SPIRIT OF THE LAW:  Incentivizing Benefit-Corporations Should Be A Mid-Terms Issue
Features, Law and Politics, National

SPIRIT OF THE LAW: Incentivizing Benefit-Corporations Should Be A Mid-Terms Issue

September 6, 2018

By Alexander Schmidt

Large for-profit corporations are necessary in modern American society. They employ large numbers of people. They produce goods and services with cost-reducing efficiencies that are not achievable by individuals or smaller enterprises. But the benefits provided by powerful corporate interests should not cause voters or elected officials to disregard the detriments they bring.

It’s time to restructure U.S. corporations.

Unchecked, or insufficiently checked, corporate power and abuses have on many occasions polluted our air and water, poisoned our food, injured American workers and melted down segments of our economy. 

History has shown that unchecked capitalism produces severe boon and bust cycles that enrich a few but lead to despair for many. Wildly swinging expansionary and recessionary cycles—from the late 1800s to the Great Depression through the financial crisis a decade ago—have proved that pure capitalism is not the greatest engine for economic prosperity the world has ever seen. Well-regulated capitalism is the best economic system the world has ever seen.

After unbridled laissez-faire capitalism led to devastating recessions and depressions early in our history, the regulation of finance and various aspects of commerce and industry during the New Deal ushered in 40 years of sustained growth and prosperity by reducing the severity of both expansions and contractions in the economy. The de-regulation pushes in the Reagan to G.W. Bush era yielded the fiscal crisis of 2008-2009, which was corrected in part by Dodd-Frank and other new regulatory measures. Since the 2016 election, a deregulation agenda has rebounded, motivated largely by corporate interests, with proponents this time striving to unwind most of our regulatory systems to return to laissez-faire policy.

Why, given the lessons of our economic history, would anyone want to do that? 

One reason is that many elected officials, indeed the majority now in government, have focused on advancing corporate interests. And since the 1970s, spurred by “free market” economics, large corporations have focused almost exclusively on maximizing shareholder value. 

When a company’s overriding objective every fiscal quarter is to lift the market price of the company’s stock, eliminating regulations and other oversight of its business activities is perceived as a sure-fire way to maximize its bottom line. General societal welfare and the long-term socioeconomic risks of deregulation become irrelevant considerations. All deregulation is good, the thinking goes, because it makes it easier to make the quarterly numbers. Any regulation is bad because it can only increase costs and hinder meeting analyst’s expectations.

Our profit-maximizing corporate mentality underlies many of today’s ills in America. It has led to reduced wages and benefits for laborers and excessive compensation for executives. The resulting income inequality has increased poverty, which impairs citizens’ health, educations and employability. It also induces dangerous levels of borrowing and risk-taking in our economy. 

Recently, the federal government enacted a huge corporate tax reduction that is expected to add almost $1 trillion to the national debt over the next decade. It has also led to greatly increased corporate profits and what many call “economic growth,” but it has not led to increased worker wages, which remain stagnant. See www.nytimes.com/2018/07/25/business/trump-corporate-tax-cut-deficit.html; www.nytimes.com/2018/07/18/opinion/wage-stagnation-unemployment-economic-growth.html. 

While the saying “What’s good for General Motors is good for America” may have had some truth 50 years ago when union membership was high and many corporations believed taking care of their employees was smart business, it is not true by most measures today. Corporate interests have succeeded through national and state legislatures, and several 5-4 Supreme Court decisions, to profoundly weaken labor laws and eliminate workers’ ability to unite and use the power of their numbers to level the playing field when negotiating for better wages or benefits.

Is it good for America that large companies—like Charter Communications/Spectrum, which earns $10 billion in profits annually—can legally force its workforce to subsidize yet more corporate profits by eliminating employee pensions and gutting healthcare benefits? 

Is it good for America that large companies—like Charter Communications/Spectrum, which earns $10 billion in profits annually—can legally force its workforce to subsidize yet more corporate profits by eliminating employee pensions and gutting healthcare benefits?

Voters need to think about whether elected officials should enact laws aimed at reducing the harm to American workers caused by corporate interests that pursue profits at all costs.

One step that could make a vast difference would be to enact laws that incentivize the creation of what are known as “Benefit Corporations.” Unlike traditional corporations, Benefit Corporations are driven to create both profit and “general public benefits” that positively impact society. Directors of Benefit Corporations have fiduciary duties not only to the company’s shareholders but to all of its other “stakeholders” as well—meaning its employees, customers, communities and the environment. Directors are permitted by law to make business decisions based on the long-term interests of all stakeholders, not merely stockholders’ financial interests.

Since 2010, thirty-five states have passed legislation permitting the creation of Benefit Corporations. To date more than 5000 privately-held companies have chosen Benefit status. Several foreign publicly traded corporations have converted to Benefit-status, but only one U.S. public company has done so. 

Politicians should make incentivizing Benefit Corporations a campaign issue during the upcoming mid-term elections.

Elected officials could encourage large public corporations to make the shift by dedicating themselves to policies favoring Benefit Corporations. For example, states can provide tax incentives dedicated solely to Benefit companies. Government-granted monopolies can be given only to public utilities and cable systems that convert to Benefit status. Bandwidth and public infrastructure access can be provided only to telecommunications providers that convert. Awards of government contracts can be limited to Benefit Corporations.

Such policies could certainly be tough sells given the enormous power corporate interests wield in government. But only people vote. Educating voters about the advantages of creating more Benefit Corporations that would care as much about their workers and consumers as profits should be an imperative.

Benefit corporations are designed to reduce the detrimental aspects of corporate power over society while maintaining the benefits. Their time has arrived.

Alex Schmidt is a lawyer practicing in New York and New Jersey. He concentrates on consumer class actions, general commercial and civil litigation, contract law, and arbitration and mediation. www.alexschmidt.law.

September 6, 2018

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.