The Corporate Environment

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17 Νοε 2013 (πριν από 3 χρόνια και 8 μήνες)

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The Corporate Environment

William J. Frey

College of Business Administration

University of Puerto Rico at Mayaguez

Some sources


Stone, C. D. (1975) Where the Law Ends: The Social
Control of Corporate Behavior. Prospect Heights, IL:
Waveland Press, INC: 1
-
30. (History of Corporation)


French, P.A. (1984) Collective and Corporate
Responsibility. New York: Columbia University Press.
(Corporate Responsibility based on CIDS)


Fisse
, B. and French, P.A., eds. (1985) Corrigible
Corporations and Unruly Law. San Antonio, TX: Trinity
University Press. (Corporate Punishment)


P.T.
Leeson
. (2009). The Invisible Hook: The Hidden
Economics of Pirates. Princeton: Princeton University
Press: 44
-
81. (Pirate Articles of Agreement)


Ritz, Dean. (2007) "Can Corporate Personhood Be
Socially Responsible?" in eds. May, S., Cheney, G., and
Roper, J., Oxford, UK: Oxford University Press: 194
-
195.


Tentative Schedule


October and November


28

Introduce Corporate responsibility


30

Groups prepare for town meeting


1

Burger Man town meeting



November



4

Debrief Burger Man and Pirate
-
Corporate Analogy (Corporate Internal
Decision Structures)


6

Prisoner’s Dilemma (Cooperation versus Competition)


8

Milgram and
Zimbardo

(How organizational environments constrain
human action and identity)


13

Review for Exam


15

Third Exam (Codes and Organizations)


20

Hughes Case


22

Group Preparation for Dramatic Rehearsals


25

Dramatic Rehearsals (Acting, Storyboards, Reflections)


27

Responsible Dissent (Exit, Voice, Loyalty)



December


2

Class Evaluations/Group Self Evaluations/Hughes Storyboard & Reflections


4

Class Evaluations/Group Self
-
Evaluations/Hughes Reflections & Reflections

Terms from History of Corporation


Property


Des
Jardins

(a business ethicist) characterizes property, not as a single right,
but as a “bundle of associated rights.” These include the right to “possess,
control, use, benefit from, dispose of, and exclude others” from one’s property


Ultra
Vires


Literally “beyond the power”. If a corporate charter designates something as
“ultra
vires
” in relation to the corporation, it literally means that this action
goes beyond the legitimate powers of the corporation.


Implied Powers


If a company knows of an activity (or should know of it) and still permits the
activity to continue, then its consent is implied and the power to perform the
action implied.


Joint stock company


17
th

and 18
th

centuries in Great Britain. Companies were formed to carry out
complex business activities. Investors put their money into the venture and
managers oversaw the activities. Joint Stock Companies produced problems
because of unlimited liability


Corporate shield


The corporate shield protects investors by distributing financial risk. Investor
liability limited to amount of investment.

Agency and Charters


Law of Agency


Responsibility of agents to remain faithful to the interests of principals


Principal


Originate action and determine its goal. Delegate executive authority
to agent if unable to execute action working alone


Agent


Carries out or completes action originated by another. Responsible to
principal to remain faithful to the principal’s goals and interests


Corporate Charter


Founding document of corporation


Originally the charter was a device of corporate control because it
outlined what the corporation could and could not do. If not
permitted by charter it was ultra
vires

(=beyond the power).


Charter Mongering


Charters allow incorporation for all legal activities. Charter no longer
defines boundaries for legitimate and illegitimate corporate activities

Corporate legal and moral responsibility


Corporation Internal Decision Structure or CIDS


Corporate goals, decision recognition rules, roles, and organizational flow chart


Licenses re
-
describing individual actions as corporate actions.


Corporate Responsibility


Holding corporations legally and morally responsible for actions performed in their
name. Creates philosophical problems concerning the meaning of “personhood”
and “agency.”


Legal Person


Created in and through the law. A legal person has legal standing: it can sue and be
sued. Legal persons also have legal rights and duties.


Natural Person


Primarily human beings. Natural persons act through the medium of their bodies.
Natural persons also have minds which form intentions (goals, purposes). Criminal
law applies to natural persons who have minds (that form intentions), bodies (that
act to realize intentions) and a connection between the two such that minds direct
the activities of bodies.


Principle of Responsive Adjustment


Moral agents have an obligation to adjust their actions and habits to respond to
lessons learned from the past.


Stock Dilution


A corporate punishment (a fine) that goes beyond the deterrence trap by tapping
into the future earnings of a corporation. The stock of a company is divided (or
diluted) and the additional shares are distributed to the victims of corporate
wrongdoing or to the state. These shares are, then, liquidated at some future date.

