THE CORPORATION AND THE GOVERNMENT | Transegoism.Us

Governance of the Corporation

How is governance of a corporation like governing a country, and how is it different? This is a question that lies at the heart of determining what the proper relationship between corporations and governments. It reveals what a corporation is capable of doing, and what its limits are. It also determines at which point the government should consider it appropriate and/or necessary to interfere.

Political Governance

"Philadelphia, PA. Skyscraper," by Tim Emeric, taken from [PublicDomainPictures.Net]; this image is in the public domain. Governance often takes place in buildings like this.
“Philadelphia, PA. Skyscraper,” by Tim Emeric, taken from [PublicDomainPictures.Net]; this image is in the public domain.
For the purposes of this discussion, I take the governance of the modern democratic republic as the baseline standard for governance. In what, as a baseline, does a democratic republic consist?

 

Executive

It typically has an executive president or prime minister. Usually, it has a supplemental executive, as well, such as a Vice President. This executive delegates the various branches of the administration to a group of appointees. These are the ministers, advisors, or secretaries.

 

Legislature

In addition to this, a body of officials controls the budget decisions of the country and writes laws. Usually, the citizens elect them; although sometimes, other elected officials appoint them. This organization is, variously, the parliament, the congress, the duma, etc.

 

Citizenry

There are individuals are the client-owners of the government in a certain sense. These individuals have the power to appoint through vote or by proxy some of the officials within the government. These are the citizens.

 

Judiciary

Sometimes there is a substantive dispute between individual citizens; or a dispute between one or more citizens and the government; or between two branches of the government. In such cases, there is a judicial branch which has the power and responsibility to interpret existing laws in order to resolve the disputes. This branch may not legislate; however, this branch does determine how the law should be applied if the existing legislation is ambiguous. Once a judgment has been made, or in such a case that there is reason to believe that the law of the land has been violated, a government police force is mobilized to enforce judicial judgment, and/or investigate and apprehend suspected law-breakers, commonly referred to as “criminals.”

 

Military

In order to protect the territory in which the government operates, it allows for a standing military force. The primary cause of the existence of this force is to protect the territorial borders of the government, but the government may also leverage them to expand its international influence.

 

Treasury

Finally, the government prints money as a means of exchange backed by force of law. It then collects some of this money from the citizenry and foreign trading partners in the form of taxes. These are commodities taxes, income taxes, tariffs, and other forms of systematized forcible confiscation. This is how the government funds its activities. If the government has not become corrupt, it uses these tax revenues to fund its various activities; and not to accumulate capital for its own sake, or allow for the fabulous accumulation of personal wealth among government officials. The police enforce this system of confiscatory funding. The treasury administers it.

 

Peripheral Functions

In many governments there are several other functions which are empowered by the state to do various things, such as infrastructure expansion and maintenance, welfare, or “dole” programs, spy agencies, government standardized and administered educational institutions, government standardized and administered health care institutions, a contracted private fiat central bank, and several other things. These, however, are peripheral, and not essential functions; the government may have some or all of them, but, unlike its essential branches (executive, advisory, parliamentary, judicial, military, police, treasury, and citizenry), it does not require them in order to exist as a democratic republic.

Corporate Governance

In many ways, the governance of the corporation has a structure similar to that of a government. It also has an executive; a CEO, president, etc., It also has a body of advisor-executives; such as COOs, CFOs, CTOs, VPs, Directors, etc. It also has an elected board responsible for financial decisions and major company policies.

It may, much like a government, contract an independent private judiciary to adjudicate disputes with its employees and clients; alternatively, it may rely solely on its HR department for policy judgments, and defer to the applicable government judiciary on all other matters. It may contract a security or para-military force to protect its physical property and personnel from criminals, or, if operating abroad, from rogue elements and organizations. This force is analogous to a military. It protects company property and personnel. It is not analogous to a police force. Unlike the police, it does not carry out the corporation’s policies by force, because the corporation can only make policies, not laws.

