In the Sermon on the Mount, Jesus admonished his disciples to dedicate their lives to God and to "take no thought" of material wealth (i.e., Mammon): "No man can serve two masters, for either he will hate the one and love the other, or else he will hold to the one, and despise the other. Ye cannot serve God and Mammon." One of the longest-running debates in corporate law is whether corporations serve -- or can be made to serve -- the needs of society in ways other than the generation of wealth. In short, can corporations serve both God and Mammon?
What is the role of corporate law in promoting social responsibility? The conventional wisdom holds that modern public corporations are inherently irresponsible, at least partially because of the following: (1) the common law requirement that corporations maximize shareholder value; (2) the structure of the corporation, in which managers exercise control on behalf of absentee shareholders. Critics see the following picture: When managers are performing their duties, they are racing forward in single-minded pursuit of profits without thought of social consequences; on the other hand, when managers stray from their devotion to shareholders, it usually is an attempt to line their own pockets, not in an attempt to benefit society.
Corporate law scholars generally accept the picture painted by critics. Scholars who are largely satisfied with the status quo suspect that managers rarely stray from their devotion to shareholders, and argue that pursuit of long-term profit maximization benefits society. Those who are dissatisfied with the status quo contend that pursuit of long-term profit maximization for shareholders causes corporations to impose tremendous costs on society. The former view typically is associated with "contractarians" and the latter view with "communitarians."
Perhaps not surprisingly, contractarians and communitarians have widely divergent views on the use of corporate law to promote corporate social responsibility. Under the contractarian view, society sets the limits of corporate behavior through regulations external to the corporation or by contracts between the relevant constituencies and the corporation. But within corporate law, profit maximization is sacrosanct. Communitarians argue that external regulations and contracts are insufficient to protect the interests of nonshareholders; therefore, those interests should be protected through corporate law, by making managers fiduciaries for all stakeholders.
Despite frequent proposals to promote corporate social responsibility through corporate law, the United States has tended to promote corporate social responsibility primarily through the use of external regulations. The increasing internationalization of business will lead to increased calls for corporate social responsibility on a global scale, and one response to those calls (which has begun to emerge already) will be proposals to charter or license corporations through an international governmental body. For reasons too lengthy to explore here, this seems to me like an exceedingly bad idea.
In my view, attempts to promote corporate social responsibility through corporate law are misguided because neither the profit maximization norm nor corporate structure account for the purported lack in corporate social responsibility. Instead, the culprits here are just that: culprits. Bad people. Like the poor, they will always be with us. And despite the best efforts of social reformers, law cannot fully anticipate nor fully prevent their activities. Indeed, I worry that one of the unfortunate consequences of attempting to provide a complete legal response to socially irresponsible behavior is that we may inadvertently encourage such behavior. Simply stated, detailed legislation may be imply that everything not regulated is moral.
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1. Posted by Jack Bog on November 10, 2003 @ 6:20 | Permalink
How right you are, Gordon. Look at what's happened to the tax laws. The practitioners (particularly the accountants) now allow, even urge, their clients to assume that whatever is not expressly prohibited, is permitted. Faced with widespread, shameless corporate tax shelter shenanigans, Congress is now thinking about codifying tax's economic substance doctrine and the step transaction doctrine. But that will be like plugging a dike, and it could in fact make matters worse.
The textualists on the High Court aren't helping matters. They'll allow the absurd pro-taxpayer result -- one clearly contrary to the structure and intent of the statute -- if there isn't explicit language in the Internal Revenue Code preventing it. See Gitlitz v. Commissioner, one of the Court's more peculiar recent products.
While we're going biblical with this, St. Paul told the Corinthians, "The letter of the law killeth, but the spirit giveth life."
2. Posted by Gordon on November 10, 2003 @ 7:20 | Permalink
Excellent example, Jack, but tax law is surely not alone. Whenever I enter a law library, I am astounded by the sheer volume of law that we generate! Great scripture! Gotta love Paul as a guy who spoke his mind.
3. Posted by Pip Smibert on January 19, 2004 @ 9:46 | Permalink
It is easy to serve two masters, and we do it all the time, balancing our obligations to family, corporate and personal objectives. Service means we are working to the best interests of the master, even if the master may not see it at the time.
What we can't do is be a SLAVE to two masters, blindly following two sets of rules without questioning.
But we need to have a hierarchy of "masters", that defines how conflicts are resolved. And this is where old fashioned ethics comes in. I remember learning in first year law, the dictum of the African Chief...."I can make you obey the law, but I cannot make you an ethical man".
Overall, I believe there should be Christian values - not fundamentalist, "hell fire", Old Testament "do unto others as they have done unto you", but simple New Testament stuff that makes simple rules - love god, love your neighbour, even if he is a %$#@$#% (and particularly if he is a ^%$#^%#%$). Try that on the tax man when he comes calling!
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