ourEconomy

Corporations in the crosshairs: from reform to redesign

Corporate social responsibility has failed to rein in the capitalist juggernaut. To fix our economic system, we must alter the DNA of corporate design.

Allen White
10 February 2020
Image: rawpixel.com, CC0 Public Domain

The omnipresence of corporations – as resource extractors and processors, employers and developers, lobbyists and campaign donors – has spawned countless initiatives to tame their excesses and steer their activities in the direction of the common good.

Now the challenge is to transform shared grievance into joint action among disparate campaigns. Greater strategic and organizational coordination is critical for confronting corporations commensurate with their scale of operation and influence. The seeds of a transformative redesign movement, already sown, have sprouted and are ready to spread across geographic scales.

In the political sphere, an essential step is the reconfiguration of the legal status and purpose of the corporation. This work can build on the pioneering work of B Lab and the consensus among legal scholars that the principle of shareholder primacy, wielded by defenders of finance capital, is baseless. Northern Europe has been a leader on this front, as “codetermination” structures, which mandate worker representation on the boards of large companies, are widespread in Germany, Austria, the Netherlands, and the Nordic countries. And the model is spreading. In the US, presidential candidates are calling for employee-elected members on the boards of large companies, and for corporate boards to consider the interests of all stakeholders, not just the shareholders. A natural extension would be to create corporate board seats for representatives of all stakeholder groups.

These country-by-country efforts to alter corporate governance help break the grip of shareholder interests. Yet, a basic incongruity constrains the potential to achieve this aim: corporate activities are transnational, but the corporate chartering process is national (or subnational). This fundamental mismatch allows corporations to “charter-shop,” obtaining authorization licenses in jurisdictions with the most shareholder-friendly requirements, a gaming of the system analogous to shopping for tax havens.

With global capitalism superimposed on the traditional nation-based political order, the world lacks overarching governance capacity, in general, with the chartering mismatch a key case in point. The global-national contradiction suggests an important strategic prong for the redesign movement: transnational control of transnational corporations. One approach would be to advocate for a new multilateral organization, a World Corporate Charter Organization (WCCO). An enlightened WCCO would set requirements for a corporation’s purpose statement, multi-stakeholder board structure, and employee ownership. It would mandate integrated reporting that accounts for human, social and ecological as well as financial capital, along with adherence to broadly accepted global norms. With pressure from civil society groups, labor organizations, and kindred multilaterals, a WCCO could be launched as a voluntary program with the aim of evolving mandatory status as it gains legitimacy.

Another significant front for the redesign movement is to strengthen corporate reporting by mainstreaming systems-based reporting. Performance goals set at the individual enterprise, without reference to aggregate impact, have led to a situation in which a multitude of firms are doing incrementally better while the system, in aggregate, remains increasingly unsustainable. Systems-based reporting, by contrast, would embed systems boundaries in performance goals so that they reflect a firm’s proportionate responsibility for muting risks.

In parallel, long-term investors, such as mutual funds and pension funds, are key to advancing systems-based strategies. In a virtuous circle scenario, investors guided by holistic analysis channel funds to worthy corporations which, in turn, manage them for the enrichment of social, human, and natural capital while achieving a satisfactory financial return. This dynamic would foster more resilient social-ecological systems, while reducing volatility – the bane of institutional investors – associated with climate disruption, mass migration, and popular uprisings against government incompetence and corruption.

The prospect for implementing redesign innovations hinges on the readiness of disparate actors, particularly civil society movements, to converge under the banner of corporate redesign. The primacy of shareholders and finance capital will not dissolve without a compelling counter-vision, strategy, and action plan. Indeed, all social and environmental movements and campaigns that understand the profound perils inherent in the prevailing corporate model should embrace corporate redesign as part of their agenda.

To its credit, the corporate social responsibility (CSR) movement spawned public discourse about the role of corporations in building – and undermining – just and sustainable societies, and inspired reforms in countless corporations. But the movement has failed to deter the dire consequences for people and the planet of corporate capitalism’s growth in scale, market power, and financialization.

With the shortcomings of incrementalism so evident, it is time to close the CSR chapter and embrace the next chapter of the movement to reshape the corporation: corporate redesign.

This article is an excerpt of an essay published as part of a series by the Great Transition Initiative. To view the full series, click here.

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