high, although I would argue that the Anglo-American tradition of high dividends prices happiness too high. Large dividends paid out to shareholders can bleed the company of the money it needs for the future, since there are few opportunities for happy investors to put their dividends back into the same business, as true owners might want to. Some organizations are now using their profits to buy back their own shares, leading some commentators to wonder what happens when a corporation owns 100 percent of its stock, and is then legally responsible only to itself.
For all practical purposes however, organizations are already responsible only to themselves. As long as they keep their investors happy, businesses are, by and large, free to do what they like. If you, as an investor, don’t like what they do, you can always leave. If your investment is so large that you can’t conveniently leave, you can, in the last resort, get rid of the top people and put some replacements who will, you hope, do something better. That is not necessarily an act of ownership, but the last resort of worried investors.
In practical terms, therefore, businesses are responsible only to themselves, for what they do and how they do it. In the real world, well-managed business pays very close attention to its various constituencies, or stakeholders, because it wants to keep not only its investors happy but, even more so, its customers, its workforce, and its suppliers, and, necessarily, the surrounding community, because it is hard to grow any business in a desert or a slum. Keeping all these constituencies happy does not necessarily mean that it is accountable to them for anything else. Provided they all profit in some way from it, the business can decide for itself what it stands for and what its goals are. Well run businesses make a lot of money because they do the right things right, but it doesn’t stop there. The real question is what is the money, the real profit, going to be used for, and in what manner will it be used? For that we have to trust the people who manage the business, the new professionals.
This is the age of professionals, in business as in everything else. Strangely there are few true capitalists now, in this the flowering of the capitalist age, only the agents of the savers – agents who are professionals themselves: the pension funds, insurance groups and mutual funds, investing on the behalf of the ordinary person. They do not consider themselves to be owners, only investors. Our wealth therefore, is increasingly in the hands of those professionals who either manage or work with the corporations. They are supposedly in charge of sovereign corporations and increasingly it is in them that we have to place our trust.
This is particularly true of transnational corporations, who are more accurately called supranationals, because they float above rather than across the nation-states, owing allegiance to none – or, as they would see it, to every separate state in which they operate. These giant corporations are, in theory, accountable to their shareholders, but the latter, I have argued are interested only in their dividend stream and not otherwise in how the corporations create their wealth, in faraway places of which they often know nothing.
At the last count, seventy of these giants had revenues bigger than the GNP of Cuba. Like Cuba, they are effectively centrally planned economies, with no serious hints of democracy. Cargill – a family-owned U.S. corporation – has a greater sales turnover in coffee alone than the GNP of any of the African countries from which it buys its coffee beans. Cargill also accounts for over 60 percent of the world trade in cereals. In most countries such a market share would automatically trigger a monopoly inquiry, but Cargill effectively belongs to no country. It is accountable only to itself. I have no reason to believe that Cargill exploits its position. The point is that whether it does or not entirely depends on the values and priorities of the family who own it.
These semi states are powerful forces in the world for good or ill. They transfer technology and know-how across borders. They move money more quickly and in greater quantities than any democratic government can. They can make and unmake alliances, take decisions and start things happening with an ease and speed that any ordinary state must envy. And they can do almost all of this without consulting anybody beyond those directly concerned. Unlike other states they are not part of the United Nations, or subject to resolutions. They are answerable to no one save their own investors.
One day, the nations-states may try to have some say in governance of these free-roving alternative states. Until then, we must really have to rely on the companies’ owns sense of their proper purpose, which starts with the essential need to be profitable but must then answer the "what for?" question.
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