Wednesday, July 26, 2006

Son of Monster

It would be so nice if only corporations would voluntarily behave, without the government getting involved. And, since Regean, there has been a major push to deregulate, on the theory that they would. But they haven't. Why?

Well, our elected representatives have either been ignorant or they have lied to us because it is illegal for corporations to regulate themselves beyond a certain point. This was decided in Dodge v. Ford, way back when. The Dodge brothers worked for Henry Ford and owned stock. Their intention was to cash in their stock and begin their own automobile firm. But, in 1916, the year that they intended to do this, Ford decided to drop his prices because he believed that "a reasonable profit is alright, but not too much."* The Dodge brothers took him to court and the judge decided that it doesn't matter what social good is intended, the first duty is to the shareholder who has invested in your company. You took his money, you owe him to provide him with the largest return on investment possible. So, Ford couldn't drop his prices any further and the Dodge automobile was born.

And what this means to today's corporation is that if widget factories produce pollution, and you decide to update the smokestacks on your widget factory and reduce pollution, if it cuts into the profits your shareholders would otherwise realize, it is illegal for you to do it. And, since that other widget factory could under sell you because of lower costs, it would cut into the profits. Only if the government regulates and all widget factories have to update smokestacks and reduce pollution are you allowed to update yours. That's why progressive companies don't go public -- if all of their stock is held within a small group of like minded individuals, they can all vote to go green.

However, if you want to take the corporation to any size, you have to go public for the financing. So, only smaller companies can afford to take the green route. And when industries tell you that they will regulate themselves, they are not telling you the truth.

* Bakan, Joel, The Corporation, pg. 36


Gina said...

I have often told Hubba-hubba that Wall Street is one of my most hated institutions. Always expecting profits every quarter, no matter what. That's ridiculous.

J said...

The sad thing is that of course it is in those same shareholders best interest to take care of the planet. Back when these laws were made maybe people didn't recognize that, but at this point, hopefully we can all agree that it is in EVERYONE'S best interest that the world continue to support human life. I mean, I would hope we could all agree on that. Sometimes I doubt it.

Maya's Granny said...

Certainly laws need to change, but I believe that there is room for ethical behavior and profits. After all, all retirement plans are investments -- it is just a matter of who the investor is. So, if people are going to be able to retire or whatever other good they want to finance through investment, it is appropriate that they make a profit on their stock. We just need to educate people so they know that corporations don't regulate themselves and whatever else it is we don't know that hurts us.

Deja Pseu said...

The trouble is, the American concept of what is in "the best interest of the shareholder" is often the shortest-term good, even if it is ultimately detrimental in the long-term.

lorettambeaver said...

It is time for us as shareholders to communicate to the corporations our desire to make a profit, is not to cost the planet. I would take less profit, if it helps to bring health back to the planet. I am sure there are a lot of shareholders out there that feel the same way. So let us speak out, and see what kind of a difference we can make. Thanks for making this information available.