 So I'll just Take a minute to introduce myself. My name is Sarah Bradley. I'm a professor of law here at the Schulich School of Law I teach mainly in the business law area. I teach corporations law amongst a few other businessy sort of things My full profile is on the on the law school website So if you have any further interest in finding out who I am I'll leave it to your own resources to sort of check me out But I'm going to be talking today about the role of corporations in society sort of a fairly broad topic One though that I think is of you know sort of general interest is sort of Generous people from coming at the the question from a variety of of perspectives so this logo we might recognize is from the Book and subsequent movie of the same name called the corporation written by a An alumnus of this of this school and it's quite an interesting read What I'm going to be talking about today. I've sort of broken it down into four sort of subtopics The first is you know the the role of the corporation in popular culture And I think a lot of us would be familiar with this characterization of the corporation. It's certainly the one advanced by by Joel Balkan and in the book and movie the corporation this idea that the corporation is somehow a corrupting or evil influence and that and and Joel Balkans I think central idea was around this idea of if the corporation was a person it would be a Psychopathic person and how do we feel about that and and whether that's an appropriate appropriate perspective or an appropriate Way of characterizing it and and and how our regulations in the way we think about a corporation should be informed by that by that reality the second way I'd like to talk to you about or discuss the corporation with you today is Viewing the corporation through an obviously quite different lens, which is looking at the corporation as an agent of economic growth And as a really a unique sort of an instrument for the advancement of human prosperity Thirdly looking at the corporation and this sort of relates back to the first characterization, but the corporation as sort of the the scapegoat for one of a better word or certainly a focus of criticism for the the really the the the more general problems of human greed and and capitalist market failures and Then finally, and I think I'll focus probably maybe a little bit more of my remarks on this section What that we as lawyers Think of when we're thinking about the corporation that is that the corporation is really a legal relationship between many different individuals and When we think about it in that sense, we can probably get a little bit better informed idea of of Who is actually directing the behavior of corporations? What is likely to influence? the behavior of corporations and you know what these people are Motivated by what they are influenced by and what their responsibilities are You know and this can this really could all feed back into you know the problems You know that are that that as I'm sure we're all aware of been identified with with how corporations conduct themselves so first the corporation in popular culture I Think I think we can all agree that there's been a growing awareness a growing sort of social analysis of The activities of corporations in society And although we think of this as kind of a like a new thing. It's a it's a That was really nice It's We think of this sort of an element of modern discourse actually people have been debating what the appropriate Role of corporations is what the what the what the factual role of corporations is in society And what it really should be and how it should be influenced For for literally many many decades really since the beginning since the invention of corporations and This when we think about in the modern context, we certainly would think of it as The corporate social responsibility movement, you know this idea that we'll will will sort of It want to examine both locally and globally You know the true consequences of of corporate behavior So One of the things that we're trying to that I think we as a society When we think about corporate social responsibility corporate social responsibility movement is to look at some of the intrinsic Problems or some moral hazards that are inherent in the systems that we've created around corporations We look at you know, what are the motivations of those who control corporations? You know these these very powerful economic and social actors But you know when we look at I would suggest a lot of this social discourse it really often doesn't demonstrate An awareness of the true nature of the corporation, you know, we hear love sort of off the cuff remarks about You know, well big corporations are really the problem here and there's not There's not a lot of awareness of you know, what the corporation really is how the corporation has come to be so ubiquitous in our in our world and You know the the role in society that they really do play so that's that's partly why I wanted to sort of address this as one of the sort of themes of of This talk and we also have a tendency to anthropomorphize the corporation You know we tend as a society to think of them as big amorphous people they are You know viewed in this way, I don't know that the animation came out very well, but they have you know human like Emotions and other characteristics, so we would think of them as for example greedy or or To amoral or of have to have some particular kind of moral characteristic or to to have some sort of a psychosis for example I mean these are these are human characteristics, but There's something about thinking about the corporation that leads us to To kind of Imagine that they have these characteristics, you know, we look at what corporations do and we think well if that Were a person, you know, it would be a person with these with these characteristics But of course if we stop and think about it, we realize that a corporation doesn't have a Corporal body, you know, it doesn't have a brain for the person and it can't have these Emotions or these sort of moral positions That we would normally think of if we were if you know if we are thinking about about a person But we actually for a lot of us don't have another framework for understanding So so that's partly why I will I'll be sort of looking at this today and and There we also have I think in general most of us have kind of a lack of understanding of the machinations of The gigantic global businesses that exist in the world around us When these When these realities are laid bare They can really be be shocking to us and And be shocking and upsetting to our sort of idealized understanding of the way the world works Illustration is from food Inc. A shocking book if ever there was one highlighting sort of how the How the global food markets work You know and so when we look at these kind of These kind of where we're confronted with these kind of realities and we're shocked it's easy to look for a clause