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(extended until but not after 30 March 2014)

Dismantle the Corporate Veil And the Misery Of the World's Majority Poor Will Be Over

A Response to Investor Expectations on Human Rights: Performance for Mining Companies

Alex Jebadu, SVD
(June 2013)


 

  1. INTRODUCTION

I was requested by Vivat International1 to read Investor Expectation on Human Rights: Performance for Mining Companies (CONSULTATION DRAFT)2 and where possible make some comments or give some inputs. Thank the Vivat International for the request and it is my honor to do the best I can as requested. After perusing this document, I could see the high and noble expectations of the mining investors or stockholders – the true and legal owners of thousands of gigantic transnational corporations operating in extractive industries around the globe frequently by destroying permanently the livelihood of the rural poor (rice fields of the tropical countries, protected rainforest etc) virtually without being afraid of transgressing any law. Investors, in short, expect that corporations should3 respect human rights and environmental laws when doing their extractive industries in the properties of rural communities in developing countries.

In reality, what has been witnessed by many is that corporations, it seems, including those that operate in mining sector, are above law or immune toward law. There have been countless cases of corporate crimes, yet almost no human being owning and running corporations has ever been legally accountable for these corporate crimes and suffice it to say, has ever been imprisoned. Those who do not know may ask: why? The answer is the corporations have the so-called THE CORPORATE VEIL. It is a corporate ingenuity designed to protect the investors, directors and managers and the legal personality of the corporation from being accountable for the crimes they perpetrate. Due to the problem with the corporate veil, expectations of the investors laid out in this document will remain as a dream that will never come true. This article is an attempt to show the ugliness of corporate veil and the serious problems it poses for humanity.

2. CORPORATION AS A STRANGE LEGAL CREATURE

There are various definitions which attempt to describe what a corporation is all about including one that is given by Encyclopedia Americana:

Legally, the corporation is an artificial person. It can act and contract; sue and be sued; manage and convey properties. Although its individual members may change, the life of a corporation may be perpetual unless limited by its charter or voluntarily dissolved by its members. One of the most important characteristics of the corporation is that its members enjoy limited liability. The debts of the corporation are the debts of the separate legal “person” [original] that is the corporation, and therefore the individual members are not regally responsible for them under ordinary circumstances.4

Or another classic description of corporation was given by Chief Justice John Marshall when he dealt with the Dartmouth case in 1819:

A corporation is an artificial being, invisible, intangible, and existing only in the contemplation of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the more important are immortality, and, if the expression may be allowed, individuality; properties by which a perpetual succession of many persons are considered as the same, and may act as a single individual.5

According to Robert A.G. Monks and Nell Minow, the variety of definition of corporations reflects the different perspective of those giving the definitions. In my view, it is also due to the huge size, complexity and non-transparency6 of corporations. It is quite natural that a description is not always able to succinctly capture an entity that is huge and complex. Due to this difficulty, Robert A.G. Monks and Nell Minow said that those who have attempted to give a description of what corporation is all about often end up like blind men who tried to describe an elephant. One touching the tail called it a snake, one touching the leg called it a tree and one touching the side called it a wall. Before laying out their own definition, Monks and Minow quoted the following descriptions of corporations as samples of definitions that are somewhat insufficient:

A body of persons granted a charter legally recognizing them as a separate entity having its own rights, privileges, and liabilities distinct from those of its members. American Heritage Dictionary.

An artificial person or legal created by, or under the authority of, the laws of a state.... The corporation is distinct from the individuals who comprise it. Black’s Law Dictionary, 6th ed., 1990.

An indigenous device [used] for obtaining individual profit without individual responsibility. Ambrose Bierce, The Devil’s Dictionary.7

All the above descriptions of corporations, Monks and Minow said, are correct. They have some validity including the one from The Devil’s Dictionary and all reflect the key features or key characters of corporations. That is its ability to draw its financial resources from a variety of groups of people (shareholders) and establish and maintain its own persona that is legally separate from them and from all those (board of directors and managers) directly working for and in the corporations.8 Since the internal structure and governance of corporations constitute three main components – 1) shareholders/stockholders/investors, 2) board of directors and 3) chief executive officers or managers as well as labors – Monks and Minow give a definition of corporations which explicitly include the three components:

A corporation is a mechanism established to allow different parties to contribute capital, expertise and labor, for the maximum benefit of all of them. The investor gets the chance to participate in the profits of the enterprise without taking responsibility for the operations. The management gets the chance to run the company without taking the responsibility of personally providing the funds. In order to make both of these possible, the shareholders have limited liability and limited involvement in the company’s affair. That involvement includes, at least in theory, the right to elect directors and the fiduciary obligation of directors and management to protect their interests.9

  1. CORPORATION’S SIZE AND EXPONENTIAL GROWTH

John Madeley, one of the outspoken critics of corporate economic business crimes today, reported that [transnational] corporations are one of the most important agents in the modern global economy. They occupy a more powerful position that ever before. They have a profound political clout and economic, social and cultural impacts on countries, people and their environments around the globe. Their power is huge and their impacts on the poor is colossal yet very often hidden10 – meaning that the corporate crimes or the colossal negative impacts of the economic activities of the corporations on the poor are often not known to the public since they are, among other, not covered by media.

When operating their business in more than one country at a time, corporations are commonly called transnational corporations (TNCs), multinational corporations (MNCs), global corporations or international corporations, which all mean the same thing. In today’s global economy, TNCs have become one of its most important institutional bodies. Their numbers worldwide have grown significantly. In 1960s there were only a handful of them, yet today there are tens of thousands of them. The number of TNCs grew from only around 7,000 in 1970 to some 39,000 in 1995 with 270,000 as their foreign affiliates.11 The UNCTAD World Investment Report 2002 listed 65,000 TNCs with 850,000 subsidiaries.12 Whereas the UNCTAD’s annual report in 2005 listed 77.000 TNCs with 770.000 subsidiary corporations around the globe.13 Only two years later, as seen in the UNCTAD World Investment Report 2007, the number of TNCs grew to 78,000 with 780,000 foreign affiliates.14 In a matter of about a decade, the growth number almost doubled the number of the TNCs in 1995. If their growth in number is 1000 TNCs and 10.000 subsidiaries in every two years, today (2012) the world has more than 80.500 TNCs with more than 805.000 foreign subsidiaries.

Over 90% of the transnational corporations have their headquarters in the northern countries,15 and among the largest corporations – an overwhelming majority – are based in Japan and the United States. Among the top 200 world’s corporations in 2002, when ranked by their sales, 58 Japanese corporations accounted for 38% of total sales, while 59 US corporations accounted for 28% of total sales. But when ranked by market value, 19 of the top 25 corporations worldwide were based in the USA.16 Within the industrial countries of the north, a limited number of corporations own most the economic assets and enjoy most of the profits. In the 1980s, for instance, the year of the birth of neoliberal economy which led to the increasing dominant role of corporations in the global economic stage, the top 500 US corporations were responsible for over 75% of all total sales, received as much as 85% of profit and owned about 90% of all assets. In Canada, nine families controlled 46% of the value of the most important corporations on the Toronto Stock Exchange. German economy was led by approximately thirteen interrelated groups. Of the 100 largest economies in the world in 1989, 47 were corporations and not countries. In 1992, Exxon, General Motors, Itochu, and Sumitomo all had sales revenue in excess of $100 billion a year – more than the gross domestic product of Denmark, Finland and Norway combined.17

Now the question is that why and how did the size of corporations significantly grow that fast and accumulate wealth that huge? The answer is that, according to many critics,18 it is because this current unjust new world economic order known as global neoliberal economic system19 born in 1980s has been designed by corporations and the majority of world governments have been subdued under its occupation. The world economy has been designed to favor and enrich the world’s few rich and exploit the world’s majority poor leading to their impoverishment. And corporations with their controversial pathological nature and features are the very instruments used by neoliberal economic regime for their own economic interests at the expense of the poor and the planet.

4. TRANSNATIONAL CORPORATE CRIMES

There is no doubt that corporations including those operating their business worldwide – the very reason they are called transnational corporations (TNCs) or multinational corporations (MNCs) – provide many valuable contributions to lives of people in the host countries in which they do their business. They allow the process of technology, science, experts, goods and services to transfer.20 In regard to this, an American economist Yoseph E. Stiglitz also said: “They [TNCs] are the vehicle through which knowledge is transferred…Training that occurs in developing countries by TNCs helps close the knowledge gap between the developed and developing countries.”21 Still in line with the laudatory role of TNCs, Charles Derber noted that corporations in general have done a lot to world society:

The sales of the top 200 [transnational corporations] account for more than 25% of the entire output of the world economy (global GDP), and thus the entire world economy is increasingly a proprietary production of a few giant firms. The top 200 [transnational corporations] hold 90% of the world’s patents; grow, refine and sell much of the world’s food; supply the oil that runs our cars and heat our homes; operate the global media and entertainment companies that reach billions of people; and create most of the world’s software and manufacture the computers it runs on. They build the airplanes and cars we travel on, make most of our clothes, provide most of the world’s banking and financial services, and increasingly dominate services from health care to financial services to retailing. Finally the top 200 [transnational corporations] produce nearly all the weapons that cram the arsenals of nations everywhere.22

Despite all the important contributions as previously lauded, however, TNCs also have been widely reprimanded due to their rampant non-commendable activities and tendencies in doing their business around the world. Consecutively this subheading will treat three main points: the common non-commendable practices of transnational corporations, their clout and infiltration in the bodies of international institutions and the takeover of democracy.

4.1. Common Non-Commendable Corporate Practices

Driven by profits – the single reason and motive they are founded – TNCs tend to be flawed, corrupt and undemocratic. They tend to cheat. When spotting a potential gain of profit, they are not hesitant to start running after it event if it mean they have to break laws. They almost have no empathy toward the unfortunate and are indifferent toward the cry of those affected by their hot pursuit for endless profit.

First and foremost, TNCs, like any other form of business institutions – domestic or national corporations, proprietorship or partnership – are profit-oriented entities. They are founded with one single goal: to make profit for their shareholders who own them. According to John Madeley, this is also the very reason why the number of TNCs grew almost double between 1995 and 2007.23 The large amounts of capital used by the TNCs to run their business come from their stockholders either as individuals or groups such as large financial institutions which are commonly known as institutional investors or institutional shareholders.24 TNCs have to work hard to grow this capital through their business so that in due time they can repay their stockholders together with its interest or dividends.

According to theory of economy, making a profit is something that is legitimate and reasonable to a certain extent. But what is frequently lamented is that the pursuit of profit very often makes TNCs dishonest and underhanded in dealing with other parties, including their employees, state governments or any society where they operate their business. They have no mercy on the poor. When they conduct their business among the poor they are not motivated by a desire to alleviate their misery. Contrarily, they would try with their mighty economic skills to gain profit from the poor even if it means that their business destroys the source of life of the poor. Forced mining industry on the properties of the indigenous people or rural communities in developing countries in Africa, Latin America and Asia including those in Flores Islands and other parts of Indonesia is the best example for this.25

Second, while the business operations of the world’s about 78,000 TNCs are global in reach, ninety percent of them belong to the northern industrialized countries and have their headquarters therein. TNCs are powerful enough to influence both domestic and foreign policies of the governments of their home bases. The interests of the industrialized governments in other developing countries are often intimately intertwined with the expanding pursuits of the TNCs that they charter which in the processes intermingle with bribery.26 In regard to this, David G. Hallman echoed the fact that at the Rio de Janeiro conference on environment and development in 1992, the United Nations failed to address widely known activities of the TNCs that accelerate the environmental degradation and rampantly trample the rights of the indigenous peoples and rural communities in developing countries around the globe. The issue on TNCs was dropped from the agenda at the requests of many industrial countries believed as a result of powerful lobbies by the TNCs themselves.27

TNCs even dare run a campaign against scientific truth when the prospects of their business operations are in danger of being badly affected by certain public policies. The problem regarding global warming which is caused by billions tons of CO2 that have been released in the atmosphere through industrial process mostly due to the burning of fossil fuels, for instance, is scientifically evident,28 and has led the world authorities to set some policies known as Kyoto Protocol 199729 to reduce CO2 into atmosphere. Contrary to this international effort to cope with climate change, some TNCs such ExxonMobil and Koch have denied the problems of climate change and have launched campaigns to water it down or altered any potential legislation that is hostile to their corporate interests. According to a report in 2007, ExxonMobil even promoted scientific spokespeople who misrepresent peer-review scientific findings in their attempt to persuade the media and the public that there is still serious debate among scientists that burning fossil fuels has contributed to global warming and that warming caused by humans will have serious consequences.30 As for the defiance of Koch, Chris William wrote:

Between 2005 and 2008, Koch ploughed $25 million into climate opposition groups, out doing ExxonMobil nearly three in one. It gave money to thirty-five different groups hostile to climate science. Some of the high-profile organizations that Koch gave money to, all of whom have strong public stances attacking climate science, the need to do something about global warming, or the need to change energy policy are: The Heritage Foundation, Americans for Property, the Cato Institute, the Manhattan Institute, the Foundation for Research on Economics and the Environment, Institute for Humane Studies, and the American Council on Science and Health (which claims that reducing greenhouse gases would have detrimental health effects).31

Ross Jackson, in his work Occupy the World Street: The Global Roadmap for Radical Economic and Political Reform, points out that it is multinational corporations, both the ones that have their home bases in North America and Europe, which made the USA government to turn down the Kyoto Protocol:

