Social Strategy & Corporate Structure (Studies of the Modern Corporation) - Softcover

Chamberlain, Neil W.

Softcover

ISBN 10: 1416576452 ISBN 13: 9781416576457

Publisher: Free Press, 2007

Synopsis

This new work by Neil W. Chamberlain will be of great importance to the business community -- and to all those charged with defining the role large corporations play in the affairs of society.

Social Strategy and Corporate Structure is an objective, indepth examination of the organizational requirements of a social role for large-scale business. The role Neil Chamberlain presents is one of heroic dimensions: the political choice of goals, the strategic allocation of resources, and the tactical operations of the mechanisms of production.

While there has been much discussion of corporate social responsibility, few have investigated the ways its structure will have to change if the corporation is to pursue a strategy that is both economic and social. This timely book integrates a large number of issues involving corporate activities and governance that go directly to the heart of this problem.

In step-by-step detail, Chamberlain analyzes the organizational imperatives of this new age of social responsibility: the composition and functions of boards of directors and the relation of their duties to a broad system of national planning; the internal social audit; changes in the characteristics of corporate social planning; and proposals for restructuring ultimate corporate authority, either through public or outside directors. In addition, he examines the potential relevance of federal chartering of corporations, and the effects of international economic interdependence on the development of a new corporate social strategy.

This book is not a detailed blueprint for change. Rather, it presents a thorough, systematic study of available courses of action for improvement, based on the principle that conventional notions of corporate independence will have to be modified for any social strategy to work. And while not everyone will agree with Neil Chamberlain, few can afford to ignore his provocative insights into what corporations must do to function effectively in a changed social environment.

About this title

About the Author:

Neil W. Chamberlain is the Armand G. Erpf Professor (now Emeritus) of the Graduate School of Business, Columbia University. He has also held the chair in management economics in the Department of Economics at Yale University. His professional interests began with industrial relations and labor economics and have subsequently extended to the economies of the firm and corporate planning, national planning, and most recently social values and corporate social responsibility, as reflected in the titles of some of his twenty-two books: The Union Challenge to Management Control, The Labor Sector, The Firm: Micro-Economic Planning and Action, Private and Public Planning. Enterprise and Environment. The Place of Business in America's Future: A Study in Social Values. The Limits of Corporate Responsibility, and Remaking American Values: Challenge to a Business Society.

He is a past president of the Industrial Relations Research Association and was director of the Program in Economic Development and Administration of the Ford Foundation from 1957 to 1960. He has served on the board of editors of the American Economic Review, the editorial council of Management International, and the board of trustees of the Columbia Journal of World Business.

Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1

The Uncertain Relation between Business and Society

The corporation in America was first and foremost a political expression performing a public economic function. The colonies transplanted a mercantilist European society. The central tenet of mercantilism was the integration of the social order within the nation-state, which had become the parochial and secular substitute for the declining Roman Catholic church. The advancement of the state was intended to contribute to the welfare of its people, and that political objective affected the character of the state's instrumentalities. Thus, in colonial America, no less than in the metropolitan countries of Europe, the state created corporations for public purposes. The purely private business affairs of the colonists, more restricted in scale and scope, were carried on chiefly by individuals or by unincorporated joint-stock companies of a local nature.

The Corporation in the Early United States

Neither independence nor Adam Smith's great antimercantilist polemic The Wealth of Nations, which emerged in the same year, wrought any radical change in public attitudes toward the corporation as a political instrument. Mercantilist views on the need for government to promote the social welfare hung on in the newly created United States for fifty years or more. No longer, however, were there the preclusive powers of an overseas imperial government, nor did the new federal government exercise much of an inhibitive role. Under the constitutional principle of states' rights, state governments moved into the business of chartering their own corporations. Each corporation required a special act of the state legislature, tailored to the specific purpose being promoted.

By the turn of the nineteenth century more than three hundred business corporations had been created. Two-thirds were concerned with inland navigation, turnpikes, and toll bridges. The remainder included insurance companies, commercial banks, and public services (e. g., administering the water supply and docks). As the historian Stuart Bruchey observed: "These business corporations were no more exclusively profit-seeking associations than the chartered joint-stock companies with which the English had pioneered in the settlement of America. They were, in fact, quasi-public agencies of the state." He quoted a Massachusetts charter of 1818 that created "a corporation and body politic" for the purpose of milling flour. The special privileges accorded such corporations were premised on the social services they rendered: the dedication of private capital and entrepreneurial effort to the public interest. Other investigators have underlined this political character of the early corporation. John P. Davis, in his classic two-volume history of the corporation, noted that "it was not considered justifiable to create corporations for any purpose not clearly public in nature; each application was considered by itself, and if favorably, was followed by a legislative act of incorporation." Oscar Handlin commented that "at its origin in Massachusetts, the corporation was conceived as an agency of the government, endowed with public attributes, exclusive privileges, and political power, and designed to serve a social function for the State."

