Why Publicly Traded Corporations Behave Like Sociopaths

 

It’s a curious thing that most of the companies traded on the New York Stock Exchange are analogous to the kind of people known for starting fires and torturing small animals. Let’s see how that came about.

What is a business?

A business is a machine for making money. It’s assembled out of people, equipment and resources, and its function is to operate in the world in such a way as to turn less value into more value. Businesses typically do this by specializing in one particular process. By getting good at it, each business can go through its process more efficiently of the rest of the population. So it makes sense for other people to give the business X amount of money in order to get X+Y amount of value. This is a classic positive-sum game. When we both play, we both win.

Is business moral?

Business is about process, not motivation. And the only end-state that matters is whether or not there is more money than you started with. Because a “business” is an entity that is purely defined by following a process, and the process has the stated goal of creating more value, it is neither moral nor immoral. It simply is, like a force of nature.

Some businesses do good things

There are two reasons a business might engage in the behavior we call “good.”

1. Marketing reasons
2. Non-marketing reasons

Businesses that do “good” things for marketing reasons are simply conducting business.

When a business does something “good” for non-business reasons, it’s a reflection of the fact that amoney-handsn individual within the business is making a decision that lies outside the business process. This person is typically the owner, and they are essentially taking money out of their own pocket and putting it towards some action they deem “good.” The fact that the business is doing it is immaterial. It’s not a business decision. Remember, “business” is a process for making money by generating value.

What about when businesses do bad things?

When businesses do “bad” things, that is, again, the reflection of an individual choice. A key person, typically the owner, has decided to do something “bad.” The business itself is not responsible, it is just a machine.

Which means what?

Business is neither moral, nor immoral. It is amoral. It exists in a world without morality.

OK, what’s the deal on corporations?

If a business is owned by an individual or a group of people, all of their personal goods and resources are legally commingled with the business. So, for example, if your business gets way into debt, the creditors can come and seize your house, which has nothing to do with the business. That’s pretty scary.

It’s even worse for partners. Partners in a business are not only personally responsible for the business, they’re personally responsible for each other! So if you’re partner has a 5-martini lunch and then drives down the sidewalk and runs over a bunch of people, you are going to get sued.

For these and other reasons, the legal concept of the “corporation” was developed. A “corporation” is separate entity, created by signing a few legal documents. A corporation is actually considered a “person” in the eyes of the law. And if you are running a corporation, and the corporation gets into trouble, it doesn’t involve you or your assets. The corporation can be punished by the law, without you being punished.

Sounds pretty good, eh? And there’s one other interesting wrinkle: Corporations are immortal. There are corporations in existence now that have been around for centuries. Among other things, this enables them to get very rich, as even a small amount of money with the interest compounded for a hundred years will turn into a large amount of money.

And of course, with the recent U. S. Supreme Court decision, corporations don’t have the same spending limits that other people, the flesh-and-blood kind, have to abide by when making political contributions. This effectively gives corporations a much louder voice in deciding how our laws are written.

And what about joint-stock companies?

Joint stock companies are ways for many, many people to pool their resources into funding a company that none of them could afford individually. This can create hugely powerful entities. For example, the British East India Company came into being in 1600. By the 19th century, this company was running almost the entire country of India as its own private kingdom. This company was richer and more powerful than most nations.

There’s also a quirky moneyside-effect of the joint-stock company. Since ownership is spread out among all the owners of all the stock, each company has potentially millions of “owners.” It’s virtually impossible for them all to agree on any kind of governance, so this means that, in terms of oversight, it’s as though there are no owners at all.

And no one who works for the corporation is responsible for anything—either legally, personally, or morally.

Which means?

The people who are running the corporation are like people riding up in the head of a giant robot stomping across the Earth. They control the robot’s arms and legs, so they can pursue the actions which make the most sense from the point of view of “business,” without ever getting their hands dirty.

For example:

• Using lead paint to make toys shinier, even though it’s known that X% of children will suffer brain damage. It’s just business.

• Locating carcinogenic waste ponds in powerless, low-income communities, even though it’s known that additional health problems will shorten people’s lives. It’s just business.

• Foot-dragging on implementing airbags in cars because they add cost, even though it’s known that many people will die because of that one decision. It’s just business.

When everything is an abstraction, everything is easy. The answer to any question, posed either by a reporter or late-night awakening of conscience, is always the same: “I’m just doing my job. I’m maximizing the return for the shareholders.”

