Research

CORPORATIONS, COMMUNITY AND COMMITMENT: A Christian Critique

Description: NECF Malaysia Cross-Currents Consultations
        Author: Philip TN Koh

Introduction

The business corporation is a major institution transforming the Social landscape of human societies. The modern corporation emerged in the latter part of the nineteenth century. In its historical genesis the term “corporation” was derived from Roman law and its Ancestry includes bodies like the universities, corpus, collegium and Society anymore. According to Justinian, the state as such was considered to be a corporation together with municipalities having the right to own property and make contracts, to receive gifts and legacies, to sue and be sued and generally to act through human representatives. Also private associations and organizations, burial club, guilds of craftsmen or traders were considered to be corporations although the privileges and rights are often subjected to a grant of royal charter from the sovereign. When Christendom was established in 381A.D., churches and monasteries were classifiable as associations having corporate status.

The Malaysian business corporation now commands attention by its ubiquitous presence spanning a whole spectrum of industries and affecting both directly and indirectly the lives of millions. Over 800,000 companies are now registered with the Registrar of Companies, Malaysia. If we include statutory corporations and multinationals, then it can hardly be debated that the corporation is one symbol of the transition of a nation from pre-industrial times to capitalist status which signals modernity.” From the East India Company, chartered in 1600 to the modern multinational the modern corporation has brought pane of praises from its supporters and vilification from its’ critics.

In the seventeenth century, Coke C.J. wrote “Corporations cannot commit treason, nor be outlawed nor excommunicate[d], for they have no souls.” In 1957, Carl Kaysen startled an audience at its meeting of the American Economic Association that corporate behaviors can “ [now] be termed “responsible”: There is no display of greed or graspingness; there is no attempt to push off onto the workers or the community at large part of the social costs of the enterprise. The modern corporation is a soulful corporation"

Regulation & Corporate Governance

"What is crooked cannot be made straight,
and what is lacking cannot be numbered."
Ecclesiastes 1:15

The issue of proper governance of our institutions has been very much in the forefront of global debate in the wake of the convulsions suffered by East Asian economies. The corporation is one of the ubiquitous aspect of our social and political landscape. The fissures that has emerged has lead to a clarion call to restructure and to hold accountable the corporation that has lead in part to the debacle facing our commercial life.

It is therefore crucial to examine in depth the issues and choices that confront us as we face the chorus of voices for change. Discernment and understanding is paramount so that in addressing the changes and challenges in the corporate governance debate, we sift beneath the rhetoric and grasp the substance of the matter.

Let us start by defining the corporation.

A. WHAT IS A CORPORATION?

"An ingenious device for obtaining individual profit without individual responsibility" Ambrose Bierce, The Devil's Dictionary

1. Defining a corporation is a difficult exercise. How we define it will betray our perspective by which we approach our analysis. We may give a legal definition and content ourselves with stating that it is an artificial legal person. The economists may prefer to define it either as a firm or a nexus of contracts.

Let us look at some examples:

"The business corporation is an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments. Accordingly, a basic premise of corporation law is that a business corporation should have as its objective the conduct of such activities with the view to enhancing the corporation's profit and gains of the corporation's owners, that is, the shareholders." Melvin Aron Eisenberg

"A corporation (or body corporate) in the common law sense is a legal device by which legal rights, powers, privileges, immunities, duties, liabilities and disabilities may be attributed to a fictional entity equated for many purposes to a natural person."
Ford's Principles of Corporation's Law

The importance of the corporation as a legal person and its legal ramifications are illustrated by a plethora of practical issues governing criminal conduct of corporations, corporate re-structuring, the piercing of the corporate veil and implications and consequences of corporate insolvencies.

2. The legitimacy of the corporation

Our construction of the corporation as pad of our social reality is dictated in pad by institutional realism and also the historical legal evolution of the corporation. When we set out to determine the nature of a corporation, we are asking also about its functions and purpose. In modern democratic societies, no institution is free from questions of its legitimacy. In sociological literature the concept of legitimacy affords us the principles by which the criteria is set up to evaluate and seek the rationale for the authority and dominance of a particular institution that dominates the social landscape. The corporation is a ubiquitous feature of modern capitalist society. As part of the expression of liberal capitalism it shares with it the periodic crisis of legitimacy. Witness the present day questions and debates raised about corporate governance.

A corporation as a legal entity functions in many ways:

(a) It serves to limit the liability of its members. The chief impetus of this feature is that it affords to its participants to limit their financial exposure in the enterprise;

(b) It marshals in a wide group of participants in large commercial ventures by facilitating the accumulation of capital and deployment of savings. This is particularly seen in public flotation exercises where huge capital may be raised from the public;

(c) It provides a structure for realizing a strategic alliance via joint ventures;

(d) It provides a structure for holding family assets via tax saving structures and/or trusts;

(e) It sets up a structure for continuing trusteeship, which ranges from private family trusts in form of foundations and charitable bodies to public unit trusts;

(f) It provides a structure for fund managing of custodial services;

(g) It sets a structure for corporatization of government enterprises;

(h) It provides a framework and association for common enjoyment of property or assets.