right to lay blame and Often we do that by by looking at the actors who who play a role in this and of course corporations are very Play a very substantial role Excuse me well I Okay and Very often we're motivated to do this Because we're looking We're seeking to try to identify a meaningful mechanism for change so so when we look at Systems of business that we are uncomfortable with we look at you know who is who is actually Involved in these businesses and of course corporations usually play a very large role and we identify that as the problem and and also perhaps the potential Avenue of solution and It's easy to view corporations through through the lens of The systems that they represent They are they're very large they're very powerful organizations They're very influential, although the exact paths of influence are sometimes obscure We know the corporations are able to mobilize very vast resources and And they'll mobilize and they don't hesitate to mobilize the resources to achieve whatever their objectives are and Further their own interests and and you know, are we really sure about what it is? That they're doing and what their true motivations are We tend to have a We tend to hear claims like we're really green You know we recycle and if you've read the book Soil and Green you would Appreciate that the Soil and Corporation really was not very green really did not or they really did recycle but in a very disturbing and upsetting way and so we kind of Look at the corporations as being these faceless, you know soulless You know objects of our discontent right there In the popular imagination It's very easy to to to view them as evil or as corrupt right as psychopathic And then sometimes we just love to hate them And There's but there's there's no denying that Corporations really do Play an important and influential role in a lot of the deficiencies and problems that that we quite rightfully associate with the capitalist system of economic regulation and And I'll be discussing that a little bit more a little later and This role has been highlighted recently by the CSR movement or the corporate social responsibility movement, but it's But it's it's it's not new And there's been It's worth noting that you know the one of the one of the upshots of the corporate social responsibility movement has been Really an increasing trend towards a Greater political awareness of the role of corporations greater political willingness to change laws Or to create new laws that are aimed at regulating corporate behavior And Some of these laws are directed specifically at corporations So they might be laws relating to the duties of directors of a corporation for example Or they may be more broadly based laws laws relating to you know environmental pollution And so on that that you know would affect Would regulate any actor regardless of whether they're a corporation or not And I think this responsiveness is important to observe right you know the Legal systems, you know in order to remain Relevant legal standards have to be updated to reflect modern sensibilities As we're probably very well aware, they're not necessarily going to be updated With exact precision, you know to match precise Trends in in public expectation, but but in general For a system of laws to be accepted it needs to be to be responsive to the general the general understanding of society and also Laws need to be updated as well to reflect modern business practices and those of course change over time so I'm going to spend some fairly, you know Significant time talking to about the nitty-gritty of what corporations are and how they operate But for the moment, I'd like to to take a step back and just and discuss kind of the important role that they play in our society and in our world so I'm going to Put forward the idea that the corporation is actually One of humanity's most important inventions ever So yes more than the printing press more important than the invention of vaccines You know, I will say that the corporation is The most important human invention Some of you may not agree with that characterization, but let me make the case Okay for why I I think that might be true There's an absolutely positive correlation between Between human health and human income between human health and income per capita It's really one of the best known relationships in international development. Okay, so We know that human life expectancy general measures of human health child mortality and subjective reports of well-being, you know are all All improved, you know in an almost linear relationship with with With income per capita. So economic development has profound impacts on human well-being and This reality is a very powerful driver of political choice Okay, so when Governments are deciding about, you know, social policy when they're deciding about Business policy when they're deciding about the enactment of laws and so on and treaties and all of that sort of thing this reality Whether we're talking about, you know, whether we're talking about a modern developed country or whether we're talking about a Developing country You know, whether we're talking about a full-on capitalist society or a socialist society or or any Anything in between or different than that this reality is a really critical a really critical and influential One for for decision-makers and lawmakers So and so we have this underlying theme in business law and the underlying theme is that Business entrepreneurship is good okay, investment is desirable and these are things that should be encouraged and That is really that Sort of policy is not independent, right? It doesn't exist outside of, you know, the reality that I've just discussed about, you know How how employment and income and so on are are strongly correlated with with with human prosperity And but this isn't this there's another fundamental Fundamental assumption here that we make as a society and that is that the wealth that is generated Whether it's generated by corporations or by anyone anyone else in society Can be and is redistributed in accordance with political preference Okay, so the basic idea is that if the society, you know Generates a greater amount of wealth that we can and principally this is done through the process of taxation We can tax or take away money from one person or one group of people in society and we can give it to others Okay, in accordance with whatever we think is the appropriate Mode of doing that we can use that system to to encourage certain behaviors We can use it to discourage other behaviors and certainly that's what that's what governments around the world actually do okay, so now there are certainly It's very easy to identify flaws with this assumption or flaws with this the way this The system of redistribution actually works Okay We just don't have the time today to really get into that But obviously it's it's it's something that that is Can be identified as as a problem, but in general