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quate resources and in part because of the growing controls corporations have over governmental processes, which are no longer ad hoc and no longer episodic, but reflect a pattern of institutionalized control, bridging both the corporate and political spheres.
Our proposal for Federal chartering of giant corporations is based on two principal foundations: A jurisdictional one and a foundation of justice. Jurisdictionally, there is no argument that can be made that the legal appraisal and conditioning of corporate charters of giant multinational corporations should remain the fiefdom of the State of Delaware or any other single State because of the power of such split jurisdiction to achieve the lowest common denominator status among the States; and, in effect, permit corporations to shop around for appropriate chartering forums, playing off one State against another.
These are the United States of America, national charters for national and multinational corporations.
The chartering mechanism itself is grossly misunderstood. It is misunderstood by the lawyers in Delaware, the lawyers in Wall Street. It is misunderstood by economists who presume to be lawyers; it is misunderstood by people who are quick to stereotype and distort what is being recommended.
Let us go back to the origins of the Anglo common law. The common law developed on the basis of empirical recognition of victimization of innocent people. It received its impulses and its creation and its elaboration in a step-by-step recognition of injury to citizens, injury in tort or injury in contract. It did not require at that time a regulatory posture. The common law began to be supplanted in the United States more and more by statute and by regulatory standards. It is important to recognize the difference between these kinds of legal controls. For the last century, this country has relied very heavily on presumed regulatory control and the establishment of legal standards which economic institutions are supposed to adhere to under penalty of sanction.
The common law approach is one which develops out of recognition of the victimized process and gives citizens the rights and remedies to pursue along with the State, along with the Government, to pursue the citizen's objective in obtaining compensation for damages or other remedies.
Our proposal for Federal chartering recognizes that there needs to be a broad and deep expansion of initiatory rights and remedies by citizens as they are aggrieved or abused in the course of coercive receipt of corporate action. Many of the examples which we adduce in our report reflect coercive corporate impacts, nonconsensual corporate impacts on a number of citizen constituencies which we conveniently categorize as shareholders, consumers, workers, taxpayers,
workers, taxpayers, and community residents.
Small business can also be added to that list.
Historically, our law has proceeded in the common law area, from a recognition of coercive or nonconsensual impacts. You will note that much of the discussion criticizing the Federal chartering proposal displays an extraordinary insensitivity to the status of economic, health and safety victimization by people in this country. There's almost no reference to the broad range of destructive violence that we too charitably call pollution; the coercive impact of predatory practices; of the ability to bludgeon workers into obedience; on the looting of shareholders; on making the shareholders' theoretical right to control a corporation a disgrace in practice; on the control of the politics of local communities and cities; on the looting of taxpayers through both direct and indirect subsidies from the Federal Government without any kind of adequate control, monitoring or reevaluation; the tax expenditures, a bypass of the congressional process; the Penn Central type subsidy is a classical example of slush funds of money moving with little quid pro quo in terms of fundamental change on the part of the recipient corporation.
The Lockheed bailout is an example of deception while the public attention was focused on the $200 million loan guarantee, the Pentagon had permitted Lockheed hundreds of millions of dollars in distorted and inflated contractual bonanzas.
Specifically now, the question is raised about the Federal charter being a procedural device. Any lawyer who tells you that without defining what he means by procedure is engaging in a bad Socratic play. Our most important substantive rights, historically, have been transformed into procedural rights; the right against self-incrimination is usually considered a procedural device.
There is nothing new about procedural devices to attain substantive justice. It is a false distinction and need not detain us any longer in this discussion.
The framework of the Federal charter proposal is part and parcel of a worldwide reappraisal of corporate power. In Europe, the projection is in the direction of co-determination with labor achieving a larger role on the board of directors. The West German experience with co-determination is about 20 years old. It has not worked very well at all. It is basically a change without a difference.
In Scandanavia now there are even greater efforts to make co-determination more meaningful. One recently defeated bill would have given labor actually a majority vote on the board of directors.
