By Robert C. Hinkley*
3 February 2023
“We learned last week that certain fossil fuel producers were fully aware in the 1970s that their core product was baking our planet. And just like the tobacco industry, they rode rough-shod over their own science.
Some in Big Oil peddled the big lie. And like the tobacco industry, those responsible must be held to account.” UN Secretary-General António Guterres, Davos, January 18, 2023
Liberal democracy is now close to failing. One reason for this is that it has proved incapable of protecting the public interest from severe damage caused by big corporations. The next few years will tell whether it withers and dies or rights itself and survives.
Democracy is based on the consent of the governed. Sometimes this can mean serving the wants and desires of the majority, but to survive long-term, democracy must work for everyone. It can’t leave a large minority behind. Nor, may it allow the public interest to be severely harmed.
To ensure that neither will occur, there must be a shared commitment among the governed to not cause great harm to each other. At least to this extent, citizens must commit to the obligations of citizenship as well as take advantage of its rights.
The bad news is that corporations, the world’s most powerful citizens, are unburdened by any obligations of citizenship. Such obligations were eliminated in the late 1800s when legislatures mistakenly decided they were unnecessary. In fairness, this was decades before big companies developed the technology and size capable of causing the severe harm we are experiencing today.
Democracy recognizes that some citizens will take advantage of the absence of law to pursue their own interests in ways that harm others. It assumes that before too much damage can occur, the elected representatives of the people will enact a new law which prevents such behaviour from continuing. Such laws contain the damage. In this way, democratic government fulfills its purpose to protect the public interest.
However, this assumption is no longer valid. Through lobbying and financing the campaigns of politicians, big corporations (and their trade associations) have become proficient at delaying and frustrating the passage of new laws which would prevent them from continuing to destroy.
Corporations weren’t present when the American founding fathers drafted the U.S. Constitution. The word “corporation” doesn’t appear anywhere in the document. The concept of the modern corporation didn’t arrive on the scene until nearly 100 years later when its obligations to the public interest were eliminated.
Try to imagine the drafting of the Constitution in 1787 if modern corporations were present. Had the founding fathers been able to foresee the developments in technology and the changes in corporations which would occur over the next 250 years, would they have originated the same form of government which now so inadequately protects the interests of individual Americans? It seems unlikely.
That raises the question, what needs to change: democracy or the corporation? Changing democracy means changing the Constitution. That’s not easy and deciding how to change it is not obvious.
The good news is that changing the corporation is much less difficult and the necessary change is readily apparent.
We can no longer assume corporate behaviour which severely harms the public interest can be brought under control by new laws passed by local, state, or national governments. Unlike the founding fathers, we now know better.
Corporations are all formed under laws which can be amended relatively easily. No government sponsored institution should be encouraged to continue causing severe harm. Obligations to the public interest which were removed long ago can be reinstated.
The key to restoring the assumption upon which democracy is based is to impose on corporate directors a legal obligation to not severely harm the public interest. When a company discovers that it is causing severe harm by significantly contributing to the warming of the planet, killing millions of people each year or otherwise, its directors must have a legal duty to make it stop.
The duty of directors in existing law to “act in the best interests of the company,” must be amended to clarify that this obligation does not extend to circumstances where it will result in severe harm 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.
Nineteenth century legislatures passed laws which to this day encourage corporate directors to continue with their intentional destruction of the public interest. The way to correct this mistake is to balance the rights of corporations once again with at least the bare minimum obligations of citizenship, obligations upon which democracy depends.
*Robert C. Hinkley is a retired corporate lawyer and former partner in the law firm Skadden, Arps, Slate, Meagher & Flom. He is the originator of the Code for Corporate Citizenship (Code), an amendment to the duty of directors to protect the environment and other elements of the public interest. For more regarding the Code, see www.codeforcorporatecitizenship.com.