by Mike Alberti
If American corporations are, as the Supreme Court ruled in 2010
, citizens entitled to free speech and other rights
from the nation, what corresponding obligations
to the nation do these corporations have?
“For individuals, we’ve always thought that citizenship entails a
balance of rights and responsibilities,” said James Post, the co-author
of “Corporate Responsibility: The American Story” and a professor of
management at Boston University. “Does it still mean the same thing for
corporations?”
In an effort to find out whether American corporations are the kind
of “citizens” that believe that they have national obligations,
Remapping Debate contacted the representatives of more than 80
corporations. Most had no comment, a striking finding in and of itself.
And among the corporate representatives who did comment, most were
unwilling to say that their corporation had any obligations to the
United States, let alone to define any such obligations with
specificity. Moreover, representatives of some American multinationals
said that their companies do not even identify themselves as being
American in any sense except that they are legally incorporated and
physically headquartered in one of the states of the
U.S.
This has not always been the case. According to numerous experts, the
managers of American companies used to feel strong national and social
ties (see box titled “When obligations went with benefits”). The
disintegration of that sense of obligation raises crucial questions for
policy makers as to whether and how to reinforce those ties, and as to
what special privileges, if any, should continue to be offered to
corporations that are nominally “American.”
According to Post, the question of whether American multinational
corporations have national obligations, and if so, what those
obligations are, is “one of the most central and least recognized public
policy questions of our time.”
All American?
Remapping Debate reached out to corporations of various sizes in a
range of sectors, from huge, iconic multinationals like General Motors
and Boeing to smaller, primarily domestic companies like JetBlue and
RadioShack.
The majority of the fifteen corporate representatives that responded
said that their companies did consider themselves to be American.
“I think that most of RadioShack’s 30,000 employees would say that it
is an American company,” said Kirk Brewer, head of corporate
communications at RadioShack. “The brand has been part of the American
landscape for a long time, and the roots of today’s company stretch back
more than 90 years.”
When obligations went with benefits
For the vast majority of their history, American corporations were
perceived by both the public and by corporate executives themselves as
having a broad range of obligations — including national obligations —
that competed with the goals of making profit or creating value for
shareholders.
“The idea that a corporation exists solely to make money is actually
quite new,” explained Ralph Gomory, a professor of management at New
York University. The broader sense of corporate responsibility was
starkly apparent during World War
II, when many
U.S.
companies dramatically changed their operations to aid the war effort,
Gomory said, but it also extended through the 1950s, 1960s, and 1970s.
“Even in the early ’80s, you would be more likely to hear a
CEO talking about his responsibilities to the country or to his employees than his duty to the shareholders.”
In practice, that broader sense of corporate obligation translated to
self-imposed restraints on the way that companies interacted with their
communities and with their workers, said William Lazonick, a professor
of economics at the University of Massachusetts, Lowell.
“For example, up until the 1980s, CEOs were extremely reluctant to
shut down factories and lay off a large number of workers,” Lazonick
said. “Mass layoffs were actually seen as a serious abnegation of
corporate responsibility. It was understood that the company had a
responsibility to it workers, and that if it failed, society at large
would be on the hook for that failure.”
Margaret Blair, a professor of law at Vanderbilt University, added
that the connection between American companies and the nation as a whole
was felt strongly by corporate CEOs, who “saw the corporate sector as
one of the major forces that was working in the best interests of the
country.”
Blair pointed out that in the period from World War
II
to the 1980s, it was far less common to see corporate executives
lobbying the government for special rights and benefits, including lower
taxes. “It was accepted that, if the United States was going to be a
powerful economy and have a high quality of living, then the corporate
sector needed to do its part to supply financial resources to the
government,” she said. “There was no sense of it being the corporations
versus the government. It was much more about everybody being in it
together.”
“There’s no doubt that we’re a global company,” said John Dern, vice
president for public relations at Boeing. “but we are first and foremost
an American company. We have deep roots in American history and the
American economy, and having an identity as an American company is very
important for us.”
When asked what it was that made them American, however, most
companies did not speak in terms of the permanent bonds between a nation
and its citizens. Instead, some spoke of the history of their
development, or talked in terms of statistical or legal information
about their businesses (sales, employment, location of headquarters, or
state of incorporation).
