Corporate Social Responsibility in a Global Economy After September 11: Profits, Freedom, and Human Rights - Frank Rene Lopez

• Citation: Vol. 55 No. 2
• Publication year: 2004

Corporate Social Responsibility

In a Global Economy After September 11: Profits, Freedom, and Human Rights by Frank Rene Lopez^*

I. Introduction

The world economy is now more integrated than ever before. With improved technology in communications and transportation and the explosion of new trade markets, such as the North American Free Trade Agreement ("NAFTA"), the United States has expanded its economic grip to countries all over the world. The United States is at the forefront of the ever-expanding global economy.

Globalization¹ has enabled many U.S. companies to achieve incredible financial success. In fact, many global corporations are now enormous economic giants with economies that rival those of many developing countries. For example, in 2000 Exxon-Mobil's gross sales were $210.3 billion while Indonesia's Gross Domestic Product ("GDP") was $153 million.² Today, Exxon-Mobil's sales are greater than the GDP of most countries in the world. But Exxon-Mobil is one of many major corporations in the world. Of the largest economies in the world, more than half are corporations.³

The United States, via U.S. corporations, has a physical presence in all parts of the world. Countries throughout the world are influenced on a daily basis by activities of these large companies. Multinational corporations play a significant role in shaping the world economy and, to some degree, the political landscape.

Because global corporations are powerful players in the world economy, they wield considerable political power both within the United States and in foreign countries. Their economic power enables them to dictate where they will establish manufacturing plants and literally which laws they will, and will not, obey. To a great extent, these mega-corporations dictate where they will be located, how much they will pay their workers, the conditions in which workers will work, and how they will dispose of dangerous byproducts.

Many U.S. corporations have moved operations to other countries to reduce costs and increase profits. The rush to other countries to seek cheaper labor and materials is often called the "race to the bottom."⁴ This race to the bottom has serious consequences. It often results in the exploitation of hundreds of thousands of impoverished people throughout the world and in the abuse of the environment where manufacturing plants are located.⁵ For the corporation, the race to the bottom means more profits. The race to the bottom blinds corporate managers to the human cost of producing cheaper products. Too often human rights are viewed as obstacles to free trade and profits.⁶

The average U.S. citizen does not think about corporate activity in foreign countries; nor does he think about the race to the bottom. Yet, given the tragic events that occurred on September 11, 2001,⁷ and the frequently asked question, "Why do they hate us?," it is worth our time to pause and consider corporate activity abroad. Are U.S. corporations operating in other countries conveying a message of freedom and democracy, or are they conveying a message of oppression and exploitation? In these hard times, Americans must ask themselves: "Do U.S. corporations with operations in other countries in fact contribute to the resentment and hatred the United States is experiencing?"

U.S. corporations are perceived as ambassadors or representatives of the United States. Corporate executives negotiate with top foreign business and government officials as if the executives have been designated "U.S. Representatives." They bring American-style business to countries throughout the world. People who live in parts of the world where U.S. companies are located are subjected to American culture and greed. Some of the world's perception of the United States is certainly shaped by U.S. corporations and their activities abroad. U.S. corporations are, in a real sense, the unofficial representatives of the United States. Every year more reports surface indicating that U.S. corporations engage in child labor, deplorable work conditions, and abuse ofthe environment.⁸ These activities indirectly affect the United States and its citizenry. If U.S. corporations engage in human rights violations, what message has the United States allowed corporations to convey to the world? Is it time for the government to step in?

This Article explores corporate social responsibility⁹ as it applies to U.S. corporations operating in other countries.¹⁰ The issues raised in this Article only scratch the surface. Part II provides a brief narrative on the history of the corporation and the role corporations play in today's society. Part III examines the economic and political power of corporations. Part IV takes a closer look at corporate activities, including civil and human rights violations. Part V examines the relationships among freedom and democracy and global corporations. Finally, Part VI provides comments and suggestions on how to improve the social responsibility of corporations operating in other countries.

