29 August 2024
The most consequential law on the books today is the provision in corporate laws all over the world which orders directors to “act in their company’s best interests.” It’s been around for more than 100 years. Its effect is to release corporations, endowed with all of the rights of citizenship, from any of its obligations.
It sets up a system where when large amounts of money are at stake, directors can use the law to justify a lack of care for anything other than their company’s finances. Directors of companies responsible for emitting large amounts of greenhouse gases are a good example.
Photo by Richard Miller
This system worked for a long time because corporations were smaller and technology less destructive. After World War II, however, corporations grew in size and spread their geographic reach. Their technology developed rapidly and was later discovered to be more destructive than originally thought. Managers also figured out how to delay and frustrate the enactment of new laws designed to curtail their company’s destructive behaviour.
A system where the world’s most powerful citizens are sometimes also its worst (because they can continue to severely harm the public interest with impunity), cannot survive. It’s time to change the system to make directors care about more than just their company’s finances.
Next time, we’ll discuss how carefully imposing duties of care on directors will eliminate some of the world’s most damaging corporate abuses.
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