All societies do this in general all societies tax some people and and redistribute wealth to some others and That's an important component in understanding why You know allowing for economic activity in general or for some people in society as it generally could be good For this society as a whole So why were corporations invented? You know, I think we need to just take a step back to look at where they came from. They're not necessarily that old You know human culture and society certainly predates the invention of the corporation they were The very very earliest corporations existed For the purpose of facilitating things like municipalities Things like churches, you know, these were entities that were not human people But that had some characteristics of a human person that they could own property That they had an indefinite life, you know things like a a church or or or a government edifice like a like a municipality Really had a need for those types of incidents of personality And so they were amongst the various and that the earliest of those type of Legally recognized entities very it's quite old, you know, probably At least a thousand or more years old In the more modern context in thinking of it from business perspective, you know, the very earliest corporations existed sort of You know in the early 1600s They were created usually by the crown They were created usually for for some specific Purpose some very important social purpose enough important enough to attract the attention of the king or queen at the time Later on they became available through governments So but it still had to be an important enough purpose to attract the attention of the the Parliament But but we're generally talking about invention of the last You know 400 years. Okay, the modern corporation that we really think of today Really came into into existence or in sort of the mid 1800s. Okay, that's the kind of corporation where a Group of people could get together with a business idea and reasonably expect to be able to incorporate a company You know prior to that it was all special favors and there were very very few corporations and so And the reason that corporations were Invented and were and flourished the way they did is because they're necessary and I'll get into why this is They're necessary to allow for large accumulations of capital large accumulations of money Okay For to undertake major infrastructure projects So the earliest corporations existed for the purpose of doing things like building railways Okay, building bridges factories roads, etc Okay, all things that were deemed to have an important social purpose whether it was because you know The bridge was just necessary for the community. Of course, these were toll bridges Or whether it was because you know the factories the railways and so on were deemed to be good for economic development So think for a second about You know pre-corporation, right? How would one go about? Building a railway, you know something phenomenally expensive Okay, we're talking about in modern terms, you know billions of dollars Okay You have an idea, you know this the steam locomotive has been invented, right? Someone has come up with the idea of you know Send shuttling it down steel tracks and with this incredible power to transport a lot of machine a lot of weight of goods and so on Great idea. Somebody's got this idea But only a few people actually have the engineering expertise to actually build a railway Okay only a few people would know how to Actually run the business side of a railway how to price how to charge how much you would have to charge a customer For example, how you would market that what the usefulness of it would actually be and who would use it and how much they would pay Only a few people are going to understand how to how to run the business how to operate its services maintain its operations And the important thing is that all those people whose expertise would actually be necessary, right for the building of the railway Probably none of them are billionaires Right, so probably none of them have got the billions and billions of dollars that it would take to actually put this together So so there you've got a disconnect, right? What corporations are is a way that is that is a way for Individuals who have some money, maybe not billions who have somebody to invest in these great ideas that other people have Okay, and in the expertise that other people have in terms of in terms of Doing major projects Okay Before the corporation, you know, you really had this problem of the money and the expertise were not generally in the same hands And even if somebody did have a billion dollars and wanted to build a railway Would they really want that would it be wise for them to really invest all of their money in this speculative venture? So without without this mechanism without this this ability to use the corporate form And and you know, we'll get into some of the some of the details about about how it works and why it works for this purpose but without that Big things would not happen, right? Highway systems would not be built railways would not be built, right? Large factories that could produce lots and lots of goods in a short period of time would not be built because Because of these practical problems, right? so So what the world needed, you know, what the Anglosaxon world needed anyway at this point where they were talking about was a safe and efficient way for people to invest their money in the undertakings of others So and and for the purpose of allowing these things to happen in the first place It allows for specialization Okay, so people who are good at running a business or knowledgeable about engineering or whatever it may be Can do that whatever they are good at and then the people who are wealthy. I have savings And are good at that can come together, right and specialize right and Another reality is that because of the issue of diversification that I just alluded to When you're going to do a project that requires billions of dollars It's very unlikely you're going to source that money from one person, all right one investor Because even if you could find the person who has that much money, they're not going to be inclined to risk everything on your one venture You're much more likely to be able to raise your billion dollars by getting, you know Much smaller amounts of money from a much larger number of people Okay, and that's of course how corporations work and how how they they work today So this is really a way of bringing together Large sums of money from large groups of people and putting it in the hands of specialized managers people have the knowledge and expertise to actually Have the best give the best chance of success to these good ideas and these undertakings All of this happened around as I said the mid 1800s This was the era of the Industrial Revolution Okay, so the Industrial Revolution had a few influence this development a few ways