The difference between a law and a policy is that policies can only be stipulated as prerequisites for continued mutual participation in a particular corporate activity (such as employment, contract, or trade), and not as mandates to be enforced beyond the framework of a mutually agreeable exchange, whereas laws can only be described as such if they carry with them the threat of some penalty procured by force to any violating party within a given territory. In such a case that someone is doing something illegal on company property, the security force may be empowered to physically remove or detain the offending individual, but must immediately notify and defer further action to the applicable government police jurisdiction.

The Differences Between Political and Corporate Governance

The two biggest differences between the governance of governments and the governance of corporations pertain to the citizenry and the means and purpose of income.

Differences in Sources of Income

Whereas governments acquire income to fund the activities of governance through systemic forcible monetary confiscation (tax), corporations, to the extent that they operate within legally and philosophically legitimate means, acquire income to fund their governance through voluntary exchange – most commonly through sales of goods and services, including ongoing contractual relationships.

There are two key differences here. The first is the use of force. A corporation may not legitimately acquire income through forcible means – to include fraud, breach of contract, and theft, whereas the government’s sole means of income is systemic forcible confiscation (with particular, discreet, peripheral exceptions, such as postal services – which to a large extent acts as a private company, and, like a private company, participates and competes within the marketplace).

The second difference is the purpose of that funding. A corporation gains income in order to net profit, which it then distributes to shareholders in terms of company value and dividends, and company employees in the form of bonuses. All income that is not net profit is “overhead.” “Overhead” is all income that is used in order to sustain and expand the business. Companies typically have a strong incentive to minimize overhead to the greatest extent possible in order to maximize net income; also called “profit.” This is in contradistinction to the purpose of income in government. In business terms, all government income is overhead.

Differences in Citizenship Roles

Whereas governments have citizens, corporations have to deal with four separate categories of individuals which, in various ways, are partially analogous to the same: employees/contractors, customers/clients, shareholders/owners, and other stakeholders.

The government’s relationship to the citizen is very straightforward. The government is answerable to the citizen; the citizenry selects (directly or by proxy) many of its officials and lawmakers.

The citizenry, in turn, is subject to the laws of the government. They must yield, whether willingly or not, discrete and particular sums of money to the government in some form as tax.

Prima face, the four partially analogous relationships of the corporation seem straightforward; but the responsibilities entailed by these relationships, if not spelled out and concretized in very limited ways, seem to be in competition to one another.

Citizenship Roles – a Close Comparison

The basic comparison between the governance of governments and corporations up to this point is straightforward and fairly uncontroversial. The controversy lies in governance as it pertains to corporate citizenry. In other words: what are the discrete governance responsibilities of the corporation to the four categories of person partially analogous to the concept of “citizen:” the employee/contractor, the customer/client, the shareholder/owner, and the other stakeholder?

In the following pages, I will present my idea of what these discrete governance responsibilities are, present some competing views from other people who have written on this subject, and reconcile their concerns to the model I am presenting. My governance model distinguishes between two different sorts of responsibilities in governance: legal responsibilities and ethical responsibilities. The former governance category of responsibility requires government regulation and force. The latter governance category requires stakeholder market vigilance.

The Role of the Employee/Contractor

The employee/contractor is a person who, on a limited or ongoing basis (the latter being the more typical case) provides some form of labor to serve the corporation’s interests in exchange for some form of compensation, such as a wage, a salary, commission, tips, and/or bonuses. The customer/client is the individual or group which purchases and/or contracts goods and/or services from the corporation. The shareholder/owner is the individual or group of individuals that own stock in the corporation. The other stakeholder is every other individual other than those already listed that is affected in some way by the activities and/or existence of the corporation.

 

Legal and Ethical Responsibilities to the Employee/Contractor

There are certain governance responsibilities which exist as necessary legal conditions. I call this the legal component of responsibility. The law should not exercise mandates over other areas of responsibility. Nevertheless, the corporation does have additional responsibilities. These are the ethical component of responsibility.

