Wednesday, November 26, 2014

Book:- The Corporation that Changed the World: How the East India Company Shaped the Modern Multinational

Author: Nick Robins
Published: 2006
Publisher: Pluto Press



A book review given by John Bisset states: 

"....On 31 December 1600 a precursor of the modern transnational corporation came into existence. Its pioneering techniques in the field of trade and commerce, and downright murder and corruption, preceded by centuries the noxious business practices that we associate with today’s all-powerful corporations, many of whom have a higher turn over than small countries.

This book presents as a meticulous account of perhaps the most powerful corporation that ever lived, tracing how it came into existence, how it operated, its inner structure, the role of its own armies in its rise to supremacy, its part in the Bengal Famine when 10 million died as a result of the Company’s market manipulation, its militaristic role in the Opium Wars, its part in the Indian Mutiny and the Boston Tea Party and how, for the last twenty years of its existence, it ruled India as an agent of the British Empire. When it comes to downright exploitation, corruption, slaughter and sheer negligence and indifference to the suffering of others, perhaps no company that ever existed comes near the East India Company in its ruthless pursuit of profit, whilst refashioning the world commercial order in the interests of privilege and power for hundreds of years to come. ...."

Friday, October 10, 2014

Why We Need To Work Towards A “Corporate-Free” World?

Peoples’ movements in India have been witnessing the onslaught of Corporations in one form or another, whether it is related to rampant mining, unjust acquisition of land for different projects, abuse of water, deforestation, environmental degradation, violation of labour rights, etc. Often, their struggles have been directed to pressurize the State to act in the interest of the people, and where needed, taking actions against the private players, especially against the Corporations, which have been working in direct violation of the rights of the people.

However, at this juncture, it becomes crucial to isolate and see the role of Corporations in today’s society and why it is of paramount importance to work towards a “Corporate-Free” World. While the terms “corporations” and “company” are used often interchangeably in our day-to-day lives, here for the sake of clarity we refer to corporations as the limited liability, publicly-traded, joint-stock companies, which include the Multi-National Corporations (MNCs). Now the question follows that why we are specifically talking about the “limited liability, publicly-traded, joint-stock companies”?

If one looks at the study published by the website Global Trends, that in the year 2012, out of the 100 largest economies in the world, 40 were Corporations and 60 were Countries. If one includes the top 150 economies of the world, then the percentage of Corporations rises to 58%. Now what does this kind of statistics tell us?  It implies that revenue of Multi-National Corporations is increasingly exceeding Gross Domestic Product (GDP) of many countries! In another study in 2010 it was calculated that revenue of Walmart was bigger than GDP of Norway and revenue of Exxon Mobil was bigger than GDP of Thailand!

We have visibly seen in the unfolding of last two decades of neo-liberal policies in India, as how Corporations in India have become more dominant in our day to day lives, whether in terms of increasing their market share of goods and services or their percentage in the nation’s GDP. Multi-national Corporations are operating projects and factories of enormous scale and are able to mobilize huge finances for their continuous expansion. The influential big industrialists of the past in India, with their roots in feudalism, have emerged into powerful Corporations, who would leave no stone unturned to influence the policies of the State and get the laws tweaked in the ways, which favours business at the cost of the basic rights of people.

As the Multi-national Corporations keep growing in sheer size and keep expanding their operations globally, it becomes more and more difficult for the national Governments to regulate them or act in the interests of people. While State has been notorious for colluding with the elite to oppress the poor and downtrodden in most societies, in this age the Corporate Elite cannot be viewed as a mere passive player, acting on the whims of the State. A much deeper collusion exists between the State and the Business (read Corporations). In this globalized economy, we cannot just focus on “Indian Corporations” or “Foreign Corporations”, but need to understand that Corporations don’t have any nationalistic inclination, but only operate for profits from wherever they can manage to do so.  

