Moral Personality of Corporations

MORALITY PERSONALITY OF CORPORATIONS

(This post summarises one way of understanding how a kind of moral personality comes to be attributed to corporations. There are of course many other aspects of corporate or business ethics more generally.)

You are a company-formation agent. You fill out some paper or online forms; you and your assistant agree to subscribe £1 of share capital each; you choose a name (eg “2015/xx ltd); you adopt some generalised off the peg constitution; you pay a fee and file at the appropriate companies registry.

Congratulations. You have created life – well, not exactly: you have created a new “person” so far as the law is concerned. Never mind that your new company is now filed in your computer or cabinet and lies dormant in its slim line of code or slim folder of papers. It is a legal person.

At this point, the question whether the company has a moral personality in any sense is absurd.

Next, you have a buyer for “2015/xx ltd”. Someone needs a new company, quickly, for their business. The necessary paper/computer work is completed; a fee is paid. The new owner changes the name (very easily) to “Explorecorp ltd” and it is now, overnight, the legal form of a start-up speculative energy business. Which goes from strength to strength and eventually becomes a trans global energy company, listed on an exchange or two with widespread shareholders, who have put millions of $$ in capital. Explorecorp PLC is now the head of a world-wide group, and is where the main board of very expensive directors is located. Under Explorecorp is a cat’s cradle of subsidiaries in various operating locations, and various “tax-efficient” havens.

Explorecorp is now controlled by a hierarchy of human agents. Is it now a moral as well as a legal person?

To summarise all this in more formal terms:

A corporation is, tritely, an artificial person, a creation of some legal system. Although it has “legal” personality and thus can own property, enter into contracts, sue and be sued, it can, traditionally at any rate, only act through and as directed by human agents. (I make the qualification because many corporate operations are now automated and it is possible to envisage a fully automated corporation, owing neither its existence nor its activities to any human intervention at all. But this post sticks to the traditional set-up.)

As Rawls puts it in A Theory of Justice:

An institution may thought of in two ways: first, as an abstract object, a possible form of conduct expressed by a system of rules; and second, as the realisation in thought and conduct of certain persons at a certain time and place of the actions specified by those rules.

One relatively simple definition of a corporation’s moral personality would be that it is reducible to the moral personalities of a corporation’s human agents, considered individually or collectively, in the same way as a football clubs footballing reputation depends on the skills and organisation of the eleven players physically present on the pitch from time to time.

However, there is a key phrase in the Rawls quotation. He speaks of the “realisation by [human agents] of the actions specified by [the] rules. In other words, the officers and employees of a corporation do not have a free hand in “realising” their corporation. They have to act as obliged or permitted by the “rules”, and the “rules” may very definitely have a moral impact on those human actions.

Also, there is more  which is relevant than formal rules (which, as will be discussed below, are both external and internal). The “thought and conduct of certain persons” do not set about realising the “rules” in a corporate capsule. The thoughts and conduct are also determined to great extent by contemporary economic and political theories of markets and society and corporations’ role and function according to such theories. So, if the prevailing orthodoxy is unfettered free market libertarianism, a certain set of attitudes and conduct must be expected of a corporation’s agents.

Further, in any institution, corporate or otherwise, there will grow a tradition of how things are “done” in “our” way. Every agent of an institution becomes exposed to an existing and developing culture.

The corporation as moral prism

A corporation may be thought of as a prism through which the influences of the rules, the orthodoxies and its culture are mingled and brought to bear on the moral attitudes and actions of its human agents. It is because of this prism effect that one may claim that a unique morality can exist in a corporation.

Obligation- law and corporate constitution

Writers, artists and composers have explored the conflict between law and moral conscience for thousands of years. To put it shortly, a law can be unjust and demand that those subject to it do things which, from any perspective other than that of the law itself, are morally wrong.

While few, if any, legal systems create corporations expressly designed to behave in an immoral way, nonetheless most Western legal systems have traditionally underwritten corporations fitted to operate in a market economy and, furthermore, to operate thus in the interests of their stakeholders. In classic theory, these are the incorporators and owners- the shareholders.

