Is there such thing as a good company?

“Things are neither good nor bad but thinking makes them so”. William Shakespeare, Macbeth

In his speech to the Labour party conference in October Ed Miliband proposed, in essence, that companies be labelled as “good” or “bad” and taxed and regulated accordingly.

You can see where the thinking comes from – it is pretty much how our foreign policy works. If you are considered “good” (e.g. Kazakhstan, which allows our bombers to use it airfields) then you can get away with murdering your citizens. If you are considered “bad” (think Iran or, in the case of the US, Cuba) then you will be punished no matter how you behave. At one time Iraq under Saddam Hussein was considered good – we trained their soldiers, accepted their investments and traded with them. Then they became “bad” (i.e. stopped doing what they were told) and so we bombed them.

Maybe the next step will be to apply this thinking in the criminal justice system. We won’t wait until people have committed a crime – we will simply label some people “good” and others “bad” and tax and punish them accordingly. That seems fair.

But enough fun. There is of course a serious point that currently the state is failing in its function of holding corporations to account for their actions. Ed Miliband is to be applauded for daring to say this, even if his way of saying it lacks sophistication.

There is growing awareness of this problem and its links to the existential global crises we face (such as economic volatility, environmental crisis, resource shortage and social fragmentation).  But it seems no one is quite sure what to do about it.  Since I am not shy, I am going to have a go at making sense of the problem.

It might help to start with a metaphor.  Large businesses often remind me of overgrown teenagers. They’re always growing, they are insensitive to their effect on those around them, they can do a lot of damage to themselves and others, and they’re eating us out of house and home!  They are not necessarily acting maliciously, with intent – they are simply unconscious.

Fortunately most teenagers grow out of this phase. They reach adulthood and start to behave more responsibly, more sensitively. Yet corporations don’t – they seem to be trapped in a state of eternal adolescence. This is because, unlike teenagers they are not structured for learning and self-regulation – it wasn’t in the original design brief.

Think how humans are designed for responsible behaviour and moderation. When they are tired they take a rest, when they have eaten enough their stomachs tell them so, they are sensitive to others and their surroundings through their senses, they have a conscience to tell them when they are going wrong and ultimately they can be locked up if they exceed the normal boundaries or do outrageous things.

The corporation, by contrast, although made up of human beings is not structured like a human and doesn’t behave like a human. It has no conscience to tell it when it is doing wrong, no stomach to tell it when it is full, no limbs to get tired, no body to put in jail. It has no physical location so it can be all over the world simultaneously. It can grow without limit, having no sense of appropriate size.

If the corporation is a human then it is, as Joel Bakan put it in his book “The Corporation”, a pathological one. Generally a healthy human being pursues profit as a means to an end – to feed his or her family, to provide warmth and shelter and, once those needs are covered, to exercise creativity or whatever. A human who pursues wealth as a highest value becomes like Fagin or Scrooge and is generally shunned by society. By contrast, corporations are expected to obsessively pursue growth and profit. Executives who do this are rewarded with more money, even when they fail (think Fred Goodwin).

Part of the problem is that corporations are not free agents. They don’t have the freedom to take their own decisions since they are in servitude to their masters, the shareholders. Like slavery this is an immoral, unsustainable, inherently abusive relationship , one in which the master has power but no responsibility. The relationship itself overrides the slave’s natural behaviour – his fear of the master is greater than his conscience or his tiredness, and he does everything he can to maximise profits for his master’s benefit.

This is a teenager who is apprenticed to a miser and who lives in constant fear that his master will come and call him to account – where’s my money! And no matter how much he gives his master he knows it won’t be enough. Next year the master will want more.

By the way this is not to judge the people who make up the corporations, not even the board or the shareholders. The system is bigger than them. What I am trying to describe are emergent properties of the system.

If we are to improve these teenagers’ behaviour, it is no use labelling them, or trying to use the blunt instrument of external regulation. There is work in many diverse fields (e.g., Elinor Ostrom in management of commons resources, and many scientists in the field of complexity) that shows the inherent superiority of self-regulation rather than external regulation.

Rather, we have to engage with these individuals and seek to educate them, and we have to re-wire their brains, re-structure their bodies and re-adjust the way they relate to the wider world. There is lots that can be done by activists, within and outside the corporations, to help bring this about, but ultimately the game-changing action will be at government level, with the introduction of new laws.

These are the measures I would prescribe to deal with these unruly citizens:

– Ensure that the board is appointed by a range of stakeholders, not just one elite grouping of investors. We cannot reasonably expect a board of a company to serve society when it is appointed solely by representatives of shareholders.  They will naturally favour the interests of those to whom they are beholden for their jobs.

– Change the fiduciary duties of directors so that they are required to balance the interests of all stakeholders, rather than prioritising the interests of one interest group.

– Ensure that the company has an effective, semi-autonomous conscience. In legal theory the company secretary is the conscience of the organisation, but the secretary is appointed by the board or the CEO and cannot be considered autonomous. Like the board he or she must be appointed directly by the stakeholders.

Of course these are just the headline changes and there is lots of detail that would have to be sorted out.

Our society is not ready to make such radical changes. Not just yet. They are too controversial and would be attacked from all sides because, fundamentally, this is about questioning property rights, one of the corner stones of our legal system. But I have a feeling that as we go deeper into the economic crisis we will start to understand that we need to think radically if we really want change. We will start to understand that it is by placing economic interests first that we have caused this crisis.

And if Ed Miliband were to propose such measures, I might even vote for him!