The rejection of Kyoto Agreement by the United States was largely a thank-you to the American multinationals. The corporate members of the Business Roundtable, a lobby organization for the 200 largest U.S. corporations, contribute enormous sums regularly to influence political decisions. The increase alone [italic is original from the author] in annual dues was $300,000 per company in 1998. They ran expensive campaigns against not only Kyoto, but also against the ”Patients’ Bill Rights” legislation, spending $5million on issue ad alone in 1998…. In October 2010 – based on publicly available records – major European corporate polluters, including Lafarge, GDF-Suez, EON, BP, BASF, Bayer, Solvay and Arcelor-Mittal, spent $240,000 supporting climate deniers and blockers of effective climate solutions, who were running for the U.S. Senate in 2010.32

Third, for the sake of profit TNCs will do whatever they can even if it means that they have to run against the law and against the rights of other fellowmen, their employees or the indigenous peoples and rural communities among whom they pursue their economic profits. There are plenty of instances of these unworthy tendencies. Madeley recorded that TNCs have operated and continue to operate their business in the developing world often to avoid strict rules and laws, such as those relating to environment and labor conditions and wages, at their home bases in industrialized countries. Poor countries are their safe havens where they can cheat on the local poor, who often know nothing about the negative massive impacts of their business both to humans and to their environment, and on the local governments of the host countries who often do not yet have strict rules on environmental protection and the safety of their people.33 As for the laws protecting the environment in countries in the Global South are often weak and become one of the reasons that attracts the multinational corporations to roam the world’s poor of developing countries, Chuck Collins and Mary Wright in their The Moral Measure of the Economy also made the same point:

Global companies flee to these countries in order to avoid paying the costs of ecologically sustainable processes and technologies. They join other global companies that are consuming the ecological treasure of creation as fast as possible. As a result, precious water around the world is being consumed or contaminated a startling rate. Forests are being leveled and factories belch pollution into the air. Biodiversity is being rapidly destroyed in order to meet the short-term economic needs of our planet’s residents.34

TNCs also prefer to operate their business in developing countries where dictators and corrupt governments are easily bribed to control their people and side with their business. TNCs here often enjoy less tax-payment, tax holiday and transfer pricing.35 In regard to grave corporate crime of transfer pricing, it is worth for a direct quotation from description given by John Madeley:

By having subsidiary companies, TNCs are able to make use of transfer pricing, which operates to the detriment of developing countries. Transfer pricing is the price charged by one associate of a corporation for goods, services or know-how to another associate of the same corporation in another country. Transfer pricing is a strategy frequently used by TNCs to book huge profits through illegal means. Under transfer pricing, the parent TNC sells materials to a subsidiary in another country at an artificially high price [italic is from me]. Such materials are then used in a manufacturing process or service industry. Having to pay these high prices reduces the profits of the subsidiary company; it thus pays less tax in the country where it operates, which is therefore cheated out of tax revenues [italic is from me]. For a developing country especially, this may represent a large loss of revenue that it can ill afford.36

For the sake of their pursuit to maximize profits, TNCs also can move their businesses from one country to another when they see certain conditions are not conducive. Business activities of the TNCs at the so-called Export Processing Zones (EPZ) operated in many developing countries, for instance, are by their designs impermanent. Like swallows, they can move anywhere and anytime, making local people, especially workers and their governments, live in constant fear of economic uncertainty and instability as reported by Naomi Klein in her No Logo:

As I walk along the blank streets of Cavite, I can feel the threatening impermanence, the underlying instability of the zone [meaning factories in Exporting Processing Zones]. The shed-like factories are connected to so tenuously to the surrounding country, to the adjacent town, to the very earth they are perched upon, that it feels as if the jobs that flew here from the North could fly away again just as quickly. The factories are cheaply constructed and tossed together on land that is rented, not owned. When I climb up the water tower on the edge of the zone and look down at the hundreds of factories, it seems as if the whole cardboard complex could lift up and blow away…No wonder the EPZ factories in Guatemala are called “swallows”. Fear pervades the zones. The governments are afraid of losing their foreign factories; the factories are afraid of losing their brand-name buyers; and the workers are afraid of losing their unstable jobs. These are factories build non land but on air.37

Often TNCs commit big crimes yet they can walk away in peace without being punished. In regard to this, it is still vivid in our mind how tropical rainforests in Kalimantan (Borneo) in Indonesia was in fire in 1997 and 1998. The fire lasted almost over a year engulfing more than 5.2 million hectares of thick tropical rainforest in East Kalimantan. The fire was so big and wild until its smokes reached neighboring countries such as Singapore, Malaysia and Brunei Darussalam and disrupted national and international air transportation. As for the cause of fire, researchers have revealed that this environmental tragedy was in fact purposely yet secretly perpetrated by both national and transnational palm oil corporations. Allegedly they did so as a pretext to expand their use of the Kalimantan rainforest for their palm oil plantations as pointed out by Christian Gönner from the University of Freiburg, I in Germany:

According to local farmers of the indigenous Dayak population, 'these fires did not fall down from the skies ...'. If the fire did not fall down from the skies, where did it come from. The general answer of the farmers was that the fires were caused by the oil palm company. The rationale behind this answer is simple: During the ENSO [El Niño - Southern Oscillation] 1982/83 there was no oil palm company and there were no fires; now there was the company and there were fires. Although this explanation sounds too simplistic it contains a certain truth, yet not in a monocausal sense. Up to December 1997 and again in February 1998 workers of the oil palm company were observed by key informants and by ourselves setting secondary forests on fire. These forests were part of the company's concession area and were to be opened in the forthcoming months. It was widely assumed that plantation companies tried to save expenses by using of fire, which is cheap compared with 'zero burning' techniques (e.g. Schindler 1998). Some of these fires had obviously entered local forest gardens. Although there were most probably many cases of fires unintendendly destroying villager's gardens, there is also substantial evidence of fires set by oil palm company workers specifically to burn forest gardens, that might even have happened without the knowledge of the company's management. In some cases field assistants seem to have ordered the burning of enclosed gardens to reduce the financial compensation without the field manager's knowledge. As they were given a certain budget for handling compensation problems with local people (in general with the help of local negotiators), they tried to save money by paying less compensation for burned gardens.38

Till today, for such a heinous crime which damaged colossal environment and livelihood of millions of local people in Kalimantan, no palm oil company, either national or transnational claimed to be responsible for the arson. No company has been investigated by Indonesian authorities to clarify the allegations. Till today, both national and transnational companies still continue their profit-driven business of palm oil plantation as usual as if nothing terribly wrong had occurred.

Fourth, for the sake of profit the TNCs have succeeded in dominating political, economic and financial sectors in any country where they operate. Their lobbyists can write and promote laws affecting and favoring their interests. The legislatures can even support polluting industries by excluding them from air emission requirements, despite documented cases of respiratory disease for residents living near their manufacturing plants or refineries. The TNCs charters, insurance and complexity shield them from social responsibility. TNC officers do not care about environmental damage. By law, shareholders, directors and managers of the TNCs are immune from legal responsibility. With insurance and financial might, the officers are virtually immune from their actions.39 TNCs would fight at their best against any government’s effort to set up regulations controlling their business activities. John Madeley, in his book published in February 2008, for instance, recorded:

It was revealed that heads of some of Britain’s most powerful and controversial TNCs, including Shell, BAT and GlaxoSmithkline, were part of a secretive lobbying group which had private access to the Prime Minister. The existence of the group, and their heavily censored documentation, only came to light after the UK’s Information Commissioner ruled that the public had a right to know how lobbyists influenced ministers. The TNC chiefs lobbied for less burdensome red tape for TNCs, and ‘wanted to persuade [Prime Minister] Blair not to bring in tougher rules after the scandals involving Enron and other American corporations’.40

In many cases, even after intentionally breaking laws and committing human and environmental crimes, transnational corporations can simply walk away in peace without being concerned about their corporate owners – investors, shareholders, stockowners – or their corporate officials – directors and chief executive officers – being arrested and sent to prison. Two transnational mining corporations, after having illegally destroyed hectares of protected forests of Nggalak-Rego RTK No. 103 dan of Bowo Sie RTK No. 108 along with the agricultural lands of the local people in Westen Flores Island, Indonesia, for instance, went away without being tried. When affected rural communities reported these two criminal cases to the Indonesian authorities – police and judges – it semed the latter also sided with them and were powerless to bring the crime committed by these transnational mining corporations to justice – a bitter pit that ordinary people find it difficult to swallow.

Fifth, TNCs also easily dodge all sorts of lawsuits and public protests because they make decisions in their head office country and not in the countries where they operate. Decisions that might have massive negative impacts on the life of the poor in developing countries are made in the far away cities like Tokyo, Hong Kong, Washington DC, London, Toronto or Paris, to mention only a few. While operating in developing countries, TNCs are usually under no obligation to consult the local poor people about their plans. And once they have bought the corrupt local governments of the developing countries, they are ready to operate their business even if it means they have to run against social protest of the local poor people who are fighting for their land rights.41

In addition, the affiliate or subsidiary company of a TNC operating in developing country may also have a little say over how it operates its business. All decisions, outcomes as well as possible problems that the affiliate company with local people affected by their business operation are left as the responsibility of the parent company that is far away in another country42 which local communities affected usually cannot do anything to bring it to justice.

Sixth, when conducting their business in poor developing countries TNCs have tendencies to implement discriminatory standards or legal measures that are different from those they implement when conducting business in developed countries. Some business practices relating standards of wages or work conditions that TNCs impose when doing their business in developing countries are considered to indecent or illegal in the developed countries. In regard to these discriminatory standards, Selver B.Sahin, Belinda Lewes & Jeff Lewis, after conducting a field research on rampant mining industry in West Timor and other parts of East Nusa Tenggara Province in Indonesia, made a concluding remark:

The way in which mining activities are conduct in West Timor and other parts of NTT exemplifies the nature of contemporary ‘global-local linkages’, which, as noted in section 1, can be distinguished by the prevailing patterns of production in faraway locales under conditions that are forbidden in Western countries. Villagers working in the manganese mines of Torong Bese in Manggarai district on the island of Flores reportedly work 10 hours per day for six days a week with no health care or payment when sick or injured, and they are not supplied with the necessary protective clothing and safety equipment. Although the toxic manganese dust is associated with health-damaging effects such as asthma, chronic lung disease and other respiratory and allergic diseases, the only protection provided by the employers is a set of disposable gloves and mask replaced only twice each month.43

Robert Paehlke also witnessed that corporate business, in fact, is not a new thing. It has been part of human economic endeavor at least since industrial revolution in 17th Century in England. Compared to the environmental damages which took place in the past in what are now called as developed nations of Europe and North America there, however, there is a big difference in the scale of environmental damages and harms to human social, economic and cultural life with those that have been taking place today in poor developing countries:

Damage of this sort has occurred in what are now thought of as developed nations. Hundreds of thousands of hectares of agricultural land have been lost to metal smelting in the United Kingdom since the time of the Roman conquest. More recently and locally, Sudbury, Ontario, and Trail, British Columbia, offered dramatic instances. These activities were not treated as criminal where they were at their worst. Effects there are now less than they were and are much less damaging than they typically are in comparable operations within poorer nations…. Smelter in industrial countries are now often required by law to have pollution control equipment, but few in developing countries of the former socialist nations have any such controls. For each kilogram of copper produced, 12.5 times sulfur dioxide is released to the air from Chilean smelters than from those in the United States. As well, few open-pit hard-work mines even today, anywhere, restore the nature they disrupt.44

Seventh, basically almost all transnational corporations are private companies, which mean, among others, they do not belong to their home based governments. Yet in executing their businesses anywhere in developing countries they work hand in hand with their home based governments as well as the local governments of the host countries which is very often at the expense of the local people and their local economic needs. In a conference held by The International Federation of Institutes for Social and Socio-Religious Research (FERES) in Baguio City, Philippines, from August 31 to September 20, 1975, the multinational corporate crimes supported by governments of their home bases and of the host countries were already a subject of great concern as reported by L.G. Hechanova:

The economic and even political policies of the Third World Countries are sometimes seriously challenged and sabotaged by multinationals with the support of their home based governments. This kind of support is usually camouflaged under the cover of financial, technical and military aid of one kind or another. The Andean Common Market, a five-nation pact composed of Peru, Chile, Bolivia, Columbia and Ecuador, stipulated that corporations wishing to invest within the border of its member states must agree to turn over ownership to local groups within 15 to 20 years. When this fact was conformed, the then U.S. Secretary of the Treasury, John B. Connally, instructed representative at the World Bank and the Inter-American Development Bank to oppose all loans to these countries until satisfactory agreements could be reached. Another better known example is the ITT involvement in its attempt to prevent Allende from being elected President of Chile in 1970, and later, in 1973, in the overthrow of the Allende socialist government. In one Asian country, governmental support by the home countries of multinationals was revealed in the experimental use of tear gas and nerve gas produced by multinationals to disperse recent student protests against multinational corporations. In Japan, multinationals contributed 85% of the country’s total foreign aid to Third World countries, and this was used to facilitate their entry and operations in the aid-recipient countries. The U.S. Government provides extensive aid for police training and to bolster the military establishment of host countries purportedly to help maintain peace and order. In effect such aid rather strengthens host government’s ability to repress efforts that would question the socio-economic and cultural rape of their own people by multinational corporations.45

4.2. Corporate Takeover of Democracy

The second major crime lamented by many critics is the so-called the takeover of democracy or the occupation of democratic governments by transnational corporations beginning with the governments of developed countries until the governments of developing countries around the world. Democracy which principally means the sovereignty is in the hands of the people delegated and carried out by their elected governments is no longer supported by what occurs in actual societal lives today around the globe.46 The world and nearly all nation-states are no longer ruled and governed by democratic governments but by corporations.