II. HISTORICAL SKETCH OF THE CORPORATION

A. Early Corporations

Some scholars trace the origins of the corporation to Roman law.¹¹ In those early days, the forerunner of the corporation was nothing like a corporation today; it was more like a trust than the modern corpora-tion.¹² With increased desire for trade and governmental needs, the forerunner corporation experienced a gradual but profound transforma-tion.¹³

The first corporations were created to serve the public.¹⁴ Corporations were created as an extension of either the church or the state. "Ecclesiastical" corporations, for example, were created as a device for the church to hold property.¹⁵ Most early corporations, however, were created to serve the sovereignty of kings and queens.¹⁶ For example, the Dutch West India Company's charter¹⁷ authorized the corporation to "make contracts, engagements and alliances with princes and natives of the countries ... to appoint and discharge Governors, people for war, and officers of justice, and other public officers, for the preservation of the places, keeping good order, police and justice."¹⁸

England may have been the first country to grant charters to corporations.¹⁹ To develop foreign trade, England granted charters to various trading companies, including the Russia Company (chartered in 1554), the East India Company (chartered in 1600), the African Company (chartered in 1619), and the South Sea Company (chartered in 1711).²⁰ A number of these early chartered companies played significant roles in shaping world history.²¹ For example, England used charter corporations to extend their political and commercial power throughout the world.²² The Virginia Company, chartered in 1609, founded the Virginia Colony in America, and the Massachusetts Bay Company founded the Massachusetts Bay Colony in 1629.

In the early stages of the corporation, no private ownership of a corporation existed. The corporation eventually evolved into two types of entities: (1) overseas trading companies, also known as "regulated companies," and (2) joint stock companies.²³ Regulated companies were state chartered monopolies specifically created to serve the state. Joint stock companies, on the other hand, were usually unincorporated entities designed as a vehicle of investment for people with limited financial resources who wanted to invest in large profit making ventures.²⁴ Joint stock companies resembled today's corporation in that the joint stock company allowed people to invest small amounts of money in a larger financial enterprise.²⁵ Eventually the unincorporated joint stock company would evolve into today's corporation.²⁶

In the late 1700s, only about forty corporations existed in the United States.²⁷ But the popularity of the corporation soon mushroomed, and by 1800, there were more than 334.²⁸ Prior to the 1800s, most corpora- tions served a pseudo-public purpose, i.e., churches, banks, canal operations, and constructing bridges and roads.²⁹ In the late 1700s and early 1800s, the idea of private ownership of corporate stock became well accepted.³⁰

Today the vast majority of corporations are privately owned. The evolution of corporations has taken the corporation from an entity created by the government for a specific public purpose to one in which private ownership is the norm. Today many types of business entities exist, including corporations, partnerships, limited liability companies, and sole proprietorships. The corporation is distinguished from other entities by the following combination of characteristics: (1) separate and perpetual existence, (2) limited liability, (3) centralized management, and (4) transferability of ownership interests.³¹

Today most U.S. corporations are privately owned and serve no governmental purpose. Shareholders own the corporation by owning stock, and they indirectly control the corporation by electing directors who manage the corporation for the benefit of its owners.³² The dominant belief regarding today's corporation is that it should serve its shareholders and maximize profits.

B. The Role of Today's Corporation: Public Service or Profit Maximization

In the 1920s, legal scholars began to probe the role of corporations in society. Professors Adolf A. Berle and Gardiner C. Means noted the escalating power of corporations.³³ Means's research indicated that there were "some two hundred corporations, controlled by less than eighteen hundred men, [who] administered over one-third of the national wealth"³⁴ and that the "power of the modern corporation resembled the power of the sovereign state both in form and in substance."³⁵ With amazing insight, Berle and Means speculated that the corporation could surpass government in size and strength.³⁶ Later, Berle engaged in a debate with E. Merrick Dodd, Jr. of Harvard Law School on the role of the corporation.³⁷ One major issue in the debate was whether the corporation's role was limited to serving only its...