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but Psychology Knows Better |
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A session at a 1989 psychology/law conference focused on efforts by psychologists to study and improve corporate
ethics. At the end I asked the speakers whether this makes any sense given
that the whole corporate framework seems to me unethical: it's essentially designed to encourage people to pool their money for potentially risky projects with no legal or moral obligation to worry about the consequences on the part of the investors.
The question grew into this article, which stimulated a critique by Gilbert Geis and a 1998 response by me. I remain interested in this issue. It reflects my political history and publications, my past direct-action activism (Stop Seabrook!), and my current thinking of where the real societal dangers are. I've got an outdated reading list on the subject you might want to check out and some more recent opinion columns. Note: This version may not exactly match the published version! |
Psychologists interested in law and public policy have begun to examine the nature of corporations in American society and the serious consequences of corporate irresponsibility. The dominant trend identifies areas where corporate behavior falls short of ethical standards or leads to unacceptably risky decisions and suggests ways to reform corporations or the laws that regulate them. This well-intentioned approach is consistent with psychology's liberal reformist tendency. Unfortunately, it neither challenges the flawed psychological underpinnings of the legal fiction that corporations are legal persons nor compensates sufficiently for the dynamics of individual behavior in corporate settings. Instead, psychologists should advocate fundamental restructuring of our corporate society.
If today's large business corporations did not yet exist, would we invent them? Would we intentionally create centralized, hierarchical, profit-oriented organizations with massive power and wealth legally defined as private? Would we again grant corporations rights of real human beings while exempting them from many of the controls the law places on individual wrongdoing? Or instead, with our current understanding of human behavior in organizational settings and the abundant evidence of harmful corporate actions, would we choose alternate forms of economic organization more in keeping with human well being and social justice?
These questions contain a difficult mix of normative political preferences and empirical assumptions. Admittedly, weighing the costs and the benefits of corporate society is inherently subjective, making it easy to dismiss these concerns as both unrealistic and too ideologically motivated for comfort. Such dismissal would parallel psychology's traditional focus on narrower empirical questions largely uncritical of the status quo (Fox, 1985, 1991, 1993b; Haney, 1991, 1993; Prilleltensky, 1989, 1994; Roesch, 1995; Sarason, 1981; M. B. Smith, 1990). Yet precisely because these ideological issues go to the core of corporate dominance, psychologists seeking to create a better world must consider them. Psycholegal scholars in particular should find the corporation an appropriate target for research because the corporation is entirely the law's creation.
My purpose here is not review the varied critiques of modern society presented by psychologists who have departed from the mainstream to advocate widespread social change (see, e.g., Albee, 1982, 1990; Caplan & Nelson, 1973; Deutsch, 1985; Fairweather, 1972; Fox, 1985, 1991, 1993a, 1993b; Fromm, 1955; Goodman, 1966/1979; Haney, 1980, 1991; Joffe & Albee, 1981; Kelman, 1968; Kohn, 1986; Lerner, 1986; Maslow, 1971; Moghaddam, 1990; Moos & Brownstein, 1977; Prilleltensky, 1989, 1994; Rappaport, 1981, 1987; Reicher & Parker, 1993; Sarason, 1976; M. B. Smith, 1990; Wachtel, 1983). Nor will I repeat arguments made elsewhere that strong political advocacy by psychologists is consistent with psychological knowledge and ethics (e.g., Fox, 1993b; Fox & Prilleltensky, 1996; Haney, 1993; Martín-Baró, 1990; Prilleltensky, 1989, 1994; Roesch, 1995. See also Melton's, 1990, call for a psychological jurisprudence advocating the use of law to enhance psychologically beneficial values such as personhood and human dignity.).
Instead, in this article I focus more narrowly on the large business corporation. I speculate about several topics that can generate both hypotheses for empirical investigation and directions for political advocacy. First, I briefly note the context of the psychological study of corporations and some consequences of corporate society. I then turn at greater length to the intersection of legal doctrine and group dynamics, in particular the role played by the legal fiction that corporations are persons and the legal doctrine that shareholders are not responsible for corporate harms. Finally, I suggest that minor reforms cannot be sufficiently effective and that even the development of "socially responsible corporations" cannot be sufficiently redeeming. I propose instead that psychologists should help free the world of corporate dominance.
Reviewing the empirical work by psychologists on organizational and corporate behavior, Tomkins, Victor, and Adler (1992) urged psycholegal scholars to study harmful corporate risk-taking behavior. They noted that research can "examine the accuracy of explicit and implicit assumptions about human behavior that underlie corporate and social policies and various laws and legal interpretations" (p. 525). As Tomkins, Victor, and Adler pointed out, psychologists of law seeking to reduce corporate irresponsibility and improve corporate ethics have already begun this research agenda, most notably Hans and her colleagues (Hans, 1989, 1990, 1992; Hans & Ermann, 1989; Hans & Lofquist, 1992). If "business organizations are a creature of the law" (Tomkins, Victor & Adler, 1992, p. 537), after all, psychologists can help determine what kind of creature the law has created and empirically identify its most dangerous traits. These research efforts are necessary if we are to tame the corporate creature.
Unfortunately, mainstream psychologists insufficiently challenge the basic legal and social psychological framework within which corporations operate. Industrial-organizational psychologists in particular have long supported corporate and managerial efforts, thus masking power differences and making management seem undeservedly reasonable (Prilleltensky, 1994). Psychological consultants help corporate executives adapt to a changing economy so that "managers can help their employees find fulfillment and pleasure in their work without jeopardizing the bottom line" (Sleek, 1994, p. 35; see also DeAngelis, 1994; Levinson, 1994). Typically, psychologists seek not only to "inform the public policy debates that surround the operations and regulation of organizations" but to "benefit the business and bureaucratic communities" as well (Tomkins, Victor, & Adler, 1992, p. 525). This approach may help gain credibility among those who assume corporate dominance is inevitable, especially those who believe socially responsible corporations such as Ben & Jerry's Homemade Ice Creams can revamp the corporate world (Reder, 1995; Shrivastava, 1996). It concedes too quickly, however, that the modern corporation is here to stay essentially in its current form.