In the words of Charles Derber, this current globalization is the throne of three intertwined institutions: global financial markets and transnational corporations, national governments which are basically business-oriented, and the so-called global governments such as the World Trade Organization, the International Monetary Fund and the World Bank. The three institutions have aligned themselves in a way like a mystical marriage and the result is a new world system which Derber simply called a global corpocracy.47 Under this new world system, instead of sovereignty that is in the hands of the people which what democracy in principle means, the sovereignty is now in the grips of the hands of the world’s corporate institutional business-oriented. As to how this global corpocracy functions, Derber further laid it out by comparing it with a sane democracy:

In a robust democracy, there is a firewall between government and business. The firewall ensures that people rather than business control government and make rules. It is legitimate for business and government to communicate, but they should not be in bed together. The wall acts as a check-and-balance system that limits the power of both and keeps business from taking over. In corpocracy, the story is different. The firewall between big business and government is chipped away, flooding money into government and eroding popular control. The American example of Enron, which for many years paid thousands of dollars to the highest-ranking Washington [DC] officials of both parties, symbolizes the corrupting new ties. Business and government forge an intimate relationship, both within the nation-state and the larger world order. In the new system, government still wields formal sovereignty, but sovereign power has actually been transferred to a partnership increasingly dominated in times of peace by the business sector. 48

It is not difficult to find the justification of the global phenomenon of what Charles Derber called corpocracy – a world or a nation-state ruled and governed by corporations instead of by pure and sane democratic governmental system. Both in developed countries and in developing countries such as Indonesia, it is not uncommon to witness the intertwined relationship between governments and corporations. Political parties and government rely on corporate donations both for their political activities as well as for their own individual economic interests. The corporations in return control governments and their political parties, ensuring them to side with and protect the corporate business interests. Yet this illicit marital alliance is done at the expense of the needs of majority citizens of any given country. Regarding the perversion of democracy, a study conducted in Canada in 1980s, for instance, showed that:

A great number of politicians and bureaucrats either originally came to public office from the corporate elites or eventually became members ... 7.9 per cent of federal cabinet ministers held or came to hold corporate organizational appointments. Some 20 per cent of the members of the [Canadian] federal cabinet, the Senate, the senior courts in the land … had held at least one senior corporate position either before or after their membership in the public sector institution.49

One of the arenas, in which corpocracy gains its breeding ground, is a business deal relating to the cost of political campaigns for elections. Political parties and politicians seemingly rely themselves on corporate donations as confessed by a former Canadian politician:

I was a member of the Liberal party from 1968 to 1973, and during that time each cabinet minister had an A list, a B list, and a C list, based on financial contributions to the party. Government legal work, as well as work for contractors, engineers, architects, accountants, and so on, was parceled out largely on the basis of who had put up how much. Many political meetings were devoting to discussions only about patronage. Anyone who thinks the system has changed since 1973 is naive.50

United States of America as one of the main homes of the world giant corporations is not an exception. In regard to the intertwined political business of US government and American corporations, Charles Derber wrote:

Building a world safe for global business has been almost entirely consistent in recent decades with increasing and consolidating American power in the world. By imposing the neoliberal ideology around the world, the United States has simultaneously created a dreamworld for global companies, while creating a Pax Americana that appears to be a constitutional democracy of, by and for the world. All this reflects the shrinking fire wall between global business, with its thousands of lobbyists spread across Washington [DC – the nation’s capital], and the U.S. government and global business is blurring. American politicians are elected only with the huge campaign contributions of global companies, and while national leaders must speak in the name of the people who elect them, they tend to pay back the companies by representing them first.51

Robert G. Monk, in his work The Emperor’s Nightingale: Restoring the Integrity of the Corporation in the Age of Shareholder Activism, even narrated a more detailed report regarding the mystical marriage between corporations and American politics. Corporations virtually have power over elections, over government resources and over judicial process:

Big business has persisted in contributing substantial amounts to both political parties [Democrat and Republican]…A stronger imperative is involved for business. The political parties are, in effect, subsidiaries of big business. What is important is that the whole process becomes dependent on business’s financial support. This, rather than the success of either political party, is the essence of corporate strategy...Now large corporations give money to both political parties. What is at stake is not partisan favour, but domination of the entire political process by the business sector. Business money has become virtually intrinsic to the political process [italic is original]. PACs [Political Action Committees of American Corporations], virtually all of which are physically located in Washington, DC, provide the easiest and the largest source of funding not only for incumbents but for all candidates for federal office. In 1996, a record $2,7 billion was contributed to the US presidential and congressional campaigns…From power over elections flows power over lawmaking.… In Washington, DC, the lobbying economy exceeds the governments itself, is growing geometrically. In the first half of 1996 alone, lobbyist alone spent $400 million to influence governments.… The House Majority Leader … released a study showing that the number of lobbyists per congressman has risen from 31 in 1964 to 125 in 1993.… Business effectively and persistently tries to persuade the legislative and administrative elements of government to create new rules, or to amend existing ones, so as to protect existing advantage or to create new ones.52

Ted Nace in his Gangs of America: The Rise of Corporate Power and the Disabling of Democracy joined the choir of similar report regarding the intimate relationship between corporations and governments. In regard to Enron’s scandal he stated that no company in American history has ever closely connected at the highest levels of government than this one and further says:

At least 28 former U.S. officials worked for the company as employee, officers, directors, consultants, or lobbyists. The Bush administration counted five former Enron executives in its inner circles. Over the course of his career, Bush himself had received more money from Enron than from any other: $572,000, according to the Center for Public Integrity. In preparing the administration’s energy policy, Vice President Dick Cheney’s Staff met six times with Enron representatives. And upon the recommendation of Enron CEO Kenneth Lay, President Bush chose Pat Wood as head of the Federal Energy Regulatory Commission, the main watchdog agency keeping tabs on Enron’s gas and electricity business. Of course, Enron knew better than just to work with one side of the political aisle: its ties to Democrats, though weaker than those to Republicans, were nevertheless significant. Three-quarters of the Senate had received contributions from the company’s PACs.53

The marriage alliance between governments and corporations does not only end in the fact that the corporations try to influence governments through their lobbyist. Corporate insiders can run government, govern the society and set policies that are favorable to the business of the corporations. A sample case brought up by Thom Hartmann is worth of a direct quotation:

In May 2001 the idea of taxation without representation came full circle when a government leader proposed that we [Americans] shift all tax burdens back onto the people, lowering the corporate income tax to zero. Paul H. O’Neill is a multimillionaire who has been a top executive at Alcoa and International Paper, two of the world’s largest multinational corporations. When I was writing the first edition of this book, O’Neil was secretary of the U.S. Treasury, appointed by the Bush administration and approved by the Senate. In May 2001 O’Neill suggested that corporations should be totally exempt from all income tax. He said that the roughly10 percent of federal funds they currently pay in corporate income taxes to provide for and administer our commons is too much; corporations should just as tax-exempt as churches and synagogues.54

4.3. Corporate Clout in the Institutions of the United Nations

As it is already clear in the notion of what Charles Derber calls global corpocracy, without being aware by ordinary citizens of the world, except probably by those who study politics and macroeconomics, the United Nations and its various institutions have also been successfully brought under the powerful grip of the transnational corporations.55 The policies of United Nations and its agencies have been profoundly influenced by TNCs and this has been going on over many decades.

In the late 1970s and 1980s, for instance, corporations managed to kill off a proposed code of conduct for TNCs which was at the time under the discussion at the UN. The United Center on Transnational Corporations (UNCTC) that was set up in 1974 to function as the UN Secretariat’s focal point on matters in regard to TNCs has tried to draw up a code to establish standards for the conducts of all TNCs to protect the interest of host countries, strengthen their negotiating capacity and ensure conformity of the operations of TNCs with national development objectives. Due to the mighty influence of TNCs, however, the opposite is what came out. Instead of siding with the interests of developing countries, western governments urged the authorities of developing countries to encourage TNCs and protect the investments of the western countries. The demands of developing countries to set up a code that would force TNCs to take responsibility to their economies, people and environments received far less attentions in the discussions than the issue of how government of developing countries treated TNCs.56 In 1980s, the birth’s period of neoliberal economic system by defeating the previous social regulated capitalism, the fate of UNCTC slowly withered until it died in 1992 as further recorded by Madeley:

When, in the late 1980s, a growing number of developing countries removed barriers to trade, and began to offer guarantees about the protection of TNC investments, western countries, influenced by their TNCs, began to lose interest in the code. In 1992, the negotiations were abandoned, and the UNCTC was downgraded and rename ‘the Transnational Corporations and Management Division’. The center’s inability to finalize a code of conduct on TNCs underlined the deep influence that the corporations have in the UN system and over governments. It was TNCs, not governments, which made the running. The TNCs used their power to influence the UN agenda to the point that negotiations over the code were to the corporate benefit. They scored a huge coup, effectively turning the UNCTC into a center for TNCs rather than on TNCs [italic is from me]. Instead of a code of conduct came, eventually a ‘Global Compact’…The idea of a Global Compact was launched by Kofi Annan, UN Secretary-General at the time. The aim was that companies would agree to certain principles concerning human rights, labor, the environments and anti-corruption. The compact suits TNCs perfectly. It is voluntary; there is no legal enforceability.57

Other UN’s institutions such as Food and Agricultural Organization (FAO), World Health Organization (WHO) and the United Nations Conference on Trade and Development UNCTAD) also have faced the same fate. Almost none of them has not been heavily influenced and steered by Transnational Corporations. Western governments in 1990s, for instance, influenced by their transnational corporations, successfully changed UNCTAD from its role as an institution of the United Nations which was mandated to control the economic activities conducted by transnational corporations into merely an institution that clears the way for transnational corporation investments in developing countries.58

5. CORPORATE INTERNAL STRUCTURE AND GOVERNANCE

As an economic business entity, a corporation has three internal fundamental elements: the owner (shareholders, stockholders, investors) – those who invest their financial capital in the corporation, the watchers (directors) – officials that are elected to run and direct the corporation, and managers (Chief Executive Officers or CEOs) – officials who are appointed to manage and execute the operation of the corporate business. Without these three fundamental elements, there can be no corporation. In other words, a corporation cannot exist without these three fundamental elements. Yet contrary to the common logic, each of the three fundamental elements of a corporation has a distinct legal separation from the corporation itself. According to a corporate logic, a corporation can act on its own and can be responsible for each of its own action including the possible crimes it might perpetrate but in no way the three corporate elements aforementioned are responsible for.59 As it will be clearly seen later, shareholders, directors and managers are well protected by a so-called a corporate limited liability.

5.1. The Owner – Shareholders

According to the long standing corporate customary law, the shareholders are the owners of the corporations. The corporations belong to the investors who have invested their money therein. Under the corporate logic, each share of stock that the investors own represents a fractional ownership of the company as Michael Becket put it very simple words:

Unlike banks, which provide short-term finance at specified rates that has to be repaid … investors are not lenders: they are the owners [of the companies in which they have invested their money]. If there are 100,000 shares issued by the company, someone having 10,000 of them owns a tenth of the business. That means the managing director and the rest of the board are the shareholders’ employees just as much as the shop-floor foreman or the cleaner.60

Shareholders can be roughly divided in two: individual shareholders and collective investors. As for the later, they are popularly known as institutional investors or institutional shareholders since they consist of large financial institutions, which in the United States, for instance, they are categorized into a) Deposit-type institutions such as commercial banks, thrift institutions and credit unions, b) Contractual saving institutions such as life insurance companies, casualty insurance companies, private pension funds, state and local government pension funds, c) Investment funds such as mutual funds and money market funds, and d) Other financial institutions such as finance companies and federal agencies.

5.2. The Watchers – Board of Directors

The second main players that play on behalf of the artificial, invisible and intangible legal creatures – the corporations – are the boards of directors. According to the corporate customary law, they are supposed to represent the shareholders in watching and controlling the management of their properties invested in their corporation. In the words of Robert A.G. Monks and Nell Minow, they are the link between the people who provide capital – the shareholders – and the people who use that capital to create value or profits – the managers. They bridge a huge diffuse and the relative powerless group of shareholders on one hand who have entrusted their properties to the corporation and a small yet powerful group of managers on the other hand who have the legal authority to use the shareholder’s money in order to make more money.61 The huge group of stockholders – there could be thousands of them and without knowing each other – is powerless in the sense that, due to the corporate principle of limited liability, they cannot directly meddle in or monitor how the corporation does its business on day to day bases.



5.3. The Executor – Managers

The third main actors that play on behalf of the corporations are managers who are popularly known with their acronym CEOs – Chief Executive Officers. They are a group of highly skilled professionals who run the operation of the corporations on day to day bases. They are expected to implement the policies set up by the board of directors in pursuing the single goal of the corporations – making profits for its ultimate owners, the shareholders. Their jobs descriptions and responsibilities vary depending on the size and the kind of business operation they engage in – a field that is beyond the scope of this study.



6. THE CORE CHARACTERISTICS OF CORPORATE LAW AND ITS PROBLEM

 

6.1. The Core Characteristics of Corporate Law

The corporations as business organization have their own law with their own logic. This law deals with at least five core structural characteristics of the economic business corporation: 1) limited liability of the owners and those who run the corporations, 2) legal personality of the corporations, 3) transferability of the shares or stocks of the owners of the corporations, 4) centralized management of the corporations under a board of directors and managers, and 5) ownership of the corporations.62 As it is seen later, these five core characteristics which form a set of corporate law are what make the corporations attractive and powerful business organization. But while legally these five core characteristics of corporate law can be separately identified and categorized accordingly, three of the corporate legal characteristics – limited liability and ownership – cannot be treated separately one without the other. Due to this reason they are categorized here into three subtopics rather than five: 1) legal corporate ownership, limited liability and management, 2) legal corporate personhood and 3) legal corporate transferability of shares.