obviously with the development of the steam engine and large machinery and for mass production of of goods So there was a need for investment Okay, there was a need for the the the the building of these factories and these railroads and so on But the other development during the Industrial Revolution was the creation of a new Merchant class right the middle-class person right the person who Was able to have a business just selling the things manufactured by others Before that time you really did have the wealthy classes and the certain and the peasant classes and not a lot in between but now the new merchant class was evolving and Was had money, you know, they had maybe not tons of money But some money and they were entrepreneurial enough that they didn't want to just stick their money under their mattress Right, they wanted to have a place to invest it You know, they're busy running their own business But they wanted to be able to do something with their money that could grow without their immediate attention So so these were the principal Needs that were kind of new during the Industrial Revolution and they haven't changed today Right, we still need in order for to to for our society to function We still need to accumulate massive amounts of capital right to to be able to establish any Infrastructure product or an infrastructure project. They should say or any large-scale enterprise requires a lot of money And people still need to invest their savings So so you have both the you know, the demand is on both sides of the equation We need we need to be able to invest our money in in something So there's demand for that investment product and there are others who want to do stuff and need money to do it Okay, so so we have the same system basically operates today so There are other forms of business organization, of course the one that that That predates them all they sort of the sole proprietorship where one person goes out and and using their own wealth and their Own resources and their own expertise starts business runs it grows it and so on And then there's the situation of the partnership where multiple people Combine their talents combine their money and and and run a business. This is the the principle the principle alternatives But the key that a core the key to you know, a corporation is that allows for passive investment If you're a sole proprietor or you're a partner in a partnership you are Working in that in that business, right? You're presumed to be contributing a lot of your time to it and you're motivated to do that Because you are completely liable for anything that goes wrong with that business So if the business enters into contracts and and fails to Fails to pay on those contracts The individuals who are running the business, you know are the ones who have actually signed the contract They're the ones who are actually liable. It's a huge disincentive to passive investment If you're gonna invest in a partnership typically you're gonna want to know what's going on with that partnership Because your house your investment savings and everything are on the line. So limited liability is Really a critical component of what it means to have a corporation and be able to actually attract the little sums of money From all of the different investors that are really required if you're going to accumulate large sums of capital another key Benefit that I've already mentioned is this idea of specialization. So you've got the most skilled people running businesses rather than the wealthiest and The reality is that there is no viable alternative in the world today Okay, too that offers these benefits So There is no real No real sort of alternative we can we can demonize the corporation all we want But but all of these benefits would be lost without it and that's not really a realistic possibility so I'll just say a couple of words about The corporation as a scapegoat There's no question that That Corporations are inextricably interrelated with the capitalist system and And corporations so are are identified with the capitalist system and and probably rightly so And it also you know is not really very controversial to observe that there's a lot of problems That have been associated with the capitalist system Despite the general benefit of economic growth that I've already mentioned in terms of its you know correlation with human Prosperity, there's a lot of What we could describe as market failures, you know capitalism is based on markets and there's a number of things that don't Don't Get accounted for in these markets and and they're considered to be failures because It has a result that is undesirable to to most of us or a result that violates our our ethical understanding of social behavior, okay, so You know these are natural consequences That arise when corporations are going about their business Pursuing their their their interests And they're just Not properly accounted for so an economist would say their externalities, you know that are that just don't somehow get that get incorporated and their their flaws that that cause corporations to either engage in or to exacerbate certain things so you've got Labor market issues, right in a in a sort of unregulated market. You'll have problems of Corporation or any business not necessarily a corporation, of course using its economic leverage to extract excessive work hours from its workers for example or to to hire child labor, okay to Allow an unsafe workplace to exist to Pay in sufficient wages depending on what their leverage actually is or to to to ignore Socially desirable things like pensions for example, you know, all of those things are are could be could be identified as a as a Labor market failure now other obvious examples would include environmental degradation Okay, so pollution of air and water a huge a huge externality Easily identifiable And and and amply identified I think in the modern world lots of examples of where Corporations just don't have the motivation to to take care of not to degrade the environment Similarly sort of poor resource stewardship Where you know today's benefit is is valued more than some future resource extraction Consumer protection it's another huge area of capitalist market failure Where unsafe products are sold for example damaging poisonous products? Corporations are also renowned for their anti-democratic activities mostly in in other countries, but also in in in this country in terms of being very willing to participate in things like bribery or aiding governments in oppressive activities Engaging in private military activity all this sort of thing, you know Businesses tend to prefer stability, you know, and they're relatively agnostic about the source of that stability, you know, if it's if it's if it's if it's a Generated through a sort of respect for the rule of law, that's fine Generated through, you know oppressive dictatorship also fine as long as it's stable, right? So so these are these are