For example, when asked what makes the company American, a
representative from Ford cited the fact that it “conduct[s] the vast
majority of our research and development, produce[s] more than 2 million
vehicles annually, and employ[s] more than 66,000 employees.”
A representative from Whole Foods cited the fact that the company is
incorporated in the United States, “does well over 90 percent of [its]
total business right here in the U.S.” and that “all of our Executive
Team and almost all of our top 100 leaders…were born in the United
States.”
National obligations?
When corporate representatives were asked directly whether their companies have national obligations, a few said “yes.”
For example, Greg Martin, the executive director of communications strategy and news operations at General Motors, said that
GM does have “obligations to the country that go above and beyond our obligation to our shareholders.”
Brewer of RadioShack said that while “[i]t’s hard to imagine what
RadioShack might do to act in the national interest…I am pretty sure we
would never intentionally act against the national interest.”
Jeff Noel, the vice president for communications and public affairs
at Whirlpool, drew the line somewhat differently. Noel said that while
the company has “a strong desire to be a responsible citizen,” it does
not “have a duty or an obligation” to do so.
Most commonly, companies refused to respond directly to the question.
In an email exchange, for instance, Remapping Debate asked Molly
Donahue, a spokesperson for Caterpillar, whether the company considers
itself to be American.
“We are an American company that also operates globally,” she responded.
When Remapping Debate followed up by asking whether being American
means that Caterpillar has any particular obligations to the United
States, Donahue responded that the company had “no additional
information to add as it relates to your question.”
Similarly, Allison Steinberg, a spokesperson for JetBlue, cited the
company’s efforts to employ veterans as a factor that makes the company
American. When asked whether that meant that JetBlue has particular
obligations to the United States, however, Steinberg refused to comment
further.
Chris Olert, a spokesperson for Consolidated Edison, said that the
company does consider itself to be an American company, but when asked
whether the company has any national or patriotic duties, he said,
“Well, I wouldn’t say that.”
Boeing’s John Dern said that “serving the country and its broad
economic interests is important to us,” but “I don’t know if I’d call it
in a patriotic way.”
And some companies said that the question did not pertain to them, because they don’t consider themselves to be American at all.
Lynn Brown, vice president of corporate communications at Waste
Management, which is incorporated in the United States but also operates
in Canada, said that the company considers itself “North American.”
Even some iconic American corporations took a similar line. For
example, Courtney Boone, a spokesperson for United States Steel, said
that the company does not consider itself to be an American company, but
rather “a company with headquarters in the United States and operations
globally.”
A shrinking sense of responsibility
Beginning in the 1970s, a number of
factors combined to begin the erosion of that broader sense of
corporate responsibility, Gomory explained. Most prominent among them,
he said, were the end of the Cold War and the onset of rapid
globalization, an ideological shift in economics and business schools
towards the idea that the purpose of a corporation was the maximize
shareholder value, and the alignment of the interests of corporate
executives with shareholders through stock-based compensation.
In a
paper he co-authored on the history of corporate responsibility earlier this year, Gomory cites two statements on corporate responsibility issued by the Business Roundtable.
The first, issued in 1981, maintains that corporations have a
responsibility to “each of the corporations constituents.” The statement
goes on to say:
Responsibility to all these constituents in toto constitutes
responsibility to society…Business and society have a symbiotic
relationship: The long term viability of the corporation depends upon
its responsibility to the society of which it is a part. And the
well-being of society depends upon profitable and responsible business
enterprises.
The second statement, issued by the same entity in 1997, illustrates
the way that corporate purpose had narrowed: “[T]he principal objective
of a business enterprise,” the statement says, “is to generate economic
returns to its owners,” that is, its shareholders.
What about the rights and benefits of citizenship?
According to several observers, American corporations, even those
with substantial international operations, reap innumerable benefits
from being incorporated in the United States and being considered
American “citizens.”
“American corporations are benefiting enormously from being thought
of as American citizens,” said Richard Sylla, a professor of economics
at the Stern School of Business at New York University (
NYU).
“And lots of policy gets made with the goal of helping American
businesses, with the assumption that there is some relationship based on
mutual obligation.”
Some of those benefits, Sylla said, are very direct and tangible.
“You have the full force of American military and diplomatic power
backing you up,” he said. “You can’t put a price on that.”
