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Corporate law and structures - Exposing the roots of the problem A4

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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SUMMARY

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

corporation?

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.

Reforming liability

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

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