Profit maximization now a fatal corporate priority
While on my summer vacation, I try to isolate myself for a few weeks from the worsening global troubles that beset us all. But this year, try as I might to lose myself in light-reading thrillers and fantasies, worrisome news from the real world kept obtruding.
It was impossible to avoid newspaper and TV reports of BP’s Gulf oil spill, the Harper government’s irresponsible scrapping of the mandatory census form, the continuing economic slump, and the devastating effects of floods, forest fires, and other environmental disasters around the world.
I learned that Goldman Sachs, the Wall Street firm whose scams mainly triggered the 2008 financial collapse, was fined $550 million, or about as much as it makes in trading revenue every week. Harper’s arrived in the mail to tell me that it was Goldman and other banking and investment companies that jacked up the price of food by turning it into a tradeable commodity. The article was titled “How Wall Street starved millions and got away with it.”
Thanks to lavish government handouts and stimulus spending, the financial firms and other big corporations have regained their highly profitable status. But not so the taxpayers who have been forced to bail them out. Only about 13% of the 8 million jobs wiped by the Great Recession in the U.S. have been replaced, mostly with low-paid temporary work.
Meanwhile, corporate profits have bounced back and, at an estimated $1.2 trillion annually, are now higher than they were at the height of the pre-slump bubble. Here in Canada (as Kim Pollock reports on page 21), Canadian corporations made $219 billion in profits last year. Both here and in the U.S., the corporations seem to be sitting on all that cash instead of creating jobs with it — although Statistics Canada tells us Canadian firms did invest $12 billion abroad in 2009, presumably to exploit cheap labour in poor developing countries.
These and other big-business infamies arouse public concern, so much so that even the mainstream media will occasionally venture a mild reprimand. But few take a broad view of all the corporate misconduct. The oil spills, the tax evasions, the financial frauds, the usurious interest rates, the job cuts and outsourcings – they’re all seen as aberrant misdeeds by a few unethical CEOs rather than what they really are: symptoms of a dangerous, destructive, deeply embedded disorder of the entire dominant economic system. Capitalism has morphed into a monster that not only makes our civilization unfair, unsafe, and unwell, but also, ultimately – and maybe alarmingly soon – unsustainable.
Environmentalists have been pointing out for some time that an economy based on infinite growth on a finite planet doesn’t make sense — not even economic sense. Capitalism as it now functions, however, is completely dependent on the expectation of permanent growth. And so are the banks and stockbrokers in its financial arm. Both would not long survive a cessation of growth, and certainly not the kind of economic reversal being called for by many environmentalists and the new Degrowth Movement.
The CEOs, their boards of directors, and their major shareholders may try to rationalize their obsession with growth, but they can’t help but be shaken by the warnings of most of the world’s climatologists and other scientists. They won’t admit it openly, but they must know that uncontrolled industrial production, pollution, and consumption are ravaging the planet and threatening the future of its inhabitants.
But, even if this awareness were to permeate all the business boardrooms, corporate executives would be unable, on their own, to stop the runaway economic bus from careening into the abyss. Why not? Because their legal charters and corporate mandates oblige them to make the maximization of profits and shareholder dividends their one and only objective. That one fixation trumps everything else, including the public interest and even the survival of civilization.
Every corporation, of course, is a creation of some government, when it is awarded its corporate charter. So, theoretically, a corporation’s activities could be altered by a revision or revocation of that charter. That has happened a few times in the past, but never in recent times. The explanation is simple: corporations have amassed so much power that no government today dares revise their charters to force them to become ethical or responsive to the public interest. In effect, it is now governments that have become the submissive creatures of the corporations.
If you think I exaggerate, remember what happened to Henry Ford when he dared to defy his board of directors a hundred years ago. He lowered the price of his Model-T Ford so workers could afford to buy them. This was a shrewd move because eventually it increased sales, but in the short term it reduced profits and dividends, so two of Ford’s directors, the Dodge brothers, sued him for violating his duty to keep profits as high as possible. The judge who heard the case found Ford guilty as charged and awarded the Dodge brothers a multi-million-dollar settlement, which they then used to set up their own car company.
The same enshrinement of profit maximization is built into Canada’s corporate charters and business legislation. As Garth Woodworth notes in his front-page article on the oil companies, our courts also uphold this principle. He cites the Peoples vs Wise case in 2004, when the Supreme Court’s judgment was based on the Canada Business Corporations Act. The relevant section of this Act states that directors and officers “owe their fiduciary obligations to the corporation, and the corporation’s interests are not to be confused with the interests of the creditors or those of any other stakeholder.”