 

The Legal Component of Responsibility

There are two components of a company’s legal responsibility to their employee/contractor. These are the internal component and the external component.

 

The Internal Component

The legal component of the company’s responsibility to the employee/contractor, first and foremost, is to compensate that individual in the way agreed upon beforehand for services rendered. This is a basic, legal requirement. Failure to do this is fraud and breach of contract. All employees must receive compensation for their time; whether that is in terms of an hourly wage, or in terms of salary figured as a daily rate.

The employee is also entitled to whatever bonuses, tips, or commissions he/she is entitled to, or would have otherwise been entitled to (assuming employee separation from the company). If the person is a contractor, he/she is entitled to compensation in the manner agreed upon, whether verbally or in writing.

 

The External Component

Additionally, the employee/contractor must have a crime-free working environment; if this working environment is outside of company-owned property, then the legal onus for this falls squarely on the owner of the property in question to show that a reasonable level of effort has been put in to deal with any perceived criminal element, and if this working environment is on company-owned property, then the company, in order to avoid legal onus, must be able to demonstrate that it made a reasonable effort to prevent it from happening and took every reasonable action at their disposal to stop it once it began to occur (to include notifying law enforcement, if possible).

Further, the company is liable to disclose all extraordinary risk associated with the performance of the service, so that the employee/contractor can negotiate terms of compensation appropriate to the work and the risk (or reject the offer on the informed basis of insufficient compensation, or intolerably low levels of work hygiene factors).

The fundamental concepts of contractual understandings and full disclosure mandate all of the things described above. Anything beyond that, legally, is a matter of negotiation.

 

The Ethical Component of Responsibility

That being said, although the employee/contractor may not have legitimate legal means to pursue conditions beyond the above-described minimum standard, the corporation should, insofar as practicable, provide a pleasant, humane working environment, and offer an adequate living wage to its employees and contractors; should it fail to do so, the employee/contractor, as well as the citizenry at large, has broad, extra-legal and, especially, market power to enforce its will upon the corporation to provide conditions it considers to be humane and suitable, and, in accordance with particular principles, it has not only the right but the moral responsibility to do so.

 

Enforcing Ethics as a Worker or Consumer

As I mentioned before, the corporation has the responsibility to provide humane working conditions and an adequately livable wage. These two concepts are extremely fungible; whether or not they are adequate is a matter of opinion. If it is of an opinion sufficiently broadly held among the employees/contractors and/or the general public that the standards of “adequate” have not been achieved in one or both of these matters, then it is incumbent upon employees/contractors to unionize (in a sense compatible with the right to work) in order to negotiate better terms from their employer. It may also be incumbent on the general public to, by some means, boycott the products and/or services provided by the corporation – directly if these are available directly to the consumer, and indirectly if these are only available as business to business services (by boycotting those businesses that do business with the corporation in question).

 

The Role of the Press

In addition, the press should, in a journalistically accurate and responsible manner, lambast policies of the corporation in question that are unfair or harmful.

 

Comparing the Worker to the Citizen

The employee/contractor is like a citizen of the company in a number of ways. He/she is entitled to limited use of company facilities in order to perform work; is entitled to reasonable levels of expectation for personal safety – unless particular risks are negotiated as part and parcel of the job during the hiring process, or prior to a major change in working conditions, and is subject to the corporation’s policies and procedures.

The employee/contractor does not have a say in the way the company is run. He/she is dissimilar to the citizen in this way. It is a matter of effective, transformational leadership for the executives and board members of a corporation to seek input from employees in terms of working conditions, however, the employee has no “vote,” per se.

He/she is also not subject to anything equivalent to a “tax,” as this is an exclusively governmental power. It is illegal for a corporation to forcibly redact compensation for goods and services from its employees/contractors. It is unethical to substantially pressure them to yield money for company activities. Also, it should be illegal to pay an employee/contractor in “script;” that is, company-issued certificates of value not redeemable outside of the company. Script is acceptable as a non-primary means of compensation (e.g., a company stock benefit). The use of intra-organizationally issued script is strictly and exclusively a governmental power. It is not within the proper purview of corporate governance. The company must offer compensation in denominations of a generally accepted medium of exchange.