1. Proto
-
Corporation is a Passive
Device to hold property


A monastery is not just the private property of
the abbot



The Church emerges as an abstract legal entity
that holds property


No problem of succession when abbot dies; abbot
doesn’t own it

the Church does


What’s the Church? Something that “owns” property



Passive: it doesn’t do anything but own property

2. Proto Corporations called Trade Guilds
self
-
regulate the practice of a trade


Proto Corporations created called Trade Guilds to self
-
regulate the practice of a trade



Example: Shoe Makers


A skilled craft or trade


Learn through apprenticeship


Self
-
regulation



Purpose: to regulate a practice or trade. Why…?


Members make more money

guild becomes monopoly
(controls who can practice) and dictates prices for services


More social responsibility exercised: sets standards and
punishes individuals who fail to meet standards

3. Proto
-
Corporations called Joint Stock Companies
pool capital to oversee complex ventures


Problem: How to organize and fund complex trading
ventures



Solution: Joint Stock Companies


Device to “pool” or raise capital/money


Example: Outfitting a ship to travel to Orient and collect spices



Also distributed benefits and burdens of enterprise


Investors pay into venture. If successful they get a share of the profits



New Problem: Unlimited liability


Venture fails. Investor liability to creditors is unlimited



Key Innovation in Joint Stock Companies: Managers

distinguished from
investors


Owners become
Principals and originate venture


Managers become
Agents and execute venture

4. Chartered Corporations


Innovation: Limit Investor liability


Financial risk is necessary for the growth of business


Unlimited liability discourages potential investors


Investors back off due to fear of going to debtor’s prison


Liability limited to original investment to distribute
risk and encourages investment



Innovation: Control Corporations by charter


Legal device that sets boundaries by specifying a
corporation’s legitimate activities


Anything beyond the charter is “
ultra
vires
” or beyond
the power of the corporation

New Problem: Charter Mongering


Competition between States for incorporation
privileges leads to watering down of effectiveness
of charter



Charters now licenses all legally activities


Illegal actions or activities are literally beyond the
power of the corporation.


Corporation can do no wrong.



Period of unprecedented growth in corporate
scope and power

5. Corporations become legal persons


Solution: Control corporations through law

corporation becomes a legal person


Legal Standing: Right to sue and be sued


Commercial Free Speech (Advertising)


Non
-
commercial Speech (Political Speech)



First National Bank of Boston v.
Bellotti


Majority Opinion:


Regulating speech by speaker sets a dangerous
precedent


Minority Dissenting Opinion:


Corporate non
-
commercial speech can
drown out
the
speech of natural/individual persons

The corporation can be understood as a series of interrelated
solutions to different, successive historical problems

Problem

Solution

Organizational Form

Successfully transferring
stewardship over church
holdings to new abbot

Create a “passive

摥癩v攠W漠
hold property”

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-
c潲灯oa瑩潮

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潦⁡ 灲慣aice

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瑨攠灲p癩v敧敳e⁳潭攠
灡牴pc畬慲u瑲慤aH ⡢(
敳W慢汩獨⁲畬敳 慮a
r敧畬u瑩潮o

f潲oc潭浥rc攬e
慮a ⡣⤠桯汤猠c潵牴猠o漠
慤a畤icaW攠杲gev慮捥a
among members

Medieval guilds that evolve
into regulated companies

Pooling capital and
resources and directing
complex ventures

Create a device (a) to hold
privileges of trade (b) where
investors provide capital and
(c) that delegates operations
to managers

Unchartered joint stock
companies

As modern corporation emerges, limiting
but fixing liability becomes central concern

Problem

Solution

Organizational Form

Limiting investor liability,
limiting manager liability,
and balancing the two

Corporation

evolves into a
legal person with (a) legal
rights and duties, (b)
owned by shareholders, (c)
run by managers, (d)
regulated through state
charter

Limited corporation whose
operations are defined in
and limited by the charter

Ultra
Vires

(charter
prevents growth) and
Charter Mongering

Granted broad powers
through more broadly defined
charters

Corporation as an essential
business tool

Finding agent

responsible
for wrongdoing

(a) Due Process, equal
protection, and free speech
rights, (b) legal duties, (c) legal
standing, (d) Federal
Sentencing Guidelines, and
Sarbanes
-
Oxley Act

Corporation as a legal
person

Sample Corporate Rights


Conferred by common law precedent


Right for judicial review on state legislation


Right for judicial review for rights infringement by federal
legislation


Protection against “unreasonable searches and seizures”


Right to trial by jury


Right to compensation for government takings


Right to freedom from double jeopardy


Right to trial by jury in civil case


Right to free commercial speech


Right to corporate political speech


Right against coerced speech


Right to form Political Action Committees and fund them
anonymously

A Problem From Theory of Agency


Managers (agents) must remain faithful to owner
(=principal) interests


But managers are rational, self
-
interest
maximizers
, so…


their interests do not coincide with those of owners


nothing prevents them setting aside owner interests
and pursuing their own.


