Search
  • Robert Hinkley

A Call to Action





Protecting the public interest should be a corporate priority.


1 August 2022

By Robert C. Hinkley*


Should government pass out licenses to operate to companies that wilfully kill people, despoil our environment, violate human rights and the dignity of employees, or tear apart our communities? You may not realize it, but they do. I’m writing to ask you to help make it stop.


The problem


All companies operate pursuant to charters granted by government authorities giving them permission to be formed and operate. A few of these companies then use their government granted license in ways which cause serious harm to people, the environment, and our communities. Think of the tobacco and civilian firearms industries, companies emitting greenhouse gases or toxic chemicals, companies that operate third world sweatshops, and the high-tech companies which employ business models that divide our communities.


Nearly 20 years ago a group of teen anti-tobacco activists incorporated a company in Virginia called Licensed to Kill, Inc. (“L2K"). I was their lawyer. As stated in its corporate charter issued by the State Corporations Commission (SCC), the purpose of the company was “to engage in any business permitted by the Commonwealth of Virginia …, including, but not limited to, the manufacture and marketing of tobacco products in a way which each year kills 400,000 Americans and 4.5 million other persons worldwide.”


After L2K was formed, the SCC told the press that it hadn’t wanted to issue the charter, but it was required to under the law. When asked to comment, a spokesperson for the company replied that was the point—to expose the inability of government to control corporate abuse of the public interest, even in the face of L2K’s brazenly announced intentions.


The difference between L2K and the other companies which harm the public interest is mainly one of timing. Before its charter was granted or it had any business at all, L2K announced its intention to kill people.


The charters of the other companies said only that they planned to engage in any business permitted by the state. Those companies built successful businesses first. Later, developments in technology exposed that a few were causing severe harm to the public interest. Ever since, these companies have been knowingly operating their government-chartered businesses in ways that kill people or cause other severe damage.


That will continue until management voluntarily acts or government can pass a law to make it stop. The persistent killing and damage show there are instances where the companies are unwilling to volunteer, and government is unable, to make it cease.


There is a solution


Companies causing severe harm are a small minority of total companies operating in the world today, but the harm they cause is relentless as it is extensive. It occurs every day. It occurs not just locally, but regionally, nationally, and often globally. Sometimes they operate in one jurisdiction and cause damage in others.


Current law needs to be changed to tell the people who run businesses that they must stop the ongoing destruction. Further, it should caution the managers of all other companies that their company too will be forced to stop if, in the future, it is discovered to be causing severe harm.


Big corporations are a curious kind of citizen. Their inclination and capacity to damage the public interest is much stronger than that of human beings. Most human beings have a conscience. The people who behave totally out of self-interest usually have a limited capacity to cause harm to the public interest.


On the other hand, all companies are dedicated solely to the pursuit of self-interest. The biggest combine the efforts of thousands of people working in concert backed by billions in capital. A few cause more damage in one afternoon, than a human being can do in a lifetime.


This destruction can be eliminated without unduly disrupting our economy. All corporations have a weak spot where a well-coordinated and targeted attack can bring an end to its ability to destroy. To be successful, the attack must be focussed in the right place. Think of the destruction of the Death Star in the first Star Wars movie.


Corporate Law


The law everywhere requires directors to serve the interests of the corporation and its shareholders. This law is the foundation upon which national economies are built. Investors put money into companies. The law requires directors to use their best efforts to use it to make money for those investors.


This makes sense—up to a point. However, the law can also have an adverse effect. When the cost of stopping severe damage will be extensive, it encourages directors to allow the destruction to continue.


When billions have been invested in a business which is found to be killing people or causing other severe harm, directors don’t act to stop it. Coal fired power stations keep right on emitting greenhouse gases. Motor vehicle manufacturers drag their feet on converting to electric vehicles.


To keep going, management employs a variety of strategies. It may initially deny the harm is serious. Alternatively, it may try to convince government that forcing the company to stop would be bad for the economy. It also may threaten to move the company to another jurisdiction which will be more accommodating. Almost inevitably, management frustrates the efforts of government to stop the damage and the business continues.


The duty of directors that drives this behaviour is also the corporation’s weak spot. While it perpetuates corporate destruction of the public interest, it’s also just a law. Like every other law, it can be changed if enough people demand it.


The law regarding the duty of directors is, in practical effect, the same all over the world. A good example of it can be found at Section 181 of the Australian Corporations Act. It states:


A director or other officer of a corporation must exercise their powers and discharge their duties:

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose.


Nothing here requires directors to protect the public interest. Consequently, protecting the public interest is not a priority. In fact, it’s not even on their agenda.[1]


Governments are formed by the people to protect the public interest, not destroy it. No institution formed under the auspices of government should cause serious harm to the environment, employees, other people, or our communities. Imagine the outcry there would be if a government announced it was going to license the private sector to start a new industry which would kill hundreds of thousands citizens each year.