Sylla also mentioned that the Department of Commerce, Office of the
U.S.
Trade Representative, and the Export-Import Bank “exist only to find
ways to give American companies an edge in global markets.”
Other observers cited a variety of other benefits that American corporations receive.
Wayne Ranick, the director of communications for the United
Steelworkers, pointed out that American corporations “benefit from the
infrastructure that is publicly financed, employees who are trained and
educated, and the largest consumer market in the world.”
“There are a lot of benefits that get taken for granted,” said Scott
Paul, the president of the Alliance for American Manufacturing. “The
stability of the
U.S. government and the size and reliability of the
U.S. economy are great benefits for companies.”
Lynn Stout, a professor of law at Cornell University, said that the
U.S.
legal system was another great, under-appreciated benefit for American
corporations. “In terms of the quality of judges and the speed and
efficiency of decision making, we have the most appealing legal system
in the world,” she said.
Greg Martin of General Motors acknowledged that the company had benefited very directly from policies such as the government bailout of
the automotive companies in 2009, but also less directly from the
country’s investment in research and development, skilled domestic
workforce, and “the spirit of freedom and aspirational values that
permeate American society and make it possible to succeed here.”
But most companies had a more difficult time explaining the benefits
they had received. Several companies said that they had benefited most
from being perceived abroad as being an American company, which helped
them to sell their products in foreign markets. Lynn Brown of Waste
Management cited government regulation that made it more difficult to
operate municipal landfills, which “essentially allowed the company to
come into being.”
According to Richard Sylla of
NYU, “it’s
revealing that the benefits they cite are so self-serving. It shows that
they think of themselves as opportunistic entities, not participatory
members of society.”
A fundamental disjunction
Sylla said the fact that many American corporations see themselves as
entitled to the benefits of citizenship — without incurring reciprocal
obligations — is reflective of a fundamental disjunction between how
individual and corporate citizenship are perceived.
“We’ve determined that a corporation is legally like a person in lots of
ways,” Sylla said. “They have rights, including the right to free
speech, and they enjoy an array of benefits. Don’t most of us think that
those rights and benefits come attached to obligations? When they say
they don’t have any national obligations, it shows we have a double
standard.”
William Lazonick, a professor and the director of the Center for
Industrial Competitiveness at the University of Massachusetts, Lowell,
pointed out that not only do many corporations benefit from being
considered American citizens, but they also actively use their
citizenship to lobby for further benefits.
“When they appear before Congress and say, ‘Unless you do this,
America won’t be able to compete,’ they’re basically appealing to some
notion of citizenship and the national interest,” Lazonick said.
“They’re saying, ‘I’m entitled to something because I’m American.’”
When they then “turn around and say, ‘We don’t have any responsibilities,’” he went on, “that’s the pinnacle of hypocrisy.”
As an example, Lazonick pointed out that Apple has repeatedly lobbied
Congress for a tax break that would allow it to bring profits made
abroad to the United States at a lower tax rate, and has argued for the
break because it would be beneficial for American workers.
But Apple executives have, on other occasions, renounced any national
responsibility. “We don’t have an obligation to solve American
problems,” one executive
told the New York Times in 2012. “Our only obligation is to make the best product possible.”
While Apple declined to comment for this story, representatives of
other companies made it clear that they did not want to limit themselves
in any way by identifying as American or proclaiming responsibilities
to the United States, and that they viewed their nationality in
opportunistic terms.
“In some cases, being defined as an American company is what is important,” said Courtney Boone of
U.S. Steel. “In some cases, it’s that we operate globally.”
What is to be done?
According to several experts, there is a range of policy options
available that could re-insert a greater sense of national obligation in
American companies (see box titled “How to re-balance benefits and
obligations”).
According to Lynn Stout of Cornell, there are numerous measures that
can be taken to change the internal dynamics of individual firms.
“In most companies, everybody is working on the understanding that
the company has no obligations except to make money and to follow the
law,” she said. “But that hasn’t always been the case, and there are
innumerable ways that we can broaden the responsibilities of
corporations.”
Ralph Gomory, a research professor at New York University, explained
that another set of solutions is external to any specific firm and
involves creating a broad economic and legal structure to incentivize
firms to act in the national interest.