The Role of the Customer/Client

As described before, the corporation has legal and ethical responsibilities towards its workers. The same is true of its responsibilities to its customer/client.

 

The Legal Component

The legal component of responsibility that the company has toward the customer/client is two-fold; firstly, to fully disclose the relevant attributes and essential nature of the product/service offered; and secondly, in the manner agreed upon, deliver said products and services in a reasonably efficacious and timely manner. These two governance principles hold in all three possible cases of corporate-customer/client interaction. They hold in the cases of direct purchase, written contract, and verbal contract.

 

Direct Purchase

In the case of a direct purchase, the company is required to disclose the nature of the product. This includes all consumer-relevant details on the label. The product is rendered upon the completion of the relevant exchange.

 

Written Contract

The written contract outlines the products and services provided in detail; including the means by which they are delivered. The contract describes the means of exchange in detail. Both parties must fulfill the contract once they’ve signed it, in the way agreed upon.

 

Verbal Contract

In the case of a verbal contract, the rules are the same as a written contract. However, there is nothing in writing; and the validity of the agreement rests upon a mutual understanding.

 

Disclosure

The corporation must disclose any potentially harmful or destructive aspects of the product. If the corporation is not aware of these things at the time, then there is no legal onus, should these things come to light after the fact; but if it is reasonable to suppose that they should have known, or in some way failed to do due diligence vis-à-vis product testing, then they can be held liable.

 

The Ethical Component

The corporation also has certain ethical responsibilities to the customer/client.

 

Provide Value

Morally, the company must render the best and safest possible product that it can; this standard, of course, is relative to the price at which it is being offered. The higher the price margin (net profit on sale), the higher the moral obligation. “Best,” in this context can mean: efficacious, most durable, and/or most valuable.

 

Consider Risks

The company has an ethical responsibility to consider the possible risks associated with the use of the products.

If they provide a good or service, they should be willing to compensate the customer/client in the case of accidental damages that take place during performance or delivery.

A corporation has an ethical obligation of governance to “stand behind” its product – that is, there should be an understood guarantee that if the product or service is defective, or otherwise not fully as efficacious as described, it should be prepared to refund the customer/client – even if there is no obvious contractual obligation to do so.

Legally, the corporation is must respond to correct extraordinarily dangerous or harmful products, post facto; they must immediately stop the production and sale of the item in question and inform vendors of the situation. It also has an ethical responsibility of governance to inform the press and put forth a product recall.

 

Market and Press Responsibilities

Sometimes, a corporation will fail to meet these basic ethical standards of governance. If this happens, it is incumbent on its partner vendors to stop doing business with the corporation. Further, it is incumbent upon the press to expose the wrongdoing. Finally, it is incumbent on the customer/client to immediately boycott the products and services of this corporation.

 

Comparing the Customer/Client to the Citizen

The customers/clients are like citizens in certain ways. They render income to the organization; although, unlike citizens, they do so on a strictly voluntary basis. They have the power to influence the decisions and policies of the organizations through a kind of “vote;” In that, they “vote with their dollars;” that is, they choose which products and services to buy; thereby, they select who wins and loses in the competition of the market environment.

They are not like citizens in one important sense. They are not subject to the governance policies set forth by the corporation; except in particular and discreet ways that are applicable only when they are physically on premises owned by the corporation, as well as particular and discreet ways that are expressed in any relevant contract they may have signed or verbally agreed to with the corporation.

The Role of the Shareholder/Owner

The role of the shareholder/owner is complex in a corporation. This is because their role touches on corporate governance in a direct way. Therefore, their role connects with the roles of the board and the executives of the corporation.

 

Legal and Ethical Responsibilities

Legally, the corporation must deliver dividends and value to the shareholder/owner. This obligation is proportional to the company’s success and subject to contractual stipulations.