6.1.1. Legal Corporate Ownership, Limited Liability and Management

According to the corporate law, after investing a property, which is usually a sum of money in a company, a person – an investor or a shareholder – no longer has a right over his/her property nor has he/she a control over the corporation as an entity. According to the corporate law, there is now a legal separation between him/her as an investor on one hand and the property invested in the corporation as well as the corporation itself on the other. Together with other investors or shareholders, he/she now only participates in owning the corporation as an invisible and intangible entity yet without having the right to control what he/she owns – the corporations. What the investor – the owner of a corporation – has now is only a certificate which represents his/her entitlement to a proportional share of the corporation, while his/her money is now legally owned by the corporation and becomes the legal property of the corporation. The shareholder does not participate in the economic activities by which his/her money is managed. In addition, the shareholder also does not have a legal relationship with other investors as the owners of the corporation. And with these other unrelated investors, he/she gives up his/her right to manage and control the use of his/her money by the corporation. That right is now delegated to the management of the corporations under the board of directors and managers popularly known as chief executive officers (CEOs).63 In other words, in corporations there is a distinct separation between ownership and management of a property invested which is protected by the corporate law with its own logic.

As an exchange for giving up the right of control over and management of the property invested in the corporation, the investors or shareholders now get in return what is called a limited liability. What it means is that a shareholder’s liability is limited only to the amount of share or stock he/she has invested in the corporation. When the corporation goes bankrupt or faces insolvency, for instance, an investor risks no more and no less than the property at the amount that has been invested. Who then pays the debts of the corporation that goes bankrupt or causes huge damage to environment or even deaths to other people in society? The answer is its creditors or the devastated affected community as pointed out by Thom Hartman in the following instance:

Let’s say you invest $10,000 in a limited-liability corporation, and the corporation runs up $50,000 in debts and then defaults on those debts. You would lose only your initial $10,000 investment. The remaining $40,000 wouldn’t be your concern because the amount of your investment is the “limit of your liability,” [original from the author] even if the corporation goes bankrupt, defaults in any other way, or causes millions of dollars in damage to the environment or even deaths of people. Who boots the bill? The creditors – the people to whom the corporation owes money – or the community that was devastated. The company took the goods or services from them, didn’t pay, and leaves them with the bill, exactly as if you had put in a week’s work and not gotten paid for it. Or it wreaks havoc and death and then simply shuts down… And if the corporation declares bankruptcy and dissolves itself, there is nobody for the creditors to go after.64

Due to this limited liability, the corporate law says that the investors, either individually or collectively, who are the actual legal owners of the corporation, are not responsible for anything that goes wrong with the corporation, which is a notion of ownership that is strange to the classical and traditional one. In the classical notion of ownership, if my dog bites my neighbor I must take a responsibility for what my property, which is my dog, has done and not my dog which does not have a moral conscience. Yet that is not the case in corporate world.

In the corporations, the investors are not legally responsible and cannot be legally held accountable if their investments are used by their corporations. If the financial capital that has been invested by shareholders, for instance, is multiplied by the corporations under the management of its board of directors and managers in extractive industry operated by illegally destroying protected rainforests and arable agricultural lands of rural communities in developing countries such as the cases in Flores, Indonesia, as has been treated in the previous chapter. The shareholders or the investors of these transnational corporations cannot be legally held responsible neither can be the board of directors and managers who are legally entrusted to run and manage these corporations.

In regard to this, Harry Glasbeek playfully described in a cartoon as to how shareholders, directors and managers altogether get around to shun the responsibility for the criminal conducts which are committed by the corporation they own and they run: “I [a director or a manager] don’t own it [a company or a corporation], I just manage it … I [a shareholder or an investor] don’t manage it [a company or corporation], I just own it.”65

In the logic of the corporate law, the shareholders are in no way responsible for the crimes or violations that are perpetrated by their corporation because they only legally own it but do not manage it. Their only responsibility is in the form of loss of the capital that they have invested when the company faces insolvency. Neither the board of directors nor chief executive officers is responsible for whatever crime that is committed by the company because according to the logic of the corporate law they only manage the company but do not own it.

6.1.2. Legal Corporate Personality

If the shareholders as the owners of the corporation and the directors and managers who run the corporation also cannot be held accountable for anything that goes wrong with the corporation, including in regard to felonies such as violations of human rights, violations of environmental laws or illegal mining in protected rainforests as has occurred in many places such as those treated in the previous chapter, that are committed by the corporation, who then must be responsible for these crimes? The answer is, according to the corporate law, the corporation itself. The corporation is the entity that is responsible for the crimes. It can be sued and blamed, but not the human beings who own or run the corporation – the stockholders or the managers.

In the logic of the corporate law, corporations are viewed to have the same status as human beings so that they can act on their own exactly like human persons do. They are even endowed with legal human rights. In regard to how corporations also have legal human personality like human beings, Paul Davies in his Introduction to Company Law explained the matter as follows:

The notion that the company is a legal person separate from its shareholders, directors, creditors, employees, indeed from everyone else involved in it, is fundamental to the conceptual structure of company law. Functionally, it is also important because it facilitates, even if it does not require, the provision of company law of other core features such as limited liability and transferable shares. The Act provides that, upon registration of the company, the subscribers [the applicants, italic is from me] to the memorandum of association, which is the formal registration document stating that its signatories wish to form a company, are transformed from a collection of individuals into ‘a body corporate’ [italic is from me] by the name stated in the certificate of incorporation, whose first members the incorporators are. It thus follows that separate legal personality is an inevitable consequence of the incorporation of a company.66

As stated by Kraakman, Davies and Hansmann in their The Anatomy of Corporate Law: A Comparative and Functional Approach and Paul Davies in his work already aforementioned, corporate legal personality functions in two ways. First, it enables the company to own assets that are distinct from the properties of other persons such as the company’s shareholders. The company is free to use and sell its assets or make a pledge to its own creditors in the process of doing its business for maximum profits. At the same time, corporate legal personality shields the assets of the corporations from personal creditors of its shareholders, of its directors or of its managers.67 If managers, directors or shareholders of the company, say for instance, are no longer able to pay their personal debts to a third party – their personal creditors – this third party cannot claim or foreclose the assets of the corporations, which in reality are the fractional shares of the shareholders. What the shareholders have invested in the corporation is legally owned by the corporation as an entity or a legal person and cannot in any way be confiscated by the personal creditors of the corporation’s shareholders.

Thus limited liability of the shareholders of a corporation on one hand and the legal personality of the company on the other mutually protects the assets of both from the intrusion of their creditors. Limited liability shields personal assets of the company’s shareholder from the company’s creditors especially in case of 4insolvency. If the company is not able to pay its debts to its creditors, the creditors of the company cannot claim the personal assets of the shareholders as the owners of the company that is now in bankruptcy. On the contrary, corporate legal personality protects the assets of the company from the personal creditors of shareholders as the company’s owners.68 This line of corporate protection, which separates the company's liabilities from the business owner's personal assets, is commonly known as the Corporate Veil or Corporate Shield.69 As for the later, for instance, shareholder A holds shares in company B. Then shareholder A borrows money from person C. At one point A as the shareholder of company B cannot pay his debt to person C. Now person C in no way can claim fractional share of shareholder A in company B. Because according corporate law, the assets that have been invested by shareholder A in company B is now legally owned by company B and it does not legally belong to the shareholder A. Shareholder B owns only the certificate of the asset invested. The only move that person C can do is to claim the shares of person A invested in company B. In this case person C, the personal creditor of shareholder A, can take over the ownership over the capital of the insolvent shareholders invested in company B and become its new shareholder or new owner.70

Second, corporate legal personality functions to protect the corporation from liquidation that might be caused by its own individual owners – the shareholders – who no longer want to continue their ownership in the corporations. Under the rule of company law, suffice it to say, shareholders cannot withdraw their share of corporation’s assets at will, which could force a partial or complete liquidation of the corporations.71 As it will be clearly seen later in this chapter, to overcome this difficulty, the shareholders are guaranteed the right to freely sell their shares to anybody else which, by so doing, terminates their ownership in the corporation.72

6.1.3. Legal Transferability of Shares

Unlike partnership, proprietorship and other forms of economic business, corporations are endowed by company law a legal right of transferability of shares that are owned or held by their shareholders. What it means is that shareholders as the owners of the corporations are legally free to sell their shares to somebody else any time they want out of various reasons. In regard to this, Robert A.G. Monk and Nell Minow said: “By contrast [partnership and proprietorship], stock is almost as liquid as cash. A shareholder who is concerned that his stock may be losing value can sell [it] almost immediately.”73

As aforementioned, the legal transferability of shares functions to allow the company to continue its business operation without being interrupted by the changes of its legal owners – the shareholders – thereby avoiding the complications of member withdrawal that are common among other forms of business organizations such as partnership and proprietorship. Thus, transferability of shares is closely connected both with the liquidation protection of the corporation which is a feature of strong form of corporate legal personality and with limited liability of the shareholders.74 In other words, free transferability of shares on the part of the shareholders serves to protect the corporation’s business from liquidation by the withdrawal of the shareholders as the corporation’s legal owners which is also shielded by the corporate legal personality. Transferability of shares is also closely connected with the principle of limited liability in that it is a further consequence of legal distinct separation between investors as the owners of the corporations and the corporation as an entity that is endowed a legal personality.

In addition to the aforementioned roles, transferability of shares also serves another advantage for the shareholders. That is, this corporate legal right enables them to adjust their investment portfolio to meet ever changing market conditions.75 In other words, shareholder A can sell his stock that has been invested in corporation B to person C because, for instance, he really needs some money in cash. Or he can reinvest the money in corporation D, which in his view might be more profitable, by buying the stocks of corporation D. Thereby shareholder A now becomes the new fractional owner of corporation D, while person C becomes the new stockholder of corporation B. Yet the change of stockholder of corporation B from shareholder A to shareholder C does not interrupt the usual business operation of corporation B.

However, despite shares are transferable it is rare that they are repurchased by the company. According to the company law, the first reason is that once an investor has bought shares of a company he “is locked” into the company in the sense that his investment cannot be withdrawn simply out of the wishes of the shareholder. The second reason is that it is another consequence of distinct legal separation between shareholders as the owners of the corporation on one hand and the corporation as an entity endowed with a legal personality on the other. Based on the principle of distinct separation of the two, assets that have been invested by shareholders are now legally owned by the company and not by the shareholders.76 The corporation as an entity that is endowed with legal personality, therefore, has a right not to repurchase the shares of its shareholders – the owner of the corporation. In other words, the corporation has a right not to repurchase the shares of its owner. The shareholder can abandon the corporation by selling its shares to other party but not to the corporation.

6.2. Critiques toward Corporate Legal Characteristics

The set of corporate legal characters that we have just seen is indeed a genius human invention. It is not a discovery since corporations as a form of human economic organizations did not have their pre-existence before they were discovered or rediscovered. Corporate legal characters were slowly but purposely designed throughout the last three hundred years of human history77 aimed to secure economic business of the rich few driven by the hot pursuit of maximum profits. There is no doubt that these corporate characters are powerful. Yet as denounced by many critics, these core legal characteristics of corporations have been widely used as a brutal but subtle means to the pursuit of material wealth even by transgressing laws. At the same time, they are used as a powerful shield or veil that protects investors who own the corporations and directors and chief executive officers who run the corporations from being legally accountable for their economic crimes.

The corporate legal core characteristics have been abused very often and have become the core roots of why corporations are prone to perpetrating non-commendable practices and committing crimes without being afraid of breaking laws in the pursuit of their economic profits. It seems as if they were immune to any law or are above the law, violating human rights and environmental laws without having any remorse.

6.2.1. On Invisible Corporate Legal Person

As it has been previously demonstrated, corporation is defined or made as a legal artificial person. As a legal person it is distinct from the stockholders, its owners, and from directors and managers who run it and work for it. It can, among others, act on its own, buy and own assets, sue and be sued if it commits heinous crimes exactly like real natural human beings do. However, despite the powerful human rights it holds corporate personality is weird and full with peculiarities compared to the real natural human beings.

First, upon its birth at registration, the corporate person becomes instantly an adult. In regard to this sudden maturity, Harry Glasbeek playfully said that for a corporate person there is no childhood or adolescence to go through like humans do. Until humans become adults, he said, they are not instantly and automatically trusted with full legal rights and privileges, nor are they given legal obligations, social and political citizenship. Unlike humans, a corporate person does not have to go through a maturing period. From the moment of its birth at registration, a corporate person has all the legal capabilities to do its economic business.78

Second, a corporate person is legally endowed with immortal life. It can outlive its owners – the shareholders – and all those who run and work for it – the directors and managers. It can die only when it is forcedly liquidated, commits suicide due to facing insolvency or engulfed by other big corporation through a successful takeover bidder. In addition to these privileges, since born fully mature at its registration a corporation also can instantly give birth to many other new corporate persons by registering new corporations popularly known as subsidiaries or affiliations which are distinct and fully independent from the parent corporation, instantly become mature at the moment of their registration and have the same legal rights and privileges exactly like their parent corporation does. These affiliated corporations in turn can give birth to new corporate persons by registering new other corporations instantly at the moment of their registration.79

As for the last character, Glasbeek said that the real natural humans who own the corporations purposely do so to obscure their corporate doings especially crimes and to manipulate taxes and other laws.80 In addition, it is also a subtle tactic applied by the rich people in pursuing a wealth accumulation at the expense of others in society. The real people, the owners and the incorporators of the corporations, safely hide themselves behind the legal personhood of corporations for the crimes they and their employees, directors and managers perpetrate, and cannot legally be held accountable. The poor who are often the victims of corporate crimes committed during the pursuit of economic profits are helpless.