After 1815 an increase in economic opportunity projected the country into what, in contemporary terminology, would be called the takeoff into sustained economic growth. The moving West became more closely integrated with the industrially expanding East. A surge in immigration, especially of the Irish and Germans, increased the pool of both consumers and workers. A concomitant, yeasty egalitarianism led to movements in the several states for abolition of property holder or taxpayer status to qualify for the vote; admission of new states, formed out of the western territories and populated with rugged individualists, expanded an assertive electorate.

This spread of economic opportunity gave rise to a new class of economic adventurers in single-minded pursuit of wealth. The cult of the self-made man became the national symbol. In those heady days the self-created businessman was the very embodiment of democracy, contrasting with the members of the older eastern aristocratic families who had inherited their privileges. The changed climate was not without effect on the political concept of the corporation.

First, the practice of issuing corporate charters by special legislative act came to be viewed with suspicion and distaste. For one thing, it smacked of privilege: individuals with well-placed contacts, favorable social standing, and economic advantage clearly had an inside track on a state's grant of corporate rights. Even though that grant was premised on the rendering of a public service it nevertheless entailed private profit and benefit. Egalitarian sentiment supported a legislature representing all equally.

A second shift in social attitude toward the corporation was perhaps even more important. In the spirit of the times economic development, a national objective, was a goal that could be promoted by Everyman. Adam Smith was coming into his own, winning recognition that the butcher, the baker, the candlestick maker -- all seeking their private gain -- were contributing to the national wealth and thus serving a public purpose. In serving a public purpose, they, too, merited the advantages of incorporation. In Davis's words, "Not only was it difficult to distinguish between public and private, but the view that individuals should have the freest possible opportunities to create wealth encouraged the presumption that every business was of public importance in the respect that it might increase the aggregate wealth of society." Private enterprise had become public purpose.

The consequence for the corporation of this changing social context was remarkable. Although there had been some early flirtation with general incorporation laws, obviating the necessity of special legislative acts, movement in this direction now swelled. At least half a dozen states had passed general incorporation laws prior to the Civil War. And the notion that public purpose was served by private profit seeking gave ample rationale to this more open access to the corporate form, with its attendant advantages.

Private profit seeking has characterized societies in almost every age, as R. H. Tawney pointed out, but what was new about the nineteenth-century development, and especially its American expression, was the unabashed identification of private with public good and the widespread embrace of material advancement as embodying the highest democratic good. This value orientation shaped both American society and the American landscape. Law and business practice emphasized the privacy of person and property and gave to the corporation the constitutional rights of those persons who had formed it. After all, the federal constitution had made no special provision for such an institution. Business relations -- the relations between the institutionalized person of the corporation and the real persons with whom it dealt -- rested on voluntary contract, volition assumed to be equal on both sides. Such voluntary relations were largely unsupervised by the state as to their effects on the contracting parties or on third parties -- even whole communities. Cities and nature, people and resources, became appropriate arenas for the economic exploits of private adventurers, whether single entrepreneurs or incorporated associates.

Expanding Corporations and Their Impact

The consequence of this transformation of the corporation from public service provider to private profit seeker became more evident after the Civil War with the development of a national market based on an expanding transportation network. The more enterprising corporations grew in size, enlarged their financial base, and changed their organizational form and managerial functions. In effect the corporation, which sought to seize the economic opportunities offered by the amalgamation of pockets of population into a vast and virtual empire, had to pull up its local roots, separating itself from a community in which its managers were familiar civic figures, subject to the constraints of neighbors' opinions, and loosening ties with the state that issued the corporate charter. Abandoning this limited field of operations, the national corporation could obtain its charter in any state as a license to do business anywhere in the nation. Autonomous in its actions under the permissive philosophy of private initiative, the national corporation, with its subsidiaries and satellites, was free to move in and out of communities as suited its operations. With its behavior justified by the political principle that whatever contributed to economic development achieved public purposes, the national corporation could view social communities and the physical environment as malleable materials to be shaped to its own pecuniary advantage.

The enormity of this continental challenge spawned a race of titans capable of measuring up to the new standard. Cities like Detroit, Gary, Chicago, St. Louis, Omaha, and Denver could be thrown up almost like stage sets, outfitted to satisfy corporate balance sheets. Technology -- building from Eli Whitney's insightful use of interchangeable parts in the early nineteenth century -- was pushed at an accelerating pace; one discovery paved the way for another. In an early version of Mao's hundred blooming flowers, backyard laboratories sprang up wherever there were backyards. Soon the basement inventor was replicated on a vast scale within the nationalizing corporations: Steinmetz and General Electric became the paradigm.