In many ways because of these functions that corporate governance recommendations must take, it differentiates the range and nature of corporations. In some jurisdictions, distinction is made between close-held corporations, partially public held corporations and widely held public corporations.

3. Evolving Legal Theories of the Corporation

The rise of the corporate form is traceable from the Middle Ages where monastic orders and corporate bodies began to define themselves from the ruling aristocracy. In part, the historical genesis from Roman law and the rise in western legal tradition testify to one enduring aspect of the corporation - its democratic impulse. By mid 19th Century, the corporate form was generally available and limited liability was recognized by 1856.

In Adam Smith classic work, The Wealth of Nations a point was already noted that one of the dilemmas of the corporate form was the distinction between owner and management,

"The directors of ...companies...being the managers of other people's moneys and their own, it cannot well be expected, that they should watch over it with the same vigilance with which the partners in a private co-partnery frequently watch over their own.. Negligence and profusion, therefore, must always prevail more or less, in the management of the affairs of such a company,"

From our own colonial history, the Dutch East India Company in 1602 was a distant forbear of the modern corporation. Within a century later, the speculative crash led to the passage of the Bubbles Act of 1720. It can be said that concerns of corporate governance were presaged early in economic history.

Two theories competed in explaining the rise of corporate form of organizations. By 1844 and 1856 in England, incorporation by registration was available superceding the requirement for grant of Royal Charters. The relentless need for capital drove legal recognition for the limited liability status of the corporation and the publishers of it no longer needed specific justification or privileging. However, it may be that, this privilege can be withdrawn. For example, the move of the Malaysian government to grant discretion to the Registrar to withhold his consent to NGOs (non governmental organizations) implies that the incorporation privilege is meant for bodies devoted to profit or gain but not otherwise.

The modern conception of the limited liability corporation has been delineated by the classic article by Easterbrook & Fischel that, the primary justification for limited liability corporation lies in the fact that without it, those with capital will have increased costs in monitoring firms in which their capital is invested to the overall detriment of non-diversification of their investments to offset the risks of business failure. Attention must also be drawn to the seminal thesis of Nobel winner (1991), Ronald Coase that firms seeking advantageous and optimal levels will do so regardless of legal rules, in many ways informed the arguments for self regulatory regimes as compared to a more interventionists model.
Our own modern regulatory regime is a mixture of disclosure based and bureaucratic monitoring. Of late, the stakeholder view of corporation has gained ascendancy. One of the earliest and respected proponent is Russell Ackoff, Professor Emeritus Wharton School has argued vigorously for the conceptualization of the corporation as an enterprise operating as a social system so that "... it focuses on those who are affected directly, and further that a stakeholder theory of firm should be derived from balancing the conflicting claims of the various "stakeholders in the firm: the managers, workers, stockholders, suppliers, vendors. The firm has a responsibility to all theses and must configure its objectives so as to give each a measure of satisfaction. Profit which is a return on investment to the stakeholder is one of such satisfactions, but does not receive special predominance in the objective structure."

B. THE CORPORATION AS A MORAL PERSON

"Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked" Edward, First Baron Thurlow, Lord Chancellor of England

One of the chief difficulties in conceiving responsibility of a corporation is to decide where the claims of morality reside in an artificial persona. The corporation is situated in the heart of economic activity of a society whose basic orientation is power and money. The cynic would share the view of one commentator that,

"What is right in the corporation is not what is right in a man's home or in his church. What is right in the corporation is what the guy above you wants from you. That's what morality is in the corporation”. The human agencies that make the relevant responsible decisions tend to hide behind the anonymity of the corporation.

Decision-making can also be diffused so that a decision may have been made collectively and without taking any individual responsibility for its consequences. Here, the instrumentality of laws and conventions all act as guideposts of what is acceptable' corporate behaviour but in many instances they can never be exhaustive.

One writer puts it well,
"There .are certain virtues, both to the individuals and to the society at large, of encouraging people to act in socially' appropriate ways because they believe it the "right thing" to do,, rather than because (and thus, perhaps, only to the extent that) they are ordered to do so... What seems needed as a "remedy" is some institutional analogue to the role that responsibility plays in the human being, guiding action toward certain values where the ordinary legislative prohibitors are unavailable or, on balance unwise."

We must remember that frail flesh and full-blooded human agents occupy the rank and file of our business organizations and any prescriptive solutions must take cognisance of the brute realism of the market place. The corporation must be conceived as real communities of which so much of our lives have been embedded. The idea that a corporation can be conceived as a moral person would require the embodiment within the corporate decision making process a moral dimension and the identifying of structures that have the capacity of moral reasoning in the control and execution of corporate conduct.