We do not think that that is the preferred way to go in this country. We do not think that a merger of corporate and union forces can produce the necessary decentralization and flow of power to attain a just and prosperous society. We do recognize, however, that labor must be given more rights over the workplace, dealing with occupational health and safety, dealing with the license to abandon the community by the multinational corporation without any justification whatsoever; dealing with such matters as affect workers directly.
In our proposal we recognize that corporations now are not what they used to be. This is a fundamental basis of our recommendations. Economically, corporations are much larger. There are some observers who say that size itself makes no difference. These observers are usually relegated to academic groves in south Florida. They are not, certainly, reflective of what any retired businessman or active businessman would ever relate to an inquirer.
There clearly is a difference between a garage repairing cars in St. Louis, Mo., and General Motors. There clearly is a difference between a local pharmacy and Merck, Sharpe, & Dome.
There clearly is a difference between a small cooperative oil company and Exxon. There clearly is a difference between a small telephone company in Nebraska and I.T. & T., sprawling worldwide from Belgium to Chile.
There clearly is a difference between du Pont and a small producer of plastic.
Économically, there's a difference in terms of control over markets or sharing in an oligopoly situation. Politically there is a difference in terms of the influence over Government and Government's response to these corporations.
I challenge any economist or lawyer to be able to show this committee any Government policy which prevents small business from going bankrupt; yet big business now is too big to go bankrupt. It goes to Washington instead.
If you are a big enough corporation, you are too big to fail. The Congress knows that and the executive branch knows that. That is a transcendence of the market system. That is a recent development in terms of its decisive predictability, whether it is any large corporation, even ones which are properous such as Exxon which has been on corporate welfare from the Federal Government for decades through tax preferences, import quotas, and other facilities.
Westinghouse Corp. now having trouble selling its unbuilt, floating nuclear plants wants the Federal Government-in a letter from the president of Westinghouse, Mr. Kirby, to the Federal Government, on May 1975—to buy these floating nuclear plants and lease them back to the utilities. Mind you, there was a time when a company which had no product, which Westinghouse does not have—it has never built a floating nuclear plant, doesn't even know if it will float-a company that has no product and no firm customers would call it a day and go and produce something else. Instead, Westinghouse goes to Washington.
Economic size in the control over both economic and political factors is significant. Economic size in terms of the merger or influence with Government forces, protecting these corporations from market forces and shielding them with taxpayers subsidies is of significance.
The new technology gives these corporations a different significance as well. A hundred years ago, no matter how much a company may have aspired, it could not effect the ozone level. A hundred years ago, it was not possible to distribute a drug worldwide in a few weeks once it was ready to market, and possibly damage thousands of people.
A hundred years ago, it was not possible to challenge the very integrity of the thin slice of life around the Earth, where 4 billion people live, a slice comprising about 3 to 4 miles of the usable air, water, and soil.
A hundred years ago, it would have been inconceivable in this country for corporations to be in collusion with the CIA, to be in collusion with other forces making our own foreign policy for us without our knowledge or review.
A hundred years ago, it would have been impossible for corporations to discount the health and safety of future generations as plutonium can for 200,000 years.
A hundred years ago, corporations were different. The only thing that hasn't changed is the State of Delaware and its lowest common denominator, money.
In the United States, the historic challenges to corporate power have been four: The populous progressive challenge with direct democracy techniques such as initiative, referendum, recall; and different modes of economic organizations such as cooperatives.
The second was the regulatory Government challenge. That is, the regulatory agencies, the alphabet agencies, starting with the ICC.
Third was the labor union challenge.
A study of how corporations have responded to these challenges is a study of how Mandarin China absorbed its challengers centuries ago.
The corporate income tax becomes the corporate sales tax passed on to the consumers. The law of contracts is subverted or made a mockery, whether between military contractors in the Pentagon or the contract of adhesion that is imposed upon consumers with uniform provisions industrywide on a take-it-or-leave-it basis.