Remember Bhopal. To fight the injustices of Corporations, it is crucial that one also builds an understanding of why Corporations do what they do. Why it is that Corporations turn criminal to make sure they get more and more profits? What are the key defining traits of a Corporation, which enables it to grow to gigantic proportions to the level, that they are able to dominate the societies and the Governments? Why it becomes so difficult to regulate Corporations and hold them accountable? The answers to such fundamental questions are important to challenge the dominance of Corporations. At a structural level, a mining Corporation is no different from a Corporation selling soft drinks. Fundamentally, they are legal entities created by State, which operate to maximize returns for their shareholders and that is their raison d’ĂȘtre.

When we talk about fighting Capitalism, it is futile if we do not target the Corporate Structure at the first place, which is the worst manifestation of Capitalism, leading to enormous concentration of wealth and power in the hands of few.

Key Components of a Corporation

To explain the concept of a Corporation in very simplified terms, it can be analyzed on the basis of three basic components, i.e. Management, Board of Directors and Shareholders.

a)   Shareholders: A Corporation raises money (or capital) for its operations by issuing shares, which people buy from a Stock Market at a given price. The people buying shares from the Stock Market are called shareholders. These buyers are called shareholders and by buying shares they become ‘Owners’ of the Corporation. By virtue of issuing “shares”, a Corporation can virtually have unlimited number of owners in a Corporation. Later on, these shares are traded in the Stock Market where they are bought and sold at a given market price. The shareholders apart from getting dividends on their shares, make money (or suffer loss) by buying or selling shares in the Stock Market at the market price, based on the expected performance of a Corporation.

b)    Management: The Management of the Corporation includes a hierarchical executive structure with Chief Executive Officer (CEO) as the top most executive and includes several other officers who oversee functions such as Finance, Operations, Technology, Production, etc. The Management is responsible for the day to day operations of a Corporation and are paid remuneration for delivering their services. The decisions taken by the Management, governed by the legal mandate, is to maximize the profits for their shareholders.   

c)    Board of Directors: A Board of Directors is a body of elected or appointed members who jointly oversee the activities of a corporation. Usually, Board of Directors is elected by the shareholders (i.e. large shareholders) of the Corporation. The directors include both inside and outside directors, i.e. directors who are working within the Corporation at an executive level and those who are not directly connected to the Corporation, respectively. The Management is directly answerable to its Board of Directors for its decisions.
     
Key defining traits of a Corporation

Let us look into the key defining traits of a Corporation, which separates them from other forms of businesses such as sole proprietorship, partnerships, private company, etc. The concepts discussed here are very important to know for challenging Corporations. While the concepts discussed here are for building a theoretical understanding, but in the day-to-day functioning these frameworks are abused to amass more power and profits in the hands of a few.  

a) Joint-Stock Ownership – Under the principle of “joint-stock ownership”, a Corporation is “jointly-owned” by a large number of shareholders, who invest money in a Corporation by buying shares from the Stock Market. Unlike, the small forms of business, such as a small-scale or cottage industry, in a Corporation, anyone who buys a share of a Corporation from the stock market, is entitled to become a owner of that Corporation. On the surface, it appears to be a very democratic form of ownership (though money-based democracy), where different individuals can buy shares in a corporation according to their capacity and willingness to invest in a particular corporation. However, this kind of “loose ownership” makes it very difficult to pinpoint who is the actual owner of a “publicly-traded corporation”. Because of this “loose ownership”, the shareholders are virtually exempted from the burden of bearing responsibility for the wrongdoings by any Corporation.    

b)    Limited Liability – Globally, a Corporation is framed under law to operate under the principles of Limited Liability. This implies that anyone investing money in a Corporation is entitled to unlimited profits made by a Corporation; however, the investor’s loss is limited to the maximum of the money invested by the shareholder. The clause of limited liability may sound highly beneficial for the big Corporations, which enables them to invest in large scale risky projects, through pooling in money from a large number of investors and getting loans from financial institutions. However, this goes against the business principles that owners of an enterprise should bear full risk of carrying out a business activity. Limited liability gives the incentive to the investors to invest in harmful business ventures, which often lead to disastrous outcomes for the communities where they operate (e.g. a polluting toxic chemicals factory or a mining project). As the liability is “limited” for the investors, hence they are lesser considerate in investing in a business than if their liability was “unlimited”, like in a partnership form of business, where the personal assets of a partner can be taken away in case of losses in a business.