Fortunately, this concession is not universal. Scholars in traditions such as critical legal studies (Feinman & Gabel, 1990; W.H. Simon, 1990) and feminist jurisprudence (Bender, 1990, 1993; Gabaldon, 1992) routinely criticize the corporate form. Unfortunately, as Haney (1993) lamented, these traditions have had too little impact on the field of psychology and law: "I wonder whether we do not sometimes think we are doing good, behaving as socially responsible applied psychologists dedicated to legal change, when in fact we are at best irrelevant to the real business of this system and, at worst, its accomplices" (Haney, 1993, p. 379; see also Fox, 1993a, 1993b; Haney, 1991; Roesch, 1995).
Further empirical research can clarify which aspects of the modern corporation are most harmful. Is it large size? Hierarchy? Concentration of power? Profit orientation? The legally mandated lack of individual responsibility? Research can also examine which forms of economic organization might lead to better outcomes. For psychologists of the law, such an agenda requires a central task: Determining whether the fundamental legal assumptions underlying corporate existence are grounded both in psychological reality and in social justice. Is it true that "the major corporations present the primary obstacles to social justice" (Simon & Eitzen, 1990, p. 333) and that life in a noncorporate society would be a vast improvement? If so, then we have a responsibility to investigate and advocate alternative economic systems designed to meet human needs rather than to amass private profit. This responsibility is consistent with a radical psychological jurisprudence that seeks extensive societal and legal change rather than maintenance of a psychologically destructive status quo (Fox, 1993b).
This responsibility is also consistent with Prilleltensky's multidimensional critique of psychology's ethical obligations (1989, 1994). Prilleltensky (1994) claimed that the moral duty of psychologists to empower individuals incorporates basic values of social ethics such as self-determination, distributive justice, and collaborative and democratic participation. As with industrial-organizational psychologists whose work enhances managerial control, co-optation is a clear danger for psycholegal scholars advocating minor corporate reform:
Unless the distribution of power in an institution or in society in general is brought under close scrutiny, innovative reforms are bound to prove only minimally, if at all, helpful. . . . Avoiding the issue of power results in the best fortification of the societal status quo. (Prilleltensky, 1994, pp. 77-78)
It would be difficult to overstate the significance of the large business corporation in American life today. This significance is even more remarkable when compared to the corporation's relative insignificance earlier in our history. Although nonbusiness corporations such as towns and churches have existed since at least ancient Rome (Houseman, 1993), business corporations did not develop until centuries later, and then solely for strictly limited purposes. Only within the past century and a half has the United States political and legal system treated the business corporation as private property rather than as a creation of the state designed to serve a public function (Adams & Brock, 1987; Houseman, 1993). Only within the past century has the corporation become a de facto "institution of private government" (Samuels & Miller, 1987, p. 2) "through which the U.S. economy and the whole society have been transformed radically without revolution" (Martin, 1987, p. 193).
Within the past few decades, this trend has continued to escalate. Multinational corporations now dominate an increasingly concentrated global economy, effectively uncontrolled by democratic processes (Barnet & Cavanagh, 1994; Bonsignore, 1994; Hawken, 1993). The pace of economic concentration is likely to increase with passage of corporation-friendly trade pacts such as the North American Free Trade Agreement (Bonsignore, 1994; Hawken, 1993; H. Sklar, 1995). As Ansley (1993) noted in discussing recent factory closings, "the post-industrial, global, 'new American economy' threatens to stratify American society as never before, and to open gulfs ever more difficult to bridge between those in the lower tiers of society and those in the top" (p. 1759). Not surprisingly, there is a vast scholarly literature critical of the transformed and expanded corporate role in U.S. society and beyond (see Ansley, 1993; Barnet & Cavanagh, 1994; Barnet, Müller, & Collins, 1974; Bender, 1990; Bonsignore, 1994; Brenner, Borosage, & Weidner, 1974; Edwards, Reich, & Weisskopf, 1978; Friedman, 1973; Greenberg, 1985; Grossman & Adams, 1993; Hawken, 1993; Horwitz, 1977, 1992; Schwartz, 1987; Simon & Eitzen, 1990; H. Sklar, 1995; Swidorski, 1994b).
Even the corporations making up the increasingly concentrated mass media regularly churn out movies, television shows, and news reports about corporate failings, thus adding to periodic public concern about corporate crime, corporate error, corporate greed, corporate power, and corporate excess. Significantly, however, media attention typically focuses on exposing, punishing, and replacing individual evil-doers and lawbreakers. It explains in a matter-of-fact manner, in contrast, that disruptions caused by routine corporate decisions are reasonable and inevitable. Thus, media attention rarely challenges corporate dominance. Routine forms of "elite deviance" (Simon & Eitzen, 1990) continue to cause unnecessary worker and consumer deaths and injuries, environmental degradation, resource waste, economic inequality and upheaval, and a host of other harmful consequences (e.g., Barnet & Cavanagh, 1994; Bonsignore, 1994; Greenberg, 1985; Hawken, 1993; H. Sklar, 1995). Many critics of the corporate role in modern society would agree with Bender's (1990) analysis of the so-called liability crisis:
[T]ort victims and evolving tort law are not the causes of the liability crisis. The liability crisis is due to mass harms that are caused by the products and conduct of large, publicly-traded, and multinational corporations. Mass harms and public risks occur during the organized, planned, and aggressive pursuit of commercial self-interest. The legally sanctioned nature of huge corporate enterprises permits undemocratically imposed risks, avoidance of direct and personal responsibility, as well as great imbalances in power and resources between corporations and those injured by corporate conduct. (pp. 851-852)
Corporate dominance of the economy is easy to see, as are examples of corporate-induced mass disasters. Less obvious, but at least equally consequential, is corporate dominance of political, social, and psychological life. Scholars have pointed to a variety of negative outcomes well beyond the strictly economic. For the first time in our history, "a very large part of the action that is carried out in society, and by far most of the economically productive action, is action carried out by one person to accomplish the ends of another" (Coleman, 1982, p. 29). Workers subjected to the "corporation-dominated workplace characterized by hierarchy and class domination" (Swidorski, 1994a, p. 169) find increased alienation, disempowerment, and dehumanization (Edwards, Reich, & Weisskopf, 1978; Maccoby & Terzi, 1974; Simon & Eitzen, 1990; H. Sklar, 1995).
