COMPANY, HALT!

nike protest It’s time to bring Frankenstein corporations to heel, and get them doing what they were originally created to do – serve the people.

There’s a case before the US Supreme Court in which Nike, backed by the Chamber of Commerce, Microsoft, CNN, Bush’s Justice Department, and an array of massive corporations and media, is fighting for the constitutional first-amendment right to lie to its customers. At Common Dreams, Thom Hartmann explains :

While Nike was conducting a huge and expensive PR blitz to tell people that it had cleaned up its subcontractors’ sweatshop labor practices, an alert consumer advocate and activist in California named Marc Kasky caught them in what he alleges are a number of specific deceptions. Citing a California law that forbids corporations from intentionally deceiving people in their commercial statements, Kasky sued the multi-billion-dollar corporation. Instead of refuting Kasky’s charge by proving in court that they didn’t lie, however, Nike instead chose to argue that corporations should enjoy the same “free speech” right to deceive that individual human citizens have in their personal lives. If people have the constitutionally protected right to say, “The check is in the mail,” or, “That looks great on you,” then, Nike’s reasoning goes, a corporation should have the same right to say whatever they want in their corporate PR campaigns.

Two hundred years ago Jefferson and Madison proposed an 11th Amendment to the Constitution that would “ban monopolies in commerce,” making it illegal for corporations to own other corporations, banning them from giving money to politicians or trying to influence elections in any way, restricting corporations to a single business purpose and requiring that the first purpose for which all corporations were created be “to serve the public good.” At the time, the amendment was deemed unnecessary because existing State laws already said this. By 1864, corporations had grown so powerful that Lincoln said “Corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”

Twenty-two years later, due to a bizarre legal misinterpretation of the 14th Amendment, the courts ruled that corporations were legally “persons” and had the commensurate rights of persons. The juggernaut of undemocratic corporate power has grown ever since, and the Nike case is just taking it to the next logical level. But rights given to corporations inevitably come at the expense of rights of citizens, as NAFTA and the WTO “free” trade agreements, which allow corporations to sue governments for compensation and force them to undo national social, labour and environmental laws that in any way restrict their “right” to operate equally inexpensively anywhere, have shown. Corporations now use their “rights” to buy government favours, crush small entrepreneurial competitors, mistreat their employees, support corrupt foreign regimes, commit Enron-style corporate rape, exploit cheap labour and low social and environmental laws in the third world, conspire to restrict competition and gouge consumers with obscene markups, and lobby for the privatization and deregulation of everything. Now they want the right to lie to people when they do so, under the guise of “PR”.

Recently I posted an article entitled Do Corporations Have Too Much Power? , in which I promised to prescribe some solutions to this excess. But Mr. Hartmann has already written the book, Unequal Protection , that does just that. His three point plan is:

  1. Municipal Resolutions that deny “personhood” to corporations (I reported in my previous post on two municipalities that have passed such resolutions). Their purpose and draft composition is explained here .
  2. Municipal Ordinances that revoke explicit and implicit “personhood” rights in legislation under their jurisdiction.
  3. Constitutional Amendments to state and federal (14th Amendment) laws, that clarify that laws and rights enacted to protect and empower “persons” apply only to “natural persons” (people) and not to corporations.

The grassroots movement ReclaimDemocracy.org is working with citizen and consumer groups to help in this task. This site has an excellent history of the original purpose and scope of corporate charters, and a vast set of resources for countering the overwhelming anti-democratic power that large corporations wield in today’s world.

Personally, I think we need to go even further, and remove some of the corporate trappings that allowed corporations to become so needlessly powerful in the first place. I would add three more steps to Hartmann’s program:

  1. Eliminate corporations as entities under tax law. Treat all corporations like unincorporated businesses for tax purposes. Profits are then deemed to flow automatically to shareholders in proportion to their shareholdings and are taxed in their hands. Corporations can then no longer be used as tax shelters, and complicated multi-company structures can no longer be used to avoid taxes. The debate over tax rates on dividends versus interest versus capital gains becomes moot, and the need for corporate tax returns is eliminated (something even conservatives should applaud).
  2. Prohibit corporations from engaging in any political activity, including lobbying and donating to political campaigns and entities, as part of a broad reform of electoral finance.
  3. Prohibit corporations from owning any property that is not directly related to the company’s operations, or entering into speculative activities.

