The most important problem in the world is a reasonable sounding provision of the corporate law that governs most major U.S. companies.
The rule: corporate management and Boards of directors are obligated by law to make decisions that maximize the economic value of the company.
This is how you end up with absurdities like this: 400% price hike for drugs is ‘moral requirement’. It’s frightening to be at the mercy of such ruthless entities making our health unaffordable, yet this is what corporations were created to do.
Colloquially: when you invest your money in a company, the people who run that company are required to do their best to bring you the highest possible financial return on your investment rather than using your money to pursue any personal or social agenda.
The corporate entity is obligated to care only about itself and to define what is good as what makes it more money.
Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.
The tragedy is that markets have for a great many people taken on the power to transform selfishness into a virtue. If everyone acts in her rational self-interest, the market scripture goes, an invisible hand will cause the sum total of selfish acts to serve the common good.
Faith in the invisible hand is the seed from which the maximize rule springs.
The maximize rule in turn revises the faith. It defines “rational self-interest” as maximizing economic value.
Technically, that applies only to corporate people. Practically, the maximize orthodoxy has infected real people so deeply we barely even recognize how much it guides our actions.
To value others’ well-being as we value our own is “supra-normal”.
This is a simple “moral” imperative. We humans are social animals who thrive in cooperation, which allows us to band together in large groups to accomplish far more than we could individually.
Even the Bible asks of us to care for others’ well-being as for our own, yet so many of us cannot get beyond our own immediate needs or wants.
The human drive toward self-preference/preservation is much older than our corporate governance laws. But that drive is sometimes in conflict with the moral consciousness from which we derive our sense that humanity is more than a biological mechanism DNA-driven to propagate.
Yet even this “biological mechanism” contains a rudimentary moral code which allows us to derive pleasure from helping others. We don’t have to learn that – it’s built-in – and that’s what it seems sociopaths are lacking.
Blessing the maximize rule as “right” for the created super-persons who rule our economic reality creates a loop back to our real selves. It helps us feel that acting in our personal self-interest leads to a collective outcome that is “right.”
That’s a faith: it pushes outside of us responsibility for the structure of the world and it allows us to say that whatever markets create must be the best outcome possible.
We can fix the maximize rule to provide each “corporate person” with a conscience.
To get rid of the super-sociopaths and solve the most important problem in the world, we should do the following:
- Rule 1: Keep the maximize rule in place.
- Rule 2: Every company should adopt a binding set of ethical rules, approved by stockholders and addressing the key ethical dimensions of corporate life:
(i) relationships with employees;
(ii) relationships with the communities in which they produce and sell;
(iii) relationships with customers;
(iv) effects on the environment; and
(v) effects on future generations.
The maximize rule has to be followed, but the Board is constrained to act consistently with the ethics rules.
- Rule 3:Any shareholder could sue the Board of Directors for violating the ethical rules — just as any shareholder can today sue the Board of Directors for violating the maximize rule. If the shareholder suit is successful, the Court could order the Board to comply with the company’s ethical code.
I’m a former partner at a major New York law firm and I spent years advising management and Boards on their legal obligations and defending lawsuits brought by shareholders. My proposed fix comes from practical experience.