The only purpose for this disclosure is to demonstrate that I may not have a degree in economics but neither am I talking through my anal sphincter. It's been a lot of years but things haven't changed that much in business.
The first thing I need to do is give a "pinkie-nail" outline (as opposed to the much larger thumbnail sketch) of corporations. Leaving out the not-for-profit and the DBA, there are still three basic corporate groups: C-Corp, S-Corp and LLC (Limited Liability Corporation). When I talk about the almost indestructible monster corporation, I'm talking about the C-Corp. That's the large corporation that has CEOs, CFOs, boards and thousands of stockholders. Although smaller corporations may elect or be required to file taxes as a C-Corp. I'm not talking about the small business which organizes as an S-Corp or you're doctor's office that is probably an LLC.There is somewhat of a debate about what is called Shareholder Wealth Maximization (SWM) but most of us hold to the long-held basic that a corporation's first responsibility is to make money (maximize wealth) for the stockholders. This is promoted by government business tax law and the IRS which actually determines the authenticity of tax returns and reports by whether or not the item or action is for the purpose of making a profit. This would mean that a charitable contribution is not compassion or concern for people but a calculated investment in name recognition. If the social issue; e.g. environment or climate change; is not popular among the corporation's customers then no money will be given to that issue because it would not encourage customers to buy the product. If the social issue; e.g. environment or climate change; would actually reduce sales of the product; e.g. a large oil company; then any contribution would be contrary to the stockholders' expectations of profit.
Lynn Stout, the Distinguished Professor of Corporate and Business Law in the Clark Business Law Institute at Cornell School of Law, wrote Most people today would say corporations have but one proper purpose: maximizing their shareholders’ wealth as measured by stock price. Other goals--serving customers, building great products, providing good jobs—are viewed as legitimate business ends only to the extent they increase “shareholder value.” This view prevails in large part because it’s what is taught in our nation’s classrooms. According to a recent Brookings study of the curricula of top law and business schools, professional school courses emphasize maximizing corporate profits and shareholder value as the proper purpose of business corporations. (1)
As Prof. Stephen Bainbridge, professor of Law at ULCA writes, "As I explain therein, however, while the business judgment rule has the effect of giving directors latitude to make decisions that deviate from the shareholder wealth maximization norm, that is not the purpose of the rule. The fact that corporate law does not intend to promote corporate social responsibility, but rather merely allows it to exist behind the shield of the business judgment rule becomes significant in - and is confirmed by - cases where the business judgment rule does not apply." (2) (Underlines are mine.)
I was taught that the corporation is an almost indestructible monster. I was taught this by people whose business was corporations, so this description was just a matter of fact with which all business professionals must be aware. Once you create a corporation you are its servant. There are many who would argue this is why the individual with psychopathic tendencies makes the best CEO. The psychopath lack the things that make us human: empathy, remorse, loving kindness. Jon Ronson, in his book The Psychopath Test, found that four percent of Fortune 500 CEOs test in the range of the psychopath. That is four times greater than the general population! I think my book offers really good evidence that the way that capitalism is structured really is a physical manifestation of the brain anomaly known as psychopathy. However, I wouldn’t say every Fortune 500 chief is a psychopath. (3)
So now to come to the purpose of this pinkie-nail education in business.
Pamela had meetings in Versailles, KY last fall before the general election. I couldn't really avoid the gubernatorial race. One man was an experienced politician and, according to persons who knew and worked with the candidate and whose opinions I respect, he was a good and conscientious man. He talked about what he wanted to do for Kentucky. The other candidate was a businessman. In fact, the only credentials he held out to the public were that he was not a politician (implying they are bad) and that he was a businessman. He won. The only things to which I can attribute his victory are: (i) making politicians out to be bad people, although no one realized that he had to be a politician to be seeking the office of Governor. (ii) He implied that being a businessman made him a good candidate. That really doesn't make sense.
Firstly, to be a successful government requires that people with opposing views work together and compromise for the greater good. A business person, especially a large corporation CEO, doesn't have to know how to work with others or compromise. They are accustomed to barking orders and having people follow. I'd say that's why we have such gridlock in Congress.
Secondly, the ability to form a corporation requires absolutely no legal, administrative or leadership skills. I personally have incorporated two relatively successful organizations which, by the way, did not go bankrupt. That doesn't qualify me to be a Governor or President of the United States. Bankruptcy is not, by its nature, a shame but neither is it a badge of honor. In the case of most large c-corporations it is a matter of top directors giving themselves most of the remaining cash and closing up shop leaving a lot of stockholders and creditors with nothing and employees without a job. Anyone with enough money can create a corporation, run it into the ground, declare bankruptcy, give themselves a big separation package, screw the stockholders and creditors and put the employees out of work. Actually purposely starting and bankrupting a corporation is quite a lucrative business among road and apartment/condo contractors in Indiana.
I actually have some experience in the corporate bankruptcy arena. Twice I have been called by federal judges to participate in bankruptcy proceedings because I was a major creditor. In one case the bank and one other creditor were the only ones to whom the corporation owed more money. In both cases I came away with nothing. Is this type of behavior credentials to hold the highest office in the land? Do you want to be treated like a creditor or an employee? In either case you're going to get screwed.
You all know that I'm a liberal, environmentalist, conservationist, tree-hugger. That doesn't matter. Use your brains and look at facts and research issues for yourself. Just because someone tells you that they're a great business person and have started a bunch of corporations does not make them qualified for ANY elected position. I can do that and you don't want to elect me president of anything. There are plenty of real criteria and issues you can use to make your decision.
FOOTNOTES:
(1) Stout, Lynn A. (2012) The problem of corporate purpose. Issues in Governance Studies. Brooking Institute. June 2012. Number 48. www.brookings.edu/~/media/research/files/papers/2012/6/18%20corporate%20stout/stout
_corporate%20issues.pdf
(2) http://www.professorbainbridge.com/professorbainbridgecom/2010/07/shareholder-
wealth-maximization-and-the-business-judgment-rule.html
(3) http://www.forbes.com/sites/jeffbercovici/2011/06/14/why-some-psychopaths-make-
great-ceos/#3973c1864fac
great-ceos/#3973c1864fac
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