We need a strong Board of Directors where
directors…


set corporate policies and goals


monitor management compliance


punish non
-
compliance (
Business Judgment Rule
)

How do we punish corporations?


Corporations have no soul to damn or body to
kick


Corporations have no
mens

rea

or guilty state of
mind



Corporations cannot commit an
actus

reus

(=guilty
action) because corporations do not have bodies



If there is no
mens

rea

or
actua

reus
, then there
can be no causal relation between the two



Therefore, corporations cannot be tried under
criminal law

Governance depends on theory of
Human Nature

Homo
Economicus

requires
compliance approach


Humans are rational self
-
interest
maximizers


Human nature is complete
apart from any relation to
nature or society


Principal
-
Agent relation
requires external sanctions
to keep agents aligned with
principal interest


Humans are political/social
animals (Requires stewardship
approach)


Animal spirits deflect from
rational self interest
(justice)


Humans are related
essentially to social and
natural surroundings


Agents, because not self
-
interest
maximizers
, can
exercise stewardship over
principal interests

Burger Man


Stakeholder: Animal Rights/Welfare Group and
Agriculture Suppliers (Cattle People)



Issue: Burger Man is responsible for humane
treatment of animals and is culpable if suppliers
mistreat animals



Argument: Burger Man can exercise control
through supplier choice. If they can exercise this
control, then they ought to do so. Also, this does
not go beyond their responsibility as a business
corporation since they are responsible for what
they can causally influence.

Burger Man


Stakeholders: Burger Man shareholders (
accionistas
) and
Consumer Health Advocacy Group



Issue: Burger Man is responsible for the bad dietary habits
of its customers



Dietary habits are not entirely within the control of
individuals, neither in their acquisition nor in changing
them when they are found unhealthy. Restaurants can
influence the formation of dietary habits both in the menu
options they provide and the way in which they prepare
food (brain awards foods with salt, sugar, and fat).
Consequently, because they can form and change dietary
habits, food servers are responsible for producing good
habits and changing bad ones.

Burger Man


Stakeholders: Local Government (representing local
community in which Burger Man operates) and Burger
Man management



Issue: Burger Man has special responsibilities for the
welfare and wellbeing of the local communities in
which it operates



Corporations and the communities in which they
operate are mutually dependent. They have a self
-
interest stake in working toward mutual benefit.
Because companies have a huge impact on community
wellbeing, they have a moral responsibility to choose
their actions responsibly. This includes developing
community development projects beyond business
scope as a part of their corporate social responsibility.

Your task


Assess and/or outline Burger Man’s social
responsibilities as a corporation


Make arguments with premises (evidence) and conclusions
(Take a position and state it at the beginning and end of
your
presentaiton
)


Your arguments must support a position on corporate
responsibility


Your arguments must have ethical content (tests, values,
concepts)


Address responsibility specifically in the context of your
issue from the point of view of your stakeholder


Be civil and make a special effort to listen carefully and
respond thoughtfully to the arguments of other groups

Pirate Inc.

The analogy between the modern
corporation and the pirate ship

CID Structures


Corporate Goals


Decision Recognition Rules and Procedures


Corporate Roles


Corporate Organizational or Managerial System
(Flow Chart)



In business corporations


In Pirate Inc.


In your work groups

Corporate Internal Decision Structures


Corporate Goals
: Principle objective of the
organization


Charter


Informal charter


Core Values and Mission Statement



Decision Recognition Structures


Rules and procedures that help us to recognize
individual actions as a corporate actions


Example: liquidating travel budget after a trip (Not a
private vacation but a corporate activity)

Corporate Internal Decision Structures


Roles


An individual’s station and its associated duties within the
corporate hierarch itself



Organizational management structure embodied in the
organization’s flow chart


How the roles are coordinated with one another within the
corporation’s managerial system.


Reporting relations. The corporate ombudsperson reports
to the CEO.



All four components of the CIDS work together to
synthesize, coordinate and subordinate individuals
and their actions in the performance of the
corporations activities.

Ethics of Teamwork


Goals


What are your value goals for the semester?