all problems That that that can be can be identified and and they violate our ideas about what is right You know, what is what is socially desirable? And so in that sense, they're a failure You know and they can also offend Some of our notions about distributive justice, you know this basic idea that those who sacrifice You know or who contribute should participate in the benefit that accrues so that's sort of a I Think these are things that we serve even globally kind of sort of a broad consensus about about You know, what is undesirable about these these failures? it's It's and I but I but the heading is the corporation as scapegoat and and that's because These failures are not new right. They are they have been in existence since The beginning of you know modern economies, okay all of these market failures have have have been identified many many centuries ago and of course, they're not unique to corporations either Individual business owners have the same tendency to engage in the all of these same The same destructive An undesirable activities. It's really a natural consequence of capitalism Sort of the pursuit of profit generally And as the society generally, you know, and I'm thinking using society very broadly here We have become actually quite good at regulating these these activities Certainly in comparison to where we were at a hundred years ago, you know All of these major major problems have been There's at least been a very strong concerted effort to to regulate in all these areas to sort of rather than Rather than trying to sort of tackle this from from the outset by changing say the nature of capitalism the focus has really been on on Preventing the harm that is actually caused by just prohibiting it or Or in instituting penalties and so on And so we've really seen we've seen a lot of effort put into like numerous Numerous reforms around around all of these areas And so I want to spend a little bit of time talking about the effectiveness of these of these reforms and so on but before I just want to say a little bit about the nature of the corporation so the corporations are what we would say Creatures of statute. Okay, they don't exist Except that some legal documents say they exist, right? So the parliament has passed laws that say, you know in these circumstances the corporation will exist That's where they come from They don't have any sort of other other existence So there really are a creature of the statute all of their powers that they have Derives it comes specifically from the statute under which they're incorporated and one of the key features that That these statues provide for is this idea that the corporation is a separate legal entity. So Here you've got all these separate little shareholders and investors there over here each of these is a person And then over here you've got the corporation another person right a separate legal entity and what you have is money Being transferred from the investors over to the corporation and what the corporation gives the investors back is shares In itself and these shares represent rights Okay The what the rights that are transferred are the right to elect the directors of the corporation the right to receive dividends in The corporation and the right to receive the assets of the corporation or a proportionate share of the assets of the corporation When and if it ceases to exist Shareholders are not liable for the debts and obligations of the corporation or any of its employees Shareholders are not Owners of the corporation. This is when you hear it's a you hear a lot and it's it's easy to sort of Make this analogy because shareholders have such a strong economic interest in the corporation and what the corporation owns It's easy to imagine that they own the corporation, but as a separate legal person Nobody owns the corporation the corporation is a separate person and of course people don't own people So so it's not really correct at law to say that that a shareholder owns a corporation And what they're definitely not is owners of the corporation's property Okay, so the corporation owns its own property and the shareholders own shares in the corporation So here's your typical structure here. You've got all the shareholders. These are in one box, but of course, they're all individual people Their main rights aside from their economic rights Is to elect another group of people a much smaller group of people? Usually and that's the board of directors Okay, the board of directors role is to appoint and oversee the managers of the corporation So this would be this CEO The Whoever is actually the main the main employees of the company. So your officers your your CEO CFO etc those people would all be specifically appointed by the board of directors and they report to the board of directors These people may depending on the size of the business or what's going on in the corporation They might hire and oversee the activities of all the other employees of the corporation Okay, and then over here Not connected to that chain of power Are other stakeholders? I'm not saying the close up to the mic. Am I already okay? I promise not to walk too far away from it So you've got the other stakeholders. These are the employees of the corporation who are not managers They are the creditors of the of the corporation of those who've lent money to it The community in which the corporation exists the country in which it exists the other third parties those those sort of other stakeholders are not Although they're very strongly influenced by what the corporation does they're not actually linked into its internal power structure So shareholders Who are they in the real world in the modern society? 70% of shares of publicly traded companies anyway are owned by institutional investors Okay, so your typical company that's a public company that is listed on a stock exchange They are mostly owned by pension funds mutual funds and other institutional investors They have the power to elect the directors and they One sort of might think that they have a super in the in the sense that they are the electors of the directors I think that they at least have a Some sort of supervisory capacity But in fact the supervisory capacity is Often not really exercised In widely held corporations. There's a problem of disaggregation, you know, where most people who are shareholders are Not that interested in in sort of getting involved in how the corporation is actually run they're much more interested in how the share valuation is performing and How much the company is making and if the company is not living up to whatever benchmarks they they would like to see They've a tendency to just sell their shares Okay Maybe sell them at a lower price than they otherwise would because they're not happy But they tend not to involve themselves in in what's actually going on inside the corporation And this is a rational response, right because they only own you know point zero zero three percent