Stripped of their rights, their tax status, their incentive to inflate short-term profits at any cost, and their political activities, corporations could once again become what they were designed to be in the first place: Vehicles to allow the effective raising of capital from a variety of investors, and the investment of that capital for the common good. As partnerships and unincorporated businesses have shown for centuries, there is no need to have a corporate form of business for any other purpose than to enable the financing of cooperative enterprise.

These changes could actually accomplish much more than merely eliminating corporate abuses and returning power and rights to citizens. They could enable and encourage business managers, beyond ensuring a reasonable risk-related return on investment to those that advanced the business funds, to focus on precisely those things that companies were initially chartered to do: provide local employment, help organize community endeavors, invest in local infrastructure, all for the ‘common good’. Then, finally, terms like ‘financial equity’ and ‘corporate citizen’ will cease to be ironic.

The Nike case is expected to be decided in June. With the Bush regime already working to indemnify pharmaceutical companies, HMOs and the defense industry from being sued by wronged citizens, the ruling will be pivotal, and may well shape the power structure of Western society for decades. Keep watching.

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14 Responses to COMPANY, HALT!

  1. Rayne says:

    Whatever happened to the definition of “fraud”?

  2. The Raven says:

    Dave: Corporations can then no longer be used as tax shelters, and complicated multi-company structures can no longer be used to avoid taxes.This statement is extremely worrisome to me, since it was only by forming a multi-corporate legal structure that I’ve been able to reduce my tax liability to something even marginally tolerable. Don’t suppose you’ve even gotten a 5-figure bill from the IRS, but when you do, you’ll start looking for whatever means are necessary to avoid getting another one.Also: corporations could once again become what they were designed to be in the first place: Vehicles to allow the effective raising of capital from a variety of investors, and the investment of that capital for the common good.The word “company” takes its business sense from the military term: A group of mercenaries out for hire to the highest bidder. In the old days, a single individual would own the means of production and everything else. The idea of individuals pooling their resources to compete with plutocrats is what led to companies today. I’m sorry, but you’re just plain wrong: Companies have no responsibility to the “common good” whatsoever – their sole responsibility is to their shareholders and workers in whose interest they were formed in the first place.Looking over your article here, one gets the sense that you view a corporate entity as some sort of evil, malignent presence that should be destroyed, or at the very least controlled to the point that we’ve killed the goose that’s laying the golden eggs. But all you’re suggesting here is a roadmap to poverty and misery for everyone. I suppose that would be nicely egalitarian. – R.

  3. Dave Pollard says:

    Raven: I have received a 5-figure tax bill from the equivalent of the IRS. The fact that companies today have “no responsibility for the common good” is exactly the point: If you read the references in my article, that’s what companies were originally created to do, not to blindly maximize shareholder profit at any cost. And modern companies show little interest in their “workers” (they’d replace them all with more efficient capital if they could), and any show of “responsibility” to workers is pure PR. Yes, I do see the modern corporation as malignant, which is precisely why I think they need to be refocused to their original purpose, which was for the “common good” (the words of the framers of the original corporate charters, not mine). I think you’ve been brainwashed if you really believe the alternative to untrammeled corporate power is “poverty and misery for everyone.” I think Nike may have a job for you.

  4. Dave Pollard says:

    Rayne: Actually, the term “fraud” is being actively used by Nike’s lawyers in their defence. The term legally means “intent to deceive” and requires proof not only of such intent, but of causal connection between that intent and personal loss to the litigant. Were it not for the generosity of the particular California law in question, which does not require fraud, this case wouldn’t have even gone to court, and Nike could keep on lying itself all the way to the bank. The state of current corporate and commercial law is so shabby that, outside of California, corporations have every “right” to run third-world sweatshops and overtly lie to citizens about them.

