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Corporations could start suing governments for ‘barriers’ to profit – will you accept this?

Some of those ‘barriers’ could include labour rights, food safety rules, regulations on the use of toxic chemicals, digital privacy laws and even new banking safeguards.

Matthew Wallis

POSSESSION OF POWER and a good reputation are often uneasy bedfellows. Many formerly respected and powerful institutions of society including FIFA and of course banks have come to have a terrible reputation of late. The assumption, for the corporation especially, is that they are gigantic profit-making machines that steamroll anything in their path in the name of profit. That the logic of profit is all and corporations are sociopaths that pollute and lie, but call these things ‘externalities’.

The corporation, however, has played a role in creating the wealth and employment that gives us easier lives and lifts millions, if not billions out of poverty across the world. It is, after all, very difficult to imagine our lives without Apple Inc. For instance, would you be even reading this article at all on your smartphone or tablet without it? Many would be somewhat at a loss if the McDonalds Corporation, or Marks & Spencer PLC, or Tesco PLC, or Google Inc were to suddenly disappear as a result of not having a legal basis that guaranteed continuing operation.

Understanding corporations and how the operate 

So what are we to do with this essential but increasingly debased institution? One solution is to understand them better.

From a legal-historical perspective, the first corporations were partnerships. They were organisations that were granted a status of personhood and were similar to monasteries and universities. Their special status ensured their existence would outlast that of a particular human individual member or partner of it. This status, or license-to-operate could easily be revoked, and often was.

However, during the last 150 years or thereabouts, corporations have evolved away from this relatively benign legal status. In this period, they have gained all sorts of rights while evading all sorts of responsibilities along the way. For example, the privilege of ‘limited liability’ promotes entrepreneurship and further encourages corporations to provide goods and services, but also simultaneously grants the right of unlimited profit to shareholders without liability for various harms caused.

Corporations are now very powerful, even monstrously so, and many have much larger revenue levels than that of states, but seemingly without any of the responsibilities of a state. Corporations have naturally exploited the benefits of their economically and politically powerful positions in line with their own interests. This of course also means that scandals about tax evasion, executive pay, the devaluing of jobs, flexible contracts, redundancy, and environmental damage do not come as a surprise, but are tinged with knowing sadness. We have absorbed the lessons of the logic of profit and limited liability.

What you need to know about the TTIP

The most recent extension of this power comes in the form of an acronym TTIP (Transatlantic Trade and Investment Partnership). The espoused goal of this trade agreement between the United States and the EU is to remove regulatory ‘barriers’ which restrict the potential profits to be made by corporations on both sides of the Atlantic.

This is a laudable entrepreneurial aim perhaps, but some of those ‘barriers’ could include social standards and environmental regulations, such as labour rights, food safety rules, regulations on the use of toxic chemicals, and digital privacy laws. It could even include the barrier of those new banking safeguards introduced to prevent a repeat of the great financial crisis.

If passed, corporations could sue governments for such ‘barriers,’ and even prevent them from erecting safeguards that might not conform to their logic of profit. If this sounds incredible, it has already happened in Australia and Uruguay, where similar agreements have been used by a corporation to sue over plain packaging of cigarettes. This is known as investor-state dispute settlements or ISDS, which would grant corporations legal privileges to sue governments over actions that could lower their profit forecasts and interfere with their investments.

Powerful intervention?

In one respect, and when we remember the origin of its power, the corporation is no different from any group of people: it can be understood as part of a larger social setting. Even such a multifaceted legal form as the corporation cannot be usefully understood as separate from society. Corporations are a fundamental part of it. Recognising this, global and national action for the reform of company law, particularly in terms of the duty to maximise long term value to all stakeholders, is overdue.

At the supranational and financial level when it comes to the too-powerful corporation, intervention is required. Solutions include a tax on non-productive financial transactions called the ‘Tobin Tax’ or the ‘Robin Hood’ Tax. Perhaps corporations should end tax avoidance and evasion? We can do this by shutting the gaping holes in the tax system which corporations headquartered in Luxembourg, Ireland, Holland and Malta such as Apple, Ebay, Facebook and others to pay minimal taxation.

Taking away power has consequences, of course. What would happen to London or Dublin should favourable banking and tax regulations be tightened? These corporations benefit from the roads, hospitals and educated workers that European and American taxpayers fund. How much should they resource them too?

Cui bono?

Other solutions include simplifying accounting rules and obliging corporations to disclose who they employ, where, and with what profit levels. This will help both society and corporations clarify who owns what and who owes what.

Corporations could be held legally responsible for subsidiaries, and no longer able to claim that labour and/or environmental abuse is nothing to do with them. The modern corporation is made by people, but we have created monsters whose powers now far exceed that which were originally envisioned.

The corporation rarely takes a step backward in terms of power. The conversation is left to academia or specialist technocrats behind closed doors in European corridors of power.

Perhaps a simple email to the group of MEPs who represent you asking them who they think benefits from TTIP, and how they will be voting in the plenary session on June 9th will be a rare step backward?

Matthew Wallis comes from Rathmines in Dublin, but left in 2008 to pursue a career in academia. He now teaches and writes in Nottingham Business School on the subjects of organisational behaviour, business ethics and strategy.

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Matthew Wallis

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