A House Divided Cannot Stand

20 March, 2025

By Robert C. Hinkley

You might not have thought about it, but many generations ago humanity agreed to live under two systems: government and business.  The purpose of governments is to protect and advance the public interest by enacting laws under which we agree to live together.  The purpose of business is to generate wealth through the sale of goods and services.

Corporations, which are responsible for 90% of all commerce, are the engine of the economy.  By virtue of the corporate law, government allows them to be organized and determines how they are managed.

We tend to take both systems as they are, and assume they can’t be changed, but neither is immutable. Government can be changed to affect how it rules and corporations can be changed to affect how they behave.  We also incorrectly assume that the goals of the two are often in conflict and nothing can be done to bring them entirely into sync.  

Changing the form of government is difficult.   It involves getting the consent of voters to change constitutions and all that entails. All governments are different.  There is no one size fits all change which will make all governments better at protecting and advancing the public interest.

Changing the direction of business is much simpler.  It merely involves changing the duty of directors in the corporate law.  That duty is to at all times act in the company’s best interests.  Like any law, it can be changed.  If it sometimes conflicts with the goal of protecting the public interest, it can be amended to eliminate that conflict.  All that is required is a vote of the legislature, though it may take an outpouring of public opinion to make that happen.

The duty of directors everywhere is essentially the same.   In its current form, it can cause business and government to be at cross purposes.  This happens when it is discovered that a company or industry is causing severe harm to the public interest, but directors know that stopping the behaviour causing the harm will have a materially adverse impact on the company’s finances. 

In these circumstances, the law encourages companies to continue inflicting the harm--the exact opposite of government’s objective.  Examples of this can be seen when the duty:

• slows the transition from fossil fuels to renewables,

• stops companies from withdrawing from businesses that sell products which make people sick and sometimes kill them,

• encourages social media companies to continue using algorithms which divide our communities by selectively spreading disinformation and hate, and

• prolongs the use of third world sweatshops and other unfair labour practices, which widen the gap between the rich and everyone else.

The adverse effects of the law regarding the duty of directors have only recently become clear.  Advancements in science have both: (a) given companies more ability to cause severe harm (e.g., social media platforms with business models that sow divisiveness) and (b) made the harm more visible (e.g., the discovery that greenhouse gas emissions cause global warming). 

The bottom line here is that the existing law has the effect of turning big companies into bad citizens.  It may be the only law that does this.  After all, government is supposed to enact laws only to protect and further the public interest, not to encourage those that it governs to continue harming it.

Since the turn of the 21st century, a variety of things have been tried to convince corporate managers to voluntarily make their companies better citizens.  The American Business Roundtable (an organization of 200 business leaders from America’s largest companies) has changed its view on the purpose of the corporation from merely making money for shareholders, to making money while also considering the interests of other stakeholders, including employees, customers, and the environment. 

In addition, the socially responsible investing and corporate social responsibility (now called ESG) movements have grown exponentially.  Most business schools now teach these subjects and most corporations at least pay them lip service.  While there have been some successes, they have mostly proved ineffective at stopping continuous behaviour where the company has large investments in a business that is inflicting severe harm.

For example, twenty-nine annual UN Conferences of the Parties (COPs) have been held with the goal of getting the nations of the world to enact laws to require companies to reduce the threat of global warming.  Despite practically unanimous agreement at the COPs, when the delegates returned home, they found it impossible to enact such legislation in the face of lobbying from the fossil fuel industry and its large customers.

In the past four decades, big companies have become more adept at interfering in the process of government to delay and frustrate the passage of new laws which would require them to do more to protect the public interest. You only have to look at the United States to see how government is being captured by business interests at the expense of the public interest.  The government there, by, of, and for the people is now run by two businessmen and is rapidly becoming a government by, of, and for big corporations. 

A civilization whose goals conflict in this manner is no longer desirable and will not survive.  This has caused many to lose hope, but in the words of Al Gore, “our dismay must not turn into defeat.” 

There is a way to turn this situation around.  That’s to make the goal of business less predatory and more citizenlike. It makes no sense to continue a situation where the goal of corporations is in direct conflict with the goal of government, the institution which gives corporations life.  People did not form governments that they expected to preserve the public interest, only to have government spawn big institutions that destroy it.

When the idea of the corporation was first conceived, directors were required to protect the public interest or face the possibility of losing their charter.  Approximately 150 years ago, this requirement started to disappear from the law as governments looked to entice businesses to organize in their jurisdiction.  This set the stage for where we’ve come to today, where business rules government instead of the other way around.

Hope lies in changing the law back, by making it the duty of directors everywhere to “act in the best interests of their company” “but not at the expense of severe damage to the environment, human rights, the public health and safety, the dignity of employees or the wellbeing of the communities in which the company operates.” 

I call this change the Code for Corporate Citizenship (Code) because it will turn around a law that now encourages poor citizenship and ensures that the job of government, to preserve and protect the public interest, will no longer be under continuous attack from business.

It's a mistake to continue trying to live under two systems whose goals sometimes contradict each other.  The protection of the public interest from severe harm should always have priority over the pursuit of private wealth.  Business can remain privately owned, but its severe and continual abuse of the public interest must be stopped.  This can be achieved without eliminating the profit motive.  Business can still thrive while protecting the public interest. The two are not mutually exclusive. 

Voters must make their preference for more responsible corporations clear.  The move to adopt the Code should start with the next election everywhere.  All candidates should be asked their position on the issue.  It should not be a partisan matter.  No candidate for public office should be in favour of corporations continuing to severely harm the environment, the public health and safety, the dignity of employees or other elements of the public interest.