Even those who do not work for corporations cannot escape their influence. Corporate control of the media (Bagdikian, 1990; Herman & Chomsky, 1988; White, 1981) compounds problems such as isolation and consumerism (Coleman, 1982; Durning, 1992). These and other supposedly "psychological" problems may stem from the increased asymmetry between the power of corporations and the power of individuals (Coleman, 1982) and the "diminution in status of the natural person" (Samuels & Miller, 1987, p. 7). In contrast to current nostalgia for "traditional family values" in a "traditional community," the routine decisions of corporate capitalism "tear apart all stable communities, traditions, and values" (Greenberg, 1989, p. 91):
The market creates a society of mobility and change, of competition and self-interest. It creates a society of individual self-seekers without obligations or ties. It destroys the ground upon which people might pause to rest. Many individuals, for better or worse, cannot stand the consequences of such a life. This is reflected in distressingly high rates of alcoholism and drug abuse, in divorce, and interpersonal violence. These are the kinds of costs that represent the dark underside of the glittery, gadget-filled capitalist success story. (Greenberg, 1989, p. 92)
Other critics have identified similar societal problems, though they do not always identify the same cause. Etzioni's (1993) argument for communitarianism, for example, ignored the corporation. Yet he emphasized the increasing isolation and lack of responsibility that seem to follow from corporate dominance. Other communitarian scholars have critiqued corporate society more explicitly, as in Millon's (1993) insistence that corporations consider the effects of corporate actions on nonshareholders. Similarly, Bellah, Swidler, Madsen, Tipton, and Sullivan (1991) argued that creating a "new paradigm" to enhance meaning and purpose in our lives requires a "good society" with significantly reformed economic and government institutions. Community psychologists investigating societal sources of personal distress have advocated the primary prevention of widespread psychopathology through "social and political changes that involve further significant redistribution of power" (Joffe & Albee, 1981, p. x; see also Mirowsky & Ross, 1989; Prilleltensky, 1994).
As we know it today, the corporation's legal attributes include existence as a legal entity distinct from its shareholders; creation by state charter; joint stock ownership with free transferability of corporate shares; identification as a person under law for many purposes, and sometimes as a citizen; perpetual existence; limited shareholder liability; and centralized management elected by the shareholders (Smith, Mann, & Roberts, 1990). The public generally accepts these attributes today, including those giving corporations privileges not possessed by individuals. These corporate privileges were much more controversial in the nineteenth century, however, when the corporate role in the American economy fundamentally changed.
Psycholegal scholars should examine the interactions among three areas in particular: (a) the legal fiction that corporations are persons; (b) the corporate shareholder's exemption from liability for corporate actions and the parallel elimination of shareholder control over the corporation; and (c) the dynamics of human behavior in organizational settings, particularly in relation to risky decisions, conformity, and obedience. Corporate personhood and shareholder immunity are examples of legal doctrines "that have provided more protection of the corporation than from the corporation" (Martin, 1987, p. 193). Both doctrines affect group dynamics within corporate environments (Tomkins, Victor, & Adler, 1992). A more critical perspective on these issues can lead to useful hypotheses about the benefits and drawbacks of the status quo and its alternatives.
Creating the legal fiction that corporations are persons, with many legal rights of natural persons, was crucial to corporate expansion. This was especially the case because, as the 1800s began, large segments of the post-Revolutionary population feared concentrated economic power and viewed corporations suspiciously (Grossman & Adams, 1993). State legislators shared that suspicion. They chartered corporations one by one to achieve some public purpose such as building a bridge. When they did so, they imposed strict limits on corporate organization, function, and even length of existence. By the dawn of the twentieth century, however, sustained judicial and legislative efforts had made the law more suited to industrialization and capital accumulation (Bonsignore, 1994; Friedman, 1973; Greenberg, 1985, 1989; Grossman & Adams, 1993; Horwitz, 1977, 1992; Phillips, 1994; Swidorski, 1994b). The law no longer required corporations to fulfill any public purpose in exchange for their privileges. Today, state charters are essentially permanent rather than subject to meaningful review.
The transition from anti-corporate hostility to matter-of-fact acceptance required changes in the law's definition of the corporate entity. This change began in 1819 when the Supreme Court recognized the corporation as a person (Trustees of Dartmouth College v. Woodward). Chief Justice John Marshall agreed with Alexander Hamilton that a strong central government must work with big business to ensure economic expansion (Greenberg, 1985; Swidorski, 1994b). The legal fiction attained constitutional status in 1886 when the Court summarily announced, without explanation--"like an article of faith, the roots of which were not explained and the consequences of which were not explored" (Flynn, 1987, p. 133)--that the Fourteenth Amendment protected not just former slaves but corporations as well (Santa Clara County v. Southern Pacific Railroad).
