Corporate Accountability: Possible Solutions
© Marc A. Triebwasser, 1998  
 
 

In the last part of his book, Nadel presents ten possible solutions designed to achieve corporate accountability to the public.

The first solution he presents, is an increased sense of corporate responsibility. There are several meanings that this term could have. However, it would be difficult to imagine large scale corporations operating in today's environment adhering to moral concepts which might put them at a competitive disadvantage.

A second solution Nadel presents is that of more antitrust legislation . Antitrust legislation is designed to prevent the formation of monopolies and other practices which represent conspiracies for the restraint of trade. At the present time, there are a number of antitrust laws on the books, but still the government has been approving megamergers lately. It is thus difficult to see how new antitrust legislation could be passed today, or how it can be effective-especially if the old laws do not seem to work.

The unevenness in resources between the government and large scale corporations should also be kept in mind. For example, the entire budget of the antitrust division of the Justice Department amounts to only 5%-or 1/20th -of just the advertising budget of Proctor and Gamble.

The third solution which Nadel presents is that of the Federal chartering of large corporations. Right now, corporations are chartered by states. Because of the Fourteenth Amendment, a corporation chartered in one state must be recognized by every other state. In the late 1800s the states vied to have corporations locate their main offices in their state. It would be beneficial for revenue purposes. The states therefore made it very easy for businesses to incorporate. Perhaps the chief competitors then were New Jersey and Delaware. As a result of this, the rules the states adopted for incorporation are extremely lenient.

The idea of Federal chartering of corporations with annual sales or with assets above a certain amount would be to correct this situation. More quid pro quo requirements, for example, could be put on large scale corporations. Federal chartering therefore represents a number of possible new approaches designed to achieve corporate accountability.

A fourth approach is to change the internal governance of the corporation. This might mean putting a consumer advocate or a public-minded spokesperson on the board of directors of the corporation. In this way, it is hoped, the decisions of the corporation would take social values more fully into account. The problem with this is that, in order to be effective, such actions would involve far more changes than might be tolerated like today's corporations.

At the present time, many important decisions are simply not brought before the board of directors. And when they are, the board is often presented with insufficient information to make educated decisions. For this solution to work, the whole information structure of the corporation would have to be changed. Without these changes, putting some public-minded people on the board of directors might be more symbolic than significant.

A fifth solution suggested is to encourage large institutional investors to take the social record of a corporation into account in making investment decisions. Today, a great deal of stock is controlled by union and government pension funds, churches, trust divisions of banks, etc. However, to expect these institutions--or their financial advisors--to invest stocks which may represent companies with better safety or environmental records, but which may not produce as much revenue, would seem unrealistic.

A sixth solution which Nadel suggests is various models of worker control of the corporation. This might take the form of putting workers on the board of directors. Such a practice is followed in some German companies and is called codetermination. The question is: Would American workers be more socially responsible in their decision making than their counterparts in management?  Would the workers be any more concerned about product safety or saving the Federal government a great deal of money if such goals ran counter to their receiving increased wages?

A seventh solution which Nadel suggests is that of divestiture . Antitrust legislation would prevent large companies from forming in the first place. Divestiture, on the other hand, would break up large companies which already exist. There have been some famous examples of divestiture such as the breakup of Standard Oil into Esso, Enco, and Humbel Oil at the beginning of the twentieth century. Another famous example is the breakup of AT&T into a long distance company and seven regional bell operating companies which took place in the 1980s. However, these seem to represent the exceptions rather than the rule. Besides, today Standard Oil is able to sell worldwide under one name: Exxon. Moreover, we have recently witnessed mergers among the regional bells--or the baby bells as they are called. Take, for example, the recent merger of Bell Atlantic with Nynex.

An eighth solution which Nadel suggests is the establishment of an Agency for Consumer Advocacy. Such an agency would not promulgate new regulations, but would provide legal assistance to the consumer in suing corporations, and in enforcing laws which are already on the books . At the present time consumers have a number of important rights, but to exercise these rights, they need legal assistance which is usually very expensive. So in effect, they are unable to exercise their rights. In other words they have rights, but do not have legal remedies. The creation of an agency for consumer advocacy would correct this situation. An attempt was made to create such an agency in the early 1970s when public political awareness was at its height. However, corporate lobbying succeeded in having this legislation defeated..

A ninth solution which Nadel suggests would be to make it easier for consumers to bring class action suits. A class action suit is one in which a number of people (a class of individuals who are similarly affected) get together and sue an entity. By pooling their resources they can afford the legal assistance they need, and their effect on corporations is a lot greater. The amounts of money involved in the settlement of class action lawsuits may seem very large indeed. However when divided among the entire group of the individuals involved, the individual settlements may be quite small. One major example of a class action suit is that being pursued by women against Dow-Corning and Dow Chemical because of illnesses which may be related to breast implants.

A tenth solution which Nadel presents is that of reducing the bounds of secrecy in which corporations operate. Because corporations have been considered persons by our legal system, they are afforded many privacy rights intended for biological individuals. These include the protections against arbitrary search and seizure guaranteed in the Fourth Amendment. Because of this, it is often difficult to research corporate decision making and such practices as corporate campaign financing and lobbying.

An Eleventh Solution, Not Mentioned

It is interesting to note that all ten of the solutions that Nadel presents are within the current arena of capitalist thought. For the most part, they are designed either to break up large corporations and restore the conditions of small business in which laissez-faire capitalism can flourish; or they are designed to regulate the corporation so as to protect the public interest. Usually when a person criticizes our economic system, they are called socialists or communists. It is, therefore, important to remember that none of Nadel's suggestions go in that direction!

If Nadel were going to suggest such a solution, it might take the form of nationalizing large corporations. Nationalizing would mean that the government would take over these large scale enterprises. It is significant to note that Nadel does not make this suggestion.