The Rawlsian injunction that "Justice is the primary virtue in social institutions, just as truth is in systems of thought ought to be kept in mind, so that in our evaluation of the corporation as a vehicle of economic activity, we do not abandon the concept of justice. Whilst this is not the place to examine the ramifications of this argument, it places a responsibility on all reflect on the corporation, a critical challenge to reconcile the primary goal of wealth creation with that of a wider telcos. The most fruitful model would appear to be a conception of the corporation as an enterprise of which stakeholders have valid claims. The vexed issue is to translate the claims of conflicting stakeholders' entitlements without jeopardizing the viability of the enterprise. For example, to demand that corporations exercised social responsibility must be seen in the context that there ought to be a nexus with its discharge of such responsibility with that of its financial performance.

Drucker puts it well,
"Organizations have to take "social responsibility". There is no one else in the society of organizations to take care of society itself. Yet, it must do so responsibly, within the limits of their competence, and without endangering their performance capacity'

C. REGULATION AND CONTROL OF CORPORATE POWER

  1. It has long been recognized that corporations exercised vast powers in modern societies. The concern on regulating such power and ensuring its accountability has been at the centre of analysis and debate. Carl Kaysen in summarizing the issue has outlined the various alternatives in controlling corporate powers in the following way:

    "Broadly there are three alternative possibilities, the first is limitation of business power through promoting more competitive markets; the second is broader control of business power by agencies external to business; the third, institutionalization within the firm of responsibility for the exercise of power."

    The first possibility has been the feature of mature jurisdictions where anti-trust legislation is introduced and offences of fair-trading are established to ensure that competition in the life of commerce is not inhibited by monopolistic and oligopolistic practices. The current tussles between Microsoft and the Justice Department of the US is an example of the extent of regulatory control to ensure competitive markets in which such legislation has been debated and applied. So too the dismantling of the Glass-Steagall legislation, which kept artificially, separated the convergence of financial institutions and capital market players in the US is a dramatic example of the extent of which the first possibility can take its evolution.

    The second possibility is the establishment of regulatory agencies, which have been charged with the responsibility of controlling the powers of the corporation. Why regulate? This is not an impertinent question given the Coase's seminal thesis that regulatory burdens merely add to costs of monitoring which may not result in corresponding gain. Whilst the central argument of Coase theorem is cogent and has yielded tremendous insights as to the limitations of regulatory interventions, it does not mean that all governmental agencies may be dispensed with. There are instances where transaction costs are not zero and can be very high so that firms could not reach an agreement in the market by themselves. At times, strategic behaviour of firms also negate any attempts on firms to reach a bargain on their own accord.

    It is worthwhile therefore to have an overview of the reasons for regulation.

  2. The following are some reasons that have been suggested as to why there is a need for regulating:

    1. Not unlike natural persons, the corporation as a legal personality is subject to laws and rules, which govern its existence and conduct;

    2. One of the chief features of modern corporate society is the requirement for timely disclosures and information. A host of stakeholders are affected by the actions of the corporation and they need to make informed decision on matters pertaining to their interest. The older framework requires merely the filing of requisite information and the regulatory authority is contented to keep an archival record of the same. Increasingly it has been recognized that there are information asymmetries in the market, which demands that timely, accurate and fair information is made available to the corporation's stakeholders;

    3. Regulation also articulates clear standards of corporate governance, which reflects society expectations of best practices and standards of ethical behaviour demanded by the mores of the community. Some of these standards are set down as Codes of Practice whilst others are embedded in law reform proposals, which subsequently find its way into the law books;

    4. Regulation of debt and capital markets:
      With the burgeoning growth of fund-raising activities of corporations, the vulnerabilities of an unsuspecting public to the abuse of trust and outright fraudulent conduct are ever present. Although one cannot legislate away cupidity and foolish greed, the core concern that the property rights of an investor should not be ride rough short of remains. It is imperative that regulations are, found in the listing requirements, prospectus regulation and continuing obligation of a listed vehicle so as to ensure that an efficient and fair market is fostered, protected and enforced;

    5. Regulation as to the protection of creditors as is found in the doctrine of ultra vires, fraudulent preference, unlawful trading and the regime of insolvency laws relating to receivers & managers and liquidation are process where a failed corporation's assets are to be distributed fairly to creditors;

    6. Regulation as to corporate control:
      This is the application of the Take Over Codes and rules of an Exchange so as to maintain a level playing field and to ensure fair play to shareholders who are not close to corporate insiders and who are misled into disposing of their shares as a result of inadequate information and at a price which does not reflect the premium of control;

    7. Regulation of the securities and the finance industry:
      Regulation has been extended to the market where the shares of a corporation is traded and issues pertaining to integrity of transactions, price discovery transparency, protection of order flows are amongst the burning issues of the day. The banking and financial sector too has been receiving focus and attention as systemic risks in this sector will threaten the health of economic systems. Separate regulatory agencies have been set up to deal with the complexities of the capital markets whilst central banks of the world grapple with the health of financial institutions by applying standards internationally recognized

  3. Regulatory Agencies

    It is imperative that a regulatory body be armed with statutory authority. From Malaysia's experience, a non-legislative body is not satisfactory in that it lacked the legitimacy granted by legal authority. The Capital Issues Committee which was the precursor to the Securities ~30mmission had no direct legal status. It was inexorable that legislative fiat had to be provided as the complexity of securities industry developed. Max Weber has correctly pointed out that the highest legitimate authority is that legal authority. In so stating, we are not arguing that legal instrumentality is the only mode of regulation. The Coasian case against the dependency of interventionist's mode must be kept in mind.

