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The evil (and good) that CEOs do


By DAVID BEATTY
Saturday, March 6, 2004 - Page D3

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The Corporation: The Pathological Pursuit of Profit and Power

By Joel Bakan

Viking Canada, 228 pages, $37

In law, the corporation is considered a "person." But what kind of person? Using the World Health Organization's checklist for personality types, Joel Bakan, author of The Corporation, concludes that the personality is that of a psychopath. A corporation has a callous unconcern for the feelings of others; an incapacity to maintain enduring relationships; a reckless disregard for the safety of others; a pattern of deceitfulness; an incapacity to experience guilt; failure to conform to social norms with respect to lawful behaviour. In sum, a corporation is, in the words of prominent investor and shareholder activist Robert Monks, "a doom machine . . . in our search for wealth and for prosperity we created a thing that is going to destroy us."

It is improbable that more than a handful of chief executives will read Joel Bakan's The Corporation. Most don't have the time to reflect on anything, let alone the idea that they are in charge of a Frankenstein monster. But all senior business executives should find the time to read this well-researched and well-written book.

Why would anyone in business read such a rant? Well, Bakan -- professor of law at the University of British Columbia -- tells a good story. And not only of corporate villainy. His account of Sir John Browne of BP and that company's transformation into a global environmental leader is a must read. Another heroic CEO, Hank McKinnel of Pfizer, "wants his company to do more good for more people than any other company in the world." But of the fall of Anita Roddick, founder of The Body Shop, he concludes sadly: "Roddick's story illustrates how an executive's moral concerns and altruistic desires must ultimately succumb to her corporation's overriding goals" -- that is, to maximize shareholder wealth.

There are fascinating vignettes of hunts through garbage dumps for evidence of sweatshops in the developing world; descriptions of General Motors' cold calculus on the value of human life (worth $200,000 in the late 1970s, when the Chevrolet Malibu had a fuel tank 11 inches from the rear bumper behind the axle); and the extraordinary list of General Electric's 42 major legal breaches from 1990 to 2001 (for example, in October, 1999, when the company was ordered to clean up PCB pollution in the Housatonic River in Massachusetts).

Particularly timely is the description of Enron's role in the California power crises that began December, 2000. It appears that Jeffrey Skilling, the Enron CEO, and Kenneth Lay, the chairman, skillfully manoeuvred their corporation away from all governmental regulation. Thus unsupervised, they created an energy shortage for Californians and unimaginable profits for their shareholders. However, the government stepped in and re-established price controls, and while the lights went on in California homes, they went out at Enron. Andrew Fastow, Enron's chief financial officer, has just plea-bargained himself to 10 years in jail, and CEO Skilling was charged last week with a variety of criminal offences.

Most disturbing is Bakan's fifth chapter, Corporations Unlimited, on the commercialization of society. Bakan quotes an unidentified U.S. advertising executive as postulating that youngsters: "are not children so much as 'evolving consumers.' " He describes the pointed ads designed to get kids to "nag" (a technical word to marketers) their parents to purchase everything from toys to cars. He describes schools plastered with commercials, creating "brand enclosures" for children and stifling their creative instincts. I have always been uneasy about the advertising bombardment on our children, but had no idea our kids were so completely manipulated.

Some corporations turn out to be abhorrent. We are bombarded daily with stories of Enron, Worldcom (Edmonton-born CEO Bernie Ebbers was charged with criminal fraud this week) and Adelphia (founder and chairman John Rigas is being tried in court). The bankruptcy of these corporations through fraud, greed and psychopathic behaviour has caused great hardship. The pensioners of Enron will get no pensions. The communities in which Worldcom existed are in shock. And in Europe, farmers around Parma put their life's savings in Parmalat bonds, now worthless. A very few gained staggering amounts of wealth in the stock market bubble of the late 1990s, but hundreds of thousands suffer as a result of the malfeasance of a few at the top of the pyramid.

However, there are approximately 35,000 other public companies traded on U.S. stock markets. Most of these are led by people of integrity and social conscience, who manage not only to make a profit but to do so in a wholesome way.

Take one of Bakan's examples, Ray Anderson, founder and chairman of Interface Inc., the world's largest commercial carpet maker, with offices in more than 100 countries. Interface is extremely successful financially. But it also has a vision: "To be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits -- by 2020 . . ."

Corporations in different nations have different cultures. In Japan, the emphasis is on lifetime employment. In Germany, it's on worker participation. Only in the United States is it on shareholder returns. Canada, closer to the United States, does have a tradition of its own: "family" companies, many of them public, for instance George Weston Ltd. managed by Galen Weston; Thomson Corp. started by Roy Thomson and now owned by Ken Thomson; Atco Ltd. and Canadian Utilities of Calgary run by the Southern family; Power Corp. of Canada in the hands of the Desmarais family. All of these have produced returns over the decades that dwarf those earned by the fabled Jack Welch at GE or even by magical investor Warren Buffett.

I spent nine years as president of Weston Foods, the food-processing arm of George Weston Ltd. Inside the executive suite, integrity, ethics and social conscience were characteristics of both the family and the executives. We were leaders in environmental stewardship and participated in communities in which we had plants. These family companies, and many other Canadian companies, have achieved financial success precisely because they treat all stakeholders with dignity and respect. Alienated customers, angry suppliers or abused employees would not lead to success. Good business is good business.

Bakan's examples of the psychopathic corporation are provocative. Patricia Anderson and her two children were horribly burned in 1999 when their Malibu was hit from behind by a drunk driver; Charles Kernaghan of the American National Labor Committee found 16-year-old Wendy Diaz in the Honduras, making Kathy Lee Gifford clothing for slave wages in a literal sweatshop. But when he turns from description to prescription, Bakan is less compelling. He relies completely on a resurgence of regulatory bodies: More agencies and more agents to restrain the monster.

Canadians might well want to address our balance between privatization and public ownership and control. Ontario's energy woes suggest a need to consider what went wrong, and to draw new conclusions about the role of the private corporation in managing our infrastructure. But regulation is not the only solution. There is one other strategic weapon, the corporate equivalent of the "smart bomb": the board of directors.

Boards look beyond the next quarter's profits, to long-term success. By working with CEOs on strategy, by ensuring that compensation plans are geared to the underlying value of the business and not the bubbles of the stock markets, and by selecting well-rounded men and women as leaders, boards direct the ethical and moral behaviour of the firms they oversee.

Look, for instance, at the family company boards and the boards highly rated in The Globe and Mail's annual rating (Board Games) or by the Rotman School of Management. These boards are ethical, their directors people of integrity who focus on shareholder value tempered with concern for other stakeholders. We can look to our banks, many family-controlled companies and other institutions, and take comfort that not everything about the corporate world is psychopathic.

Read this challenging book. If you are an executive, you may become apoplectic. But The Corporation will force you to reflect on what really matters, both in one's life and in one's company. We will always need more Ray Andersons. Be one.

David Beatty is director of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto's Rotman School of Management. He is also managing director of the Canadian Coalition for Good Governance.



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