It shouldn’t be only the government’s burden to keep corporate behaviour from causing great harm. Directors are responsible for running companies. They (or their predecessors) made the decisions which now turn out to be destructive. The company’s current directors should bear primary responsibility for making it stop.


To make this change, Section 181 (and its counterparts around the world) should be amended as follows:

A director or other officer of a corporation must exercise their powers and discharge their duties:

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose, but

(c) not at the cost of severe damage to

(i) the environment,

(ii) human rights,

(iii) the public health and safety,

(iv) the dignity of employees or

(v) the welfare of the communities in which the corporation operates.


I call the underlined words, the Code for Corporate Citizenship (Code).


The Code will have a profound effect on the way companies conduct business. Amending the corporate law to include the Code’s obligations will make protection of the public interest a priority for directors at least equal to the goal of making money. A few big companies (e.g., significant emitters of greenhouse gases) will have to change the way they do business or cease entirely.


The Code will also change the response of directors the next time a company is found causing severe harm. Directors will know they have an affirmative duty to make it stop—not cover it up or lobby legislatures to allow it to continue.


More importantly, the Code will introduce a new factor into all business decisions. Under current law, boards of directors are primarily concerned with profitability and return on investment. They leave regulatory compliance to the managers of the business, mainly its legal counsel.


Once the Code is enacted, directors will become more diligent in monitoring the impact of their business on the environment, employees, customers, and the communities in which it operates. They will demand their managers take steps to protect the public interest, not merely comply with applicable law.

Their caution will mitigate the risk of the potential costs the company would incur if it is discovered to be causing severe harm. That caution will, in turn, reduce the possibility of such harm occurring.



A Call to Action


Enacting the Code into law would have seemed impossible even ten years ago, but today there are lots of good reasons why it’s not.


The investment and business worlds are already coming around. Today, more than $30 trillion is said to be invested through socially responsible investment vehicles. Business schools all over the world now teach their students that companies should protect the environment and society and govern themselves transparently and ethically (so-called ESG). Most major companies incorporate ESG into their organizational structure. They recognize that being socially responsible (or, at least, being perceived to) is important.


Existing law focusses company directors’ attention on making money. Socially responsible investing and ESG try to get directors to temper that pursuit. Their shortcoming is that both are voluntary.


The result of these two strategies is that less consequential abuses of the public interest are mitigated while problems which are more costly to solve are largely ignored. The Code is designed to force directors to take on the abuses which are highly costly as well as those where the costs are less consequential.


The key to enacting the Code comes in adopting a strategy for implementation which draws on the collective strengths of the various organizations which are already fighting corporate abuse of the public interest separately. Examples include, socially responsible business organizations, environmental organizations, organized labour, academia, community service groups, and religious congregations.


There exist tens of thousands of groups all over the world trying to do something about the environmental problems caused by big companies. These groups are separated by the jurisdictions in which they advocate for change and the pollution they want to stop. Generally, each tries to reduce the emission or discharge of a particular substance in a specific place. This “how much” and “where” strategy tries to stop specific instances of environmental destruction, but often results only in moving it from one place to another.


The Code recognizes all environmental activists are fighting a problem with a common source. It attacks the source of the disease rather than the symptoms. Due to its brevity and simplicity, the Code can be used by the members of a variety of organizations without a lot of training. Working together has the potential to create a political force too strong to ignore.


Conclusion


Licensing companies to operate in a way that allows them to destroy the public interest until government makes them stop, doesn’t work. Companies should always be required to protect the public interest from severe harm, even though their behaviour may be technically legal under existing law.


Current law now provides directors with two convenient excuses which justify the continuation of their company’s anti-social behaviour::

  • Their obligation is to act in the best interest of the company, and

  • Current law doesn’t prohibit what they are doing.

Together, these excuses potentially give companies a license to kill. The Code will invalidate that license by imposing obligations to protect the public interest.


Socially responsible investing and ESG show how companies can do both: make money and protect the public interest. The obligations are not mutually exclusive. Directors can do both. Adding the Code to the duty of directors will replace a life destroying form of capitalism with a life affirming one.


It's time to make it mandatory.

----------- [1] While some companies may adopt voluntary codes of conduct and other internal rules designed to protect the public interest, these provisions are not mandatory and can be waived whenever it suits. Further, it’s not lost on the company’s managers that the directors’ chief concern is profitability. This can cause managers to sometimes pay lip service to the internal policy and take shortcuts that deliver profits at the expense of the public interest.



Robert C. Hinkley is a retired attorney and former corporate partner in two of America’s largest law firms. He is the originator of the Code for Corporate Citizenship and the author of “Time to Change Corporations—Closing the Citizenship Gap”. (Available on www.Amazon.com.) He can be contacted at rchinkley1711@gmail.com.

66 views0 comments

Recent Posts

See All