New York Times Article: For Profit Corporations Are Sociopathic By Law

See and review Ex-Corporate Lawyer’s Idea: Rein In ‘Sociopaths’ in the Boardroom, July 29, 2019,  By , by  New York Times:

Jamie Gamble spent most of his career as a partner at the law firm Simpson Thacher & Bartlett, which counts virtually every major company in the United States — including Facebook, General Motors, Google and JPMorgan Chase — among its clients.

A longtime lawyer for the insurance giant American International Group, Mr. Gamble worked alongside Richard Beattie, Simpson Thacher’s chairman at the time, to advise A.I.G. during the financial crisis of 2008 and in the years of litigation that followed.

Mr. Gamble has had an epiphany since retiring nearly a decade ago that is so damning of his former life that it is likely to give his ex-partners a case of agita.

He has concluded that corporate executives — the people who hired him and that his firm sought to protect — “are legally obligated to act like sociopaths.”

He made that determination about five years ago when he started to work on a novel that recently inspired him to compose a provocative essay elucidating what he calls, based on his firsthand experience, a “complex network of horribles” in corporate America. He recently shared a draft with a small number of colleagues, seeking their comments.

“The corporate entity is obligated to care only about itself and to define what is good as what makes it more money,” he writes in the essay. “Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.”

Mr. Gamble’s proposal is this: that every company devise a set of ethical rules to be part of their bylaws, a move that would potentially open them up to shareholder lawsuits should they fail to stick to those rules.

Companies, he suggests, should “adopt a binding set of ethical rules, approved by stockholders and addressing the key ethical dimensions of corporate life” including:

■ Their “relationships with employees.”
■ Their “relationships with the communities in which they produce and sell.”
■ Their “relationships with customers.”
■ Their “effects on the environment.”
■ And their “effects on future generations.”

Once the rules are in place, he writes, “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.”

There is something rather elegant about Mr. Gamble’s concept.

Today, corporate directors’ decisions are measured — at least from a legal perspective — on whether they maximize shareholder value. When they stray from doing that in the short term, they are protected by the “business judgment rule” if they can show that whatever decisions they have made are geared toward maximizing value in the long term. It may be an oversimplification, but if they veer from seeking profits in the name of other stakeholders, shareholders may have a legal case against them. Nowhere in their responsibilities are they expected to consider any stakeholder but the company.

Adding a set of ethical principles to a company’s bylaws would mean that “the people charged with acting for the corporation will have to discuss how the corporation should act and will have to account in that discussion for how the corporation’s actions affect others,” Mr. Gamble writes. “They will have to make a conscience.”

His idea is not that different from one proposed by Senator Elizabeth Warren, the Massachusetts Democrat and presidential contender, who typically sends shudders through the business community. Last year, Ms. Warren proposed that companies with more than $1 billion in annual revenue be required to obtain a federal charter to be a United States corporation that obligates “company directors to consider the interests of all corporate stakeholders.”

Ultimately, Mr. Gamble’s proposal is a call to action, to persuade companies to behave not as sociopaths and have a bit more empathy.

“The fix I propose leaves the private islands of power private,” he said. “The only interference by government would be to require that the shareholders explicitly state what kind of person they want their corporation to be.”

 

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