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Robert Hinkley

How Much Should Corporate Directors Care?


9 September 2024

 

Liberal democracy is based on the principle that government which governs (i.e., restricts freedom) least governs best.  Everything is legal until government enacts a law saying it isn’t. In other words, freedom is the default setting until it is abused by behaviour harming others or the public interest.  When such behaviour arises, government is supposed to pass a law to make it stop.  Until it does, the damaging behaviour may be unethical or immoral, but it’s not illegal and can continue. 

 

This arrangement leaves the environment and public interest exposed to harmful behaviour until a law is enacted.  It is assumed that the greater the damage being inflicted, the quicker government will step in to stop it. This assumption is no longer valid.

 

Liberal democracy works relatively well when governing individuals.  Individuals have little capacity or inclination to severely harm the public interest by themselves.   It doesn’t work so well, however, when it has to govern modern corporations which, due to their size, geographic reach and technology, have plenty of both capacity and inclination. 

 

Although corporations only act through people (e.g., their directors, officers and employees), those people must follow rules.  The most dangerous of those rules is the corporate law duty of directors which requires directors to “act in the best interests of their corporation.”  

 

This provision gives all corporate personnel a common goal by making it the job of the people in charge to advance their company’s financial self-interest. Because no consideration is made for protecting the public interest, directors can (and regularly do) choose to continue harming it when protecting it would cost the company lots of money. 

 

Corporations have also learned how to lobby government to delay and frustrate the enactment of new laws designed to make them stop their destructive behaviour.  When government can’t pass a law to make the damage stop, the result is that companies can continue inflicting severe harm with impunity. The damage continues and builds. The emission of greenhouse gases that cause global warming and climate change (severe damage which has now been recognized for almost three decades), is a perfect example.

 

There is only one solution to this problem.  The corporate mission set forth in the duty of directors must be changed to put an end to severely destructive corporate behaviour from the outset.  The mission of all directors must be changed to make it clear that “acting in the best interests of their company” does not permit allowing their company to continue severely harming the environment, the public health and safety, the dignity of employees or the wellbeing of the communities in which the company operates.  Full stop.

 

Corporate officials must be made to care about protecting the public interest at least this much.  There really is no alternative.


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Photo by Richard Miller

 

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