Corporate law and structures – Exposing the roots of the problem A4
This briefing, exposes what makes corporations tick, legally: the advantages they gain and the parameters within which they operate. How did this situation come about? What changes could mitigate or reverse the negative effects of current corporate legal structures?
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Introduction: Law for non-lawyers
Why is company law important for ordinary people? How does a knowledge of company
law affect the way we think about and campaign on corporations? What is a
Brief history of UK corporations
Where did corporations come from? How did the modern corporation develop? Why
did they seem like a good idea at the time?
PART 1 – CURRENT UK COMPANY LAW
Who is a corporation? Directors, shareholders and everyone else
Legally, a company is owned by its shareholders and controlled by directors. Directors
have a duty to act in the best interests of shareholders’ investment and are not
permitted to consider any other interests.
Corporations are people too! The corporation and human rights
A corporation is an artificial person permitted to do most things a person can do in
terms of business. Corporations regularly make use of legal precedents which
originally related only to real people. Under the 1998 Human Rights Act, corporations
can claim rights to a fair trial, to privacy, to freedom of expression, and to property.
Who is responsible? Liability and the ‘veil’ of incorporation
Corporations have ‘limited liability’, which means shareholders are not responsible for
the debts of the company or for civil or criminal offences. This also applies where the
shareholder is another company – a parent company is largely protected from
responsibility for its subsidiary. Making companies liable for criminal offences such as
manslaughter is extremely difficult.
PART 2 – THE EFFECTS OF CURRENT STRUCTURES
Corporate Power: The elephant in the courtroom
Corporations’ economic power and lobbying power over governments makes changing
company law extremely difficult, though lawyers generally refuse to see this power.
Companies are in some ways legally obliged to use their power as their sole motive is
to protect and enhance their profits.
CSR – Corporate Sidelining of Reality
Corporate Social Responsibility is the currently popular ideology by which companies
claim to be good for society and the environment. However, it ignores the fact that
corporations are legally responsible only to their shareholders’ profits and are not
allowed to consider other interests. This means that CSR is basically a hollow myth.
The corporate mind
The corporation is run as a centrally planned dictatorship. However, there is no
dictator: neither shareholders nor directors have ultimate resposibility for the
company’s actions and purpose. This allows the corporation to plough on regardless,
acting single-mindedly in its own best interest.
4 www.corporporatewatch.org.uk Corporate Law and Structures
Corporate psychology – killing from behind a desk
Most people who work for corporations think of themselves as basically decent and
good, even where they are involved in planning or authorising actions which lead to
death, disease and impoverishment of people or destruction of the environment.
What psychological mechanisms make it possible for them not to feel responsible?
How can they be held responsible?
PART 3 – POSSIBLE CHANGES
Small and large companies
Part of the problem stems from the fact that large companies are governed by rules
orginally intended for small ones. How can the law distinguish between different sizes
and types of corporation?
National and international action
Corporate power is transnational. Efforts to control it must be too.
Reforming corporate decision-making
Corporations must be made actively and formally to take account of the interests of
workers, customers, suppliers, people living near their operations and the rest of the
world. This would funamentally change what corporations do.
Reforming corporate personhood
As artificial creations, corporations should not have human rights nor human legal
standing. This is necessary to protect the interests of real human beings.
How can criminal law be enforced against corporations? Corporations should be held
responsible for the actions of subsidiaries, or should not have subsidiaries. Reform of
limited liability would discourage irresponsible behaviour and risk-taking.
Rotten companies in rotten industries
What can be done about companies and industries which are inherently harmful?
Conclusion: a political debate