This fiction no doubt began with conscious judicial awareness that corporations are not really persons. The law only treats them as such for particular specified ends. The peculiar logic of legal analysis, however, gave the pretense a life of its own. Importantly, legal fictions are socializing forces, ideologies that shape our assessment of the world around us:
The idea (some would say the myth) that the corporation is a person served the function of obscuring the putative fact that the corporation is by its nature a collective transindividual organization. . . . Corporations were individuals, too, with the implication that they could and should be treated the same as human individuals rather than in a separate category. The role of selective perception is made evident by recognizing that neither labor unions nor cooperatives were so identified and defined. (Samuels, 1987, p. 121)
The public's current belief that huge corporations should have the same rights as individuals shows the power that comes from creating legal ideology. Widespread acceptance of the fiction makes it seem illegitimate to challenge corporate decisions the law defines as private, despite obvious differences between the corporation and the individual of size, power, motivation, and impact. The fiction obscures the fact that capitalist theory, as damaging as it might be under the best of circumstances, developed long before economic theorists--and the law--contemplated corporate domination.
Following the 1886 Santa Clara decision, judges enhanced the business-government alliance by clarifying what they meant by corporate personhood and expanding corporate rights. "Beginning in the 1890s and reaching a high point around 1920, there is a virtual obsession in the legal literature with the question of corporate personality" (Horwitz, 1992, p. 101). This debate over competing views of corporate personhood and corporate function has now resurfaced, spurred on by the flurry of corporate takeovers and mergers in the 1980s (Coates, 1989; Phillips, 1994).
Under the earlier traditional conception, the law considered the corporation an artificial entity created by legislatures--thus the state's power to control corporate activity through charters. In keeping with this theory the corporation could not claim constitutional rights against the state that created it (Mayer, 1990). The later aggregate view, on the other hand, treated corporations similarly to partnerships. The organization had the same rights, and also the same obligations, of the individual members--including liability for harmful actions.
By early in the twentieth century, the Court accepted the natural entity view, under which the corporation achieved existence on its own. As Horwitz (1992) put it, "over and over again, legal writers attempted to find a vocabulary that would enable them to describe the corporation as a real or natural entity whose existence is prior to and separate from the state" (p. 101). Resembling contemporaneous social psychological speculation concerning the existence of a "group mind" (Le Bon, 1896), this new perspective claimed the corporation was a self-directed organism. Its behavior was legally distinct from the personal predilections of its shareholders, managers, or employees. The state no longer created corporations. It merely acknowledged their existence (Phillips, 1994).
Two late-nineteenth century historical trends affected the developing personhood doctrine. First, Alexander Hamilton's government-business alliance finally came into its own as a much larger and more powerful central government worked hand in hand with corporate America (Greenberg, 1985, 1989). Second, Social Darwinism became intellectually and politically dominant. Judges now had a respectable reason to overturn legislation helping workers, farmers, consumers, and the public (Soifer, 1987). When state legislators interfered with corporations' constitutionally recognized rights, the Supreme Court simply invalidated their efforts (M. J. Sklar, 1987; Swidorski, 1994b). Thus, the rhetoric of competitive free-market capitalism was retained while government intervened as necessary to protect corporate interests..
It would be bad enough, in keeping with the personhood fiction, if the law really treated corporations just like people. However, the law frequently treats corporations even better. The law typically assesses more lenient penalties for corporate harms than for comparable individual harms (Black, 1989; Hawken, 1993; Hills, 1987; Houseman, 1993; Reiman, 1990). Or it simply defines corporate harms as noncriminal civil or administrative violations (Simon & Eitzen, 1990). Unlike individuals, corporations ordered to pay fines can deduct their legal costs as a business expense (Hawken, 1993). In recent years, corporate executives have increasingly claimed corporate free speech rights under the First Amendment, protection from regulatory searches, and other rights of real persons (Mayer, 1990; Swidorski, 1994b). Yet when such classification would be to their disadvantage, they routinely point out the obvious fact that corporations are not really persons and should not be treated as if they are (Houseman, 1993). Thus, management frequently rejects calls for social responsibility by pointing out that shareholder profit maximization is the corporation's only legitimate and legally recognized goal (DeBow & Lee, 1993; Mitchell, 1995; Samuels, 1987; Stone, 1986).
The natural entity conception of the corporation has gone out of favor with many legal scholars who now advocate a nexus-of-contracts formulation related to the older aggregate view. Still, the real-entity view remains the basis for the judicial underpinnings of corporate dominance. Interestingly, the newer contract-based view leads to many of the same ends. Phillips (1994) noted that the current "aggregate and nexus-of-contracts theories may be better bases for corporate legal rights and aggressively pro-business policies than the real entity theory" (pp. 1098-1094) because under certain natural entity formulations, corporations have moral obligations as well as moral rights. Under the strong contract view, however, maximizing shareholder profit remains the only goal (DeBow & Lee, 1993), despite challenges by communitarian legal scholars who claim that legally required shareholder primacy should give way to concern for nonshareholder interests (Millon, 1993).
In the end, the specific theoretical definition of corporate existence may no longer have any practical impact. The law today grants rights to corporate institutions no matter how judges justify those rights and no matter how communitarians criticize them. Still, clarifying the "personality" of the corporate creature "whose only animating conscience is a balance sheet" (Gabaldon, 1992, p. 1443) should interest psychologists who have exposed inaccurate judicial assumptions about human nature in other contexts. For example, when judges extended personhood to corporate organizations, did they have in mind a more responsible person than the law demands today? What happened to those judicial assumptions when the expectation of corporate action in the public interest gave way to the view that corporations exist solely to earn a profit? Do legislators who charter corporations today understand that the notion of corporations existing for the public interest has a long history? The law may insist on drawing a parallel between real persons and artificial ones. It is up to psychologists to point out how this imperfect parallel leads to results that are psychologically indefensible even if they are legally justifiable.
The fiction of corporate personhood developed in concert with other new doctrines benefiting corporate expansion. Unlimited shareholder immunity from liability, which allows shareholders to invest in corporations while ensuring they will not pay damages for corporate harms, is central to the modern corporation's dominance. It has received too little attention from psychologists.