  5. Marie Foster says:

    It will be interesting to see what the court does with the suit. I have a feeling that Nike will prevail to our detriment.Recently FOX won a suit in which the court basically said that the freedom of the press granted them the right to lie and deceive. This case was similar to the Nike one in that the points of the suit about the deception were granted by FOX. I wonder what I might find about journalistic ethics on their web page. Nah… I don’t want to be polluted by them to even go there.If we are to have a civil society we need corporations that are good citizens instead of mercenaries as Raven suggests. It is this unbridled attitude that makes Raven and others have to stoop to the same tactics to survive that most troubles me.If we do not control their ravenous appetites then we have nothing to complain about when they turn around and eat your children.

  6. Dave Pollard says:

    Marie: Precisely. We should not expect them to be ethical; they are not ‘persons’. Nor should we try to regulate their behaviour: far too cumbersome and adversarial. The approach of simply removing their rights and limiting them to activities in narrowly-defined corporate charters seems to me the most logical. If you want to control a monster, it’s best to fence it in rather than trying to teach it to be polite.

  7. Rayne says:

    If there is “no intent to deceive”, why lie? Lying is inherently deliberate misrepresentation, a.k.a., deception.If the product and the company are good, why the need for deliberate misrepresentation?I’m no lawyer, but I seem to recall some grounds for award of damages because a consumer relied upon the expert opinion of the seller. If the expert opinion was grossly wrong, fraudulent, inadequate or misrepresented the full and actual nature of the product, the seller had no recourse. This would probably be tack that a consumer would have to take against Nike and other companies who are “experts” on their products, assuming Nike wins in court.As to the subject which underpins this entire discussion — business ethics: I was taught in business school that “the purpose of business is to maximize long-term shareholder value, with distributive justice and ordinary decency.” Lying to customers is not in the interest of building long-term shareholder value; it is not just, and it is not decent. In other words, it’s an unethical practice. The law exists to ensure that all businesses act justly and decently — but generally not to extraordinary measures. Is not lying to consumers an extraordinary effort? If businesses have not been able to do so until now, then no. Businesses have not generally failed because they could not lie. Nike is simply acting in an unethical fashion. Their shareholders should be up in arms about this as such behavior drains equity and costs them value in the long run. This may be the best move for activists: go, buy stock, file a request for a vote on ethical practices or on this particular case (withdrawing it) with the Board of Directors at the next shareholders’ meeting. If enough shareholders demanded it, an immediate meeting may be possible. No need for lawyers or the court. Take over the company and make them stop, just like good capitalists.Stock symbol: NKE

  8. Dave Pollard says:

    I’d love to believe you, Rayne. It should work that way, but it doesn’t. Deliberate misrepresentation is what advertising and PR are now, alas, all about: they allow more of a product to be sold at a higher markup than would be possible telling the truth.Since this is at the Supreme Court level, I’m not sure any appeal is possible, unless (and this is possible), the Supreme Court avoids the issue by settling it on a technical basis. It’s also possible they may rule that some specific aspect of this case has guided their decision, and it should therefore not be viewed as precedent-setting.The rights of minority shareholders are, unfortunately, also limited in law. Corporations are not democracies and the minority shareholder can only sue if he can prove that he has been financially ‘oppressed’ by a majority decision. Hostile takeovers are extremely difficult to do, as the controlling shareholders always ensure they have 51% of the voting shares at all times. You need a certain number of votes to even get a resolution on the agenda for a shareholder meeting, and ‘activist’ resolutions are quickly dispensed with at annual general meetings, being brought to a quick vote, and with closure invoked on debate if the rigid scheduling of the meeting is disrupted by a filibuster. The only power citizens really have is buying power, and you can only swing it if there’s enough evidence of misconduct to attract press attention. Nike’s move in this case is an attempt to stifle that last opportunity for citizens to use their power against unethical business.