In a class action launched by rural communities in Manggarai District of Flores in 2010 against PT Sumber Jaya Asia, a Chinese transnational mining corporation that had destroyed the economic, social and cultural rights of the rural communities, for instance, the villagers, without they realized, were in fact facing a corporate person that is legally artificial, invisible and exists only in the contemplation of the corporate law. The case against the transnational mining company which had destroyed 44 hectares of protected rains forests and 33 hectares of arable agricultural lands that belong to the rural communities was dropped by the local court in 2011 without giving any adequate reason why. Even local authorities who were involved in the corporate crimes also never showed up in court. No director, no manager nor the artificial corporate mining person was held accountable for the heinous crimes that had been perpetrated. After proven guilty against the law, the invisible artificial legal person, Sumber Jaya Asia transnational mining company, simply went away and left the powerless devastated villagers speechless.

Third, the legal personality of human business organizations called corporation, their limited liability, the limited liability of their legal owners – the investors or shareholders – and of the directors and managers who run them and work for them make the corporations so powerful and almost in no way are afraid of transgressing laws, trampling human rights and destroying the livelihood of the rural communities as demonstrated in the previous chapter. The corporations have no difficulty in committing such heinous human crimes because they are in fact only artificial persons which, unlike real human beings, have no soul, no real body to be kicked or imprisoned when proven guilty by law, no feelings, no remorse, no mercy and no moral virtues which lead Dr. Robert Hare, a psychologist and internationally renowned expert on psychopathy, to characterize corporations as having psychopathic traits such as singularly self-interested, irresponsible, unable to feel remorse, no empathy and asocial tendencies:

Unlike human beings who inhabit it, the corporation is singularly self-interested and unable to feel genuine concern for others in any context….. The corporation is irresponsible because in an attempt to satisfy the corporate goal, everybody else is put a risk. Corporations to manipulate everything… A lack of empathy and asocial tendencies are also key characteristics of the corporations: their behavior indicates they don’t really concern themselves with their victims; … corporations refuse to accept responsibility for their own actions and are unable to feel remorse: if they get caught [breaking laws], they pay big fines and they….continue doing what they did before anyway. An in fact in many cases the fines and the penalties pay by the organization are trivial compared to the profits that they rake in ... Corporations relate to others superficially – their goal is to present themselves to the public in a way that is appealing to the public but in fact may not be representative of what the organization is really like [are italics are from the author].81

Fourth, corporate legal personality is the root of why corporations are prone to being in defiance of law in the pursuit of economic profits. Yet human beings who own the corporations – the investors or the shareholders – and those who run and work for the corporations – the directors and managers – are hardly legally accountable for the corporate legal transgressions as minutely l explained by Joel Bakan:

By designed, the corporate form generally protects the human beings who own and run corporations from legal liability, leaving the corporation, a “person” with a psychopathic contempt for legal constraint, the main target of criminal prosecution. Shareholders cannot be held liable for the crimes committed by corporations because of limited liability, the sole purpose of which is to shield them from legal responsibility for corporation’s actions. Directors are traditionally protected by the fact that they have no direct involvement with decisions that may lead to a corporation’s committing a crime. Executives are protected by the law’s unwillingness to find them liable for their companies’ illegal actions unless they can be proven to have been “directing minds” behind those actions. Such proof is difficult if no impossible to produce in most cases, because corporate decisions normally result from numerous individuals’ inputs, and because courts tend to attribute conduct to the corporate “person” rather than to the actual people who run the corporation.82

Therefore, the corporation itself is the most viable target for the prosecution in most cases. But the problem is that punishing corporation has little impact since it is only a legal artificial person exits in the law. It has no body and blood like real human beings to be damned, kicked off and imprisoned. Consequently corporation feels no moral obligations to obey the law. For a corporation, says Robert A.G. Monks, compliance with law is a matter of costs and benefits: “Again and again in America as we have seen the problem that whether [corporations] obey the law or not is a matter of whether it’s cost effective. If the change of getting caught and the penalty are less than it costs to comply, our people think of it as being just a business decision.… Executives, when deciding whether to comply with or break a law, ask: What’s the penalty, what’s the probability of being caught, how much does that add up to, and how much does it cost to comply and which is bigger?”83 In regard to this, law professor Bruce Welling states the logic of corporate business calculation this way:

The practical business view is that a fine is an additional cost of doing business. A prohibited activity is no inhibited by the threat off a fine so long as the anticipated profits from the activity outweigh the amount of the fine multiplied by the probability of being apprehended and convicted. Considering the amount of the average fine, deterrence is improbably in most cases. The argument is even more obvious regarding prevention of recidivism. The corporation, once convicted and fined, will simply have learned how to cover its tracks better.84

The conclusion is, then, quite clear. If the probability of being caught is less and the profits that are going to be gained outweighs the penalty of breaking law, the corporations, then, would choose to break the law, even if it means, among others, violating human rights or destroying huge environments. The poor who often become the easy victims of the corporations’ non-commendable economic practices are powerless. The rural communities in developing countries along with their local governments almost could not do anything against legal corporate person which is in fact artificial, invisible and has no soul, no heart, no feelings, no moral values and no flesh and blood to be kicked off or imprisoned especially when proven guilty by law.

6.2.2. On Corporate Limited Liability

The name of many corporations, especially in English-speaking countries, usually comes with letter L such as PLC, LLC and Ltd. The letter L in these acronyms stands for ‘limited’ which is a short for ‘limited liability’. PLC, therefore, stands for ‘public limited company’ and LLC stands for ‘limited liability company’, while Ltd stands for limited.85 The corporate principle of limited liability applies to all three internal fundamental elements of corporation – shareholders or investors as its legal owners, directors and managers as its executors and the corporate legal person itself.

As noted by Paul Davies, a Corporate Law Professor at the University of Oxford, what limited liability means for the shareholders is already crystal-clear. It means that the rights of the company’s creditors are confined to the assets of the company and cannot be asserted against the personal assets of the company’s shareholders.86 In other words, liability of the shareholders is limited only to the assets they have invested in the company. Company’s creditors cannot claim beyond the assets invested in company. Neither company’s creditors can go after the personal assets of the company’s directors and managers because according to the logic of corporate law they are only the employees hired to manage the assets invested by the shareholders as the legal owners of the company.

With this in mind, Paul Davies, then, makes a conclusion: “Hence [comes] the common expression ‘limited liability companies’. However, this is really a misnomer. The liability of the company is not limited at all. Creditor’s rights can be asserted to the full against the company’s assets. It is the liability of the members which is limited.”87 It is true that the liability of the company is not limited, which means that it will be responsible to the full for its debts to its creditor. Yet the full liability of the company is limited only to the extent of its available assets invested in the company. In regard to this, Harry Glasbeek, a Law Professor of York University of Toronto: “The corporation’s liability…is only limited by its physical ability (that is, by the extent of its assets) to honour that liability. Its legal obligation … is not limited.”88

The problem with the liability of the company that is only limited to its available assets lies here. Let us take transnational corporation by name of Sumber Jaya Asia based in China as an instance. This company mined in a protected rainforest Nggalak-Rego RTK No. 103 in western part of the Flores Island, Indonesia. Its project was closed down by force in 2010. Its mineral exploitation was found illegal since the company did so without getting a letter of permission from the Minister of Forestry Affairs in Jakarta as regulated by Indonesian law. Before the mine was forced to close down, the company had in fact destroyed 44 hectares of protected rainforest and 33 hectares of agricultural arable lands of the local rural communities. Let us say, the total of the permanent loss from damages of this protected rainforest, of biodiversity, of pollution on rivers and sea water in the region, and of agricultural arable lands of the local rural communities is estimated to reach $2 billion throughout the following many years. If the transnational company of Sumber Jaya Asia were to be found guilty in court, it ought to be fined $2 billion as a compensation for the total damages of agricultural arable lands and of environments – the loss of rain forest, river and sea pollutions, the loss of livelihood for fishermen due to the death of fish in the seas caused by the extractive pollution, decrease of seasonal rain for thousands of nearby farmers and so forth – that the company had caused. After investigated, however, the total value of assets of Sumber Jaya Asia Company is, say for instance, only $50 million.

According to the principle of corporate limited liability, Sumber Jaya Asia company is only liable to pay a fine in amount of $50 million – which is the only actual amount of its available assets invested by its shareholders, whereas the other $1,95 billion of environmental damage in no way falls under its liability.89 Nobody and no entity would pay for the rest of the damages but the devastated local rural communities. Because of the same principle of corporate limited liability, the devastated villagers in Western Flores also could not go after the shareholders or the directors and managers of Sumber Jaya Asia mining company. There is no doubt that this is a heinous crime toward humanity and its environment on which local people depend themselves to survive. Such corporate crimes are quite numerous at various places today around the world.

Even worse still is that the corporate limited liability means that it is liable to its creditors and/or to the wrong doings it might have perpetrated only as long as it still exists in business. Suffice it to say, its liability will cease when it goes bankrupt or dissolves itself as Thom Hartmann clearly points out: “If the corporation declares bankruptcy and dissolves itself, there is nobody for the creditors to go after. That’s the main thing that makes a corporation a corporation.”90

In his The End of Loser Liberalism: Making Markets Progressive, Dean Baker claims corporate limited liability as one of the examples of US governments interference which has led a massive upward retribution of income, supporting the interests of the wealthy over the last three decades of neoliberal economic system. Regarding the ugly nature of corporate limited liability used to enrich the opulent and impoverish the poor, Baker says:

The modern limited liability corporation is another example of interference with a pure free market. Corporations do not exist in the natural world or in the free market; they have to be chartered by a government. They are artificial entities that can inflict damage on the public without the individuals at fault being held fully accountable. Limited liability means that the government allows corporations to harm individuals – for example, by allowing toxins to get into a community‟s drinking water – without the corporation‟s top management or shareholders being obligated to pay compensation. The victims (those drinking contaminated water in this case) are entitled to whatever assets are held by the corporation, but they cannot take the personal assets of the top managers or the shareholders. By creating limited liability corporations the government is allowing the individuals who form a corporation to take the property (or even lives) of others without compensation.91

Another common abuse of corporate limited liability today is the corporation’s ability to generate corporate offspring called subsidiaries, sub-subsidiaries or affiliations. The corporation that generates the subsidiaries becomes the single parent company for the new subsidiary companies and the single grandparent company for the possible new endless sub-subsidiary corporations generated by the subsidiary corporations which leads to forming a new corporate alliance known as corporate group. In regard to this, Professor Paul Davies points out: “No large business today is carried on through a single company. Rather a string of parent, subsidiary, sub-subsidiary, and associated companies exist behind a single name. Even quite a modest business may be carried on through one or more linked companies.”92

Brian J. Chartier, a Senior Officer Subsidiary Governance RBC Financial Group, joins the same choir in witnessing the same corporate behavior phenomena. He says: “Many large corporations today have several hundred subsidiaries and many have over a thousand entities [subsidiaries] spread across several countries. Enron network [alone] consisted of 3000 entities [subsidiaries].”93 According to the World Investment Report of UNCTAD (United Nations’ Conference on Trade and Development) in 2007, there were 78.000 transnational corporations based mainly in industrial countries of the North with 780.00 foreign affiliates or subsidiaries.94 This means among other that there are a lot of subsidiary corporations out there in the world today. Now the question is that why corporations multiply themselves this way – into a string of parent, subsidiary and sub-subsidiary companies? There are many reasons.