An enormous loophole in the law's reliance on deterrence to enforce desired behavior, legal immunity removes the shareholder's incentive to supervise risky corporate decisions. "This presumably means that more risks will be taken. Limiting shareholders' liability, however, does not make risks evaporate; it simply makes sure they do not fall on shareholders" (Gabaldon, 1992, p. 1408). The loophole is widened even further by the fact that under current law corporations can own other corporations. This phenomenon makes the connection to real human owners even more distant as large conglomerates consolidate more separate corporate entities under a single corporate body (Coleman, 1982).
In contrast to modern legal doctrine, the traditional common law of corporations did not grant immunity from liability (Gabaldon, 1992; Hansmann & Kraakman, 1991; Houseman, 1993; Thompson, 1994). When the state allowed shareholders to pool their resources for approved public purposes, the law expected them to oversee the use of their money. When necessary, it recovered proportional damages from shareholders. Total immunity, which developed gradually to encourage investment in large-scale enterprises expected to cause harms, was seen at the time as a revolutionary departure from past practice (Gabaldon, 1992). Not until early in the twentieth century did total immunity become the norm. By then, the natural entity theory had successfully severed the connection between individual shareholders and the corporate person and created clearer distinctions between management and investors (Coates, 1989; Horwitz, 1992).
The severing of that connection means that even shareholders seeking to ensure ethical uses of their money are unable to do so. The law not only assumes shareholders are not in control of corporate policies (Coleman, 1982), it actively prevents them from receiving certain corporate information and making managerial decisions (Coates, 1989). True, recent countertrends stemming from the corporate upheaval of the 1980s have increased shareholder power over management salaries, corporate responses to takeover bids, and some other corporate decisions (Mitchell, 1995; Roe, 1994). However, these developments primarily benefit not individuals but large shareholders who are themselves large corporations, pension funds, and other institutional investors more interested in increasing profits than in protecting workers, the community, or the environment (Bonsignore, 1994; Wayne, 1993). The ability of "socially responsible investing" to influence corporate policies remains minimal (Dowie, 1993; Mitchell, 1995)
Gabaldon (1992) noted that, "regardless of the legal effect of the policy, the fact that limited liability is enshrined in the law can inflict a separate harm by shaping values and social reality" (p. 1429). The limited liability doctrine forms a key part of the capitalist ideology that investment of resources is personally and socially rational and positive despite the consequences for society as a whole. It thus becomes legitimate to invest one's money in exchange for profits without qualms about how those profits are earned. Even for young children, playing the stock market takes on aspects of playing a game in which there are many winners and nothing to lose other than the initial amount one is willing to risk. Adherents of psychological jurisprudence seeking to understand how early legal and political socialization affects the subjective experience of law (Melton, 1990) should pay greater attention to the development of such values.
The consequences of these values also deserve attention. Whether the massive accumulation of resources allowed by limited liability is desirable is partly a normative issue. It contains empirical aspects, though, related to the optimal size of economic institutions and scope of economic activity. Additionally, psychologists can clarify the psychological costs when real persons are motivated only by profit, undeterred by either legal or moral constraints. Ironically, the parallel between real persons and corporate ones may in some ways be closer today than in the past: Just as corporations have escaped the legal requirement that they serve a public function, individuals under corporate capitalism are encouraged to seek profits despite the public good. This parallel should not be surprising, perhaps. If the amoral corporate person is a social good, after all, then why not the amoral individual motivated only by higher dividends?
Legal doctrine does not exist in a vacuum. Analysis of fictions such as corporate personhood and of rules such as limited liability is useful not just to identify faults in abstract reasoning and to tease out judges' political and socioeconomic biases. Especially important for psychologists is examining how such doctrines affect the behavior of people.
As detailed in Kelman and Hamilton's (1989) analysis of "crimes of obedience," the psychology of giving and following destructive orders and making dangerously risky decisions takes on added import within a legal framework that assigns responsibility not to real individuals but to an intangible entity. In a bureaucratically rational hierarchical institution, individuals act as agents of others rather than as independent decision makers (Coleman, 1982). Workers subordinate in the hierarchy make decisions and follow orders without absorbing responsibility for those actions. Managers and executives make decisions and follow orders--and also give them--in the name of the organization rather than in keeping with their own sense of morality. "No feelings of guilt are required, no attributions of moral blame permitted, when the stream is polluted, the baby food is diluted, or the Pinto explodes" pointed out Mitchell (1995). "The institution defines the moral role, and in the case of the corporation, the moral role is narrow indeed" (pp. 523-524). And because the law finds it difficult "to conceptualize, analyze, and punish business wrongdoing" (Hans & Lofquist, 1992, p. 88) even when it seeks to do so, real human beings escape not only moral and psychological responsibility but legal responsibility as well (Coleman, 1982; Gabaldon, 1992; Kelman & Hamilton, 1989; Luban, Strudler, & Wasserman, 1992; Mitchell, 1995; Samuels & Miller, 1987; Schlegel, 1990; Simon & Eitzen, 1990; Tomkins, Victor, & Adler, 1992). Legal rules designed to deter individual wrongdoing are simply not directly transferable to the corporate setting (Coleman, 1982). The exemption of shareholders from responsibility is an added factor: "Liability limitations artificially distance individuals from the real-life effects of the enterprise in which they invest, thus decreasing their acknowledged personal responsibility" (Gabaldon, 1992, p. 1429).
Fortunately, psycholegal scholars building on the large data base of organizational and social psychology have begun to examine decision making, risk taking, conformity, and obedience in corporate settings. Tomkins, Victor, and Adler (1992) summarized the large literature identifying "psychological realities" leading to reduced individual responsibility and dangerously risky decisions. These include diffusion of responsibility; role specialization; incomplete information; organizational culture; individual psychological defense mechanisms such as denial of injury; and, in keeping with Prilleltensky's (1994) reminder about the importance of focusing on power, management's ability to punish nonconformity and disobedience (see also Coleman, 1982; Hills, 1987; Kelman & Hamilton, 1989; Simon & Eitzen, 1990). The data support the conclusion that large, profit-oriented, hierarchical organizations are not conducive to human welfare. Unfortunately, psychologists too often resist the logic of the data and limit themselves to cautious calls for minor reform.