New industries emerged -- automobile, rubber and tire, electrical, pharmaceutical. The race of titans gave way to more impersonal and institutionalized divisions of the large corporations, each with a mission and a budget -- to invent, to develop commercially, to produce efficiently and profitably, to create appetites for the more and the different. Raw and processed materials followed the same pattern -- steel mills that quickly dwarfed those of England, from which they had taken their inspiration; oil derricks hastily assembled to bring the new fuel to use abundantly and quickly, if also wastefully; massive machinery, eventually towering like Gothic cathedrals in the wilderness, for the purpose of extracting coal and minerals and in the process creating mountains of slag that would be left ominously behind. Like the materials-producing industries, the new manufacturing plants generated wastes on a scale proportionate to their output. Wastes could be discharged into rivers and lakes, deposited in landfills, or buried. In some instances the violation of social amenities was blatant enough to evoke -- not always effectively -- resentment and resistance: automobile graveyards stacked with the rusted bodies of junked cars; nauseous odors in the vicinity of plants using certain chemicals; and water so contaminated that the chlorination to make it safe for drinking made it unpalatable. In other cases toxic wastes buried in the ground or left in dump sites found their way, after the passage of years, into underground streams, where they endangered the health of nearby residents. The potential hazard may never have been suspected: the dump was available and there were few restrictions on the private use of land (there still are not in many states).

Thus, large-scale corporate industry affected society in two ways: the direct impact of the production process on the social and natural environment -- the use of people and nature as resources for the benefit of the autonomous corporation, whose private gain was identified with public good; and the health hazards, pollution, and environmental despoliation for which no corporate responsibility -- until recently -- was assessed since these activities breeched no right of contract or fair usage of property and were incidental to the production process, which was itself wanted (corporate profits, workers' jobs, and community taxes all being at stake).

Moreover, the adverse effects of technological processes are often disputable: "Is the routine use of antibiotics in animal feed breeding medicine-resistant bacteria that will eventually cause untreatable diseases in humans?" Business Week asks. "No one seems to know for sure....The stakes are huge. Although the $170 million annual market for animal-use antibiotics represents insignificant fractions of the total sale of such drug giants as American Cyanamid, Pfizer, and Diamond Shamrock, it forms the backbone of their agricultural sales divisions....The nagging question, however, is whether continuing the use of feed antibiotics will yield cheap meat at the expense of good health." An elderly woman living near a former industrial dumpsite that harbors residual asbestos, benzine, and other toxic substances, says perplexedly: "Chemicals are everywhere. One test will show that it's dangerous, one test will show that it's not. In this day and age, who do you believe?"

The knotty problem of weighing economic advantage against social disadvantage, particularly in the face of scientific uncertainty, is perhaps most clearly illustrated by the case of nuclear power. But recent years have witnessed an increasing number of like industrial dilemmas: the effect of certain spray propellants on the ozone layer; the hothouse effect of carbon dioxide from increased coal burning to conserve scarce and expensive oil; the widespread use of herbicides containing dioxin, which has been called the most powerful carcinogen known; and a Pandora's box of suggested horrors capable of being visited on humankind by genetic engineering for industrial purposes. The unknowns involved are vigorously debated by scientists.

In the face of such scientific riddles, courts have at times taken the position that "the lives and health of people...in the circumstances of modern industrialism, are largely beyond self-protection." But if this is so, who has responsibility for the public? Is responsibility rested in the corporation, whose value system stresses autonomous decisions directed to the business's own advantage? Is responsibility rested in the hands of government agents, who would have to create a vast network to oversee all corporate activity, granting or refusing their imprimatur often on the basis of inadequate or conflicting information? Is industrialization on a large scale a force so elemental, almost like nature itself, that it cannot be controlled in any meaningful sense?

Leo Marx surveyed the attitudes of American writers of the nineteen and twentieth centuries with respect to the impact of industrialism on society and constructed a vivid historic allegory entitled The Machine in the Garden. From its discovery America embodied the myth of the garden -- an Eden existing in reality. The myth had two versions: one, a primitivistic view -- nature untouched, unspoiled, and provident; the other, a cultural view -- nature left to itself tending as much to wilderness as to garden and requiring human care to realize the pastoral vision.

Into this idyllic conception of the New World intruded, in time, the machine, the steam engine, and above all, the railroad. The Industrial Revolution had started in England, it was true, but there the machine intruded into a formed, socialized setting, with classes, customs, and commerce already in place. In America, it intruded into the unspoiled Garden, the myth-dream of a recovered Eden.

For a while, the opposition between the two cultures -- the pastoral and the technological -- went unrecognized. The machine could be regarded as a prod...

About this edition

• Publisher: Free Press
• Publication date: 2007
• ISBN 10: 1416576452
• ISBN 13: 9781416576457
• Binding: Paperback
• Number of pages: 172