Thompson & Thomson, one of the world’s public relation companies, mentions at least 7 possible motivations why a business enterprise may establish a subsidiary corporation or more:

(1) the parent company desires to engage in a new line of business activity unrelated to its current business; (2) the existing or projected revenues from the new line of business activity are substantial; (3) the business enterprise prefers not to expose its assets to the liabilities associated with the new business line; or (4) the new business activities may carry risks of liability unacceptable to the parent; (5) the parent is a public corporation and it desires to keep the subsidiary privately held; (6) the parent wants to posture the subsidiary for going public without affecting the parent's shareholders; or (7) that the organization desires to reward certain employees with increasing compensation.95

While all the above aforementioned reasons sound logic for the corporate world, yet for general public society they don’t. The reasons are not that all. More than what Thompson & Thompson lays out, Brian J. Chartier points out that companies create subsidiaries as a means to cleanly execute a business transaction with a third party and as a vehicle to mitigate risk and protect the parent company from litigation.96 And in order not to get pierced the corporate veil, Thompson & Thompson gives further tips that need to be taken care of by the parent company and its subsidiary companies in maintaining their business relationship:

Fact scenario: The subsidiary is a separate legal entity with its own board of directors, officers, and staff. No more than three of the seven members of its board of directors are also members of the parent's board of directors. The parent will have no involvement in the daily operations of the subsidiary. Both corporations will maintain separate accounting and corporate records. The subsidiary will pay dividends to the parent based on its 100 percent stockholding in the subsidiary. The subsidiary will pay the parent for the services of some the parent employees, on the basis of their prorated salary with the parent. Held: The activities of a separately incorporated subsidiary cannot ordinarily be attributed to its parent corporation unless the facts provide clear and convincing evidence that the subsidiary is in reality an arm, agent or integral part of the parent.97

Like motives for the multiplication into subsidiaries, all of the aforementioned tips laid out by Thompson & Thompson are definitely good for the corporations and their owners in pursuing their business profits, but not for the public society especially the poor who often become their victims. Let us see why. One of the unpleasant things that are born out of the multiplication of corporations into parent and subsidiary companies for public society can be clearly seen in the weird relationship between the parent company and subsidiary companies in the light of the three corporate legal characters – corporate legal personality, corporate limited liability and corporate transferability of stocks. As further pointed out by Thompson & Thompson, the relationship between a company and its subsidiary companies is commonly described in the term “parent/subsidiary”, yet this term is not equivalent to the term “parent/child”. Because even though the parent company incorporates the subsidiary companies, nominates their boards of directors and officers, sets up their business purposes and adopts their bylaw provision, the subsidiary companies are recognized by the parent company and other third parties as independent corporations managed by their own board of directors and run by their own managers.98

The independence of the subsidiary companies does not mean, however, that they are uncontrolled entities.99 On the contrary, they are at the same time almost 100% under the control of the parent company because the parent company is also the single shareholder of the subsidiary companies as clearly explained by Professor Paul Davies:

Each of these companies is a separate legal person and its shareholders (i.e. one more other companies in the group [the parent company]) benefit in principle from limited liability as much as individual companies in a free-standing company do. Take a simple example of a parent company which holds all shares of a subsidiary company. Parent and subsidiary are separate legal persons. The parent has complete control of the subsidiary: the directors of the subsidiary will be the nominees of the parent and may even be the same persons as the directors of the parent company, so that the subsidiary board has no independent business discretion. Yet, the parent in principle benefits from the doctrine of limited liability as against the creditors of the subsidiary. Again the combination of limited liability and control may lead to opportunistic behavior on the part of the parent company, for example, assigning risky activities to the subsidiary but no endowing it with adequate assets to carry those risks.100

It is clear, then, as previously noticed by Thompson & Thompson and Professor Paul Davies, a parent company holds an absolute control over its subsidiary companies for its profits and benefits, yet under the corporate veil the parent company is merely a shareholder of the subsidiary companies and therefore it is in no way liable to any risks, debts, obligations, wrong doings or crimes that might be committed by its subsidiary companies.

Let us say, for instance, the transnational mining company Sumber Jaya Asia operating extractive industry in Flores Island, Indonesia, is one of the 10 subsidiary companies of Sumber Jaya Asia Ltd based in China. In 2011 Sumber Jaya Asia was found guilty for illegally mining in a protected rainforest of Ngggalak-Rego No. 103. It destroyed 44 hectares of the protected rainforest and 33 hectares of agricultural arable land of the local rural communities in western Flores Island. Being aware of this high risk of mineral extraction, the parent company Sumber Jaya Asia Ltd headquartered in China had long before carefully invested only a small amount of capital which is enough only to buy basic facilities such as machines and big trucks for mineral extraction. Let u say, for instance, total of the assets invested is only $25 million, whereas the total value of the environmental and agricultural destruction faced by the local rural communities is about $2 billion. If found guilty in the court, Sumber Jaya Asia as a subsidiary company is to be fined in amount of $2 billion for the environmental and property destruction it caused. Yet according to the logic of the corporate law, Sumber Jaya Asia company as a subsidiary is liable to pay only in amount of its available assets, that is, $25 million. The litigants and the devastated rural communities can in no way claim beyond the available assests of the subsidiary company nor they can go after the parent company of Sumber Jaya Asia which has its headquarter in China.101 According to corporate law, the parent company as a shareholder is immune from any prosecution. As a stockholder of its subsidiary company, liability of the parent company is limited only to the amount of assets it has invested in the subsidiary, in the above example $25 million, but not to the subsidiary’s debts, obligations or crimes.

As of 19th of January 2013, more than 414 IUP102 or mining licenses have been issued by local governments of East Nusa Tenggara Province, Indonesia to a numerous transnational mining corporations from Australia, New Zealand, South Korea, Japan, China, Kuwait, India, Canada and England just to mention a few, yet almost all of them have Indonesian flags, which mean that they are all only subsidiary companies of the parent companies either based in Jakarta city or in other foreign countries. No wonder, people are not able to get them prosecuted, especially when the transnational mining corporations trample their rights and destroy their livelihood.



6.2.3. On Corporate Externalization

Many corporate critics say that the harms caused by corporations are tremendous, both to human beings and environments. And the root of this harming (harmful?) corporate behavior is its artificial legal personality. In the word of Professor Joel Bakan, the corporation’s tendency to harm lies in its nature as psychopathic creature:

As a psychopathic creature, the corporation can neither recognize nor can act upon moral reasons to refrain from harming others. Nothing in its legal makeup limits what it can do to others in pursuit of its selfish ends, and it is compelled to cause harm when the benefits of doing so outweigh the costs. Only pragmatic concern for its own interests and the laws of the land constrain the corporation’s predatory instincts, and often that is not enough to stop it from destroying lives, damaging communities, and endangering the planet as a whole…. Far less exceptional in the world of the corporation are the routine and regular harms cause to others – workers, consumers, the environment – by corporation psychopathic tendencies.103

What is surprising is that these damages and losses are still viewed as inevitable and acceptable consequences of corporate business activities which in economics are called externalities. They are the effects of a transaction on which a third party who has not consented to or played any role in the carrying out of that transaction. All negative impacts of the corporations’ relentless and legally pursuits of profits on people and their environments are categorized as externalities which literally mean other people’s problem.104 Robert A. G. Monks, who devoted almost all his life in the corporate world, either director or manager, says that corporations are in fact doom machines and have a dynamic that does not take into account the concerns of human beings.105 Being aware of this unjust economic principle, David C. Korten calls for an internalization of the costs of corporate business activities, criticizing the evil of cost externality:

Another basic condition of efficient market allocation is that the cost of production must be borne by the producer and be included in the producer’s selling price. Economists call it cost internalization [italic is original from the author] … If some portion of the cost of producing a product is born by third parties who in no way participate in or benefit from the transaction, then economists say that the costs have been externalized, and the price of the product is distorted accordingly. Another way of putting it is that every externalized cost involves privatizing a gain and socializing its associated costs onto the community.

Externalized costs don’t go away – they are simply ignored by those who benefit from making the decisions that result in others incurring the costs. For example, when a forest products corporation obtains rights to clear-cut Forest Service land at giveaway prices and leaves behind a devastated habitat, the company reaps the immediate profit and the [local] society bears the long-term cost. When logging companies are contracted by the Mitsubishi Corporation to cut the forests of the Penan tribes-people of Serawak [the portion of Borneo Island that belongs to the state of Malaysia], the corporation bears no cost for devastating native culture, [their native agricultural arable land] and [their] ways of life.106

There is no doubt that all transnational mining corporations that have been roaming the villages of the rural communities in Flores Island as well in other parts of Indonesia since the fall of the Suharto regime in the late 1990s, forcedly and even some illegally exploiting various minerals by destroying their livelihood – their agricultural arable lands, springs of drinking waters, rivers, sea lives and protected rainforests – come with this unjust economic principle in mind popularly known in economics as cost externality. The transnational corporations reap immediate abundant profit from mineral exploitation which the rural communities never give their free prior informed consent (FPIC), while its long-term costs in the forms of permanent loss of their agricultural lands, rivers and sea water pollution, the devastation of their protected rainforests and all other negative impacts of mining operation are simply dumbed to the local rural communities to be borne. It is definitely an economic principle that is not only unjust but also evil and amoral.

6.2.4. On Corporate Social Responsibility

As we have previously demonstrated, despite some positive aspects of the corporations, such as creating jobs and making products needed by public society, they also have been under pressure due to the harms they cause to workers, consumers, rural communities and the environments. They have been protested by various groups such as NGOs, community coalition, labor unions,107 human right activists and environmentalists ranging from those at grass root level to those at academic level, both in industrial countries and in developing countries. Economists and jurists such as those whose works are cited in this study – Joseph E. Stiglitz, Tim Jackson, Eric Toussaint, Chris William, Harry Glasbeek, Ha-Joon Chang, Jerry Mander, John Bellami Foster, Al Gedicks, Robert A.G. Monks, Joel Bakan, Thom Hartmann, David C. Korten, Paul Davies, David Harvey, John Gray, Susana George, Ian Fletcher, Richard Douthwaite, Noam Chomsky, Richard Piet and Ross Jackson, to mention only a few, have launched a sharp criticism against various corporate crimes. As an answer to these pressures and criticism, the corporations today offer a so-called corporate social responsibility (CSR).

With the idea of CSR, the corporations have been seeking to soften their bad image by presenting themselves as human, benevolent, generous, responsible and accountable to society.108 The transnational mining corporations roaming the villages in the island of Flores, Indonesia, for instance, make all kinds of promises ranging from building free schools for local children, offering scholarships for students, building hospitals that are free for all local villagers, building houses for local rural communities or opening roads to break the isolation of one village to the other. In reality, however, apart from the fact that these promises are rarely materialized, CSR also contradicts the nature of the corporations themselves.

According economist Milton Friedman, new moralism in business in the form of CSR is in fact immoral. Since by its very nature as clearly laid out by corporate law a corporation is the property of its shareholders. Its interests are the interests of the stockholders. In light of this corporate legal principle, the only responsibility of a corporation is to make money for its stockholders. Consequently, executive managers who choose social and environmental goals over profits are immoral and break the corporate law.109 In the corporate law, there is no room for CSR, be it to help the workers, to improve the environment or as a donation to help social charities as corporate lawyer Robert Hinkley points out:

The corporate design contained in hundreds of corporate laws throughout the world is nearly identical… the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to be sued by shareholders. [The law] dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interests.… Corporate law thus casts ethical and social concerns as irrelevant, or as stumbling blocks to the corporation’s fundamental mandate.110

With this in mind, Joel Bakan makes an affirmation: “As officials ... the stewards of other people’s money, they [executive managers] have no legal authority to pursue such goals [CSR activities] as ends in themselves – only as means to serve the corporation’s own interests, which mean to maximize the wealth of its shareholders. Corporate social responsibility is thus illegal – at least when it is genuine.”111 Even if many big corporations today willfully and intentionally embrace the principle of CSR, although it is against the nature of the corporations, they also do so not out of a sense of genuine responsibility to public society and environment but only to serve the corporate self-interests.112 In other words, CSR is created only to lure public society to fall into the bosom of the corporate power or blur the vision of public society to view the corporations’ real and true image.

Till today, CSR is promoted without being followed by any change of the fundamental structure of the corporations known as the corporate veil. No matter how good the idea of CSR is harmful legal nature of the corporation remains. That is why John Madeley views CSR as merely a smokescreen.113 In other words, CSR does not tackle core problems of corporate crimes but simply put a screen against it. Due the fact that CSR is just somewhat a joke, George Mombiot says: “CSR is a public relations device designed to throw sand in our eyes.”114 In other words, CSR just is promoted to make public society unable to see the real nature of the corporations – harmful, greedy, exploitative, only artificial person in nature yet holding rights like human beings etc.

In light of the aforementioned mistrust toward CSR programs, I would also argue that CSR promised by transnational mining corporations to rural communities in Flores and in other parts of Indonesia – in the forms of building free schools for local children, offering scholarships for students, building hospitals that are free for all local villagers and houses for local rural communities – is questionable if not trustable. While these CSR promises in most cases will never be materialized, the total value of these CSRs is also almost nothing compared to the costs that will be borne by the local rural communities. It is no exaggeration to say that the CRS promoted is done only to lure the local rural communities to give up their agricultural arable lands to be permanently destroyed by transnational mining corporations. In addition, it is not the duty of the TNCs to build infrastructures and public welfare of the people of a country such as Indonesia but the state for which all citizens, including the rural communities in Flores Island of Indonesia, pay taxes.

7. CONCLUSION

There is no doubt that corporations do many good things. They have contributed in the growth of local, national and global economy both in industrial countries and in the developing countries. They create jobs, producing and transporting goods from one region to another. Yet it is no exaggeration that they also cause tremendous harms to public society both in developing countries and in developed countries as well as to the fragile planet. The economic model they promote accelerates environmental degradation and impoverishes the world’s majority poor.

They have many non-commendable tendencies and practices popularly known as corporate crimes. As profit-driven entities they tend to be flawed, corrupt and undemocratic. They tend to cheat. When spotting a potential profit, they do not hesitate to break laws and violate human rights. They have no empathy toward unfortunate and are indifferent toward the cry of those affected by their business activities. Corporations even have taken democracy and substituted it with corpocracy which means the sovereignty of a state is no longer in the hands of its citizens but in the hands of the corporations. Even the institutions of the United Nations have also fallen in the grips of clout of corporate power. 

The root of the corporate unlaudatory tendencies and crimes lies in the corporate veil. The corporation is legally designed to be immune from prosecution of law despite the crimes it commits. The true owners – the shareholders – and those working on behalf of them – directors and managers – are not legally responsible for any crime committed by the corporation. From the viewpoint of the universal human values and ethics, these unlaudatory corporate characteristics are definitely against love, justice, peace, fraternity and solidarity. And suffice it to say, it becomes the sources of sufferings, poverty, war and all kinds of violence. The expectations of the investors or shareholders as the owners of the mining corporations that their corporations “are to” (the CONSULTATION DRAFT uses “should”) honor, to respect or to uphold the rights of the rural poor communities whose properties become the targets of extractive industries today operated by giant transnational corporations are like the rubbers who wish to love or respect those whose properties they themselves are rubbing. It is weird and contra in terminis. The only right solution to the problems laid out in the CONSULTATION DARATS (the violations of economic, social and cultural rights of the rural communities by mining corporations) is to dismantle the corporate veil.

 

(By a doctoral student at the Pontifical Urbanian University in Rome, Italy 2013).



