Capitalism and Corporate Law

One striking element of chaotic capitalism is the unwieldy size of large corporations which poses many difficulties. By now everyone has heard of the separation of ownership and control in large corporations, since the problem was exposed by Berle and Means in 1932. There the corporation stands, a giant capitalist monolith, and when you try to pin down the owner, the person you can hold responsible for the crime of being too rich, he isn't there.

​Ownership must constantly be fought for and defended, and in this very struggle ownership of the great corporations has melted away; it has become so scattered and diffused through the multitudes that no one can say where it begins or ends, and the ultimate destination of profits from industry, if there be one, cannot be discovered.

Economic interests intermingle, the debtor is also the creditor, the producer is the consumer, the insurance company raises wheat, the farmer is selling short on the Board of Trade. Everything meets itself coming and going; no one can understand it, and every picture made neat and orderly against this chaos is false.

Rose Wilder Lane, Give Me Liberty

​In the chaos nobody knows where they stand, and those who feel that large corporations should be looking after everyone find it difficult to identify whom exactly they can hold accountable for this obligation. In law, the corporation is a separate legal person and making it responsible for other people's problems is not as easy as you'd think. So everybody is left high and dry to stand on their own two feet. There can be no hope for fairness, or justice, as defined in the modern age, simply because it is not clear who should carry the blame for inequality in such a messy situation. It is no straightforward matter to blame the capitalist system itself, because it is notoriously fluid and fickle, always changing and morphing into something completely different from one day to the next, and impossible to pin down:

​I was once at heart a revolutionist, and you can tell me nothing about poverty, nothing about the suffering, the injustices, the hunger, the apparently needless cruelties that exist from coast to coast of this country. But you can tell me no longer that they are the result of a capitalistic system, because there is no system here.

Rose Wilder Lane

​When there is no ‘system’, making it difficult to identify the culprits whom we can blame for the world's suffering because after all they have money to pay compensation (this is called the 'deep pockets theory of justice': the person to blame is the person who can afford to pay), we just have to be a bit more creative in fashioning the rules. After all, the main point of having rules these days is that when somebody breaks them, it is possible to sue them. The goal of such rules is to fix problems by holding someone else liable for your troubles.

An excellent example of how such rules might look may be taken from the UK’s codified set of instructions to guide a company’s board of directors in making decisions about how to run their company. Just knowing that they now have some clear rules to follow, graciously promulgated by parliament, has brought great comfort to many people who feel that companies exist primarily for the purpose of helping other people. After hundreds of years bumbling along cluelessly and aimlessly with the industrial revolution, the great insurance and banking empires, ruling the capitalist waves, all without any rules to guide them, leaving only chaos and destruction and misery in their wake, finally in 2006 parliament came to the rescue. A great sigh of relief was heaved in boardrooms across the land. Finally, some guidance! So here are the instructions:

​Duty to promote the success of the company

​A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to--
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.

s. 172(1) Companies Act 2006
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In this way, after centuries of corporate uncertainty and confusion, the law introduced some clarity. It's as if somebody suddenly switched the lights on and now directors can see exactly what they need to be doing. The list includes everybody who is important in society, which helps to reassure directors that they have not unfairly excluded anybody in their deliberations. The rules are designed to facilitate the operation of capitalist markets by making it easier for directors to think about everybody’s welfare when they are running the business. If they didn’t have a list setting out the different factors to consider it would be easy to inadvertently forget some important constituency, in all the noise and chaos. If anybody’s interests are overlooked then obviously great injustice and unfairness might result. So it’s just a stroke of fantastic good fortune for everyone who was trying to be looked after that finally something was done to fix this loophole.

​The legislation in Canada is not quite as helpful as that in the UK, but in its celebrated BCE ruling the Supreme Court of Canada weighed in and shed light on the situation by issuing guidelines about how corporations can behave like responsible citizens, and how they can go about considering everybody’s welfare.

​This duty comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly. There are no absolute rules and no principle that one set of interests should prevail over another. In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including -- but not confined to -- the need to treat affected stakeholders in a fair manner, commensurate with the corporation's duties as a responsible corporate citizen.

BCE Inc v 1976 Debentureholders, 2008 SCC 69 (CanLII), [2008] 3 SCR 560
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Notice the words ‘equitably’ and ‘fairly’, words which did tend to get lost in all the chaos of capitalism before BCE restored a more workable equilibrium. 

​You might think that these legal policy statements sound a bit vague when viewed from a certain angle, and it is true that nobody is exactly sure what is expected of them by these provisions. That’s not a problem. Everyone is expected to just carry on and do their best, and afterwards they will be judged by the democratic will of the people. If we decide that actually they have fallen short of expectations then they'll soon know that we're not happy. We know where to find them, oh yes we do. There’s a register, where everyone responsible for an incorporated entity has to leave their name and address. It’s all under control. I guess long ago when Rose Wilder Lane was writing they did not have such well-developed systems of command and control and so they weren’t very good at hunting down capitalists and smoking them out of their hidey holes:

A few thousand men in this struggle and confusion apparently possess enormous sums of money. But look for this money and it is not there; it is not solid actuality; it is not the tangible property, unmortgaged and secure, or a rentier class, nor the Junker’s hold on vast stretches of earth and many villages. It is dynamic power pouring through business and industry, and like the power that drives a machine, if it is stopped it vanishes.
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​Rose Wilder Lane
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Vanishes?! That must have been awful for them. But as you can see from more recent legal developments, matters have greatly improved since then. Now we have sophisticated regulatory methods capable of stopping any machine that the ingenuity of man can invent. The age of chaos is over. The time for orderliness, based on neat and tidy rules, has come.