    Furthermore, one commentator has cautioned,
    "Classical regulatory theory argues that policy makers are motivated by public interest concerns and contends that they should be concerned with the public good. Disputing the public interest theory is the "economy" theory of regulation that argues government regulation reflects the influence of special-interest groups. As well, regulators, it is argued have self-interested goals (job retention, power et cetera). Thus people both determining regulations and laws and those administering them behave selfishly to further their own ends”

    In citing the above comment this paper writer had the occasion to observe the following,
    "Whilst it may be inappropriate or premature to apply the above critique to Malaysian regulators, its cautionary note is nonetheless of value. It is not an easy task to steer between the Scylla of unregulated corporate and capital market behavior and the Charybdis of over regulation leading to inefficiency and non-competitiveness for the Malaysian Corporation."

    There are also concerns of jurisdictional overlapping and territorial confusion in respect of regulatory rules. Notwithstanding the conundrum of regulation, Professor John Coffee Jr. puts it cogently,

    .... Who shall guard the guardian?" is the most enduring question of constitutional law and the private constitutional law of corporate governance. No simple solution exists to this perplexing issue. Proponents of "the market for corporate control" thesis assumed that this problem would be solved by the use of the market as an external monitor, because a market is by definition neutral, unbiased and objective. But as the foregoing analysis has sought to show, this solution is imperfect for several reasons. First, the disciplinary mechanism is ultimately not the market, but the individual bidder who, having imperfect information, is more error prone than the internal monitoring mechanisms within the modern decentralized firms. Second, a tension exists between the prerequisites of efficiency in the market for corporate control and those applicable to the market for executive services. Third, the stock market reflects only the interests of those who participate in it. Because some interests are not represented, it is imperfect (if still highly relevant) proxy for economic efficiency."

D. THE CONCEPT OF CONTROL

  1. Few concepts in the realm of law and social sciences are as slippery in nature as that of "control". On the simple legal definition, "control" refers to the ability to effect changes and control of composition in the Board of Directors and/or having more than half of voting equity capital. There has been, however, the recognition that control maybe de facto in nature notwithstanding it not satisfying the legal thresholds.

  2. The concept of control is tied to a large extent to property relationships, which in turn relates to the legal and social relationship of ownership. In the classic position of Berle & Means, the traditional logic of property involves a dual aspect: the right to determine the use of the object and the right to benefit from the use of the object. However, with the legal recognition of the corporate form, there is dissolution of this traditional distinction in the joint stock company where the supplier of capital is not identical to those who determine the use of the capital. With such a dissociation, ownership can be purely nominal i.e. the right to receive revenue as a return for risking one's moneys in investing in a corporation from that of effective ownership, which is the ability to control the corporate assets.

    One democratic theorist, C.B. Macpherson argues,
    "... individual investors of all sorts become rentiers and become aware that this is what they are. Their property consists less and less of their ownership of some part of the corporation's physical plant and the stock of materials and products than of their right to a revenue from the ability of a corporation to manoeurve profitably."

    In an advanced financial capitalist society, the revenue may not be confined to a dividend return but a speculative gain. The Berle & Means' thesis has been subjected to criticism both in the West and also in the East. In the West, criticism has been levied that the concentration of attention to the largest single holder or small group, of associates underestimates the extent of minority control and does not uncover "the behind the scenes alliances" which can accumulate the necessary critical mass for control. This may be buttressed by control over voting machinery to ensure the outcome of a proxy fight and the reinforcement of control over the board.

    The sociologist, Zeitlin has argued that owing to "the congeries of inter-corporate relationships" and the "intricate interweaving of interests" many corporations whilst appearing to be management controlled, are in fact minority controlled through a constellation of interests. From the perspective of the East Asian governance structure, it may be that the issue of separation of ownership and management has to be refracted through the dominance of family based interests and corporatized government interest. Although the Berle & Means distinction is not without cogency there need to be a nuance reading of the same in the context of East Asia.

    In Malaysia, an older study in 1981 has argued that share ownership is highly concentrated in the hands of a few institutions. This appeared to be borne out even in the 90's, albeit the institutional players may have changed? There has been burgeoning literature on family based corporations which are contrasted with that of the Western norm based model. The more popular works parade out stereotypes and facile generalizations of guanxi and networks which adds little if anything to a more rigorous analysis of network market economies. With the onset of the East Asian crisis since mid 1997, there is a great need to re-evaluate the issue of the market cultures in East Asia and to assess the call for enhancement of corporate governance in the light of regional and local knowledge.