  9. Rayne says:

    Dave, a product boycott is leverage that empowers minority shareholders. Let’s assume 49% of the stock is purchased by like-minded individuals; they have insufficient voting power. But then a product boycott tanks stock value because of this very reason; then more than 49% of the shareholders will vote to improve the stocks price, or more shareholders in the majority group will sell. It would take organization, but it could be done. More importantly, it would take commitment.I note that a share of Nike stock sells for roughly the average price of a pair of shoes. If every person who’d ever bought Nike shoes also bought a share for each pair of shoes they’d bought, I suspect the tide could change.

  10. The Raven says:

    Dave: If you seriously think that “corporate charters” have anything to do with anything, you’ve taken a wrong turn somewhere. Companies today add boilerplate pro forma statements to their annual reports about being “good corporate citizens” and it’s hogwash and everyone knows it. The modern corporation is an assembly of people, people fixed on a common goal. But when you talk about taxing them to death, and forcing them to “refocus,” you’re espousing the sentiments of a despot, someone who thinks he “has a plan” that’s best for everyone and is willing to kill – symbolically – for the “common good.” That’s dangerous thinking, and it raises serious questions of individual responsibility that shouldn’t be so casually ignored. Spare me the lectures on brainwashing, please. You mentioned “the Enron rape,” for example, but there’s nothing in these suggestions here that would have prevented that. Enron was a case of a company buying serious access to government influence and being aided by collusion among institutions responsible for fiduciary oversight. Changing Enron’s legal status or tax structure wouldn’t have done squat to prevent what happened, nor would a regulatory scheme aimed at forcing the company to contribute to the “common good” (whatever the hell that is) have had a salvative effect. Had you discussed the need to enforce extant regulatory law and strengthen the teeth of the SEC, you would have gotten my attention and support. But targeting all companies, all corporations, to address the excesses of notable malfeasance among a select group is wrong, misguided, and very much likely to increase unemployment, raise taxes, and inflate prices – things that very much do tend to increase human misery. Regards, – R.

  11. Doug Alder says:

    Marie – you’re right not to go to FX – they are neither journalists or ethical – both concepts are utterly foreign to them.Raven. Perhaps you should read more carefully. Dave’s point number 5 “Prohibit corporations from engaging in any political activity, including lobbying and donating to political campaigns and entities, as part of a broad reform of electoral finance.” would have settled Enron’s butt long before they got a chance to rape California and the country at large. You even admitted “Enron was a case of a company buying serious access to government influence” that they bought the government they needed to do what they did. Dave’s point number5 would have taken that ability away from them.

  12. The Raven says:

    Dynamic: Of course I saw that, but prohibiting companies from accessing government isn’t going to happen, and shouldn’t happen. Enron used their access to commit fraud – which was a problem, we all know that. But something on the order of a gazillion bazillion companies also have access to government figures, attempt to sway legislation, secure funding, and nab contracts on the fly, and don’t go bankrupt because of or as a result fo that. Having worked as a vice president of a military contracting firm, I spent a lot of time talking to my senators and congressmen, preparing reports for them, meeting with them, and negotiating with the GSA to leverage contracts for my company. That’s just the way the game is played. Thing is, any other company out there is free to play too, and we didn’t submit false data as Enron did. Regards, – R.

  13. Rayne says:

    Note this story: http://www.upi.com/view.cfm?StoryID=20030505-101826-7049rAs summarized at Corante: The Supreme Court has unanimously decided that telemarketing companies can be sued for fraud when they lie about how much money is passed on to charities. A lower court had decided that telemarketers were protected by the First Amendment, but the Supreme Court reversed that decision. The company in question: Telemarketing Associates Inc., a for-profit company raising money for VietNow, a charity in Illinois. According to the petition filed by Illinois, very little money actually goes to Vietnam veterans. “Telemarketing keeps 85 percent of the donations it generates pursuant to its agreements with VietNow, which in turn spends only about 3 percent of all the money raised by Telemarketing to provide such charitable services to veterans.” The case now goes back to the Illinois court for a rehearing based on the Supreme Court’s rulingThis could be a good portent.

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