New Internationalist

The Invisible Friend

Issue 358

Click here to subscribe to the print edition. [image, unknown] New Internationalist 358[image, unknown] [image, unknown] [image, unknown] July 2003[image, unknown] Click here to search the mega index.

[image, unknown] Corporate crime / THE LEGAL FICTION

The invisible friend

Investors are irresponsible.
Corporations are amoral.
Harry Glasbeek puts two
and two together.

 

Illustrations: © 2003 Jim Miller

Publicly traded corporations: they are everywhere. They talk to us. They support political causes, parties and politicians. They sponsor opera, ballet, theatre, tennis, football, hospitals and universities. They are renaissance operations. They employ us. They sack us. They maim and kill us. They ravage and rape our physical and spiritual environments. They are the embodiment of capitalism. They protect capitalists from being held to account.

The legal architecture of the Anglo-American corporation ensures crimes can be and will be committed on behalf of the rich. This corporate veil is woven to hide the rich from our gaze – behind this veil they do us harm and render our numerical majority relatively impotent.

Once wealth-owners contribute capital to a firm, they incorporate as a legal corporation, and they are then given a certificate (ie stocks) that gives them the right to participate in the appointment of the directors and managers who are to deploy the now ‘collectivized’ capital so as to maximize profits. The registered corporation is deemed to be a separate legal person, acting in its own right. The contributors who hold the certificates are entitled to share in the profits according to the number they own and may vote at some decision-making meetings about corporate policy. They are also entitled to share in any property left over after the corporation ends business and has paid all its debts. They have traded their property-owning status over their capital for the privilege of limited liability. This means simply that, should the corporation be unable to pay for any damages done or debts incurred while chasing profits, these shareholders cannot be personally called upon to make further contributions. Their only financial risk is the potential loss of their initial investment – a very limited risk when dealing with large publicly traded corporations. If things don’t look good, the owner of the certificate can sell it at any time.


Legal fictions
This is how it works. According to legal fiction, once a venture is registered as a corporation, a new property-owning and investing ‘person’ is created. This is the investors’ ‘invisible friend’. The harms inflicted by the venture can then be attributed to this new ‘person’ (ie the corporation), not to individual investors. This corporate ‘person’ is separate from the shareholders who stand to benefit from its profit-chasing activities. Shareholders are protected from fiscal losses in a way that no other market actor could hope for. They are also rendered legally immune from any wrongful, illegal and criminal acts the corporation might commit in their search for profits. They are like children who can claim, with perfect legality, ‘It wasn’t me!’,

Children often invent invisible friends to take the blame when they misbehave. But kids grow up and, as they mature, they are taught to take responsibility for their own conduct. Not so for the titans of capitalism who continue to blame their ‘invisible friend’ (ie the corporation) who commits crimes on their behalf. This is how the corporation is designed in law to create a class of legally irresponsible profit-maximizers. They have no reason to care about the way in which profits are garnered by their creature, the corporation. Indeed, there is an incentive to have the corporation act wrongfully, illegally and criminally if that pays!

But despite the pretence that a corporation is a real person, unlike you and I it has no physical, corporate body that can think and act. Live human beings have to do that for it. But when they think and act on behalf of their corporate bodies, they can claim that they are not acting as people in their own right, but as the corporation. It’s a short step to the claim that they are not personally responsible for any thinking and acting that might do harm and/or breach a law.

True, sometimes directors/managers are held responsible if it can be determined that their thoughts and acts are their own, rather than those of the corporation. But the starting position is that senior managers have a measure of immunity, although not quite the privilege of total legal irresponsibility enjoyed by the shareholders. The senior managers’ prestige and rewards tend to rely on improving the value of the shareholders’ interests. This will encourage wrongful corporate behaviour if it is likely to pay off in increased shareholder satisfaction.


Innocent even if guilty
Then there is the legal flipside. Because the corporation needs others to think and act, it cannot be guilty of a criminal offence. There is no wrongdoer whose intention to commit an illegal act can be proved. No-one seems responsible – not the senior management, not the shareholder, not the corporation. To get around this, the law is forced to use another pretence: it holds the corporation ‘criminally responsible’ when its acting mind and will exhibit wrongful intention. In a large corporation, this is immensely difficult to prove. It helps immunize corporations from criminal prosecutions. Increased incentive for wrongdoing – if it pays.

Corporations commit an enormous number of offences. One conservative study notes that 60 per cent of Fortune 500 companies are convicted of an offence annually. Many of them are common misdemeanours – not getting a permit or a licence, failure to record or publish information, not getting appropriate insurance coverage. These do not lead to the clamour for revenge inspired by common street crime. But many corporate offences are just plain evil incarnate and cause horrible hurt and damage.