What is the reality? Is the corporation a culprit that distorts and destroys the community? Or is the ideology of corporation merely a mirror of the underlying political philosophy? Commenting on the ideology of state corporatism, Weinstein writing in 1970’s notes:-

"Almost all ideas about state corporations have roots in one kind of political ideology or another. For example, one important kind of corporate state thinking was inspired by hostility towards late eighteenth and early nineteenth century liberal ideas of free contract, the free market on property, the dependence of wealth production upon the multiplicity of individual and small units as well as political claims to free thought and association, and limited, responsible and representative government. This kind of corporation dramatized the disunity, fragmentation, selfishness and overt conflict that marked a liberal order. In contrast with liberalism which sharply distinguished between state and society, and conceived the state merely as an umpire or “night watchman”, imposing minimum rules over social activities while within that loose framework individuals and groups could freely prove their own good in their own way, corporate state theories often called for an organic unity of society and for consensus expressed with the state’s development of central strategy for the whole society. These theories looked back to pre-market, hierarchically ordered societies and looked forward to a policy which developed positive goals untainted by liberalism’s skepticism about the validity of any collective goals, especially those which left opaque what kind of good the individual was supposed to derive from them. The state in alliance with either religion or some new social science, was to bring about the organic unity of society – by contrast with the second rate, mechanical and precarious unity of a free market which left too much to an ill-founded faith in the rationality and goodness of free-wheeling individuals."

From state corporatism exemplified by nationalized state-run enterprises to the 80’s and 90’s of freewheeling Thatcerism, Reaganomics, viz. privatizations we run the whole gamut of responses to the corporations. In Malaysia the convenient term Malaysia Inc. symbolizes in public rhetoric of the Government the success of the economic programs and the justification of the close relationship between political and business elites.

The recent burgeoning literature on Corporate Governance further underscores public debate, as to who should control the Corporation.

H. Mintzberg's "Conceptual horseshoe"is helpful in this respect.

According to Mintzberg the “Figure” shows [the] conceptual horseshoe with “nationalize it” and “restore it” at the two ends. “Trust it” is at its center, because it postulates a control balance of social and economic goals. “Democratize it”, “regulate it”, and “pressure it” are shown on the left of the horseshoe, because all seek to temper economic goals within social ones. “Induce it” or “ignore it” both of which from the exclusive pursuit of economic goals, are shown on the right side”.

Without going into a detailed discussion of Mintzberg’s thesis his plea that we cannot ignore the corporation cannot be gainsaid. Very often the corporation cannot become the scapegoat for modernity’s ills; without going through a proper critique of the Corporation we cannot begin to seek to transform it into a vehicle of change for the common hood.

A Critique of the Corporation

In a way a critique of the corporation is a critique of one of the most successful products of post-enlightenment of the West.

We are both witnesses and participants in a historical transition. The dynamics of our society have undergone a sea change of which we could scarcely grasp its theoretical bases and inexorable logic. That ubiquitous feature of our society “the corporation” is an artifact that symbolizes an aspect of modernity, which came into feature during the 18th and 19th century. According to the social philosopher Habermas the project of modernity represented an extraordinary intellectual effort of Enlightenment thinkers “to develop objective science, universal morality and law, and autonomous art according to the inner logic.” The embrace of the idea of progress, the domination of nature, the triumph of reason over tradition and custom promised freedom from scarcity and want. The corporation is a prime example of a rational form of social organization, which seeks to apply rational modes of thought to liberate a society from the irrationalization of myths, religion and superstition and to generate wealth for the betterment of the community. There is however a dark side to the Enlightenment Project as Horkheimer and Adorno puts it in The Dialectic of the Enlightenment (1972) the logic that hides behind the Enlightenment rationality is a logic of domination and oppression. Bernstein (1985) in an acute summary of the debate on modernity puts it thus: -

"Weber argued that the hope and expectation of the Enlightenment thinkers was a bitter and ironic illusion. They maintained a strong necessary linkage between the grounds of science, rationality, and universal human freedom. But when unmasked and understood the legacy of the Enlightenment was the triumph of … purposive-instrumental rationality. This form of rationality affects and infects the entire range of social and cultural life encompassing economic structures, law, bureaucratic administration, and even the arts. The growth of [purposive-instrumental rationality] does not lead to the concrete realization of universal freedom but to the creation of an “iron cage” of bureaucratic rationality from what then is no escape."

We are heirs to the unfinished project of modernity. A close analysis of the origins of the business corporation will confirm that the conflicts and contradictions that attend to society as a whole is also exemplified in the evolution of its structures and constitution.