of the Shares of the company. So why should they go out and lobby hard to For the to make sure that the directors and the managers are doing a better job You know so that everybody else would benefit, you know more so than them They're only going to get if they do manage to get some some some Meaningful change that results in a better evaluation for the company They're only going to experience they're only going to benefit from a very small amount of it And also they probably if they're like most investors They probably have little holdings of shares and zillions of different corporations Okay, so it's not a good investment of their time to figure out what's going on inside these corporations and get involved That has changed a little bit with the increasing trend towards institutional investor involvement Now when you hear talk about Shareholders being activists or getting involved in the running of the corporation or trying to lobby for change It's usually an institutional investor Okay, but and they've been more willing in recent years to get to get involved although it's still it's still not a Very effective necessarily means of overseeing what the board of directors does The motivation of the shareholders Almost always is profit. Okay, so There may be some exceptions sure we can think of you know certain exceptions. There are some ethical funds for example There are some institutional investors that are motivated specifically by certain ideological Perspectives so for example the California public employees Retirement fund CalPERS is a huge institutional investor one of the biggest institutional investors in North America It has a specifically pro-union position. Okay, so it will influence its power and influence to to try to get the boards of directors to To respect the unions in their point so not even if that costs money So there are some exceptions to the to the profit motive But they're the exception rather than the rule And then we're down to the next sort of level of authority within the corporation and that's the directors the directors are Generally employed on a part-time basis by the corporation a Typical schedule would be for directors to meet Four times a year Okay, in some corporation some very large corporations directors will meet somewhat more often than that Even in the very largest most complex organizations, they would not meet more than once a month. Okay, so 12 meetings a year And they tend to be experts Influential people who are are experts in running of a business or in some aspect of running of a business they are generally very Well-regarded people in their industry and they're they're chosen to be a director because of their success in some other business Okay, and they're chosen for their business expertise The directors are expected to do basically two things They're expected to make sure that the managers are doing what they're supposed to do. So in that sense, they have a supervisory role to play to make sure, you know, if the managers are Misappropriating large sums of money or doing something that is deemed to be sort of wrong or inappropriate The question will come to the directors like well, why didn't you know this, you know, you who had the supervisory Role now given that they meet four times a year and to hear presentations by the senior managers This is not necessarily very high standard to which they're they're held But it is one of their their key roles. They're expected to have systems in place for ensuring that, you know, really egregious Things are not going on in the corporation and they're also expected to have an advisory role And this is where their business expertise comes in, right? The they are expected to Create and promote and decide on the major major Strategic goals of the organization. Okay, so they decide what major Path the corporation is going to go on they and they delegate to the managers The actual carrying out of that strategy So as I mentioned their supervisory capacity is sort of limited by practical realities by their their their relatively small time commitment and their The influence the strong influence that managers have over the over the information that directors receive What they're motivated by typically is Not money Okay, directors in General are tend to be quite wealthy individuals to begin with they tend to be Quite successful Although they are paid usually, you know 10 20 30 thousand dollars a year for sort of a typical public company board For the people who are generally given these positions. That's not actually a lot of money So so it's not really a financial Financial motivation more likely it's they care about their reputation. These are prestigious positions they are it gives them a chance to sort of not socialized but but spend time with people who are also of High stature and and interested in similar things and in some cases They may view this as a public service, right as a way of contributing their their knowledge of skills to Another organization And then you've got the managers the managers at this bottom level are the people who show up to work nine to five Every day at this company. Okay. These are the people the directors delegates to them Here's our broad strategic direction now carry it out and report back Right, and then the managers show up. They run the the company. They make every day to day decision They might hire and fire the employees of the company And they're motivated Typically by their own self-interest, you know, this is Something that we would normally assume For thinking, you know in an economic sense people generally act in their own self-interest and their interests are Low risk they don't lose their jobs. They're making a big personal investment in this in this corporation So that they they don't want much risk. They prefer generally to Fly business class rather than Economy they would rather have a big office rather than a small office So there's a certain amount of what we think of as like goal-plating, right? They prefer perks as opposed to no perks And they also Prefer Empire building right these are the CEO of a company It's generally more prestigious and more meaningful for that person to be the CEO of a really big company As compared to CEO of sort of a moderately sized company. So there's a tendency to prefer growth right for the people who are running running corporations and and this can be this can often can sometimes lead to sort of Inappropriate business decisions. Okay, so and this is a problem because the managers are really Investing the money of the shareholders right if we follow up the chain We're not saying like a direct correlation between the motivation of all these different groups of people so the legal response to this problem of self-interest on the part of managers and And the related problem of no supervision is to impose on directors and managers a duty a Duty to act in the best interests of the corporation okay, and This duty is Something that can