In private life, an apology can often end a hard conversation, and start a good night’s sleep. But in public life, regrets should usually be the start of a deeper discussion, and some civic soul-searching.
From Facebook’s mea culpa tour, for scraping personal data for disreputable use in the last election, to Wells Fargo’s contrition for abusive sales tactics, to AT&T’s remorse for paying $600,000 to President Trump’s private lawyer to gain influence in the Trump administration, the news is rife with apologies for corporate misconduct. But these confessions show no reckoning with the real source of the destructive behavior.
The problem is not that Facebook CEO Mark Zuckerberg, or other corporate agents, have behaved unscrupulously. Far from it. These corporate actors have instead been scrupulous in their fidelity to the most hallowed principle of corporate law: pursue profits for shareholders.
Our corporate law (the law of Delaware, where most large firms are chartered) forbids directors from sacrificing profits to serve other concerns, including workers, consumers, or the national interest. Rapaciousness is not required. If profits are best had by keeping jobs in the United States, or responsibly stewarding the environment, then do so. But if public interests must be compromised to the bottom line, the law says: do it. The problem is not that our corporations are failing us. The problem is that we have failed to properly design our corporations.
Corporate governance law should be viewed as a basic fulcrum of public policy. It is bigger than health care, and easier to change than the Electoral College, or the Supreme Court’s decision in Citizens United, yet it evades political scrutiny. It is time to reform our corporate law to require that our largest corporations be managed in a socially responsible way.
This is no reckless invitation to abandon capitalism or the corporate organization of productive enterprise. It is instead a call for us to snap-out of the superstition that there is only one way to organize corporate affairs that is consistent with economic efficiency and political freedom.
Other free, wealthy nations design their corporations differently. Germany’s principled rebirth from the ruin of Nazism was fueled by a corporate law that requires the boards of directors of large firms to be comprised equally of worker and shareholder representatives. Japan and Korea have found wealth and liberty not despite but, in part, because their corporations serve national interests, not just shareholders. In France, the boards of big corporations must now be fifty-percent women, a rule in-part motivated by the idea that boardroom diversity will enable firms to effectively respond to the interests of diverse constituencies.
We need not imitate any of these foreign structures exactly. We must pursue our own reforms, consistent with our constitution, our culture, and our politics.
A first step should be a national standard of corporate governance rules for large firms, rather than leaving this job to individual states that are more concerned with chartering fee revenue than with setting sound corporate policy for the nation. Start-ups, and smaller firms, could continue to charter under state law. This will allow for flexibility and entrepreneurial verve in the nesting grounds of business enterprise, while imposing federal standards on fully matured operations. The new national standard for the biggest firms should require corporate directors to actively attend to the interests of all corporate stakeholders in their command of corporate enterprise, not just the shareholders.
When it comes to corporate misconduct, sorry is no longer enough. Things have got to change in a fundamental way if this relationship, between corporations and the society that creates them, is to succeed.
David Yosifon, a professor of law at Santa Clara University, is the author of “Corporate Friction: How Corporate Law Impedes American Progress And What To Do About It.”
