Citizens without obligations?

Original Reporting | By Mike Alberti |

While Apple declined to comment for this story, representatives of other companies made it clear that they did not want to limit themselves in any way by identifying as American or proclaiming responsibilities to the United States, and that they viewed their nationality in opportunistic terms.

“In some cases, being defined as an American company is what is important,” said Courtney Boone of U.S. Steel. “In some cases, it’s that we operate globally.”


What is to be done?

According to several experts, there is a range of policy options available that could re-insert a greater sense of national obligation in American companies (see box titled “How to rebalance benefits and obligations”).

According to Lynn Stout of Cornell, there are numerous measures that can be taken to change the internal dynamics of individual firms.

“In most companies, everybody is working on the understanding that the company has no obligations except to make money and to follow the law,” she said. “But that hasn’t always been the case, and there are innumerable ways that we can broaden the responsibilities of corporations.”

Ralph Gomory, a research professor at New York University, explained that another set of solutions is external to any specific firm and involves creating a broad economic and legal structure to incentivize firms to act in the national interest.

“There’s no shortage of possible solutions,” Gomory said. “Once we begin to ask why we have different expectations of individual citizens and corporate citizens, the hard part is done.”

How to rebalance benefits and obligations

Experts identified a range of measures that could be taken to re-align the goals of American corporations with the country as a whole and broaden the understanding of corporate responsibility to include national obligations.

Some of those options, said Richard Sylla, a professor at the Stern School of Business at New York University, are external to the structure of any individual firm, operating at a more systemic level to shape the actions of corporations.

“One of the goals of corporate executives will always be to make money and create value,” Sylla said, “but we have the power to make sure that they can’t do that if it means working against the national interest.”

One such measure that Sylla advocates is the strategic use of import tariffs to make it less profitable for American companies to manufacture products abroad and then ship them back into the U.S. market. He also suggested offering tax incentives to companies who create a certain percentage of their economic value in the United States.

Other experts suggested measures that would change corporate governance to broaden the purpose of the corporation.

According to William Lazonick of the University of Massachusetts, Lowell, the alignment of the interests of corporate executives with shareholders has been one of the most powerful factors contributing to the narrowing of corporate obligation over the last three decades. To change that alignment, Lazonick would push to reduce the use of stock-based compensation and have executive pay reflect performance measures other than share price.

Another way to break the exclusive alignment of executives with shareholders, he said, would be to change the makeup of corporate boards by, for example, requiring that a certain percentage of the board be made up of employees or members of the community. This practice already exists in other countries, notably Germany, where all corporate boards are required to include worker representation.

According to James Post, a professor of management at Boston University, another way of influencing the decision-making of executives would be to change the laws governing the fiduciary duty of pension fund managers to allow them to invest with a greater social purpose.

And Ralph Gomory, a professor at New York University, suggested going even further by explicitly broadening corporate purpose through state incorporation law, making it easier to establish corporate entities with a stated purpose other than maximizing shareholder value. That state purpose could include “creating well-paid jobs for American workers, improving the quality of life in a particular community, or making technological innovations that will benefit the country as a whole,” Gomory said.

Lynn Stout, a professor of law at Cornell University, said that using incorporation law to re-define corporate purpose would make it possible to “impose citizenship obligations on corporations that are incorporated within our borders.”

Exactly what those obligations should be, Stout added, “is something that we as a society need to be having a serious conversation about.”

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