Julian N. Hartt in an incisive essay entitled “The Pathos of Community in Contemporary Culture”, argued that the atomistic sovereign self as a product of modernity instead of sublime fulfillment of human possibility has if one were to attend to the triune masters of suspicion (i.e. Marx, Nietzsche and Freud) would be shown to be a chimera, perhaps not even the lingering grin of the vanished

Cheshire cat. J.N. Hartt in probing the “moral core” of conflict between the community and corporation suggests that the conflict lies between covenant and contract. J.N. Hartt argues that the covenant is “the moral heart of the community and contract is the amoral heart of the corporation” despite the juristic rhetoric of “fairness”, “equity”, and the like. The biblical notion of a covenant community is bound with its deep sense of historicity and destiny that is bound with God. In a metaphor-laden passage J.N. Hartt notes:

"The Secular piety of the everyday realm of contemporary culture manifests a remarkably similar ambiguity about the ideal relationship of community with the large impersonal social structure necessary for the management of a complex macro civilization. This ambiguity is a response to the ascent of the corporation to dominance not only as the sovereign social structure but also as the imperial image of the rational organization of human resources. The corporation has emerged as the now and future lord of human creation”"

In concluding his essay he trains his sharpest criticism on the other features of the corporation that he deemed to be hostile to community and antithetical to authentic humanism i.e. (i) Rationality (ii) Efficiency (iii) Impersonality (iv) Pseudo individuality. J.N. Hartt’s austere thesis is an echo of the Weberian lament of the iron cage of which we are entrapped and that “… Victorian capitalism, since it rests on mechanical foundations, needs its support [i.e. otherworldly asceticism of Calvinistic Puritanical ethics borne out of the Protestant principle. The rosy blush of its laughing heir, the Enlightenment, seems also to be irretrievably fading, and the idea of duty in one’s calling prowl about in our lives like the ghost of dead religious beliefs. When the fulfillment of the calling cannot be directly be related to the highest spiritual and cultural values, or when, on the other hand, it need not be felt simply as economic compulsion, the individual generally abandons the attempt to justify it at all”

And in a concluding passage (oft-quoted) of great poignancy, Weber observed: -

"No one knows who will live in this cage in the future, or whether at the end of this tremendous development entirely new prophets will arise, or there will be to rebirth of old ideas or ideals or if neither, much mechanized petrifaction, embellished with a sort of convulsive self-importance. For of the last stage of this culture development, it might well be truly said:

"Specialists without spirit, sensualists without heart,
this nullity imagines that it has attained a level of civilization never before achieved. (Goethe)"

It may be thought that the analysis set out above is only a western dilemma and not of the East, for which we are part of. It is submitted however that the globalization of the capitalist system as a world system has engulfed all human communities and most particularly the newly industrialized countries. Although there are distinctive nuances and differentiations the basic normative framework of which entrepreneurial success is played out is that of instrumental rationality. This is not to decry the contribution of cultural traits and network relationships borne out of kinship and ethnic bonds but in the final analysis, the mind-set of instrumental rationality nevertheless predominates. In context of our discussion the corporation and its surrogate the contract has in the words of one commentator become “an intricate, autonomous legal order in a truly international community.”

Corporations and the idea of a Civil Society

To that end public discourse should foster virtues of civil society that can contribute to shaping our public life. In Malaysia the discourse on values that shape a civil society subsumed or otherwise dominated by a single voice. The disenfranchisement of other voices and the plural communities give rise to a situation where these communities construe their identities in wholly terms private to themselves. The struggle to locate a commitment to promote social practices that transcend a purely individualized life-style is important. Another aspect of commitment must perforce to be the identification of common ground between particulars of competing positions. These must not entail a reductionism, which levels distinctive polities and civic traditions to a least common denominator. We must also learn to steer between the Scylla of legitimization of “a sacred canopy” of a dominant religious position and the Chryabdis of a banal syncretism in our uneasy voyage. In all, the critical power of a conception of civil society must inform, ennoble and enable the shaping of the human community.

I wish now to delineate a constructive approach more specifically to the theme of this paper. The inevitable tensions that besets any analysis of the corporation and its relationship with good of the community is well-stated by James M.Gustafson and Elmer W Johnson:

  • tension within the large corporation between its structure of authority and accountability vs. conditions for personal initiative and corporate adaptability.
  • broad long-term responsibilities of management vs. the narrow, non-immediate self-interest provided by certain constituencies.
  • the interests of shareholders vs. the well being of the corporation’s employers, customers and the community at large.

The clash of paradigm of the ‘stewardship model” against “agency model” is also at work in the debate as to the goals of the corporation. The social responsibility of corporation, which is often embraced by a corporation must not degenerate into a mere PR exercise or propaganda to disguise Corporate ill-doing nor is it reducible to mere legal responsibility. Debates on the ethical and effective manager must take on engagement of the pluralistic religious traditions and not confined to only a single resource. The artifice of ethical critique must be marshaled in to encourage the growth and nurture of vigorous conventions, which can contribute to the corporation being accountable to the common good.

From the vision of the creation of a just civil society a public discourse must be developed to give a measured evaluation of the role of corporation in the community.

In so doing the various stakeholders must neither adopt a narcissistic quietism nor succumb to an unbridled critique without providing constructive proposals.

Also David Korten has articulated passionately for NGOs disenchanted with the claims and corrosive impact of the market model a vision of a Post Corporate World.

Korten has a critical view of the market mechanism. He argues that it is imperative that there be strong, democratically accountable governments that sets and enforce rules that ensure the market functions in a socially responsible and productive manner. For this to happen there is a need for a strong and politically active civil society and engagement by the citizenry that holds the government accountable to public interest. Korten cites the work of Robert Putnam Harvard political scientist observed that social capital is vital for the efficient functioning market and government affairs as it builds upon rich networks of non-market relationships generating trust and reciprocity, which increases the efficiency of human relationships.