Accordingly and for example, English company law mandates that directors act always in the “interests of the company”, taken to mean, until very recently, the interests of present and future shareholders. Such interests are often crudely reduced to high profits and a buoyant share price.

The converse of this obligation is that, traditionally, the directors are not obliged to act in the interests of anyone else. Indeed, directors, in discharging their duty to their corporation, may consider themselves obliged to act immorally, although within the law- for example, in enforcing a corporation’s rights against a vulnerable individual, for whom such enforcement will cause great distress, out of all proportion to the benefit gained for the corporation.

The point being established is that the laws which create and underpin a corporation also create biases in some of important decisions and behaviours required of the individuals guiding on behalf of the corporation. The constitution of a cigarette manufacturer requires directors and marketers to promote smoking and exploit markets that are not health-conscious.

To be sure, there is from time to time an attempted political reckoning with the ideal of the free market corporation, and laws are introduced to curb or mitigate the biases. A notable example is the complex system of regulation which governments now seek to impose on financial corporations such as banks. These rules positively oblige such institutions, in theory, to put customers’ interests first and generally to act fairly with high standards of integrity.

We have seen how successful regulation has been. The institutional bias towards self-interest, measured in profits and share price is very deeply rooted.

Adding orthodoxy and culture to the moral mix

The bias which lies at the heart of a corporation’s legal personality not only results in legal obligations which may run counter to individuals’ ordinary moral convictions. There can also be a more insidious effect: that of permitting or even promoting a deterioration or suppression of moral decision making in the corporation’s officers and employees. This tendency is of course often reinforced or not challenged by the prevailing orthodoxies, and the combination provides the soil for suspect “cultures” to grow in.

Very schematically, the effect works along the following lines. The corporation is held to be “amoral” in legal terms, which is strictly speaking true, for a moral conscience is not part of its artificial personality. But, as we have seen, it exists to sell products or services and deliver profits – and this purpose may be accentuated by economic orthodoxy. Thus it is for the best, or even demanded, that its staff put morality aside when acting for the corporation- in short, consciously to embody in their own decisions and actions the biases against morality described above. Staff may find that giving rein to immoral instincts, for example to mislead customers, is the easiest way to further the “interests” of their corporation.

Once this tendency has got going it is very hard to eradicate it, as illustrated by what has gone on in  many financial institutions. The staff of a corporation will select the like-minded to join them, and the like- minded will self-select in applying to join. Vices of greed and contempt for outsiders are nourished, and an unappealing and publicly deplored “corporate culture” is established. This is identified as the de facto moral personality of the corporation itself.

In many ways this “permissive” aspect of corporations, supported by certain economic and political theories, and encouraging amoral or immoral herding, is the most difficult to confront. Legislators anxious about the moral impact of certain kinds of corporations can hedge them about with laws prescribing virtuous behaviour. Legislators can change the duties of directors, adding to the list of interested stakeholders a corporation’s employees, customers and the physical environment it has impact on. But fundamentally, in the western market economies, the law purports to be morally neutral in economic transactions. Corporations are creatures of and for the market economy. Their purpose to seek profits will always involve to a greater or lesser extent the moral biases described here. It is that inextricable link which truly constitutes a corporation’s moral personality.

A couple of qualifications

Note that corporations, being creatures of law, can be burdened or benefited with anything else the law may create. Thus corporations can be made criminals  (for example in relation to corporate manslaughter, health and safety, tax or employment discrimination practices). Or they can be given rights, analogous to human rights (for example, in relation to free speech, political campaigning or defamation). None of these legal liabilities or rights implies a moral personality akin to that of an individual.

I have written here of corporate biases towards agents’ immoral or amoral behaviour. It is, of course, of course possible for a corporation’s agents to overcome, consciously or unconsciously or at the prompting of a regulatory stick, these biases. Many agents, individually and collectively, act morally and represent successful corporations. But I argue that this moral “success” is contingent and not intrinsic to the traditional legal nature of the corporation and its typical situation in economic orthodoxy. I have been trying to suggest what is likely or possible to flow from the latter.

July 2015