Illustrations: © 2003 Jim Miller The examples are endless. British American Tobacco and Philip Morris knowingly lied about a product – tobacco – that led to addiction and killed their customers. The World Health Organization estimates four million people die yearly from tobacco- related illness. No-one has been tried for this conscious infliction of terrible hurt. Johns-Manville and the Cape Company knowingly exposed millions of people to poisonous asbestos. Some 18 per cent of serious exposures are estimated to result in life-threatening disease. They lied to governments and workers as they chased profits at the expense of life. No-one has been charged with a criminal offence. The manufacturer AH Robins knew that its intrauterine contraceptive device would let loose organ-affecting bacteria when inserted in women. Many miscarriages and some deaths later, they went into bankruptcy – but no-one was ever prosecuted for this wilful infliction of harm. Nestlé hustled women in poor countries to use their powdered milk, instead of breastmilk. When the powder was mixed with impure water, large numbers of babies got sick. Some died. If Nestlé did not comprehend this at first, protesters brought it to their attention. Yet they persisted in their quest for profits at the cost of babies’ lives for many years. No charges.

Ford made a Pinto car that exploded on touch. It had known this could happen, but preferred not to cut into its profits by recalling the car – paying damages to the burnt victims was cheaper. No-one was ever convicted for these deaths by immolation.

British American Tobacco and Philip Morris knowingly lied about a product – tobacco – that led to addiction and killed their customers

Royal Dutch Shell, Unocal, Talisman and Occidental Petroleum have been implicated in the murderous practices of various repressive regimes in Aceh, Nigeria, Burma, Sudan and Colombia. The poisoning of the Love Canal community in upper New York State was brought to us by a subsidiary of Occidental Petroleum; the mass gassing of Bhopal, by a subsidiary of Union Carbide.

The rate of recidivism(reoffending) is truly spectacular. Take ExxonMobil, who despoiled the pristine Alaska coast with sticky black oil and then saw their recklessly engineered gas plant in Australia explode, killing workers and leaving a whole state without gas for three weeks; then in Alabama these oil barons deliberately scammed the Government out of $3.5 billion and went on to steal fresh water from New York’s Hudson River and replace it with polluting bilge. Firestone made the tires for Ford’s SUVs. The deaths caused when the SUVs flipped are blamed on tire defects by Ford and SUV engineering by Firestone. In the 1970s Firestone produced steel-belted radials that it knew had a tendency to separate – with some 24 million of them on the road at least 41 people were killed and many more were injured when the tires blew out. I could go on and on.

Corporate evildoing is not exceptional behaviour: rather, it is the norm. The corporation has been legally designed as a criminogenic creature – in other words, prone to compulsive criminal behaviour. The law devised a scheme of business regulatory rules that penalizes offenders without criminalizing them. The idea is that corporate offences are not real crimes, but ‘overly aggressive behaviour’ – a natural side effect of being a competitive market actor that generates the wealth we all share. Such offences, so the thinking goes, are of a lesser order and should not stigmatize violators.

Illustrations: © 2003 Jim Miller It is now becoming more common to hold senior managers personally responsible for their corporations’ wrongdoing. This is to be welcomed because it finally recognizes that real flesh-and-blood human beings are responsible for corporate conduct. But the key issue is: why do these bloodless corporations commit so many wrongs? The nub of the matter – the structured criminogenic nature of the corporation – is avoided. Meanwhile governments go through elaborate gymnastics to prove their even-handed application of our laws and values.

In 1996 the English Law Commission recommended a new law against corporate killing. Despite the law being backed repeatedly by the Labour Government, it has not as yet acted on the suggestion. In Australia, the Federal Government passed legislation making a corporation, as such, criminally responsible if its culture led to the commission of a crime. Similar legislation is under consideration in Canada and by two Australian state governments. A few steps in the right direction – these events are now seen as more than just a regulatory peccadillo. But the protected rapaciousness of the wealth-owning class still hides behind the corporate veil.

The corporate form allows wealth-owners to influence governments more effectively than they could as simple individuals. It leaves them better placed to lord it over small entrepreneurs, consumers and workers. Workers’ right to combine in unions faces serious restrictions on the use of their collectivized power. No such constraints are imposed on shareholders who are given limited fiscal liability and total legal immunity. Corporate managers are expected to do everything in their power to maximize the wealth of the protected shareholders.

Corporate criminality is but a manifestation of the brutality of capitalist relations of production. We need to see shareholders for what they are, beneficiaries of the killing, maiming and ravaging of our cultural, physical and political environments. This is a first step in demystifying the way in which capitalism maintains its legitimacy. There is an entirely plausible argument to be made that criminal law should hold major shareholders responsible for the many evils done by the corporation on their behalf. And many social and environmental campaigners are now focusing their attentions on the laws that allow shareholders and investors the protection of their ‘invisible friend’ – the legal fiction that is the corporation.

Harry Glasbeek is Professor Emeritus and Senior Scholar, Osgoode Hall Law School, York University, Toronto, and author of Wealth By Stealth (Between the Lines, 2002).

Previous page.
Choose another issue of NI.
Go to the contents page.
Go to the NI home page.
Next page.
© Copyright 2003 New Internationalist
Publications Ltd. All rights reserved.


This first appeared in our award-winning magazine - to read more, subscribe from just £7

Comments on The Invisible Friend

Leave your comment