The regulatory protections have revolved too heavily upon the ability of corporations to control the political processes to almost name the political appointees to these agencies and to surround these agencies with overwhelming corporate manpower.
The consumer environmental approach arises out of the context of these other legacies. It is trying to make the regulatory agencies work, in a context where it is almost impossible for these regulatory agencies to be free of their corporate influence.
The labor unions traditionally have been reduced to bread and butter issues so narrow that they don't include consumer advocacy, or antitrust, or the role of corporations generally,
In some areas, these unions have been transformed back into de facto company unions on many issues; and in other areas, they have stuck to such a narrow trajectory that they have lost their potential as a serious countervailing force to corporate power, except at the conventional bargaining table, and even that is limited with only one out of four workers in this country belonging to a union.
The Federal chartering proposals rise before this background. It is against a background of a huge body of empirical information showing rampant corporate crime, an epidemic of late only because it was disclosed; showing manhandling of shareholder rights and a progressive atrophy, even in theory, of their status; showing exploitation of taxpayers, consumers, and the community; showing such gross insensitivity as to result in a refusal to inform workers of the lethal chemicals or gases that they have been working closely with on a dayby-day basis.
Also controlling small business. Small business doesn't speak up as much any more because it is indentured in many of its activities through franchise agreements, exclusive supplier contracts, and other abilities of the principal corporations to determine the fate of small business.
You have here, Mr. Chairman, the constituencies in America which should control the economic system, consumers, shareholders, taxpayers, workers, small businesses, instead what has happened is rather
ingenious. Nobody can accuse the corporate system of not being resilient. What happens is that even the abundant economic wealth to which workers have claim is stripped from their control, $180 billion worth of pension funds. They have a claim to these pension funds, give or take a few abuses; but they don't have control over the use of these pension funds. The same is true with the taxpayers revenues. In a rather bizzare way, these corporations have either owned what consumers control, or control what shareholders own. For example, consumers control automobiles and houses all over the country. They don't own most of these automobiles or houses. Shareholders are supposed to own the corporation, but they don't control the corporation.
Let me briefly describe these proposals because they are proposals and they will be subject to discussion pursuant to the committee's working on more specific legislation.
Federal chartering brings the law up to date with economic, political, technological reality. Its thrust, contrary to its detractors, is not principally regulatory. Its thrust is to give sufficient information, rights, and remedies so that aggrieved groups and/or individuals can initiate on their own the processes of change and justice.
Again, we must keep in mind the major constituencies: Shareholders, consumers, workers, taxpayers, community residents, and small businesses. This is what the antitrust laws should be doing by policing the market from monopolistic practices. For example, they give small businesses or other businesses the opportunity to at least let the market do what it can do. It can't do everything, but it certainly can do something. But there have been too many obstructions placed in the way of private antitrust lawsuits to permit this self-help instrument to work.
The market can generate some efficiencies, but it cannot take care of future generations, for example, who are not around to prevent pollution now that they will suffer from later. So, the thrust of Federal chartering is a shift to develop a parallel
a accountability pattern outside the regulatory process insofar as that is possible. For example, more shareholder rights, more shareholder information, more shareholder connection with a board of directors under cumulative voting is going to permit more shareholders to stop the looting of their assets or the disregard of their rights.
It is very significant and many corporate lawyers will tell you, as you have already heard, that if shareholders don't like it, they can just get out. That, of course, is a perfect argument for perpetuating corporate tyranny.
The whole thrust of our democratic system is that if you don't like what's going on, you can stay in and fight. You don't have to get out and leave the domain to the culprits.
The proposals in the shareholder context include constituency directors. We think that board of directors must not only have general duties, but must have specific duties to develop within the corporation specialized obligations at the highest level in such areas as sales, finance, research and development, environment, consumer, worker rights, and other major activities.
In that way it isn't just this vague, amorphous corporation, that someone is asking to be accountable. It is particular segments within