The shareholder/owner has the right to, in contractually prescribed ways, elect the board-members in such a way that they believe will either best serve their interests or will otherwise best serve to advance whatever goals they hope the corporation to achieve (predominantly, in the vast majority of cases, profit).

The executives have a legal responsibility to govern the corporation and be forthcoming to the elected board. They must disclose all relevant details pertaining to the governance of the company.

The board has the ethical (but not legal) responsibility to set forth budgets and policies that they consider to be consistent with what they perceive as the best interests of the shareholders/owners. This pertains to the ethical component and not the legal component. The interest of the shareholder/owner is, overwhelmingly, the board’s primary concern. Nevertheless, the board must establish a balance between profit and considerations that affect other stakeholders. It must maintain this balance; firstly, because that is simply the right thing to do; but also because, if the market and press are working properly, there will be the strong possibility of highly negative consequences for failing to achieve the correct ethical balance – as has been described elsewhere, here, in the exposition of this corporate model and its relationship to various stakeholders.

 

Comparing the Shareholder/Owner to the Citizen

The shareholder/owner is very much like a citizen of the corporation in two particular ways; firstly, the shareholder/owner votes for the board directly; much in the same way that a citizen votes for the congress; and, secondly, the shareholder/owner (like the citizen of a country) is a source of funding for the corporation. But this is only in a very particular sense; in that he/she provides capital investment to the company to fund its activities and bear particular financial risks on behalf of the organization.

While, in the sense that they help fund the organization, they are like citizens, that is as deep as the similarity goes in that particular sense, because the means of funding is very dissimilar; if anything, shareholders/owners can almost be compared to political donors, who back a political candidate in order to achieve some organizational or personal end through that candidate. Shareholders/owners are not subject to corporate policies outside of any special agreements they may have made with the board or the executives.

 

The Considerations Due to Other Stakeholders

The three most important stakeholders that a corporation must deal with, as already described, are the employee/contractor, the customer/client, and the shareholder/owner. The vast majority of the legal and ethical concerns that a corporation is charged with which are analogous to that of a government to its citizens are to be found in those three kinds of relationships. However, they do have some additional citizen-like obligations to the public at large, which is to say, all other stakeholders.

Principles of Due Consideration

All legal obligations that the corporation has, in terms of governance, to the other stakeholders stem from a single principle. That is, to not commit (which is to say, initiate) an act of harm to others’ persons and property.

 

Externalities

This includes addressing issues of externality. An externality is an indirect damage that occurs to other persons or their property.

For example, air quality is an externality, because it affects the public at large. The corporation has a legal obligation to defray damage to the air quality that their activities may produce. Sometimes, a certain amount of damage is unavoidable. In that case, the government should levy an additional tax penalty. This tax penalty should fund reparative projects and individual compensations for damages.

Damages caused by a product flaw is another example of an externality. If someone, while using the company’s products in proper and prescribed ways, accidentally hurts some third party, and a defect of the product itself can be shown to be a partial or full cause of the accident, then the company has a legal obligation to the victim for damages.

 

Other Forms of Harm

The company also has a legal obligation not to intentionally impede the freedom of movement of the public. For example, it is not permissible for a company to block a train track used by a competitor in order to hamper their activities. There are many such examples, but they all come back to the same thing. A corporation has a legal obligation not to initiate force or cause harm to other stakeholders.

 

Ethical Considerations

Also, there is an ethical component to the responsibilities that a corporation has to other stakeholders. The corporation should establish goodwill and trust with the general public. There are many ways to do this. There is no prescriptive method for accomplishing it. Also, there is no established proportion of resources to dedicate to this. However, it frequently does become quite clear to the outside observer when this does and does not take place.

 

Ethical Responsibilities

Are there charities or public events that the corporation sponsors that the other stakeholders care about? Is the corporation dedicating research and development resources to the development of sustainable technologies? Also, is the corporation doing its part to not over-exploit the commons to the detriment of other stakeholders (e.g., public roads, waterways, air, etc.)? Additionally, is the corporation being proactive to limit the negative impacts that its products and services may be having on the environment? All of these things (and many, many more) have a powerful impact on public perception of the company and are key factors in establishing goodwill and trust.