Recognition rules and procedures


What rules and procedures that signal when you are
acting for your group? (When are you subordinating
individual interest to group interest?)



Roles


Leader, spokesperson, mediator, secretary/
documenter, devil’s advocate, motivator, conscience



Flow chart or management system


How do you coordinate different individuals and their
roles?

Your job this semester as you
“incorporate your group”


Build a Corporate (group) Internal Decision Structure


Finalize your goals


Identify and test procedures that help to recognize actions of your
group’s members as group actions


Identify and distribute the roles that individuals are playing in your
group


How is your group organized? How do you synthesize and subordinate
individual actions and decisions into group actions and decisions?



Draw a picture of your group’s CID Structure


Organize it as a flow chart from a class assignment to final group
product


How does your group collect disseminated knowledge and skill from
your individual members?



What is the greatest challenge you have faced so far?


What is your response?


Have you kept your goals and procedures “in tact” as you have faced
these?

Pirate Charter


Articles of Agreement


Signed by each member of the pirate crew


Outline the ship’s hierarchical structure


Detail the different roles of the pirate community



Recruitment and Public Relations


Democratic election of captain offered alternative to
authoritarian captains of military and merchant marine


Attempted to overcome anti
-
pirate propaganda and
portray pirates more as responders to injustice than
parasitic thieves.



Pirate crew, itself, plays the
role of directors
of the
pirate corporation when it holds an election of captain
and quartermaster

Pirate Decision Recognition Rules


Majority vote by crew to elect captain and
quartermaster


Captain Roberts: “Every Man has a Vote in the
Affairs of Moment; has equal Title to the fresh
Provisions, or strong Liquors, at any Time seized,
and may use them at Pleasure, unless a Scarcity
make it necessary, for the Good of all, to vote a
Retrenchment.” From
Leeson
, 62

Pirate Roles


Directors


By charter, members of crew become directors when they elect
by vote the captain and quartermaster



Managers


Captain and Quartermaster: Crew has to follow orders of
captain when the ship is engaged in battle; otherwise, they can
remove “managers” by vote (Something like the Business
Judgment rule which allows stakeholders to sue managers)



Professional Crew
(individuals with highly valued
knowledge and skill)


Surgeon, carpenter, caulker,
armorer
, musician


“Ye ship’s surgeon shall have two hundred crowns for the
maintenance of his medicine chest and he shall receive one part
of the spoil.” (Custom of the Brothers of the Coast)


Unskilled Crew


Draftees (Kidnapped)

Pirate Flow Chart

Directors (Voting
members of crew)

Skilled Crew: surgeon,
carpenter, caulker,
armorer
, musician

Unskilled Crew
(Volunteers)

Unskilled crew:
Draftees (Shanghaied)

Elect a Captain &
Quartermaster

These appoint…

Creating Corporate Responsibility and
Agency by Re
-
Description from CIDS


CID Structure licenses (permits) a re
-
description
of a human action as a corporate action if it can
be directly related to all elements of the
corporation’s Internal Decision Structure.


Thus X (an action performed by an individual) can
be re
-
described as Y (a corporate action) if…


It carries out a corporate policy as outlined in the
charter, mission statement, or values statement


Takes place in accordance with a decision recognition
rule


Is performed as a part of carrying out a corporate
role


And this role has a clear and designated location in
the corporate flow chart

Example from Pirate World


Setting aside 200 crowns for the maintenance of the
surgeon’s medicine chest…


Contributes to the pirate ship’s overall objective of
maintaining a healthy crew


Conforms to a decision recognition rule spelled out in the
pirate ship “Articles of Agreement”


Carries out a role responsibility (It’s the quartermaster’s
job who has the overall responsibility of distributing spoils)


And the quartermaster role has a clearly designated place
in the overall pirate ship hierarchy (Quartermaster is
selected by the crew serving as directors, reports to the
captain, etc.)

Example from Business


Arthur Andersen (consulting, not
accounting) shred documents to
coverup

accounting irregularities with Enron


AA charter (any corporate charter)
stipulates that illegal activities are ultra
vires

(beyond the power of the
corporation)


So blame our employees who were acting
alone without corporate sanction or
authority

Arthur Andersen continued


Nevertheless the U.S. prosecutor decided
to prosecute AA to the fullest extent of
the law


Their actions, for a time, benefitted the
corporation


Supervisors did not stop them (=implied
powers)


AA no longer exists


Corporate death sentence

The Organizational Environment


Enables


Distributes risk


Carries out complex ventures


Pools capital, expertise, and human resources



Constrains


Roles become a part of our identity


No long act for self but for organization


Roles set boundaries for what we can do from within
role (Teacher can’t sell insurance to students)