There you have it. Any CEO or board of directors foolish enough to deviate from the pursuit of profits for any reason – for the benefit of their workers, customers, society as a whole, or even the planet – would be punished. Either they’d be sued, as Ford was, or ousted by the major stockholders, or the drop in profits would make their company vulnerable to a hostile takeover by a less ethical competitor.
This is why Woodworth and other reformers, knowing that corporations can’t stop their own profit-driven depredations, want governments to do so. This, however, is a seemingly futile request – and not just because most governments are now little more than the corporations’ handy political tools. The main reason any one government wouldn’t dare try to hamper the corporations operating in their bailiwick in any way is because of those corporations’ formidable power of retaliation. In a globalized economy, they could stage a capital strike, shifting more investment and jobs abroad; or – except for the resource industries — they could even move all their operations somewhere else.
National governments daring to threaten corporate profit-making are thus as vulnerable to economic “takeovers” by other countries as individual corporations that mix ethics with profits are to takeovers by more ruthless business sharks. Only if all major governments come together to tackle the rampaging corporate Goliath is such desperately needed restraint likely to happen. And that scenario, too, has to be seen as highly improbable, given their dismal track record in the pursuit of global environmental and other accords under the United Nations. This sober realization tends to put a damper on the most persistent optimist. If the reckless proclivities of an all-powerful capitalism are not to be curbed by our political leaders, who will undertake that Herculean challenge?
I’m afraid it’s up to civil society – to the many grassroots organizations now committed to saving the planet from an ecological holocaust. They’ve become activated in greater numbers. They are protesting, demonstrating, trying to inform and mobilize the millions more needed to confront the corporate juggernaut. Whether they succeed is still in doubt, but their valiant efforts shouldn’t be underestimated.
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I’ve been writing about unchecked corporate power for a long time. Sixteen years ago, in one of my Canadian Forum columns, I described it as a cancer:
In our glorious free enterprise system, business executives are programmed to maximize profits without regard for the society in which they operate, in much the same way that cancer cells are programmed to proliferate without regard for the health of their human host…
CEOs will no doubt resent their being compared with runaway cancer cells, but I think the metaphor is an apt one… Free to spread through human society virtually unhindered, with no checks or balances left, the corporate cancer is doing what comes naturally to all cancers. It is growing. It is maximizing its assets.
It is feeding on its host and will eventually kill it, even if that means ultimately killing itself as well. But this is not a concern for today’s CEOs, who don’t look any further ahead than the next quarter’s financial statement. That’s a lack of foresight they share with cancer cells, which also lack any real intelligence.
This cancer metaphor may be considered even more valid today, but time has changed some of my assumptions. I no longer believe, for example, that the corporate cancer will eventually destroy its terrestrial host. I believe that Mother Earth’s immune system is strong enough to resist this infection.
Many environmentalists envision our planet as a giant living organism. They call her Gaia, and they lament all the damage being inflicted on her seas, forests, atmosphere, ecosystems, and diverse living creatures. They’re still confident Gaia will survive the corporate cancer onslaught, but fear that many of its life-forms – including humankind – will not.
This is because, in defending herself from the corporate cancer, Gaia can’t target just corporate executives, directors, investors, and shareholders. To her, every human being must be seen and treated as an individual cancer cell. This is not a misperception. We are all, willingly or not, active participants in helping the corporations spread their cancer – overpopulating the planet, plundering its resources, poisoning its air and water. Some of us are trying our best to reduce our ecological footprints, but too little and too late to ease Gaia’s pain.
In any event, Earth’s immune system can’t distinguish between the overwhelming majority of malignant human cancer cells and the relative few that are benign. We will all be subjected to the retaliatory measures she has at her disposal, and they are awesomely effective.
Already many thousands of us have been eliminated by floods, famines, fires, droughts, violent storms, and deadly disease outbreaks. These “natural disasters” will continue to intensify as the corporate cancer itself keeps metastasizing around the globe.
This may be too extreme a projection of the corporate cancer and Gaia’s counterattacks on it. Unlike other cancers, we “cells” are conscious of what we are doing to our planet, and conceivably could stop our lethally harmful behaviour in time to save both the planet and ourselves.
Such a strategic retreat, however, is impossible as long as corporate cancer leaders remain committed to self-destructive permanent growth. So far they have been impervious to all efforts to halt or even slow down their cancerous attacks on Gaia. Unless we and our benign cellmates find some way soon to “cure” our own disease, Gaia will do it for us. Few of us, however, will be around to appreciate the kind of curative “degrowth” she prescribes.
(Ed Finn is the CCPA’s Senior Editor.)
