“Participants in the UN Conference of the Parties on Climate Change in Glasgow next week should realise the source of global warming isn’t the continuing emission of GHGs. The emissions continue because of a more basic problem.”
By Robert C. Hinkley*
25 October 2021
In 333 B.C., Alexander the Great arrived in what is now modern-day Turkey. There, he is reputed to have been faced with an unsolvable problem, the Gordian Knot. The legend was that the person who could untie it would conquer all of Asia. Many had tried, but for years no one succeeded. Alexander supposedly solved the problem simply by taking his sword to it. He went on to conquer vast areas of Asia thereafter. Ever since, the tale of the Gordian Knot has been a metaphor for taking a bold stroke to solve a complicated problem.
For more than a hundred years, corporations have presented democratic governments with a problem not unlike the one faced by Alexander. Democracies treat corporations as if they were just like individuals. Corporations are dedicated by law to the pursuit of their own self-interest. Big companies have global reach, can do incredible damage, and can situate their operations wherever the law treats them the most favourably.
The combination of these three factors makes it extremely difficult to regulate business behaviour which harms the environment and other elements of the public interest. Governments grant businesses corporate charters which allow them to engage in any business activity that is not illegal. The theory is that regulation can always be enacted later to force their destructive behaviour to stop.
But then, when called upon to stop the destruction, government finds itself unable to do so. Companies threaten to move their operations elsewhere challenging the local economy by eliminating jobs. Lobbying and money also get in the way to block new legislation designed to protect the environment, people, and our communities.
When this happens, the status quo is preserved, and corporate abuse of the public interest continues. Regulation is reduced to government negotiating with businesses to find compromises which determine “how much” of and “where” their anti-social behaviour will be allowed. “How much” and “where” regulation too often doesn’t stop the behaviour, it just moves it around.
Two of the most egregious examples of uncontrolled corporate anti-social behaviour are the emission of greenhouse gases (GHGs) which lead to global warming and the manufacture and distribution of tobacco products which cause the deaths of more than 8 million people every year.
A system of laws which provides for the creation of companies that can’t be stopped from seriously harming the public interest is flawed. Corporations are created by the law. They should be required to always safeguard the public interest. Instead, current law encourages corporate managers to defend their company’s “right” to continue harming it.
For some time, this has been government’s own Gordian Knot. Although its most important job is to protect the public it serves, it provides for the creation of powerful institutions which do severe harm to the public interest and cannot be made to stop.
Until government can figure its way out of this conundrum, it will never be able to protect the public from anti-social corporate behaviour. Worse, the public will lose faith in government (if it hasn’t already), because it knows big business, in a sense, is keeping government in check rather than the other way around.
Alexander’s key to conquering Asia, was to cut through the Gordian Knot. Similarly, governments must cut through the knot they created when they passed laws allowing corporations to be formed which are dedicated to the exclusive pursuit of their own interests.
Participants in the UN Conference of the Parties on Climate Change in Glasgow (COP26) next week should realise the source of global warming isn’t the continuing emission of GHGs. The emissions continue because of a more basic problem.
That problem is the corporate law. Negotiating with corporate managers will never be a solution so long as the law continues to encourage them to perpetuate the emission of GHGs and provides them with absolution when they do.
Changing the law to state for the first time that corporations have an obligation to safeguard the environment is the way to cut through this Gordian Knot. In addition to stating an important principle for the future, it will help expedite the conversion from burning fossil fuels to using less destructive technologies.
It will also facilitate the passage of additional business regulation which should tell these companies directly to stop burning fossil fuels. GHG emitters in the power generation and motor vehicle industries (two industries responsible for a large portion of all GHG emissions) should be given a short time (no more than fifteen years) to phase out their use of fossil fuels.
There are ways to provide electricity and power motor vehicles that do not involve destroying the planet. These alternatives are becoming more economic all the time. With less government subsidization of fossil fuels and more investment in the new technologies, the process can move forward even more quickly.
Conclusion
The corporate law is flawed. At its heart, it creates powerful institutions which have no obligation to the public interest and are difficult, if not impossible, to keep from engaging in severely destructive behaviour. This situation is inevitable when it is the legal duty of the people who run them, directors, to act exclusively in their company’s best interests without any balancing obligation to protect the public interest. This must change.
Trying to untie the corporate Gordian Knot with “where” and “how much” legislation has been tried for decades and found wanting. Such legislation needs to be supported by a change that requires directors to have due regard for the environment and other elements of the public interest.
The nations of the world should come together to agree that the duty each imposes on directors to “act in the best interests of their company” be supplemented by the words “and not at the expense of the environment, human rights, the public health and safety, dignity of employees or the welfare of the communities in which it operates.” I call this change the Code for Corporate Citizenship (Code).
The purpose of the Code is to temper the pursuit of corporate self-interest (i.e., profit) to make it clear that this pursuit has gone beyond reasonable limits. The people, represented by their governments, will no longer tolerate corporate behaviour which causes severe harm to the public interest. Directors shall from now on be expected to intervene before the damage wrecked by any company or industry goes that far.
COP26 is a good place to start by agreeing to add just eight of the Code’s words, “and not at the expense of the environment.”
Adding these eight words to the corporate law will slice through the problem which, for decades, has stymied government from protecting the environment. It will state unequivocally the expectation that corporations are expected to fulfill their obligations to shareholders without causing severe environmental damage to the Earth. This should appreciably strengthen government’s hand in passing further regulation to stem the threat of global warming.
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*Robert C. Hinkley is a retired former U.S. lawyer who lives in Berry, NSW, Australia. He is the originator of the Code for Corporate Citizenship. More information regarding the Code can be found at www.codeforcorporatecitizenship.com.