May 20, 2002
Book Review: Corporate Irresponsibility
by Willliam Baue
George Washington University law professor and corporate governance expert blames immoral corporate
behavior on imperative to maximize stockholder profit.
"Maximize stockholder profit." Professor Lawrence Mitchell repeats this mantra incessantly at the
outset of his new book Corporate Irresponsibility: America's Newest Export to remind readers what he is
arguing against. He even coins a term, "short-termism," to describe the current obsession for
immediate economic gratification at the expense of long-term returns, both financial and
non-financial. However, the book is less a diatribe than a carefully crafted history of the legal,
philosophical, and psychological underpinnings of our current corporate theory, which he predicts
to be unsustainable.
"Simply put, I will argue that the
main problem with American corporations--the main cause of their irresponsibility--is their drive
to maximize short-term stock prices, a result that no thoughtful person really wants," writes
Professor Mitchell in the Introduction. "The root of the problem is the corporate structure
itself: the corporation's legal structure encourages managers to aim for exactly this short-term
result, and it does so by constraining their freedom to act responsibly and morally: the result is
The author admits the difficulty of defining corporate
irresponsibility, so he provides several examples of it in practice. One of those examples is
Unocal's engagement of slave labor in Burma, which he returns to throughout the text to illustrate
his points. He distills the development of corporate irresponsibility into a concise historical
treatise, tracing its origins back to American liberalism (the philosophy, not the political
leaning.) By explaining the history of corporate irresponsibility, he identifies the phenomenon as
a systemic one in need of a systemic response.
Although Professor Mitchell recognizes that
the dynamics that create corporate irresponsibility and short-termism are embedded in the structure
of corporate law, his solutions are more normative than legal. "Let's attempt to shift corporate
behavior before changing corporate law," he suggests. He invokes Piaget's developmental psychology
to posit that the legal treatment of corporations as individuals with limited liability but without
ethical accountability stunts their moral growth. In essence, humans have written laws that
prevent corporations from exiting self-centered adolescence, he argues.
problem, according to Professor Mitchell, is our schizophrenic definition of corporations. On the
one hand, our laws treat corporations as individuals with rights, but on the other hand, it
absolves corporate actors of responsibility for their actions. This structure encourages immoral
behavior by managers and directors who might conduct themselves morally outside of their corporate
life, because our system forces individuals to be accountable for their actions. The author
highlights the irony that our laws and business structure absolve the very entities most capable of
wreaking damage--large corporations--of all responsibility.
The conclusion of Professor
Mitchell's argument sounds exceedingly patriotic: we must liberate corporate actors from the
shackles of the imperative to maximize shareowner profit. However, this solution is not without
risk. It assumes that basic human morality will apply to the corporate setting as well. In many
ways, this is proposal much more ambitious than a legal solution, which would impose strictures on
managers and directors to coerce behavior defined as moral by the state. Professor Mitchell's
solution instead challenges us to have faith that humans will conduct themselves ethically if given
the freedom to do so.
Buy this book at Amazon.com
Corporate Irresponsibility: America's Newest
Export by Lawrence E. Mitchell. Yale University Press, 2002.
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