 

Corrective Consumerism

Sometimes, a corporation will fail to dedicate adequate resources to a goodwill and trust related endeavor. When this happens, it is incumbent upon the press to publicize this failing. Conversely, they should publicize the positive things that the company is doing to build up trust and goodwill. It is incumbent on the general public, as a second-order consequence, to spread this information as widely as possible. The third order consequence of this should be the loss of customers/clients, loss of key business to business contractual relationships, and, potentially, even some employee turnover. In an extreme case, the fourth order effect of bankruptcy and reorganization may take place as a result of a general boycott, should the company patently fail to address public concerns vis-a-vis a particular goodwill and trust issue.

 

Comparing Other Stakeholders to the Citizen

These other stakeholders are like citizens of the corporation in one sense; in that, in the same way that citizens of a government are indirectly affected by the existence, actions, and laws of their government, they (the other stakeholders) are indirectly affected by the existence, actions, and policies of the corporation.

Some Other Opinions on this Subject

What I have presented so far is a comprehensive comparative model between a government and corporate governance, with special emphasis placed on the various relationships that corporations have to stakeholders which are analogous to the relationship a government has to its citizens. Various writers have written extensively about the proper roles of corporate governance. I will address a few of them here.

Ralph Nader – Who Rules the Corporation?

Ralph Nader, Mark Green, and Joel Seligman, in their article, Who Rules the Corporation?, express concerns about the relationship between the board and executive of a corporation. They maintain that, whereas, in theory, the corporate officers (executives) are selected and dismissed by the board to fulfill defined delegated responsibilities, and, as such, are “employees” of a sort of the shareholders who elect the board, the reality is that the executives are corporate tyrants who manipulate corporate governance in such a way as to heavily influence the election process of board members by using company funds to promote the campaign of particular board members.

These gentlemen propose a number of fairly complex and specific regulations to, in my opinion, micromanage (negative normative connotations are purposely implied, here) corporate structure; especially with regards to the board selection process and functions.

 

Some Unaddressed Questions

The question that seems the most obvious to pose is: how is that different from the way a government works? These gentlemen would like to see additional government controls to regulate the board selection process, as well as implement strict rules about board composition and functions, but, given that there are few, if any, governments that are less corrupt than the way he describes corporate political machinations, does it seem reasonable to put additional layers of corrupt bureaucracy on top of that which (according to them, anyway) already exists?

And furthermore, not all corporations are the same. Some are large, some are small. Some are relatively simple, and others are truly vast and dizzyingly expansive. What makes these gentlemen qualified to propose forcing a one size fits all solution to all corporate structures?

 

Analysis

This stinks of hubris. Now, it’s not that the changes these men propose are, prima face, stupid. Some of them are good ideas.

For example, one might organize a board in the same way that a government cabinet is organized. You might be able to increase transparency that way. I could envision a corporation organized in this manner being successful; and certainly, one might do well to take his ideas under advisement – as suggestions – but to build an entirely new regulatory apparatus to micromanage corporate structure is expensive, unrealistic, and will create more problems than it solves.

And that brings me to the final question that I have about his ideas: what makes him think that the executive, assuming that he/she has total, tyrannical control over his/her company (which is, in most cases, unlikely to be true), who’s to say that’s not best? Sometimes companies have to make quick dynamic decisions in response to market forces. Who’s to say that an empowered decision maker isn’t the way to go?

Certainly, I could envision potential problems with this – especially is the executive’s judgment is questionable. But I could just as easily envision problems with corporations that are overly bureaucratic. The more complex the bureaucracy, the more difficult and involved change becomes. Not all corporations are alike, and there is no one size fits all solution to corporate governance. This is true of democratic republics, and it is all the more true of corporations, which have to respond quickly and deftly to market forces.

