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’être.
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.
