Monday, April 12, 2004

Response to "Corporate Obligations"

Check out this semi-interesting, but ultimately incorrect post about corporate obligations. My response:

Carey is correct that individuals are moral actors and they should be held accountable when they do bad things. That's both clearly right and not interesting. No "conservative," or anyone else, thinks that Ken Lay should be immune from regulatory policy, or that his actions were excusable or desirable. (After all, Fact #3 about corporations shows that Ken Lay really screwed over the one group he was supposed to be protecting!)

So the post is a nullity in terms of content, except for the odd non-sequiturial conclusion tacked on. The conclusion, that we should have iron-clad regulations, doesn't seem to follow from the lack of openness. Because "Carey" doesn't really discuss why we should regulate further, it's hard to respond appropriately. If the purpose of further regulation is to make society better, that's silly for lots of reasons, not the least of which is that it is futile and antithetical to the concept of corporations that exist (again, per Rule #3) only for shareholders. As I've posted before, when a corporation is answerable to both its shareholders and society, really this just means that the management has free reign to do whatever they want, because they can always find some constituency to whom they are legally accountable to explain their actions.

It actually appears that Carey is a big fan of openness qua openness, but at least to me it's unclear why this is good for corporations. This seems like something that could be adequately addressed through the market. If a company doesn't report its income fully, then investors will back off. It's in a company's interest to be as open as shareholders require (or will pay for, to be more exact). No more, no less.

That, at least, is an interesting debate, but lots of the other stuff Carey says is just wrong, for example, his / her conclusion that those running a corporation aren't "held accountable" for their "honest mistakes." But that's just silly. First, I'd like to know who would volunteer to run a corporation under the Carey-rule of liability for "honest mistakes." I think it's clear that without limited liability for corporate officers, no one, but no one, will serve. Why expose yourself to massive liability by running a corporation? What makes this doubly silly is that Carey has the gall to compare this to a political-type accountability -- but we all know that politicians, for example, aren't (and shouldn't be) exposed to liability for mistakes they make. If Bush's EPA head chooses the wrong benzene limit, it could cause gajillions of dollars of damage, but Bush doesn't have to pay -- at least not with money.

The interesting question, I think, which Carey takes as a given, is Bainbridge's #3, which insists that directors "act within the law." Frankly, I don't see why they should have to. I think that if society wants to control the corporation's activities, it should do so through the obligation to maximize wealth, not by creating new constituencies (i.e. duties to the community).

More to follow...

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