Reformers seeking to control corporate power and reduce corporate damage have suggested many solutions. These range from traditionally minor liberal tinkering to far-reaching proposals grounded in feminist (Bender, 1990), environmentalist (Hawken, 1993), and other alternative perspectives. Some scholars claim optimistically that there is "a crisis of uncertainty over corporate law's normative foundations," (Millon, 1993, p. 1373) stemming from growing attacks on the traditional profit-maximizing definition of corporate purpose. This reported crisis coincides with increased discussion of "socially responsible corporations" seemingly as interested in environmental sustainability, worker satisfaction, and ethical decision making as in making a profit (Reder, 1995; Shrivastava, 1996; Solomon, 1994). In my view, these reforms and these examples do not adequately respond to the many criticisms of the corporation.
Proposals for regulatory and organizational reform cover a broad range. They include altering internal corporate structure and culture, including reducing levels of hierarchy; encouraging whistle-blowing; increasing criminal penalties for corporate crime; easing efforts to pierce the corporate veil and extending liability; changing the burden of proof and persuasion in cases of corporate harms; increasing the influence of shareholders, workers, and the public on corporate decisions; removing the legally required goal of shareholder profit maximization; requiring corporations to consider the interests of nonshareholders; providing tax cuts and regulatory relief to corporations that meet standards of social responsibility; limiting corporate influence in the political process; and a host of others (see Amoroso, 1995; Bender, 1990, 1993; Coates, 1989; Coleman, 1982; Gabaldon, 1992; Fisse & Braithwaite, 1994; Grossman & Adams, 1993; Hawken, 1993; Houseman, 1993; Kuttner, 1995; Laufer, 1994; Luban, Strudler, & Wasserman, 1992; Millon, 1993; Parkinson, 1994; Simon & Eitzen, 1990; Stone, 1986; Thompson, 1994; Tomkins, Victor, & Adler, 1992). Despite occasional advances, however, reforms generally go no further than necessary to dampen short-term public protests (Miller, 1987). They do little to reduce the influence of corporations on American life. Even the possibility of a corporate death penalty--revoking the legal right to exist (Hawken, 1993)--is "probably not a sufficient consequence to deter certain actions" (Coleman, 1982, p. 116).
The power of large corporations to shape the political and legal landscape is one obvious complication. Because government is more often an ally of corporate power than an antagonist (Greenberg, 1989; Greider, 1992), using the state to control corporations can have only limited success. Despite the rhetoric of regulatory reform, the primary role of government is "not to challenge capitalism or seriously undermine corporate prerogatives, but to use the expertise of the modern state to coordinate, guide, and supplement the functioning of the modern capitalist economy" (Swidorski, 1994a, p. 168). Corporations have a variety of legal tactics at their disposal, ranging from obtaining beneficial legislation to filing libel suits against anti-corporate activists (Bonsignore, 1994; Fox, 1993b; Hawken, 1993; Swidorski, 1994b). By paying for procedural roadblocks and by influencing the substance of legal doctrine, corporations have more than held their own against their opponents.
As if the century of corporate ascendancy were not enough,
The Burger and Rehnquist courts resurrected certain clauses of the Constitution, presumed dead after 1937, to protect preferred property rights claims. The contract, interstate privileges and immunities, and commerce clauses have been used to strike down state legislation. The takings clause has been revitalized to protect developers and recognize that property owners have a "reasonable expectations of profit." The Court even has indicated that, under certain circumstances, it is willing to challenge congressional laws regulating property rights. (Swidorski, 1994b, p. 180)
Corporations over the past two decades spent millions of dollars to reshape the corporate-friendly legal landscape even further. The Alliance for Justice (1993) examined business-funded public interest law firms; corporate efforts to persuade the public there is a litigation crisis in order to reduce business costs through tort reform; the increasing influence of the law and economics movement; privately funded judicial education programs designed to create a more accommodating judiciary; and the Federalist Society's efforts to recruit law students. The Alliance's report confirmed the point, made by Vidmar (1993), that
powerful interest groups have exploited and misrepresented findings about jury malfeasance in order to further agendas of tort reform. . . . Non-representative data, misleading data, and horrific anecdotes of a jury system out of control have been presented at legislative hearings and portrayed in stories and advertisements in the mass media. This propaganda creates and reinforces beliefs about the deep pockets effect not only in the general public but in the legal, medical, and legislative communities as well. Propagandists have no interest in methodological confounds when the statistics appear consistent with their goals. (pp. 264-265)
The Republican Party's "Contract With America" (Gillespie & Schellhas, 1994)--with many of its provisions enacted into law by Congress and state legislatures across the country--demonstrates the continued success of this corporate effort (H. Sklar, 1995). Significantly, despite the supposed interest in cutting welfare costs, corporations have successfully resisted efforts to reduce "corporate welfare," or government payments to big business (Anderson, 1995).
Greenberg (1989) pointed out that, although decades of reform efforts led to expanding legal rights for racial minorities, women, and criminal defendants, "the institutions of corporate capitalism and the system of class inequality remain untouched and intact, with the basic framework of the law acting as one of its most fundamental props" (p. 68). Similarly, Simon and Eitzen (1990) suggested that liberal reforms focus too much on corporate crime and not enough on "the root cause of corporate crime: the system of political economy that makes crime both profitable and even necessary" (p. 349). Importantly, reforms "fail to deal with many of the social problems created by the organizational society in which we live" (Simon & Eitzen, p. 350).
