Promoting the Common Good: There's Only One Reason to Grant a Corporate Charter

By David Korten, YES! Magazine. Posted November 26, 2007.

The following was an address to the Summit on the Future of the Corporation, held in Boston on November 13-14.

It is fitting that we hold this conversation on the future of the corporation in historic Faneuil Hall, the Cradle of Liberty. Deliberations in this very room more than 200 years ago were the first step on a long walk away from a king named George that launched a new nation and led ultimately to the end of monarchy. May the success of our forbears inspire us in our deliberations on the future of the private-benefit corporation.

The Big Picture

I recall my business school professors many years ago calling us to look at the big picture to identify the systemic cause of whatever immediate problem symptom captured our attention. We would do well to apply this wisdom as we look ahead to the role of the private-benefit corporation in a profoundly troubled 21st century. We must identify the deep systemic causes of the social and environmental crises unfolding all around us--no matter how troubling the resulting conclusions may be. Here is the big picture in brief outline.

1. Consumption: Growth in human consumption resulting from a combination of population growth and growth in consumption per capita is depleting the natural life support system of the planet, disrupting hydrology and climate systems, and threatening human survival.

2. Inequality: Unconscionable and growing concentration of financial power in a world engaged in an ever more intense competition for a declining base of material wealth is eroding the social fabric to the point of widespread social breakdown.

3. Institutional Pathology: The most powerful institutions on the planet, global financial markets and the transnational corporations that serve them, are dedicated to growing consumption and inequality. They convert real capital into financial capital to increase the relative economic power of those who live by money, while depressing the wages of those who produce real value through their labor. They offer palliatives that leave the deeper cause of our potentially terminal environmental and social crises untouched, because they are the cause.

Our future depends on a dramatic cultural and institutional transformation to reduce aggregate consumption and achieve an equitable distribution of economic power.It requires an epic institutional transformation to:

1. Reduce aggregate human consumption.

2. Redistribute financial power from rich to poor to achieve an equitable distribution of Earth's life-sustaining wealth.

3. Increase economic efficiency by reallocating material resources from harmful to beneficial uses. Examples include reallocation from military to health care and environmental rejuvenation, from automobiles to public transportation, from suburban sprawl to compact communities, from conversion to reclamation of forest and agricultural land, from advertising to education, and from global financial speculation to investment in self-reliant local economies.

4. Invest in the regeneration of the living human, social, and natural capital that is the foundation of all real wealth. This requires reversing the current process of converting the real wealth of living capital into the fictitious wealth of financial capital and accepting the resulting negative returns to financial capital. It may take us awhile to recognize that just as increasing financial capital at the expense of living capital makes us collectively poorer, increasing living capital at the expense of financial capital makes us collectively richer.

5. Accelerate social innovation, adaptation, and learning by nurturing cultural diversity and removing intellectual property rights impediments to the free and open flow of beneficial knowledge.

These are imperatives of the 21st century and it is difficult to identify a constructive role in addressing them for the private-benefit corporation--a term for any corporation chartered solely to serve the narrow and exclusive private financial interests of its investors and top managers.

The Private-Benefit Corporation

The private-benefit corporation is an institution granted a legally protected right--some would claim obligation--to pursue a narrow private interest without regard to broader social and environmental consequences. If it were a real person, it would fit the clinical profile of a sociopath.

The basic design of the private-benefit corporation was created in 1600 when the British crown chartered the British East India Company as what is best described as a legalized criminal syndicate to colonize the resources and economies of distant lands to benefit wealthy investors far removed from the social and environmental consequences. That design has ever since proven highly effective in advancing the private interests of the world's wealthiest people at enormous cost to the rest.

The private-benefit corporation uses its economic power to privatize (internalize) gains and socialize (externalize) cost. The resulting concentration of wealth creates an illusion that wealth is being created, when the actual consequence is a net destruction of real wealth It is an institutional form best suited to achieving outcomes exactly the opposite of those we humans must now pursue.

See more stories tagged with: workplace, coporate accountability

David Korten is a former economist with USAID, author of "When Corporations Rule the World," and an associate of the International Forum on Globalization.

Liked this story? Get top stories in your inbox each week from Environment! Sign up now »