The Politics of Business

The fall of corporate businesses could be traced to management’s disorientation, unethical and immoral misdeeds, unaccountability and abuse of power perpetuated by unwritten rules.

The government's failure to frame community-oriented public policy to guide corporations is also the reason of the collapse of businesses resulting to economic downturns.

Management and government are not the only ones to blame but also the shareholders.

Let us take a brief review of the corporate code. The law provides a set of legal rights to shareholders. One is to elect corporate directors and officers and that extended to the appointment of agents (executives and managers). This right is a delegation of powers to corporation management and that includes the shareholders control and gives certain rights but not the right to run the business for the management’s own benefits.

In practice, individual shareholders take passive roles in corporate governance and the institutional shareholders are vigilant solely to corporate economic activities. Both basically are individual owners of a corporation. The large investment stocks that could equal to power are in the hands of institutions (like pension and social security agencies, investment houses, banks, etc) that aggregate the funds of the individuals for power conversion, and proxies.

The shareholders delegate powers to institutions and proxies and the institutions and proxies delegate the same to the management and agents.

Another right is as important as the first one. The shareholders have the right to receive dividends from corporate earnings and that right gives the management the fiduciary duty to attain corporate economic mission.

The economic mission, however, fundamentally strengthened by the wrong interpretation of Friedman’s principle makes the management disoriented and motivated to take unethical decisions and focused mainly on the economic interests of shareholders. Modern management theorists like Merrick Dodd, a Harvard Professor, however contended that fiduciary duty of the management is not solely for shareholders but also for the whole community.

Thus, it is legitimate and essential to orient corporate management decisions that fiduciary obligation should go beyond shareholders interests to include the interests of the whole society.

A corporation, as an artificial persona, is a member of a society and has the right to act freely for its own benefit but such right entails responsibilities to the rights of others –natural or artificial. Corporation rights ceased to give way to communities common good.

The fiduciary duty of corporate management is not solely for shareholder’s economic objectives but also for shareholders’ social objectives (take the GE case in 2002 when activist-shareholders stepped on corporate governance questioning the greenhouse gas emission of their products which resulted to corporation and community’s mutual benefits).

It is high time for shareholders (direct or indirect) to take active roles. Helpless consumers of high price and poor quality utilities, goods and services and employees with inadequate pay and poor labor treatment could be addressed through their ownership rights and powers delegated to institutional shareholders (investors holding consumers and employees’ pension, social security funds, savings,etc.)

Activism will revolutionize passive ownership to active ownership to impact radical change in every corporation from economic mission to holistic mission, from competitive to cooperative. McKinsey & Company and Deutsche Bank discovered that activism helped add billions of dollars to the value of the company and boost the economy.

The huge investment stock is consisting of employees and consumers’ properties. There is no need to revolt or hope for presidential wannabes to take the control of the proletariats (or civil society) in place. Let us unveil the mask of the new face of socialism which economic activities yields are for community reinvestment instead of squeezing to whims and caprices of traditional capitalists. Let us decipher the overlooked existing but dormant collective ownership, leadership, responsibility and benefits.


(For further readings: 1. Beauchamp,T. And Bowie, N. (Eds.) (1997). Ethical Theory and Business. NJ: Prentice-Hall Inc.
2. Davis, S., Lukomnik, J. and David Pitt-Watson. (2006) The New Capitalist: How Citizen Investors Are Reshaping the Corporate Agenda. USA: Harvard Business School Press.)