always be challenged You know if it's felt that a director or manager is not not fulfilling this duty not acting in the best interests of the corporation then shareholders or sometimes creditors can go to court and And make that claim that the directors not fulfilling this duty and get some relief right various kinds of relief from the court The recourse for the other constituencies those third parties out there that are affected by the corporation But not actually a part of the power structure of the corporation is a lot more limited Okay, so what can employees do if they're not happy with the way the corporation is being run? You know if it's being run for the benefit of the managers and not Not and not the corporation itself or what can the community do? What can the environment you know the broader community what these if they're being damaged these constituencies really don't have any legal means of recourse and this is why we have regulation in these areas, okay, so There's a couple more concepts that I just want to mention And the first is this idea of the corporation as a person, you know This is something where it's probably very common knowledge Everybody knows that the corporate corporation is a person, but what does that actually mean? You know and and and why has this developed, right? It's this kind of this this personality, you know, it's really kind of a legal shorthand right for For some of the characteristics that we commonly Attribute to human beings. Okay legal the legal powers that we attribute to human beings So first of all is the ability to own property. This is a really key Characteristic the ability to enter into contracts Okay, the ability or the to have its own rights and its own liabilities The right to sue and be sued This is essential to to to being able to have any rights or like or be able to enter into contracts It's meaningless if you don't have the ability to actually access the legal system to enforce them and Perpetual existence until at least until dissolved, you know corporations can of course cease to exist But until they are dissolved they they continue to exist. They're not tied to a specific human life The individual shareholder can die the corporation keeps going all of the shareholders could die the corporation keeps going Right and so these are these are really the inherent characteristics that a person has in our legal system That a human person has that also are shared by a corporation. There are some differences Specifically some of the constitutional rights that human beings have Are not necessarily shared by corporations. So so you know corporations are our people To a certain extent they're people in our legal system the extent necessary Having said that they don't have all constitutional rights They do have some constitutional rights. It generally depends on the nature of the right and whether it's whether it's For one of the better whether it's necessary for a corporation to have this particular right or not Sorry Okay, for instance Corporations have been found to have a right to be free from unreasonable search and seizure Okay, so the police can't just storm into a corporation's offices and and grab whatever they want People also of course have that right But people for example have the right to be to have security of the person to not be physically Threatened, you know by by police or other government actors and corporations don't have that same right So so it really depends on whether it's something that actually you know makes sense For given the fact of the of what a corporation is So there are situations also where a corporate personality is disregarded by the courts okay, and Sometimes the people behind the corporation are actually found to be liable for what the corporation has done Right, and that's the the the the situations where that might occur is where there's a fraud You know that people have created the corporation and gone about used it for the purposes of carrying on a fraud In that case the court will just say yes There's the corporation that has a personality. It's a separate legal entity and everything But we're just going to ignore that because you have used this to create to perpetrate a fraud on another person In the case of torts Certain torts. That's where somebody has been injured Either economically or physically by the activities of a corporation depending on who the human actor actually is who? who perpetrated the tort The corporate personality can be ignored in some cases of a corporation being very very minimally financed and then taking on extremely risky Extremely high liability activities That's in some situations the courts have disregarded the corporate entity and and found the human people behind it to be liable or in some cases where it's a public policy issue, you know Or where there's been non-arms length transactions where you could really sort of similar to the idea of fraud, but Where economically there's no distinguishing between Between the human person and the corporation and as I said, we have it do have this tendency to anthropomorphize corporations but having having gone through that Description now of the legal characteristics of a corporation, you know, hopefully that casts a little bit more Context in terms of whether we can think that a corporation can really be greedy or sociopathic or You know, have other human characteristics the way that some commentators would suggest Really what we have is a constellation of human actors right each with their own series set of motivations and and and excuse me in characteristics does Attributing these kind of characteristics to a corporation actually help our understanding, right? Is it helpful for us? Does it help us develop policy? to sort of Think of corporations as sort of inherently inherently evil or inherently corrupt inherently greedy, you know, I'm not sure that it I'm not sure that it really is clarifying You know, and in fact, I think really can obscure The true nature of the relationship that's going on within a corporation a Related idea is this idea of punishment of a corporation and this comes up a lot, especially where a Corporation has been involved in some really egregious Wrong, you know, it's an oil spill, right or some terribly polluting activity or some activity that completely disregards the well-being of number of human beings or I'm sure you can think of any number of Horrible wrongdoings that a corporation Could be implicated in and when that happens There's always let's take the oil spill example There's always the reality that in the legal system. They'll be the corporation will be forced to pay for whatever damage has occurred and there's really no not much dispute about the appropriateness of that or that that should occur but Invariably, they'll be further calls. So yes, they have to BP has to pay for the You know all the damage that's occurred in the Gulf or BP and whoever else might be responsible, but But what about further