Issue: A brief sentence or two identifying the current event. Synopses: A few pa

Question

Issue: A brief sentence or two identifying the current event.

Synopses: A few paragraphs providing some information about the issue and why it’s controversial.

Stakeholders: Who’s affected by this controversy? Sometimes, it’s management, labor, shareholders, customers, the community, etc. Write why each mentioned stakeholder has a stake in the issue.

Arbitrator: Eventually all controversies are settled (some better than others). Depending upon the controversy they’re settled by courts, or government agencies. Other times, the controversy is settled by markets, where consumers determine what’s good or not. The arbitrator is the ultimately the institution that settles the controversy among the different stakeholders. Write how the arbitrator will determine the outcome.

Question: After reading the article, what question or thought do you still have about the article?

The article:

Sen. Elizabeth Warren introduced legislation last week that could have big consequences for big

business.

One of the most ambitious policy ideas in decades, the Accountable Capitalism Act would breathe new

life into the movement to restrain corporate power. Warren (D-Mass.) proposes forcing corporate boards

to balance the pursuit of profits with the interests of stakeholders like workers, consumers, suppliers, the

general public and even the environment. In short, she wants to change the rules by which corporations

operate to force them to be socially responsible.

Her rationale: Corporate managers used to believe they had a responsibility to balance the pursuit of

shareholder value with the public good, but that changed in the 1980s, when corporations embraced

economist Milton Friedman’s doctrine that the only “social responsibility of business is to increase its

profits.”

The 1980s roots of that “greed is good philosophy” makes it easy to pin current economic problems on

the party of Ronald Reagan. But the bull markets and fiscal scandals of the decade were simply the last

chapter in a longer historical process, one in which the state gave up its role in defining the rights and

responsibilities of business a century earlier, enabling the greed is good philosophy to blossom when the

culture in business changed.

During the 1890s and 1900s, state legislatures in places like New Jersey and Delaware worked to

improve their economies and increase tax revenue by encouraging big corporations to relocate. Their

weapon of choice: a newly permissive type of corporate charter. Practices traditionally banned by

charters were now allowed, including the freedom to do business wherever the company pleased, the

ability to merge with other companies in the same industry and the flexibility to operate with

considerable autonomy from shareholders. The introduction of these charters launched a “race to the

bottom” in which states rushed to outdo one another to attract companies.

By the early 20th century, the revolution was complete. These new laws finished a process begun

decades earlier during the Jacksonian era, when general incorporation laws put an end to special

charters, which enabled individual corporations to form but which placed limits on each new business —

such as how big they could be, the range of business they could do, how long they could exist and their

specific liabilities.

The rapid implementation of “enabling” corporate laws didn’t just give new, powerful tools to managers.

It also undermined the idea that corporations were artificial creations of the state meant to do certain

kinds of business, but still serve the common good. Originally, government officials — duly elected

representatives of the people — negotiated each charter, laying out the public purpose of every

corporation. But under these new laws the charter lost its power to define that public purpose, and

corporations came to be seen almost entirely as private institutions owned by shareholders.

Starting in 1903, federal policymakers attempted to counter these state-level changes by introducing the

idea of federal corporate charters to regulate and standardize American business. Presidents Theodore

Roosevelt, William Howard Taft and Woodrow Wilson all supported incorporation at the national level

in the early 20th century. In the early 1940s, the New Dealer Sen. Joseph O’Mahoney resurrected the

idea, calling for “National Charters for National Business.”

But businesses beat back such proposals by finding ways to demonstrate their social value. In the late

1940s, the conservative intellectual Peter Drucker articulated a third way when he called the large

corporation the “representative social institution of our society” and said that it was not just an economic

tool but also a “political and social body.”

Many large corporations such as General Electric and Eastman Kodak cultivated this social role for

themselves by making charitable and philanthropic contributions and by establishing nonprofit

foundations. These programs were never particularly systematic and were often dependent on individual

managers, corporate cultures and broader economic trends. So, when the shareholder-value movement

took off in the 1980s, there was little to protect robust practices of corporate citizenship.