His prescriptions are drastic:

  • End the legal fiction that corporations are entitled to the rights of persons and exclude corporations from political participation;
  • Implement serious political campaign to reduce influence of money on politics;
  • Eliminate corporate welfare by eliminating direct subsidies and recovering other externalized cost through fees and taxes;
  • Implement mechanisms to regulate international corporations and finance; and
  • Use fiscal and regulatory policy to make financial speculation unprofitable and to give an economic advantage to human scale stakeholder –owned enterprise

In the Organization for Economic Co-operation and Development (OECD) Declaration on Principles of Corporate Governance contains an attempt to balance claims of the dominant model of the Anglo-Saxon model of corporate governance with that of the Stakeholder model :

THE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE

The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

A key aspect of corporate governance is concerned with ensuring the flow of external capital to firms. Corporate governance is also concerned with finding ways to encourage the various stakeholders in the firm to undertake socially efficient levels of investment in firm-specific human and physical capital. The competitiveness and ultimate success of a corporation is the result of teamwork that embodies contributions from a range of different resource providers including investors, employees, creditors, and suppliers. Corporations should recognize that the contributions of stakeholders constitute a valuable resource for building competitive and profitable companies. It is, therefore, in the long-term interest of corporations to foster wealth-creating co-operation among stakeholders. The governance framework should recognize that the interests of the corporation are served by recognizing the interests of stakeholders and their contribution to the long-term success of the corporation.

  1. The corporate governance framework should assure that the rights of stakeholders that are protected by the law are respected.

    In all OECD countries, law such as labor law, business law, contract law, and insolvency law, establishes stakeholder rights. Even in areas where stakeholder interests are not legislated, many firms make additional commitments to stakeholders, and concern over corporate reputation and corporate performance often require the recognition of broader interests.

  2. Where the law protects, stakeholder interests, stakeholders should have the opportunity to obtain effective redress for violation of their rights.

    The legal framework and process should be transparent and not impede the ability of stakeholders to communicate and to obtain redress for the violation of rights.

  3. The corporate governance framework should permit performance-enhancing mechanisms for stakeholder participation.

    Corporate governance frameworks will provide for different roles for stakeholders. The degree to which stakeholders participate in corporate governance depends on national laws and practices, and may vary from company to company as well. Examples of mechanisms for stakeholder participation include: employee representation on boards; employee stock ownership plans or other profit sharing mechanisms or governance processes that consider stakeholder viewpoints in certain key decisions. They may, in addition, include creditor involvement in governance in the context of insolvency proceedings.

  4. Where stakeholders participate in the corporate governance process, they should have access to relevant information.

    Where laws and practice of corporate governance systems provide for participation by stakeholders, it is important that stakeholders have access to information necessary to fulfill their responsibilities.

For the corporation to achieve this something of the vision of Russell Ackoff, Professor of Wharton democratizing of the corporation must be achieved. This conceptualize a corporation as a multidimensional entity eschewing rigid hierarchies and creation of a conducive environment for participatory decision making in the work place.

State Corporatism and Civil Society?

At the heart of debate on Civil society is the issue of control of allocation of goods and resources and its distribution. On observer notes that the debate on Civil society must move beyond that of its connections to Western values and modernity to that of post modernity and Eastern values. Nicos Mouzelis, Professor from London school of Economics noted the interesting development in Taiwan and Korea where productivity gains accompanied the break up of feudal land owning elites. Whilst in part the growth was due in part to advantageous external circumstances (e.g. U.S. aid in 50s and 60s) Mouzelis noted that:

"...neither external favorable circumstances nor state autonomy from civil society are guaranteed to lead to balanced and effective socio economic growth. There is nothing to prevent state elites from using favorable internal and external circumstances to promote the growth not of a balanced economy but of their own bank accounts, or to increase their socio–political capital. A very weak civil society may be used either developmentally or anti developmentally by those who control the means of domination"

Mouzelis proceeded to link the issue of nature of national political culture that paradoxically have the case of weak civil societies but not resulting of grave political or economic inequalities. Post 1998 recession has exposed however in part the issue hinted of in Mouzelis’ observations.

Indeed Andrei Schleifer and Robert Vishny has argued that there has been pathologies associated with governmental intervention that is characterized a third model of government known as a Grabbing Hands model”. In this model, corrupt bureaucracies, state firms consume national wealth and talented people turn to rent seeking rather than productive activities. All of which is destructive of entrepreneurship and competitiveness with resultant stagnation of economies.