c)   Separation of Ownership and Management – A key characteristic of functioning of Corporations is that there is a separation of Ownership and Management of a Corporation. This implies that the Owners of a Corporation (read Shareholders) need not be involved in the Management of that Corporation, unlike a family-owned business where the owners or a business enterprise are also involved in the day-to-day running of that enterprise. While there are several cases where the owners are also involved in the management of the Corporation (e.g. Mukesh Ambani involved in the management of Reliance industries), but this is not a necessity. This is seen as a desirable trait by the investors as they can invest in multiple corporations and reap benefits without being caught up in the normal running of a Corporation. This also implies that the Management takes decisions mainly based on the incentives to them focusing on the short-term profits (e.g. posting more profits in the next quarter or keeping the share prices artificially high) than focusing on the long term sustainability of the business enterprise. Moreover, because of the separation of Ownership and Management, a Corporation can keep growing in size as more staff can be employed to oversee its operations.

d)   Profit Maximization – A Corporation by its legal mandate is supposed to work only towards providing maximum returns to its shareholders. This implies that the entire corporate machinery (which includes Management, Board of Directors, Employees and Staff) is geared towards working on the bottom line, i.e. making more and more profits, so that the returns for the shareholders can be maximized. What we see at the stock markets through the sale and purchase of shares, mutual funds, options and other financial derivatives is a speculation-based market like never before, which constantly puts the pressure on the “publicly-traded corporations” to keep the share prices high, lest the shareholders will pull money out of it and invest that money in some other corporation, which can fetch better returns. The need for more profits puts the pressure on managers running the Corporation to give up on more desirable societal outcomes, like paying better wages to the workers or spending more on environmentally sustainable business practices, especially when the managers in other Corporations are not doing the same. Akin to the Corporation, even a shareholder in this age of fast-moving capital, becomes a mirror image of a Corporation, who is solely interested in maximizing one’s personal fortune than directing money towards responsible investments or caring about whether a corporation is not violating any environmental norms or paying living wages to its workers.

e)    Undemocratic Decision Making And Problems With Accountability - Through the concentrated hierarchical structure of Corporations, a handful of people are able to make decisions regarding the production in economy, which impacts lives of millions of people. Any economic decisions taken by a democratic Government can be questioned, but not the decisions taken by CEOs and Board of Directors in closed doors board-room meetings to pursue enormous profits. It can be argued that Corporations exist for making profits and they are not doing anything illegal in pursuing profits, but the resources used by the Corporations belong to the people (e.g. land, water, forests, minerals, etc.) and hence the business-decisions should include the voices of the people and the communities being affected by the Corporations. Moreover, the workers working within a Corporation have no say in the production decisions and use of resources. Corporations by their inherent structure promote undemocratic decision making and such institutions need to be challenged. Corporations also pose a major problem related to the issue of accountability. For a wrongdoing done by the Corporation (e.g. a factory accident), the accountability shall lie with whom. Should it be the Management, Board of Directors or the Shareholders? Corporations are neither accountable to the communities where they operate nor to the society at large. Even when the State tries to hold Corporations accountable, it can only be done through imposing monetary fines, but no single entity can be isolated, as who should take full ownership of a wrong business decision.

To sum up, if we are not able to challenge this inherent problematic structure of Corporations, then Corporations will continue to accumulate more wealth and power and will succeed in suppressing the democratic dissent of ordinary people for the sake of more profits for the wealthy shareholders. While we often end up fighting individual Corporations at the ground level, we need to come together to challenge the Corporate Structure as a whole. Our struggle against excesses of Capitalism gets more difficult when we are fighting this enemy hidden under the veils of profit hungry Corporations. We need to collectively work towards a “Corporate-Free World” to ensure a socially just, equitable and sustainable society.