punishment? You know No, they have to really pay the Exxon Valdez another great example about punishment of the corporation There's certainly very loud calls for For additional penalties to be imposed and It's worth thinking about when we when we look at the corporation as the constellation of human actors and human investors You know, who would really be harmed, you know, would the corporation really feel bad? That it was charged an extra 10 billion dollars. You know would it feel Would it learn its lesson? I Mean these are things that we would We would certainly say if there was a human being, you know that there has to be like a really Substantially negative penalty, you know extra negative penalty in order to have the the the Effect that we would want, you know a punishing effect But in reality when we're talking about a corporation Of course the corporation can't be locked up with thrown in jail Because it doesn't have a physical presence, but if it's ordered to pay money This money is going to come from the pockets of the shareholders Okay, the corporation will have lower profits cannot pay out its profits in dividends to its shareholders So the money will essentially come from the shareholders Some of it may be passed on to its customers Who are purchases its services depending on whether the market will bear an increase in price? so so you have this This cost of punishment being passed on to What is in most cases? 70% pension funds and mutual funds Okay, basically widely dispersed amongst all of the people who have who have savings invested in in public equities So certainly something to be to keep in mind I'll just say a few, you know got a couple more minutes And then we'll open it up to sort of discussion or questions There's been a quite a few proposals made, you know about and there's quite a few people Who actively think very hard about About some of the problems and challenges posed by corporations in our society or in our world more generally and and and I've done a lot thinking about that and and some of the proposals are probably more Realistic than others and maybe we can maybe I can just throw these out there and we can discuss them Discuss them sort of in a in a sort more informal way corporate social responsibility, you know and demanding that companies sort of specifically think and engage in in Corporate social responsibility activities are certainly very important Modern Development, you know, this is something that is more likely to be effective in changing corporate behavior For companies that actually sell something to the public, you know Lot of companies are not involved in that kind of activity. So so that's some limited effectiveness Regulation, you know certainly been used to great effect in the in areas like environmental degradation labor standards You know all of the sort of a number of the sort of capitalist market failures that I mentioned These are things that have been that have been that have been widely regulated and you know A lot of the worst things that were going on sort of a hundred years ago. So no longer take place Other calls have related to changes to the legal nature of the corporation itself and and These are various but our Generally problematic, you know because the corporation has has developed over time to be actually pretty good at At what it does which is allow for passive investment large accumulations of capital And and and and to promote to promote economic investment Other suggestions include Basically killing a corporation if it does something that's really really bad So revoking its charter, you know, for example sort of causing it to cease to exist, right? the the capital punishment of of of corporate Corporate law This is a bit of a problem because Again, it kind of anthropomorphizes the corporation like in reality if a corporation like let's say BP We're punished by by having it cease to exist. It would Sell all of its assets to other corporations It would distribute that money out to its shareholders and its shareholders would take that money and invest probably in the other Corporations that bought the assets that BP had, you know, so so it's not the existence of a particular corporation that is really the problem necessarily Another would be to exclude or somehow expel unwanted corporations from certain activities This is something that actually might be workable if for example a corporation Was prohibited from engaging in in certain market sectors because of past bad behavior That would definitely have a negative effect on it. It would cause its investors to you know Maybe go and invest in other corporations that the did do That did engage in the particular activity. So that might actually Have the effect of sort of channeling channeling behavior Taking away limited liability is one you hear quite a bit Where the idea is to make directors or managers or even shareholders liable for Either for all of the activities of the corporation. That's usually a bit extreme or for certain really really bad things Again defining that or making investment risky for people is is a problem. It'll inhibit it'll inhibit investment Eliminating the idea of corporate personality, you know, I'm not sure I think this is for the most part Sort of Not a very well-informed suggestion mainly because You know, what are you going to take away the ability to own property, you know the ability to be sue and be sued? I mean these are these are critical Things for a corporate existence, right? They're they're sort of they can't really be Extracted I mean that would just mean not having corporations anymore really Or putting a stop to constitutional claims Depending on the nature of the constitutional claim and of course in different countries There's different types of constitutional claim You know that might have some there may be some constitutional claims that are there You know, they wouldn't have any real significant consequence if corporations weren't allowed to make them so So that that's a possibility Removing corporations from politics and from political lobbying this is particularly you hear this much more so in the US context and and probably a very useful suggestion and reform of corporate lobbying a related suggestion, you know to say well, you know We need to sort of consider what's going on in our political process, you know and how corporations are Because they're unlike regular people unlike regular citizens of the country They have vast resources at their disposal and they're able to to They're able to apply leverage to to governments in terms of their ability to create jobs and so on So so there does I think perhaps need to be some focus on on this particular area And you can probably think of others and so with that maybe I'll just stop talking for a while and and and open the floor up to To any suggestions that you have or maybe you totally disagree with something that I've that I've said and Does anyone have any comments or any questions?