The issue of developing a democratic polity conducive to towards growth and development has been recognized by Amartya Sen, Nobel; Laureate (1998). A Sen argued that recent problems of East and South East Asia brought up penalty of limitation on democratic freedom. There has been neglect of two important instrumental freedoms, i.e. “protective security“ and transparency guarantee” For A. Sen,

"The issue of democracy relates also to a further - a second connection, that between the lack of democracy and the nature of recent economic crisis. The financial crisis in some of these economies (such as Korea and Indonesia) has been closely linked with the lack of transparency in business, in particular the lack of opportunity of public scrutiny in reviewing financial and business arrangements. An effective democratic forum could have been influential in preventing malpractice, especially at the top (involving for example, underhand arrangements between high ranking government official and business families)".

It is critical for concerned citizenry to articulate and defend our democratic institutional arrangements to find within our interconnected roles and institutions complementarities rather than conflicts. To find mediating structures between those conflicts so as to ensure that corporations, polities and civil space meet in commodious relationship.

Commitment and Community

There is an undoubted need for engagement of what commitment and community can mean in the context of Societies like ours that combine powerful strains of individualism and pluralism with increasingly complex and impersonal market forces and bureaucratic processes.

The solution is clearly not to be found by a nostalgic return to an-utopian past or a recreation of an ascetic community divorced from the realities of everyday secular life.
Neither is it to be found in a cynical retreat to complacency when confronted by the complexities of the corporation and all that it stands for. As George Rupp puts is trenchantly -

"What then are our choices? Either complacency in assaying contemporary life or nostalgia for an irretrievable past? Put still more sharply, either self-indulgence in our Consumer Society and mass culture or self delusion in a false idealization of communal life?"

What is needed is that the communities of commitment be built which maintain a creative equilibrium between fidelity to tradition and radical questioning of the status quo. Every attempt ought to be made to evolve mediating structures that conduce to good governance in both institutional and civic life. To that end public theology should foster virtues of civil religion that can contribute to shaping our public life. In Malaysia the discourse on religious values is dominated by a single voice and the disenfranchisement of other religious communities give rise to a situation where these religious communities construe their identities in wholly privatized terms. The struggle to locate a commitment to promote social practices that transcend a purely individualized life-style is important. Another aspect of commitment must perforce to be the identification of common ground between particulars of competing positions. These must not entail a reductionism, which levels distinctive traditions to a least common denominator. To steer between the Scylla of legitimization of “a sacred canopy” of a dominant religious position and the Chraybdis of a banal syncretism cannot be an easy voyage. In all, the critical power of a civil religion that can ennoble and enable the survival of the human community must always be upheld.

Does the resources of Christian faith have anything to say about these issues? I wish now to delineate a constructive approach more specifically to the theme of this paper. The inevitable tensions that besets any analysis of the corporation and its relationship with good of the community is well-stated by James M.Gustafson and Elmer W Johnson:

  • tension within the large corporation between its structure of authority and accountability vs. conditions for personal initiative and corporate adaptability.
  • broad long-term responsibilities of management vs. the narrow, non-immediate self-interest provided by certain constituencies.
  • The interests of shareholders vs. the well being of the corporation’s employers, customers and the community at large.

The clash of paradigm of the ‘stewardship model” against “agency model” is also at work in the debate as to the goals of the corporation. The social responsibility of corporation, which is often embraced by a corporation must not degenerate into a mere PR exercise or propaganda to disguise corporate ill-doing nor is it reducible to mere legal responsibility. Debates on the ethical and effective manager must take on engagement of the pluralistic religious traditions and not confined to only a single resource. The artifice of ethical critique must be marshalled in to encourage the growth and nature of vigorous conventions, which can contribute to the corporation being accountable to the common good.

From the Christian community’s viewpoint a public theology must be developed to give a measured evaluation of the role of corporation in the community.

In so doing the church must neither adopt a narcissistic quietism nor succumb to an unbridled critique without providing constructive proposals.

What I believe is needful at this juncture is:

  1. An immanent critique of our own ecclesiological and theological assumptions about God, the Lordship of Christ and creation.

  2. A challenge to trace the deeper theological trajectories that underpins socio-economic categories which hitherto was dominated by secularity and to retrieve from it a transformative ethics of commitment.

  3. A collaborative enterprise between the institution of churches and other bodies that works towards creating the necessary conventions and ethics for an ethically responsible corporation.

  4. A review of the relationship between the Economy of God and political economy.

  5. A challenge against the idolization of the Man as merely Homo Economicus with a Full Biblical image and doctrine of Man and the rediscovery of a Christian theory of personhood in social relationship.

  6. An evaluation of the Biblical teaching on work/vocation and achievement in the light of modernity.

  7. A serious effort to relate the dimensions of Christian thought with realities of economic power and nature of legal order.

Conclusion

The pathos for community arises from the debris of our broken covenant with God. Out of our fragmented selves our eyes gaze towards the future but our bodies are inextricably bound within the present and paralyzed by our pasts. If prayer can be valid, then we have need for it to be bestowed upon all of us a worldly asceticism, which may preserve our lives, and to hewn out of it a shape, which is human. The hope is that the corporation should not engulf our corpus and we can see the Body of our Lord in the bodies of “the other” within the soul of the corporation. Beyond the iron-cages of our urban lives we glimpse the City of God and through the Broken Middle we may re-discover what commitment can mean for our community.



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