Our Continuing Struggle with the Idea that For-Profit Corporations Seek Profit
38 Pages Posted: 15 Nov 2014
Date Written: 2012
When a corporation’s ardor for profits leads it to take excessive risks that endanger the firm’s solvency, commentators react with shock and dismay. How can corporate managers be so blinded by the immediate prospect of profit that they would ignore what, in hindsight, seem like such obvious risks? Likewise, we rent our garments in anger and chagrin when energy companies take environmental shortcuts in drilling for oil or mining coal, surprised that profit-maximizing firms have been less than optimally protective of the environment and their workers, that they did not go beyond what was simply necessary to ensure that regulators allowed them to operate. Similarly, we anguish when the board of a venerable homeland corporate icon reacts receptively to a premium takeover bid from a foreign acquirer. How could the board sell out and undermine the traditional values the firm stands for? It cannot be that the long-term stockholders would put their desire for a onetime, short-term profit ahead of the continued independence of a nationally important institution?
Although I am sympathetic to many of the sentiments and policy concerns that motivate these dismayed reactions, I confess to being weary of the naïveté they manifest. More importantly, the continued failure of our societies to be clear-eyed about the role of the for-profit corporation endangers the public interest. Instead of recognizing that for-profit corporations will seek profit for their stockholders using all legal means available, we imbue these corporations with a personality and assume they are moral beings capable of being “better” in the long-run than the lowest common denominator.
In this Essay, I identify some recent instances that reflect our continued inability to view the for-profit corporation with a gimlet eye. These examples track recurrent patterns. In the end, policy makers should not delude themselves about the corporation’s ability to police itself; government still has a critical role in setting the rules of the game.
Keywords: Law and economics, shareholder primacy, corporate governance, business ethics, risk management
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