Irving S. Shapiro – Power and Accountability

The objections which I raise to Nader, Green, and Seligman are echoed in an article by Irving S. Shapiro, entitled Power and Accountability: the Changing Role of the Corporate Board of Directors. Shapiro points out that the entire issue of regulating corporate structure beyond the extent to which corporate governance is already being regulated stems from the idea that, because many corporations are as large as they are, people do not see them as wholly private.

In reference to this, I would like to point out that, in the previous pages, I have carefully described the legal and ethical responsibilities that corporations have toward the various stakeholders, and how they must each be balanced in order to not put these various responsibilities in competition with one another. It is very much my contention that additional regulation on corporations is not called for – and Shapiro seems to agree.

 

The Power of Competition

In this article, he says, “Market competition, so lightly dismissed by some critics as fiction or artifact, is, in fact, a vigorous force in the affairs of almost all corporations. Size lends no immunity to its relentless pressures.” He goes on to point out that the constant overturn of placement (and even inclusion) of companies on the list of the largest 100 companies is compelling proof that even the largest corporations are constantly having to strive for quality and good will to remain competitive in the market economy.

Among the conclusions he posits is that “Large corporations cannot fulfill their duties unless they remain both profitable and flexible. They must be able to hold those volunteer owners; which is to say, there must be the promise of present or future gain.” And quite right. If the corporation does not carefully and correctly balance the responsibilities of governance it has to its “citizens” (i.e., stakeholders), it will quickly feel the pain of swift consequence to its bottom line.

 

The Insularity of Government

It bears mentioning, vis a vis the central theme of this paper, that this is in stark contradistinction to government, which, while answerable to its citizens, is much more insulated from their desires by the fact that, firstly, they do not have to convince them to fund them – they are funded through systemic forcible monetary confiscation, secondly, the politicians themselves are usually able to acquire substantial sponsorship from interested affiliates to ensure their continued seats of power, and, thirdly, the politicians have a fundamental advantage in the fight to achieve a status quo in the face of citizen/stakeholder demands: the use of force. Governments are able to use the force of law to achieve its ends by force, whereas corporations can only implement policies.

Thomas W. Dunfee – Corporate Governance and Morality

Finally, I would like to address the arguments that Thomas W. Dunfee presents in his article, Corporate Governance in a Market With Morality, as I share many of his conclusions. He describes two competing points of view regarding proper corporate governance. Milton Friedman claims that, aside from legal mandate, the corporation’s only loyalty is to shareholder’s profit; no other concern is deserving of any consideration. The competing view is that the shareholder enjoys no special status over other stakeholders; the corporate policy should reconcile itself with the concerns of the all the various stakeholders. By this view, the board should empower managers to make decisions about how to balance these concerns.

Dunfree presents the argument that the reality is somewhere in the middle; that profit is the corporation’s primary concern; but that in reality, moral forces moderate market forces. The corporation must be responsive to that. This is a sentiment I wholeheartedly agree with. He also points out that freedom in the marketplace is what enables freedom of individual moral choice. I would add that this is because of the essential differences between the corporation and the government. The corporation, to survive, must be extremely sensitive to market. It must, therefore, be moral. It is subject to moral forces in ways that the government is not.

Conclusion – a Comparison Between Political and Corporate Governance

Governments and corporations have much in common; they are especially are similar in terms of structure. However, there are numerous important differences, and that is reflective of the fact that their functions are very, very different.

Both are subject to the will of their citizens/stakeholders; however, the government is relatively insulated from the will of its people because it has the privilege of using force, funds itself through systemic forcible monetary confiscation, and is not subject to direct market and moral competition. I take it as essential that freedom of choice, in and of itself, is a concern of the utmost importance. Its preservation also results in maximum market efficacy and will result in optimal ethical balance; provided that the press and the stakeholder remain vigilant to corporate activity.

It follows that we should only implement laws when doing so helps to maximize the freedom of individual choice. This paper is a comprehensive model of principle. It describes and compares government and corporate structures. It also outlines their similarities and differences, as well as their respective boundaries.

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