General Electric, for example, was transformed under the leadership of Jack Welch, a CEO whose name

became synonymous with the maximization of shareholder value. Within just a few years, he helped to

eliminate over 100,000 jobs in his quest to remake the industrial giant into a finance company. By the

end of the decade, Kodak also eliminated 10 percent of its workforce and stripped its employees of an

array of benefits. What might have been good for the bottom line and shareholders clearly wasn’t good

for American society as a whole.

While no one wants to go back to the archaic system of the early 19th century, there are plenty of ways in

which corporate boards and managers could be made more accountable to the interests of the common

good. One, of course, is to reinvigorate the corporate charter. Activists came close during the 1970s,

when they worked diligently on the idea of a robust national chartering program. The high-water mark

came on “Big Business Day” in 1980, when liberal activists and legislators promoted the Corporate

Democracy Act, which sought to redesign corporate governance on the stakeholder model. Reformers

hoped the bill would inaugurate a movement reining in the “size and abuses of big business.”

Instead, Big Business Day elicited one of the most coordinated, sophisticated and successful business

counterattacks of the rising conservative era. The 1980s, fueled by Reagan’s deregulation agenda,

became an era of shareholder value, not a decade of stakeholder goods.

This is not just a question of corporate greed. The problem is also our federal system. Because businesses

can choose to incorporate in any state and still do business on a national level, state governments have

few incentives for putting restrictive language back into charters. Any state that did so would risk losing

business and tax revenue to its neighbors.

Warren wants to resurrect the movement to impose good corporate citizenship. That’s a good thing. Her

project rests upon the idea that corporations are quasi-public institutions beholden to a greater array of

interests than just shareholders, because the government grants them remarkable privileges like limited

liability, potentially eternal life and a variety of legal tools for capital formation. They are governmental

institutions that exist in some sense beyond the categories of public and private.

The Accountable Capitalism Act is a significant step toward bringing the corporate system back into line

with that reality, if not as a passable piece of legislation, then at least as a conversation starter.

And the conversation is likely to take time and effort. Warren wants not just to curb the bad behavior of

business that became entrenched 30 or 40 years ago, but also to reconstruct the institutional framework

of corporate capitalism in this country, whose foundations go back well over a century. Her bill demands

reimagining how economic power is structured and what business is for. And that means overcoming

fierce resistance.

But restoring the original conception of the American corporation offers an important means for

addressing a plethora of societal maladies, including income inequality — one that actually requires less

government redistribution and for that reason offers the possibility of transcending our normal partisan

divisions.

Explanation / Answer

Issue:

The issue in this particular article is about defining and understanding of existence of corporate bodies and business. Is it for their greed or for common good. One has to give back to society of what he takes from it. The articles pertains to bringing of an act or law that would require sharing of the profits among all stakeholders like workers, consumers and suppliers etc.

Synopsis:

The issue of regulation of corporation and business entity has always been there since history. Many laws and policy were there which required corporation to work in certain setup fulfilling stakeholders interest. Capitalism has to be made accountable. Accountable in the sense that what it takes from society, natural resources, labor etc. has to give back in its right proportion that is by sharing their profit with workers, consumers etc. and that is were a new law is required like accountable capitalism act making it mandatory for sharing profits with stakeholders like general public environment etc.

The Arbitrator

The arbitrator would decide about the issue that may result in conflict between this particular law and corporate bodies. The interest has to be balanced and both the parties shall be satisfied with common objectives or interests. Both parties would require o have arbitrator and the arbitrator would take a binding decision taking both parties interest.

The arbitrator would takes issues from the corporate side like there freedom to carry business and their rights and privileges while it may take up issues like government regulation is good for common good and that one who contributes to companies growth and profit must be part of its share.

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