Roles conflict with one another


Roles can be wrong or evil (The “morality of the role”)

Finance
-
Driven Companies


Managers (line role) make decisions while
professionals (staff role) provide information


Ethical values are side constraints to the
pursuit of financial value


Praise goes up while blame goes down the
corporate hierarchy


Employees generally withhold bad news from
supervisors


DPOs are considered to be breaches of loyalty

Customer Driven Companies


Managers make final decisions but professional
employees are expected to advocate for ethical
and professional standards


Customer satisfaction trumps ethical
considerations when the two conflict; ethical
values are still side constraints but closer to
center


Professional employees can be blamed for failing
to raise ethical and technical issues


Bad news is no longer withheld


Dissent (Bad News) is a part of role responsibility
rather than disloyalty


Quality Driven Companies


Decisions made in interdisciplinary teams
where all have equal participation (emphasis
on reaching consensus)


Ethical values are central


Ethical advocacy no longer necessary; rather
professionals provide effective means to
realize ethical ends


Bad news not withheld


Dissent dissolves into lack of consensus which
is met by more discussion

How the organization constrains
the individual

Milgram

and authority

Zimbardo’s

Prison Experiments

Milgram

Experiments


How much of an electric shock would
experimental subjects give on the basis of
authority?



Many gave what they thought was a lethal shock
on the basis of the authority of the “scientist”



But they evidenced conflict


Acting on their own, they wouldn’t have done it


But they were playing the role of “teacher” in the
experiment

Zimbardo

Prison Experiments


Stanford University students role play as
prisoners and prison guards in experiment
carried out in 1970s


Prisoners lose their personal identities and
become “prisoners” and numbers


Guards become sadistic and become
psychologically and physically abusive


The roles we play can take over our identities


Counter Activities


Ten
-
Step Program advocated by
Zimbardo

in the
Lucifer Effect

(453
-
4)


I am responsible


I will assert my unique identity


I respect just authority but rebel against unjust
authority


I will not sacrifice personal or civic freedoms for the
illusion of security


When
Milgram

said, “You have no choice but to
continue with the experiment…”


Jan
Rensaleer
: “I came here on my own free will”


Gretchen Brandt: “I think we are here on our own free
will


“Perhaps we have seen too much pain”

Corporate Control through
Punishment


Fining doesn’t work


Deterrence is a function of risk of getting caught times the
gain of breaking the law


Frequently, to deter the fine must be more than the worth
of the corporation



Stock dilution gets beyond the deterrence trap by
tapping into the future earnings of the corporation



But corporations do wrong not just in pursuit of
financial values


Sub
-
group power plays


Individuals who go maverick

Punishment criteria (Table in Module)


Go after the CEO


But the corporation functions as a shield (See, hear, speak no evil
defense)


Target of the Punishment


Financial and Non
-
financial values (like reputation)


Does the punishment deter (i.e., get around the “Deterrence
Trap”)?


Deterrence is a function of risk times gain


Deterrence could require setting find beyond worth of corporation


Stock Dilution does because it taps into future earnings of the
company


Does the punishment address non
-
financial values?


Sub
-
group conflicts may lead to corporate wrongdoing


Does punish lead corporation to change itself or is change imposed
from the outside?


Court ordered adverse publicity or “shaming” the corporation


Probationary Orders

Punishment criteria (Table in Module)


Does the punishment encourage a responsive
adjustment?


Federal Sentencing guidelines require proof of the
corporation’s having taken preventive measures
(social and legal audits)


Does the punishment encourage a company to
“change its ways” to avoid repeating the wrongdoing?



Does the punishment interfere with corporate
autonomy (=corporate black box)


Stone argues that probationary orders that mandate
changes in CIDS are necessary for habitual offenders



Tentative Schedule


October and November


28

Introduce Corporate responsibility


30

Groups prepare for town meeting


1

Burger Man town meeting



November



4

Debrief Burger Man and Pirate
-
Corporate Analogy (Corporate Internal
Decision Structures)


6

Prisoner’s Dilemma (Cooperation versus Competition)


8

Milgram and
Zimbardo

(How organizational environments constrain
human action and identity)


13

Review for Exam


15

Third Exam (Codes and Organizations)


20

Hughes Case


22

Group Preparation for Dramatic Rehearsals


25

Dramatic Rehearsals (Acting, Storyboards, Reflections)


27

Responsible Dissent (Exit, Voice, Loyalty)



December


2

Class Evaluations/Group Self Evaluations/Hughes Storyboard & Reflections


4

Class Evaluations/Group Self
-
Evaluations/Hughes Reflections & Reflections