“There’s no shortage of possible solutions,” Gomory said. “Once we
begin to ask why we have different expectations of individual citizens
and corporate citizens, the hard part is done.”
How to re-balance benefits and obligations
Experts identified a range of measures that could be taken to
re-align the goals of American corporations with the country as a whole
and broaden the understanding of corporate responsibility to include
national obligations.
Some of those options, said Richard Sylla, a professor at the Stern
School of Business at New York University, are external to the structure
of any individual firm, operating at a more systemic level to shape the
actions of corporations.
“One of the goals of corporate executives will always be to make
money and create value,” Sylla said, “but we have the power to make sure
that they can’t do that if it means working against the national
interest.”
One such measure that Sylla advocates is the strategic use of import
tariffs to make it less profitable for American companies to manufacture
products abroad and then ship them back into the
U.S.
market. He also suggested offering tax incentives to companies who
create a certain percentage of their economic value in the United
States.
Other experts suggested measures that would change corporate governance to broaden the purpose of the corporation.
According to William Lazonick of the University of Massachusetts,
Lowell, the alignment of the interests of corporate executives with
shareholders has been one of the most powerful factors contributing to
the narrowing of corporate obligation over the last three decades. To
change that alignment, Lazonick
would
push to reduce the use of stock-based compensation and have executive
pay reflect performance measures other than share price.
Another way to break the exclusive alignment of executives with
shareholders, he said, would be to change the makeup of corporate boards
by, for example, requiring that a certain percentage of the board be
made up of employees or members of the community. This practice already
exists in other countries, notably Germany, where all corporate boards
are required to include worker representation.
According to James Post, a professor of management at Boston
University, another way of influencing the decision-making of executives
would be to change the laws governing the fiduciary duty of pension
fund managers to allow them to invest with a greater social purpose.
And Ralph Gomory, a professor at New York University, suggested going
even further by explicitly broadening corporate purpose through state
incorporation law, making it easier to establish corporate entities with
a stated purpose other than maximizing shareholder value. That state
purpose could include “creating well-paid jobs for American workers,
improving the quality of life in a particular community, or making
technological innovations that will benefit the country as a whole,”
Gomory said.
Lynn Stout, a professor of law at Cornell University, said that using
incorporation law to re-define corporate purpose would make it possible
to “impose citizenship obligations on corporations that are
incorporated within our borders.”
Exactly what those obligations should be, Stout added, “is something
that we as a society need to be having a serious conversation about.”
According to Richard Sylla, however, continuing to operate as though
corporations have rights and are entitled to benefits without any
attendant duty other than to make profits has profound implications for
our political system.
“It begs the question, ‘who are our elected officials there to
serve?’” Sylla said. “Is this government of, by and for the people or
of, by and for the corporations?”
Some observers, however, believe that if corporations have been
acting in a way that’s contrary to the interests of the country, it’s
only because policy makers have not extended them
enough benefits.
Justin Danhof is the general counsel of the National Center for
Public Policy Research, a free market think tank based in Washington,
D.C.
In an interview with Remapping Debate, Danhof explained that serving
any national obligations “is not what corporations are there to do.”
The only goal of corporations, he said, is to make money for their
shareholders. While Danhof agreed that companies sometimes act against
the national interest, as in the case of mass off-shoring, he said that
it is policy makers who bear the blame for that behavior.
“Why would a company offshore?” he asked. “It’s because the
environment that’s been created domestically is not conducive to their
competitiveness anymore. If they can be more profitable somewhere else,
then they have no choice but to go.”
But according to James Post of Boston University, that mentality
leads inevitably to “a race to the bottom, in which every country just
tries to do everything it can to cater to corporations, regardless of
what they’re getting for it.”
In that framework, said William Lazonick of the University of
Massachusetts, “governments have effectively ceded decision-making power
to the corporations.” (See sidebar titled “What about capital
controls?”)
According to Ralph Gomory of
NYU, that
framework would be considered “intolerable” by most Americans, and yet
“our economic system is based on the assumption that the relationship
between the United States and corporate American is one of mutual
benefit, and that American corporations will work in the national
interest.”
The first step in changing that framework, he said, is to abandon
that assumption. “Then you have to really step back and ask, ‘What kind
of economy do we want to have?’”