Monday, 19 September 2005

The Corporation

I have just finished reading The Corporation by Joel Bakan. In it, Bakan writes about the history and current state of large companies.

Nowadays, many corporations have a “social responsibility” department. Are these departments genuinely concerned with their impact on society or they there for PR purposes?

In most countries, corporations have a legal responsibility to one group of people: their shareholders. If shareholders demand higher profits (and they usually do), that is what corporations must deliver. Therefore, any socially responsible acts cannot undermine the need to maximise profits. If corporations have a choice between being more profitable and being socially responsible, they must legally choose to be more profitable.

The US law courts endorsed this rationale many years ago. The Ford Motor Company (when under Henry Ford) was successfully prosecuted when it acted against this doctrine. Ford had this quixotic notion that companies should make a reasonable profit, that it should not be too excessive.

Of course, corporations cannot break the law. Or rather, they should not break the law. As it happens some corporations regularly flout certain (e.g. environmental) legislation. They do this because the cost of being successfully prosecuted is less than the gain of breaking the law.

General Motors were prosecuted by someone whose car caught fire after someone went into the back of it. It turned out that GM moved the petrol tank closer to the back because it reduced the production costs. GM made the calculation that the few fatalities were, for them, an acceptable price to pay for the increase in profits. The original decision against GM was upheld on appeal. GM are appealing again.

One way that companies try to reduce costs is by “externalising” them. This is a roundabout way of saying that they make society pay for their costs. For example, if a government has decided that people need to earn £6 an hour to meet basic needs and a company pays £4 an hour, there is a shortfall. Who makes up that shortfall? In many European countries, governments, i.e. taxpayers, make up the shortfall. If companies pollute rivers, governments clean them up: the taxpayer foots the bill – not the polluter. To prevent this, companies could bear the costs themselves (“internalise” them). To maximise profits, companies do not voluntarily internalise costs. That is why self-regulation tends not to work.

In the personal domain, there is a recognition that self-regulation does not work. When it comes to individual behaviour (murder, theft), societies have laws, which are enforced.

In the early twentieth century, much regulation was introduced to make corporations act responsibly. However, the late twentieth century saw governments removing laws via deregulation and letting corporations regulate themselves.

Deregulation, if it means self-regulation, can result in social irresponsibility. Bakan gives several examples of corporations repeatedly breaking laws. They perform a cost/benefit analysis and decide that it’s more cost effective to, say, pollute a river.

Removing or weakening environmental legislation, say, is not the only way of reducing costs for corporations. Certain recent governments (e.g. US) have reduced the budgets of enforcement agencies so that they can’t do their jobs effectively.

One way to ensure that corporations don’t transfer their costs to society is to ensure that appropriate legislation exists and that there are agencies sufficiently well funded to effectively enforce the legislation. There should also be a strong enough deterrence to prevent corporations repeatedly breaking the law.

You can discuss the issues raised by the book here.

Thursday, 15 September 2005

Vital Lies, Simple Truths

In his book Vital Lies, Simple Truths, Daniel Goleman talks about “schemas”:
A schema, in the words of the cognitive psychologist David Rumelhart, is "a kind of informal, private, unarticulated theory about the nature of events, objects, or situation which we face. The total set of schemas we have available for interpreting our world in a sense constitutes our private theory of the nature of reality".

He goes on to provide an amusing example of what happens when we don’t change our schemas in the light of new experience:
Jean Piaget studied how schemas change as children grow. As we learn, schemas change. When someone fails to revise a schema to fit the facts, the resulting perceptions can be bizarre. To make the point Ulric Neisser tells the joke about a man who goes to a psychiatrist with the problem that he thinks he's dead. After several sessions, the psychiatrist says to him, "You've heard, of course, that dead men don't bleed". The psychiatrist takes a pin and jabs him in the arm so he bleeds. "What do you say now?" he asks. The patient says, "Well, what do you know? Dead men do bleed".

Goleman also discusses Erving Goffman’s theory of frames. He gives two interesting examples of how people are pigeonholed. The first (also provided by Goffman in The Presentation of Self in Everyday Life) is a quote from Sartre:
Their condition is wholly one of ceremony. The public demands of them that they realize it as a ceremony; there is the dance of the grocer, of the tailor, of the auctioneer, by which they endeavour to persuade their clientele that they are nothing but a grocer, an auctioneer, a tailor. A grocer who dreams is offensive to the buyer, because such a grocer is not wholly a grocer. Society demands that he limit himself to his function as a grocer, just as the soldier at attention makes himself into a soldier-thing with a direct regard which does not see at all, which is not longer meant to see, since it is the rule and not the interest of the moment which determines the point he must fix his eyes on (the sight "fixed at ten paces"). There are indeed many precautions to imprison a man in what he is, as if we lived in perpetual fear that he might escape from it, that he might break away and suddenly elude his condition.

The following dialogue in the film My Dinner with André provides the second example:
André:...if we allowed ourselves to see what we're doing every day, we might find it just too nauseating. I mean, the way we treat other people - I mean, you know, every day, several times a day, I walk into my apartment building. The doorman calls me Mr. Gregory, and I call him Jimmy. The same transaction probably occurs between you and the guy you buy groceries from every day, in some other way...You see, I think that an act of murder is committed in that moment, when I walk into my building. Because here is a dignified, intelligent man, a man of my own age, and when I call him Jimmy, then he becomes a child, and I'm an adult...

Wally: Right. That's right. I mean, my God, when I was a Latin teacher, people used to treat me - I mean, if I would go to a party of professional or literary people, I mean, I was just treated - uh - in the nicest sense of the word, like a dog. In other words, there was no question of my being able to participate on an equal basis in the conversation with people. I mean, I would occasionally have conversations with people, but when they asked what I did, which would always happen after about five minutes - uh, you know, their faces - even if they were enjoying the conversation, or they were flirting with me or whatever it was - their faces would just, you know, have that expression like the portcullis crashing down, you know, those medieval gates -