And the amazing thing is, this answer works equally well for the person in the chief executive’s chair and the person sweeping the floors on the graveyard shift.

That can’t be good

But wait, there’s more. In addition to following the rules of business while disregarding easily externalized costs, the folks in the executive suite can use the robot to load themselves up with riches. And then when the consequences of their actions finally catch up and the robot is tottering, they just put on their (golden) parachutes and leap off. The robot lumbers off and eventually crashes to the ground. There are no repercussions to any of the decision-makers.

All right, now I’m mad

There are human beings who are behave like this. They’re called “sociopaths.”* Sociopaths have no way to connect to any other living creature, and they don’t have feelings, so their only interest is competition. Sound familiar?

Sociopaths have no ueyesnderstanding of what we would call “right” and “wrong,” hence they are amoral. And since they’re amoral, they feel free to do things that most of us would consider wrong: Like torturing animals, for example, just to “see what would happen.”

Most career criminals are sociopaths. They cannot learn to become “law-abiding” because those concepts mean nothing to them. And without the ability to empathize, they don’t have any gut-level understanding of the consequences of their actions. The suffering of other creatures just doesn’t register as unpleasant for sociopaths, which is one of the key ways they are different from us.

And, as you can see, all these characteristics also apply to publicly-traded corporations.

So what should we do?

The point of all this is that large corporations cannot be expected to “do the right thing” from the point of view of our society. And it’s not that the people who are running most corporations are bad: That’s not the case at all. In fact, any CEO who did something other than make as much profit as possible for the shareholders would be negligent, and not fulfilling the implied contract with the people who own the company’s stock.

Basically, asking a publicly-traded corporation to do something other than maximize profit is like asking a circle to be a square.

Here’s what needs to be done:

• No more fantasies about self-regulation.

• Hang up the feel-good cowboy rhetoric about “free markets.”

• Stop indulging in the wish-fulfillment dreams about “what’s good for General Motors is good for America.”

• Recognize that the interests of large, publicly-traded corporations and the interests of our citizens diverge sharply.

• Ensure that all businesses, especially those on the NYSE, are regulated—tightly, firmly, fairly, and relentlessly—by the Federal government.

Otherwise, the next time you meet a sociopath, you might as well just hand him your wallet. And your kittens.

——————————————-

* Diagnostic and Statistical Manual of Psychiatric Disorders,Vol IV, American Psychiatric Association, Washington, DC.

©2010 PoliticalLoudmouth.com

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4 Comments

  • “What I wanted to show in this essay is that publicly-held corporations are not evil, nor are the people who run them. (This is the naive view held by many on the left.) They are simply responding rationally to incentives.”

    Seriously? Then how did you manage to come across as naive, and sounding like you think they are in fact evil? If you are trying to be balanced, rational, or fair, I’d suggest starting with the question “Are corporations sociopaths?” and answers with complexity, rather than a title that assumes they behave like them and an opening sentence that says they are “like” animal torturers and fire-starters.

    This essay is a great turn-off to anyone who doesn’t already 100% agree with you on the subject.

  • Sociopaths also tend to move toward power and authority positions in government. Somehow they must be kept out of government roles.

  • Hi Jeff,

    Thank you for your comment.

    I would agree with you that in many instances in history, maybe even most, the people who hold the reins of government have acted rapaciously, and taken advantage of the people in their power.

    However, this isn’t government’s inherent function. It’s inherent function is to be the joint tool of the people. We are so lucky in the United States to have a government that isn’t treating us with wanton cruelty. And of course, we all struggle constantly over what we think the government should be doing for us.

    A money-making entity is inherently about making money. What I wanted to show in this essay is that publicly-held corporations are not evil, nor are the people who run them. (This is the naive view held by many on the left.) They are simply responding rationally to incentives.

    Since a corporation is an entity that is created to generate maximum return on investment, it can’t behave any other way. So if we want them to behave differently (for example, if we want them to divert some money from profits in order to take some safety action) we have to impose that via the only tool we have that is big enough to take on the job: Federal government.

    Thanks again for checking out our essay, and for your thoughtful comment.

    – PL

  • Your essay was fairly well written and then it fell apart at the end on your last bullet point.

    Ensure that all businesses, especially those on the NYSE, are regulated—tightly, firmly, fairly, and relentlessly—by the Federal government.

    When you describe the sociopathic nature of a corporation you can just about trade corporation with government.

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