1 Vivat International is an NGO in Consultative Status with Economic and Social Council of the United Nations located in New York. For more information see http://vivatinternational.org/blog/category/news/un-vivat-news/
2 The SHARE’s document Investor Expectation on Human Rights: Performance for Mining Companies (CONSULTATION DRAFT) can be found online in http://www.share.ca/files/12-9-21_HR_Framework_-_Draft_for_Consultation_-_FINAL.pdf
3 According to mining investors, corporations should, not must nor are to respect laws and human rights when doing their extractive industry in the properties of rural communities in developing countries.
4 NORTH Douglass C., “Corporation” in The Encyclopedia Americana – Vol. 8 (Danburry, Connecticut: Americna Corporation, 1979), p.3.
5 Quoted by NORTH Douglas C., “Corporation”… Ibid.
6 As shown later in this chapter, there is a dilemma that corporations are on one hand private economic entities and consequently they have a right for privacy or secrecy, yet on the other hand they operate their business in public and have directly or indirectly tremendous impacts on public social community. They, therefore, should be transparent and responsible to the public.
7 MONKS Robert A.G., and MINOW Nell, Watching the Watchers: Corporate Governance for the 21st Century (Oxford, UK: Blackwell Publishers Ltd, 1996), p. 1.
8 Ibid., pp. 1-2
9 MONKS Robert A.G., and MINOW Nell, Watching the Watcher... Ibid, p. 2.
10 MADELEY John, Big Business Poor Peoples: How Transnational Corporations Damage the Word’s Poor (London & New York: Zed Books, 2008), p. 1.
11 DRIMMELEN Rob Van, Faith in a Global Economy: A Primer for Christians (Geneva: WCC Publication, 1998), p. 38.
12 Quoted in TOSSAIN Eric, Your Money or Your Life: The Tyranny of Global Finance (Chicago: Haymarket Books, 2005), p. 55.
13 Quoted in BENN Suzanne & BOLTON Dianne, Key Concepts in Corporate Social Responsibility (Los Angeles, London, New Delhi, Singapore and Washington DC: SAGE Publication Ltd, 2011), p.121
14 Quoted by MADELEY John, Ibid., p. 2.
15 LEPRATTI Massimiliano, Perchè l’Europa Ha Qonquistato il Mondo? (Bologna: Editrice Missionaria Italiana, 2006), p.67.
16 NACE Ted, Ibid. p. 100. See also DERBER Charles, People before Profit: The New Globalization in an Age of Terror, Big Money and Economic Crisis (New York: St. Martin’s Press, 2002), p.70.
17 PEARCE Frank, “Regulating Capitalism” in PEARCE Frank and SNIDER Laureen (eds.), Corporate Crime: Contemporary Debates (Toronto, Buffalo & London: 1995), pp.20-21.
18 See for instance, CHOMSKY Noam, Profits over People: Neoliberalism and the New Order (New York: Seven Stories Press, 1999) and How the World Works (Berkeley, CA: Soft Skull Press, 2011), or also the work of KLEINE Naomi, The Shock Doctrine: The Rise of Disaster Capitalism (London: Penguin Books, 2007).
19 More on unjust global neoliberal economic system will be treated in the next chapter.
20 DUNCAN William, “Transnational companies: Goodies or baddies?” http://www.duncanwil.co.uk/tnc.html (accessed 28 November 2011, virtual version no page).
21 STIGLITZ Joseph E., “The need for an adequade international framework for FDI” in SAUVANT Karl P., (ed.), The Rise of Transnational Corporations from Emerging Markets: Threat or Opportunity? (Cheltenham / UK & Northampton, MA/USA: Edward Elgar Publishing Limited, 2008), p. 319.
22 DERBER Charles, Ibid., p. 71. See also KORTEN David C., When Corporations Rules the World (San Francisco: Berrett-Koehler Publisher, Inc.: 1996) and The Post-Corporate World: Life after Capitalism (San Francisco: Berrett-Koehler Publisher, Inc.: 1999). In these two books Korten widely treated the pervasive influence and powerful dominant role of corporations in today’s modern economy with all the frauds and problems they pose such as the rise of poverty, unemployment, inequality, violent crimes and environmental degradation.
23 MADELEY John, Ibid., p. 2
24 Banks, insurance companies and pension funds are among the institutional investors or institutional shareholders of many corporations.
25 There is plenty of literatures telling sad stories about how the TNCs operating in mining sector or other sectors have been systematically and mercilessly destroying the life of the poor in developing countries. In many developing countries police and soldiers have been bribed to guard the foreign companies that destroy the properties of their own people and kill them when they protest and fight for their land rights. For further information, see MANDER Jerry and TAULI-CORPUZ Victoria (eds.), Paradigm Wars: Indigenous People’s Resistance to Globalization (San Francisco: Sierra Club Books, 206), MADELEY John, Big Business Poor Peoples: How Transnational Corporations Damage the World’s Poor (London & New York: Zed Books, 2008), MOODY Roger, The Risks We Run: Mining, Communities and Political Risk Insurance (London: International Books, 2005), MOODY Roger, Rocks & Hard Places: The Globalization of Mining (London & New York: Zed Books, 2007) or GEDICKS Al, The Resource Wars: Native and Environmental Struggles Against Multinational Corporations (Boston, MA: South End Press, 1993) or KLARE Michael T., Resource Wars: The New Landscape of Global Conflict (New York: Owl Books, 2002). It is beyond the scope of this work to go into details of the problems faced by rural communities in the developing countries of the South in relating to heinous crimes of human rights’ violations, forced mega mining projects upon the rural poor communities by destroying their properties deforesting their environments and poisoning their water system. Almost all conflicts in Sierra Leon, Congo, Rwanda, Sudan, Zaire of Africa, in Borneo, Aceh, Maluku, Ecuador, Bolivia, Columbia, to mention only a few as samples, have been triggered by transnational corporations in mining sector. Readers who are interested to know further detail information should peruse the mentioned literatures.
26 WARD Dan Sewell, “Transnational Corporations,” http://www.halexandria.org/dward318.htm (accessed on 4th of November 2011, virtual version no page); see also MADELEY John, Ibid., 177-178.
27 HALLMAN David G., “Ethics & Sustainable Development”, in HALLMAN David G. (ed.), Ecothology: Voices from South and North (New York: Orbis Books, 1994), p. 274; see also MADELEY John, Ibid., p.173.
28 WILLIAM Chris, Ecology and Socialism: Solutions to Capitalist Ecological Crisis (Chicago: Haymarket Books, 2010), pp. 26-27 & 72. As a professor in physics and chemistry, Chris William recorded that “since 1750 [the year of more or less industrial revolution began in England] levels of CO2 in the atmosphere have grown from 280 parts per million (ppm) to today’s level of 387ppm, with an increase of 70 percent between 1970 and 2004, precisely mirroring the vast global economic expansion that occurred during those years” and out of this level, “the richest 7 percent of the global population are responsible for 50 percent of the world’s CO2 emissions, whereas the poorest 50 percent are responsible for a mere 7 percent” .
29 see United Nations, Kyoto Protocol to the United Nations Framework Convention on Climate Change, 1998.
30 WILLIAM Chris, Ibid., pp. 18-19.
31 Ibid., p.20.
32 JACKSON Ross, Occupy World Street: A Global Roadmap for Radical Economic and Political Reform (White River Junction, Vermont: Chelsea Green Publishing, 2012), p.131.
33 MADELEY John, Ibid., pp. 10-11
34 COLLINS Chuck & WRIGHT Mary, The Moral Measure of the Economy (Maryknoll, New York: Orbis Books, 2010), p.12.
35 MADELEY John, Ibid., pp. 12-13.
36 MADELEY John, ibid., p. 14.
37 KLEIN Naomi, No Logo: Taking Aim at The Brand Bullies (New York: Picador USA, 2000), p. 206
38 GӦNNER Christian, “Causes and Impacts of Forest Fires: A Case Study from East Kalimantan, Indonesia, in http://www.fire.uni-freiburg.de/iffn/country/id/id_24.htm (accessed on 17th of November 2012, virtual version no page). The article can be found also in IFFN No. 22 - April 2000, pp. 35-40.
39 NORTH Douglas, Ibid.
40 MADELEY John, Ibid, p. 188. Most likely the same mode of operations is applied by powerful giant corporations when operating their business in foreign developing countries. In Indonesia, for instance, Indonesian government, against the will of Indonesian people and the world community, all of a sudden enforced controversial Regulations of Governments No.1/2004 and No.2/2008 in which Indonesian central government allows 13 selected transnational corporations to mine in protected rainforests that are dear to Indonesian rural communities as well as to the worldwide community. Most likely there are no other forces that stand behind the Indonesian government in enforcing these two destructive and undemocratic regulations than the transnational mining corporations. Regarding what the names of these 13 selected transnational corporations, it seems, still remains a secret to Indonesian public majority.
41 Ibid., pp. 5-6.
42 Ibid., p. 6. Yet as we will see later, according to the logic of corporate law the parent company cannot be legally held accountable for the debts, obligations or crimes that are perpetrated by its subsidiaries. Parent company as the stockholder of the subsidiary company is well protected by the corporate veil or corporate shield principle that is known as limited liability.
43 SAHIN Selver B, LEWIS Belinda & LEWIS Jeff, “Fractured Future: Indonesian Political Reform and West Timor Manganese Mining”, in Global Change, Peace and Security, Vol.24. No.2, June 2012, p. 301.
44 PAEHLKE Robert, “Environmental Harm and Corporate Crime”, in PEARCE Frank and SNIDER Laureen (eds.), Corporate Crime: Contemporary Debates (Toronto, Buffalo & London: University of Toronto Press, 1995), p.306.
45 HECHANOVA L.G., “Development and Multinational Corporations” in HECHANOVA (ed.), Religion and Development in Asia: A Sociological Approach with Christian Reflection (Manila Quezon City: FERES, 1975), p.106.
46 See for example the works of KORTEN David C., When Corporations Rule the World (San Francisco: Berrett-Kohler Publisher, 1996), NACE Ted, Gangs of America: The Rise of Corporate Power and the Disabling of Democracy (San Francisco: Berrett-Koehler Publisher, 2005), HERTZ Noreena, The Silent Takeover: Global Capitalism and the Death of Democracy (London: William Heinemann Random House, 2001) or GLASBEEK Harry, Wealth by Stealth: Corporate Crime, Corporate Law and the Perversion of Democracy (Toronto: Between the Lines, 2002). Just by looking at the titles of these academic works one can imagine what is going on around the world today in regard to the democratic governmental system. Democracy has been disabled and fallen into the powerful grip of the hands of world’s transnational corporations. The latter are the ones who govern world’s population, control their lives and economies and enjoy the lion-share of natural wealth of the planet leading to the increase of poverty and environmental degradation.
47 DERBER Charles, Ibid., p. 59.
48 Ibid., p. 60. It seems that even at the home countries of the TNCs, people have been fed up with the political influence of the corporations. Many American people today, for instance, are not happy with their governments and politicians who seem to have been in the grips of the power of corporations. The corporations fund the campaigns of American candidates for president, for a governor or for a senator. People are indeed the ones who vote at the elections, yet once elected politicians tend to listen to their money masters first – the corporations – and to their interests. Against the occupation of the American democracy by corporate power was, in fact, the main reason why the American young people occupied the Wall Street for three months before the end of the year 2011. For further information, see “Reclaim Democracy.org: Restoring Citizen Authority over Corporations” in http://www.reclaimdemocracy.org/political_reform/proposed_constitutional_amendments.html (accessed on 4th of January 2012, virtual version no page).
49 GLASBEEK Harry, Wealth by Stealth: Corporate Crime, Corporate Law and the Perversion of Democracy (Toronto: Between the Lines, 2002), p. 234.
50 Ibid., p. 235.
51 DERBER Charles, Ibid., 103.
52 MONKS Robert A.G., The Emperor’s Nightingale: Restoring the Integrity of the Corporation in the Age of Shareholder Activism (Reading, Massachusetts: Addison-Wesley, 1998), pp.36-29. It would be hard to think if all other poor developing countries around the globe including Indonesia adopt the American version of democracy which, in reality, it is run or controlled by the big money of the endless profit-seeking private sectors – giant corporations. The political process – political campaigns and elections – are clandestinely funded by corporations, political leaders and representatives are voted by the country’s citizens and once elected they will no longer listen to the voters but to private sectors that have contributed large financial supports.
53 NACE Ted, Ibid., pp. 210-211.
54 HARTMANN Thom, Unequal Protection: How Corporations Became “People” and How You Can Fight Back (San Francisco: Berrett-Koehler Publisher, 2010), pp. 210-211.
55 As recorded by John Madeley, European Union came into being only few decades ago cannot escape the corporate grasp: “In city of Brussels, the headquarters of the European Union, over 10.000 of them ply their trade - professional lobbyists working for corporate interests. Highly paid ... they seek to influence the European Parliament, the Commission, members of European Parliament and other EU institutions. They are paid to ensure a favorable outcome for their industry, their company. They do not always get what they want, but usually have money to buy a good result. And if things are not going too well in Brussels, the chief executive officer of a TNC can always put in a call to someone at the very highest level…. TNCs have the highest access to the most senior policy makers; they can call presidents, prime ministers and heads of key international agencies to put their case, and their call will be put through.” For further information, see MADELEY John, Ibid., p.172.
56 MADELEY John, Ibid, pp. 173-174.
57 Ibid, p. 174.
58 For more details concerning the strong and pervasive clout of the transnational corporations in the institutions of the United Nations, see MADELEY John, Ibid., pp.175-177.