Even when reform does succeed, there may be unanticipated costs. Corporate reform typically creates greater state regulatory power. It does not create countercorporate nonstate institutions, or provide workers and consumers with direct power to control safety conditions, pollution levels, or similar outcomes (Coleman, 1982; Stone, 1986). Reforms, thus, increase the power of the state over the individual. This is undesirable for a variety of reasons. Most relevant here is that, as Simon and Eitzen (1990) emphasized, elite deviance is not confined to the business world. The state itself is the largest corporate actor (Coleman, 1982), exhibiting all the bureaucracy, hierarchy, centralization, and power found in business corporations. Psychologists seeking to empower individuals and communities should resist efforts that lead to even more dependence on state solutions (Fox, 1985, 1993a, 1993b; Sarason, 1976).
Beyond issues of regulatory reform is a fundamental question: Is it possible even in theory to make corporations socially responsible? Of course, in keeping with a capitalist free-market philosophy, the corporation's sole focus on shareholder profit is itself a social good that benefits the whole society (DeBow & Lee, 1993). If this is the case, the current corporate form is socially responsible enough.
Those who believe profit maximization must give way to other concerns, however, insist corporations can and should become more responsible and ethical. Critics of corporate practices have long called upon corporations to accept moral responsibility (e.g., Luban, Strudler, & Wasserman, 1992; Stone, 1986). Attracting more attention recently, however, are optimistic manifestos issued by corporate defenders. The new approach claims that rejection of traditional corporate norms will come from an internal desire to become socially responsible, to act on conscience, generally for environmental reasons. But even if that desire is not sufficient, however, the new view remains reassuring: Corporations seeking simply to survive have no choice but to meet increased demands by workers, shareholders, customers, and the government for greater accountability. Social responsibility is now good for business (e.g., Naisbitt & Aburdine, 1985; Peters, 1992; Reder, 1994; Shrivastava, 1996; Solomon, 1994).
Not only is the responsible corporation possible, according to this literature, it already exists. Authors typically identify far-sighted corporations that do the right thing by reducing levels of bureaucracy, giving workers more autonomy, reducing environmental damage, and so on. Shrivastava (1996), for example, described how Procter & Gamble, Volvo, 3M, The Body Shop, Ben & Jerry's Homemade Ice Creams, and other "green companies" preserve the environment. Providing many more examples, Reder (1995) outlined 75 Best Business Practices for Socially Responsible Companies. Psychologists, too, have been quick to offer advice (DeAngelis, 1994; Levinson, 1994; Sleek, 1994). So we must consider: If a corporation makes money for the shareholders, preserves the environment, retains satisfied employees (who may even own the company), and maintains good relationships with its neighbors, isn't that good enough?
There are at least three responses to this question. First, despite the plethora of books and articles about socially responsible companies, there is little evidence of a widespread departure from the profit-first corporate mainstream. The dominant mode of corporate operation has not changed significantly, as Hawken (1993) pointed out in his call for the vastly altered corporate environment required for ecological sustainability. Although corporations choosing social responsibility may be an improvement, the choice remains the corporation's. "For the most part, and unsurprisingly, these are corporations that remain largely within the control of their founders" (Mitchell, 1995, p. 504). Absent the special circumstances of small or founder-directed companies, corporations are inappropriate targets of moral appeals because they are not moral agents (Benjamin & Bronstein, 1987). Only external sanctions affect corporate actors, unlike the case of natural persons socialized to pay attention to the needs of others (Coleman, 1982; Miller, 1987). In fact, current law prevents corporations from being so responsible that they neglect profitability, leading traditional reformers to advocate increased regulation and legal oversight rather than moral appeals. (On the other hand, Mitchell, 1995, argued that if the law ceases to regulate corporations and ends profit-maximization as the legally required goal, expectations of moral corporate behavior would become reasonable. He advocated just this result to deprive corporate executives of the excuse that they cannot take nonshareholder interests into account. Whether this approach would work in large multinational corporations is questionable.)
Second, it is not clear what social responsibility entails, or who decides when it is attained. Letting corporate executives define ethical conduct does not seem likely to bring significant change, despite Mitchell's (1995) optimism. A corporation may hold itself out as an environmental model and donate money to worthy causes but still close factories and lay off workers whenever profitability drops. Satisfied workers can still create dangerous products. Shareholders with actual control may demand profits at any price. Local community participation in corporate policy can lead to burying hazardous waste elsewhere. The rhetoric of social responsibility--recycling, worker empowerment, community advisory boards, environmental assessments--can create appearance rather than substance (Carlin, 1995; Hawken, 1993; Rosin, 1995). Prilleltensky's (1994) conclusion about the use of organizational development and quality-of-work-life techniques, advertised as giving workers greater control over their jobs, has wider relevance: These "interventions have promoted an approach whereby control over workers is gained through cooperation. These techniques are refined versions of human manipulation, congruous with the spirit of the age" (p. 146).
Similarly, definitions can change at will. Ben & Jerry's, now the nation's largest seller of high-fat ice cream, is an example. For many years the company had a widely publicized, socially responsible policy that no employee could earn more than seven times the lowest salary. This contrasted sharply with the normal pattern in the United States, where ratios from 50:1 to 100:1 and above are common. However, Ben & Jerry's retained this policy only as long as practical. When profits dropped and a co-founder stepped down as Chief Executive Officer, the company abandoned its policy and hired a new CEO to keep the ice cream flowing--at a much higher salary (Carlin, 1995; Reder, 1995; Rosin, 1995). Such a change may have made good business sense. But if good business sense causes abandonment of socially responsible goals whenever "necessary," in what way is the new corporation better than the old?
Ben & Jerry's illustrates the mixture of responsibility and hype increasingly noted by critics of the socially responsible corporation phenomenon. For example, the company lauched its CEO search by announcing a "Yo, I'm Your CEO" contest in keeping with its unconventional image. It was quieter about the fact that, during the contest, it hired an executive search firm that found the ultimate winner in the Fortune 500. Similarly, and more damaging to the company's image, the company's Rainforest Crunch ice cream turned out to be something less than promised. Marketed as the socially responsible ice cream that would save the Amazon "forest peoples" by using their Brazil nuts, Ben & Jerry's now acknowledges it bought only 5% of its nuts from the forest cooperative. The rest came from the non-Indian commercial agribusiness market (Rosin, 1995). The company has since dropped the inaccurate claim from its labels. Perhaps not surprisingly, in 1994 the number of Ben and Jerry's employees who said they often think of quitting doubled, to 38% (Rosin, 1995). It is not yet clear how the newly hired CEO will provide Ben & Jerry's with the "purposeful corporate strategy that had been lacking" ("'No-Nonsense' Look," 1995, p. 7) as it expands to foreign markets. [Note: also see later column].
