Public Companies Should Serve the Public

Over the past thirty years we’ve been brainwashed to believe that corporations should serve only themselves.  We have come to accept that they have no responsibilities to anyone other than their shareholders.  The purpose of a corporation is to make a profit, pure and simple.

Few of us remember that that wasn’t always true.

Corporations are called “public companies” because they are just that: they are companies of individuals given special rights and privileges in exchange for serving the public.

Some of them serve the public in very basic ways, for example by bringing us water, food, or electricity.  Others serve the public in more tenuous ways, for example by offering to sell us kitchen appliances.

In fact, public companies once had to specify a purpose in their articles of incorporation, a purpose more meaningful than “to make a profit engaging in business.”  They used to have to say “we will provide rail travel services” or “we will manufacture hammers.”  Maybe they should still.

Either way, our modern economy — and our modern lifestyle — would be impossible without public companies.  In exchange for making our economy work and our lifestyles pleasant, we give public companies special treatment that other groups of people don’t get.

The most important privilege they get is the right to incorporate.  To “incorporate” literally means “to make into a body.”  They get many of the rights of real people, including (since the 2010 Citizens United case) unlimited freedom of speech.  Unlike real humans, however, they get to grow as large as they want and they get to live forever.

[pullquote]We can and should make public companies responsible to a wider range of stakeholders in return for the power to incorporate.[/pullquote]

Even better: corporations can sign contracts and make commitments, but if they break those commitments there’s not much you can do to them.  You can’t shame them, kick them, or put them in jail.  The worst you can do is fine them — which in the end really just means fining their owners.

Corporations also get limited liability, meaning that if they owe you money you can’t collect from their owners.  They have to pay taxes, but they get the right to hide their income overseas.  If you do that you’ll go to jail, but corporations in many cases can do it legally.

It doesn’t have to be like this.  Corporations only exist because they are empowered to exist by governments — i.e., by us.  We can regulate corporations any way we see fit.  Corporations don’t get to vote — yet.

We can and should make public companies responsible to a wider range of stakeholders in return for the power to incorporate.  Stakeholders might include bondholders, employees, customers, government, and the general public.  There’s no reason why one group of stakeholders — the shareholders — should take preference over all others.

Such transformation is not only desirable; it is practical and possible.

Governments give public companies a wide range of competitive advantages over mere mortals, like perpetual life, limited liability for losses, and the right to raise money by issuing shares.  Governments could very well place social responsibilities on companies as the price for these advantages.

Doing so wouldn’t infringe anyone’s freedoms.  Anyone who didn’t want the added responsibility wouldn’t have to incorporate.  Until 1901 Andrew Carnegie ran the world’s largest steel manufacturer as a sole proprietorship.  In the 1920s Henry Ford ran the country’s largest automaker without incorporating.

People incorporate their businesses because we offer them incredible business advantages when they do.  We can demand at least some public service in return.  It doesn’t have to be much, but we can’t do worse than what we’re doing right now.  Public companies should serve the public good as the price of incorporating.  That doesn’t seem like too much to ask for immortality.