59 There are a lot of discussions and debates regarding the balance, frauds and the overlapping practices between these three main internal components of corporate governance which is beyond the scope of this work. Those who are interested in the details of the issue and debate should look for further information somewhere else such as the whole work of MONKS Robert A.G. and MINOW Nell, Watching the Watchers: Corporate Governance for the 21st Century (Cambridge, Massachusetts: Blackwell Business, 1996 NACE Ted, Gangs of America: The Rise of Corporate Power and the Disabling of Democracy (San Francisco: Berrett-Kohler Publishers, 2005). While concerning the strange relationship between the three corporate fundamental elements – shareholders, directors and managers – on one side and the legal separation of the corporations as independent entities on the other will be treated on one of the next subheadings of this chapter under the subject about the core characteristics of corporate law and its problems.
60 BECKET Michael, How the Stock Market Works: A Beginner’s Guide to Investment, Fourth Edition (London, Philadelphia, New Delhi: KoganPage, 20012), p. 1.
61 Ibid., p.167.
62 KRAAKMAN Reinier, DAVIES Paul & HANSMANN Henry, Anatomy of Corporate Law: A Comparative and Functional Approach (New York: Oxford University Press Inc., 2004), p.5. Cf. also DAVIES Paul, Introduction to Company Law, Second Edition (Oxford: University Press, 2010), pp.8-9.
63 Ibid,. p.89.
64 HARTMANN Thom, Ibid., p. 65.
65 GLASBEEK Harry, Wealth by Stealth: Corporate Crime, Corporate Law and the Perversion of Democracy (Toronto: Between the Lines, 2003), p. 67.
66 DAVIES Paul, Introduction to Company Law, Second Edition (Oxford: University Press, 2010), p.9.
67 KRAAKMAN Reinier, DAVIES Paul & HANSMANN Henry, Ibid., p.7. See also DAVIES Paul, Introduction ... Ibid.
68 Ibid.
69 Theoretically speaking however, again according to Will Barnard there are at least three cases in which corporation's officers and shareholders could lose their corporate veil: The first case is called Alter Ego. It is a case in which the Corporate Veil is pierced when the business owners of the company ignore the corporate formalities that are not recognized and treated as separate things by the owners of the company. The second case is when a business owner commits fraud. This could be as simple as forming an entity, and then insuring liability in the name of the Company with no intention of repaying the liabilities. In such a case, the company’s owner cannot rely on the protection of the Corporate Veil as a way to avoid payment for the liability. The third case is called gross negligence. It occurs when the business commits acts which are grossly negligent or reckless. Gross negligence occurs when the business intentionally fails to perform duties or commits reckless acts. Ordinary negligence can arise from simple inadvertence. For further information, see BARNARD Will, “What Is the Corporate Veil and How Can It Be Protected?” in http://www.biggerpockets.com/articles/384-what-is-the-corporate-veil-and-how-can-it-be-protected- (accessed on 14th of January 2013, virtual version no page) and also MURRAY Jean, “Corporate Shield - Corporate Veil - Piercing the Corporate Veil” in http://biztaxlaw.about.com/od/glossaryc/g/corpshield.htm (accessed on 14th of January 2013, virtual version no page).
70 DAVIES Paul, Introduction.... Ibid., p.59.
71 Ibid.
72 In the world of financial market, stocks or shares are interchangeably called IOUs (I Owe You) or financial claims. To a DSU (Deficit Spending Unit – the borrowers such as corporations), a share or a financial claim is liability and the interest payments are viewed as the penalty for consuming before income is earned. To the SSU (Surplus Spending Unit – the lenders such as investors or shareholders, a stock or a financial claim is an asset and the interests earned are considered as the reward for postponing consumption. Once the deal between the lender (SSU) and the borrower (DSU) is made, the lender can hold the financial claim until a certain period of maturity. While holding the financial claim, however, a lender, an investor or a shareholder (SSU) may sell the financial claim any time to someone else before reaching its time of maturity. At the same time, the borrower, the corporation (DSU) continues to use the funds that have been invested even though the lenders, the investors or the shareholders (SSUs) are now different parties. For further information, see KIDWELL David S., BLACKWELL David W., WHIDBEE David A & PETERSON Richard L., Financial Institutions,. Ibid., p.6.
73 MONKS Robert A.G. and MINOW Nell, Ibid., p.6. As previously mentioned, however, the Article of incorporation usually includes two provisions that restrict the free transfer of shares to some extent as explained by Thompson & Thompson: “(1) Preemptive right to shareholders. A shareholder’s preemptive right is his right to subscribe to that amount of shares in a new issuance which will preserve his existing proportionate interest in the corporation. (2) Stock transfer restriction. Stock transfer restrictions are frequently used in closely held corporations to prevent the sale of stock to unwanted shareholders. These restrictions are generally of two types: (a) Right of first refusal. This right permits the corporation or the non-selling shareholders to have a first option to purchase the stock of a selling shareholder under specified conditions. If the corporation refuses to exercise its option to purchase, the selling shareholder may then sell the shares to any other person under the same specified condition. (b) Stock redemption agreement. The Article of incorporation…may authorize or refer to a stock redemption agreement. The agreement requires…the surviving shareholders to purchase the stock of a ... withdrawing shareholder at a predetermined price and under specified conditions, and the …withdrawing shareholder is also required to sell his shares at the price and under the conditions stated in the agreement.” For further information, see Thompson & Thomson: A Professional Corporation, “How to Form an LLC or Corporation” in http://www.t-tlaw.com/fin-15.htm (accessed on 15th of January 2013, virtual version no page).
74 KRAAKMAN Reinier, DAVIES Paul & HANSMANN Henry, Ibid., pp.10-11.
75 DAVIES Paul, Ibid., p. 19.
76 Ibid., pp.19-20.
77 Corporations were invented in the 16th century as a product of industrial revolution and have ever since slowly evolved throughout the next 300 hundred years of planet’s exploitation by means of colonization, accelerated by industrial revolution in the 17th century and by modern technology, telecommunication and transportation in the 21st century until they reach their final form today known as transnational corporations. The history of corporations has its own proportion and complexity which is beyond the scope of this study. For those who are interested in the history of corporation, see, for instance, NACE Ted, Gangs of America: The Rise of Corporate Power and the Disabling of Democracy (San Francisco: Berrett-Koehler Publisher, 2005) especially chapter 1 to 11 “How Corporations Got so Much Power to Superpowers”, pp. 19-161, BAKAN Joel, The Corporations: The Pathological Pursuit of Profit and Power (London: Constable & Robinson Ltd, 2005) especially chapter 1 “The Corporation’s Rise to Dominance”, pp. 4-27 or HARTMANN Thom, Unequal Protection: How Corporations Became “People” and How You Can Fight Back (San Francisco: Berrett-Koehler Publisher Inc., 2010) especially Part I “Corporations Take Over” and Part II “From the Birth of American Democracy through the Birth of the Corporate Personhood”, pp. 13-186.
78 GLASBEEK Harry, Ibid., p.8.
79 Ibid.
80 Ibid. We will demonstrate later samples as to how the proliferation of corporations into endless subsidiaries, sub-subsidiaries and affiliations are purposely so designed to manipulate laws.
81 Interviewed by BAKAN Joel, Ibid., pp.56-57.
82 BAKAN Joel, Ibid., p. 79.
83 Interviewed by BAKAN Joel, Ibid., pp. 79-80.
84 Quoted in BAKAN Joel, Ibid., p. 80.
85 CHANG Ha-Joon, 23 Things They Don’t Tell You about Capitalism (New York, Berlin, London & Sydney: Bloomsbury Press, 2010), p.12.
86 DAVIES Paul, Ibid., p. 10.
87 Ibid.
88 GLASBEEK Harry, Ibid., p. 10.
89 In reality, till today Sumber Jaya Asia mining company has not been even fined even a cent for the damage of the 44 hectares of protected rain forests of Nggalak-Rego RTK No. 103 and 33 hectares of agricultural arable lands of the local villagers. After a class-action launched by the local villagers, the case was simply dropped by the local court in 2011 without giving the company any penalty at all for the crime that it had done.
90 HARTMANN Thom, Ibid., p. 65. It is still fresh in my memory. In late 1990s a religious congregation in Flores Island, Indonesia, invested Rp5 billion (about $500.000) in Platinum International Insurance Company which its office was located in the city of Surabaya in the Island of Java, Indonesia. During the first two years, the congregation consecutively got a quite high dividend in return. Being encouraged by Platinum International Insurance Company to invest more in order to get even higher dividend, the congregation invested Rp7 billion more in the company in the next following year (about $700.000). Yet soon after, the company simply disappeared by dissolving itself without any notice. Till today the devastated poor religious congregation is left powerless. Almost there is no way to go after those who ran and managed as the directors and managers of the defunct or disappearing company.
91 BAKER Dean, The End of Loser Liberalism: Making Markets Progressive (Washington DC: The Center for Economic and Policy Research, 2011), p. 7.
92 DAVIES Paul, Ibid., p.61.
93 CHARTIER Brian J, “The Case for Subsidiary Corporate Governance” in http://cgs.computershare.com /news2/Subsidiary%20Governance%20Article%20V2.pdf (accessed on 16th of January 2013, virtual version no page).
94 MADELEY John, Big Business Poor Peoples…Ibid, p. 2.
95 Thompson & Thompson, “The Parent/Subsidiary Relationship” in http://www.t-tlaw.com/cor-02.htm (accessed on 14th of January 2013, virtual version no page).
96 CHARTER Brian J., Ibid.
97 Thompson & Thompson, “Alter Ego Status and Sham Corporations” in http://www.t-tlaw.com/cor-08.htm (accessed on 17th of January 2013, virtual version no page).
98 Thompson & Thomson, “The Parent/Subsidiary Relationship”, Ibid.
99 That is why as a public relation company, Thompson & Thompson carefully gives some tips to be followed: “To maintain control of a subsidiary and at the same time allow the subsidiary to operate as an independent entity under the direction of its board of directors, a parent business enterprise should: (1) be the sole shareholder; (2) include voting control provisions in the subsidiary's articles of incorporation along with provisions that prohibit amendment of the articles without the approval of the sole shareholder; (3) prepare comprehensive bylaws defining the designation and authority of officers, their term of office, their removal (for cause, or for any or no reason); (4) include in the bylaws the procedure whereby the parent elects and removes directors; and (5) prohibit bylaw amendments without the sole shareholder's approval. The board of directors of the subsidiary are responsible to manage the business and affairs of the subsidiary. The board selects officers and the officers are responsible to execute the policies of the board. The officers of the subsidiary do not "report" to the officers or board of the parent nor are they responsible to the officers or board of the parent corporation. This does not mean, however, that there is no communication between the subsidiary's CEO and the parent. After all, the parent owns the subsidiary and by virtue of its ownership or control is entitled to examine the subsidiary's financial reports and business plan, and to otherwise hold the subsidiary and its management accountable for the performance expectations of the parent.” For further information, see Thompson & Thompson, “The Parent/Subsidiary Relationship”, Ibid.
100 DAVIES Paul, Ibid., pp. 61-62.
101 In addition, because the parent company is also the incorporator of the subsidiary companies, the parent company also has the power to simply dissolve its subsidiaries when they face bankruptcy, do not gain profits as expected or in order to abolish the criminal prints they have committed. Thom Hartmann says: “If the corporation declares bankruptcy and dissolves itself, there is nobody or the creditors to go after.” For further information, see HARTMANN Thom, An Equal Protection…. Ibid., p.65.
102According to Formada (Forum Pemuda NTT Penggerak Keadilan /NTT Youth Forum for Justice Movement), as of 19th of January 2013, 414 IUP or mining licenses have been issued by local governments in East Nusa Tenggara Province which includes the Island of Flores, Indonesia. Yet only 114 out of 414 were found clear and clean by Indonesian central government, whereas the other 300 IUPs were found not clear and clean which meant the they were full of frauds and even illegal. For this reason, Formada in a seminar held in Jakarta on 19th of January 2013 urged Indonesian local government of NTT Province to audit all mining license permits that it has issued. For further information, see Formada , “Pemerintah NTT Disesak Audit Semua Isin Tambang / NTT Local Government Urged to Audit all the Mining License Permits” in http://www.theindonesianway.com/pemerintah-ntt-didesak-audit-semua-izin-tambang/ (accessed on 19th of January 2013, virtual version no page)
103 BAKAN Joel, Ibid., p.60.
104 Interviewed by Joel Bakan in BAKAN Joel, Ibid., p.61.
105 Interviewed by Joel Bakan in BAKAN Joel, Ibid., p.71.
106 KORTEN David C., When Corporation ... Ibid., p.76. For other examples of wide spread externalities, see, for instance, MOKHIBER Russel and WEISSMAN Robert, Corporate Predators: The Hunt for Mega-Profit and the Attack on Democracy (Monroe, ME: Common Courage Press, 1999).
107 BAKAN Joel, Ibid., p. 27.
108 Ibid. Regarding CSR as the propaganda of corporations to soften their bad image, see, for instance, BENN Suzanne and BOLTON Dianne, Key Concepts in Corporate Social Responsibility (Los Angeles, London, New Delhi, Singapore, Washington DC: Sage Publication Ltd, 2011) or VISSER Wayne, MATTEN Dirk, POHL Manfred and TOLHURST Nick, A-Z of Corporate Social Responsibility (Chichester, Great Britain: John Willey & Sons, Ltd, 2010).
109 Ibid., pp. 33-34.
110 Quoted in BAKAN Joel, Ibid, pp.37-38.
111 Ibid.
112 Ibid.
113 MADELEY John, Ibid., p. 186.
114 Quoted in MADELEY John, Ibid.