Third, even if every corporation became socially responsible as conventionally defined, we would still be in bad shape. Even when corporations do everything legally and responsibly, the law allows them to harm society and the logic of capitalism and consumerism prevents them from recognizing that harm. In his call for environmental sustainability, Hawken (1993) noted:
Despite all this good work, we still must face a sobering fact. If every company on the planet were to adopt the best environmental practices of the "leading" companies--say, Ben & Jerry's, Patagonia, or 3M--the world would still be moving toward sure degradation and collapse. So if a tiny fraction of the world's most intelligent managers cannot model a sustainable world, then environmentalism as currently practiced by business today, laudable as it may be, in only a part of an overall solution. Rather than a management problem, we have a design problem, a flaw that runs through all business. . . .
Although proponents of socially responsible businesses are making an outstanding effort at reforming the tired old ethics of commerce, they are unintentionally giving companies a new reason to produce, advertise, expand, grow, capitalize, and use up resources. The rationale is that they are doing good. (p. xiii)
Beyond environmental concerns, even an ideal, responsible, nonpolluting corporation with happy workers and a satisfied surrounding community would retain too much power over our lives. The problem here is centralized power no matter how that power is used. Benevolent corporations still reduce individual power and create cultural homogeneity. They still transform the social and political landscape along with the physical landscape. They still create a society based on consuming. And they still perform cost-benefit analyses based on their own evaluation of costs to others and benefits to themselves.
Psycholegal scholars should explicitly address the choice between liberal reform and radical social change. All too often reformers presume the reputed benefits of corporations without significant substantive justification (e.g., Luban, Strudler, & Wasserman, 1992; Stone, 1986; Tomkins, Victor, & Adler, 1992). As expected, those who reject the current social order as inadequate are less likely to settle for reforms that leave corporate society essentially unchanged.
Although minor regulatory reform cannot be sufficient, some observers propose more extensive legal reforms might reduce corporate harms significantly within the larger capitalist economy. Hawken (1993), for example, advocated drastic alteration of the corporate landscape, including dissolving irresponsible corporations. Others have suggested a variety of reforms: erasing the distinction between criminal and civil law and making corporations fully accountable for preventable but unintended harms to workers and the public (Reiman, 1990); once again holding shareholders liable for damage done by their corporations (Hansmann & Kraakman, 1991); requiring corporate executives to provide personal services to corporate victims (Bender, 1990); making state chartering of corporations meaningful, with democratically devised conditions placed on corporations in the public interest (Grossman & Adams, 1993); reducing corporations to a size and scope controllable by local communities; preventing corporations from owning other corporations; recognizing the obvious distinction between immense corporate power centers and the more numerous, but less powerful, tiny corporations that are "the alter ego of an individual or small group of individuals" (Flynn, 1987, p. 150); and passing a constitutional amendment, sought by the Campaign to Curb Corporate Power (1993), to establish "that corporations shall not be treated as persons before the law." If these reforms were effective, of course, American society would be very different. If the critics are correct, the difference would be good for most real persons, even if not for corporate ones.
Even better, in my view, would be to acknowledge that we cannot fully meet our obligation to enhance human well being and social justice unless we examine and attempt to alter society's dominant ideology--the complex of values such as competition, consumption, profit orientation, obedience to authority, individualism without social responsibility, and acceptance of a legal, political, and economic system that fails to seek justice. These culturally endorsed values do not exist in isolation, or spring out of nowhere. They are inherent in (though not exclusive to) corporate capitalism. Psychologists should determine the degree to which an egalitarian, democratic, and humane economic and social system would lessen these destructive values (Albert & Hahnel, 1991; Alperovitz, 1974; Fox, 1985; Edwards, Reich, & Weisskopf, 1978; Greenberg, 1985, 1989; Simon & Eitzen, 1990; H. Sklar, 1995; Wachtel, 1983). In the end, as Bonsignore (1994) concluded, despite widespread popular belief that solutions can be found in the "reasonable middle ground," for multinational corporations there is no middle ground. The best solution--the most psychologically defensible approach--is eliminating the corporate form entirely.
Discussion of value issues raises questions about political agendas, perhaps accounting for the fact that mainstream psychology has for too long underemphasized ideology. In particular, as Haney (1993) lamented, "Psychology and law has continued to operate without a shared conception of, or commitment to, justice. We have no clearly articulated theory of value and, therefore, no overarching vision with which to address and reform the legal system" (p. 379). Haney called upon psychologists to "conceptualiz[e] independent definitions [of justice] that might 'make sense' from a psychological perspective" (p. 379, Footnote 20). This conceptualization is crucial for "aspiring to the role of transformers, system shakers who risk alienation but seek real substantive change" (p. 384). It is disheartening in this regard, though not surprising, that contributions to the recently edited volume Radical Philosophy of Law (Caudill & Gold, 1994) came from law, political science, sociology, criminology, and philosophy--but not from psychology.
A related task for psychologists is to examine more closely how society transmits its legitimizing ideology. How do our schools, media, and other institutions of social control teach us so successfully that the system we have is the best system there is? How do legal and corporate authorities use false consciousness to maintain their legitimacy despite massive evidence of harm? Once we have better answers to questions such as these, we can suggest to the public more effectively that its ambivalence about corporations (Hans, 1992; Samuels & Miller, 1987) should lead not to passive acceptance of continued corporate domination but to economic restructuring, cultural reevaluation, and a psychologically healthier society.
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