Bob is an American attorney who specialized in corporate law generally and corporate financing specifically. He is a graduate of Fordham University (BS Finance) and Fordham Law School (JD). His long and distinguished career has included being a partner in two of the world’s largest law firms. From 2012 to 2020, he provided critical assistance to the US Department of Justice in connection with investigations that recovered more than $US 65 billion from more than a dozen banks for illegal behaviour which led to the financial crisis of 2008.
He is the author of Time to Change Corporations: Closing the Citizenship Gap and numerous articles, describing his idea to improve corporate behaviour by amending the duty of directors in corporate laws throughout the world. Bob calls this idea, the Code for Corporate Citizenship. Existing law provides that directors must “act in the best interests of the corporation.” The Code would add “but not at the expense of severe harm to the environment, human rights, public health and safety, dignity of employees or welfare of the communities in which the corporation operates.”
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Why is democratic government unable to protect us from a variety of severe harms inflicted by big corporations? It may surprise you to know that part of the answer lies in the way corporations are structured - by government.
The corporate law requires directors, the people responsible for managing corporations, to act in the best interests of their company. This dedicates corporations to the pursuit of self-interest. It applies in all circumstances, even when the company is causing severe harm.
The corporate social responsibility and ESG movements have shown that companies are often willing to stop their abusive behaviour when the cost is small, or the public relations effect is beneficial. However, these movements are ineffective when the cost is substantial. Rather than incur the expense of changing their behaviour, companies lobby government to allow them to continue.
For example, some continue to emit large quantities of greenhouse gases. Tobacco companies continue to mass manufacture and market products which kill their customers at a rate of over 8 million people a year. Employers continue to fail to pay their workers a living wage and interfere with their efforts to unionize. Social media companies continue to use business models which generate destructive conflict in our communities.
In addition to being highly destructive, these behaviours all strike at the heart of democracy. Democratic governments are formed to contain damage to the public interest, including damage caused by business corporations. When government doesn’t do its job, the public interest can be destroyed, and people begin to lose hope.
Two things allow democratic government to contain severe harm. First, they rely on the self-control (i.e. conscience or good citizenship) of the governed. Failing that, the people’s elected representatives pass laws which prohibit destructive behaviour.
The American founding fathers designed the first modern liberal democracy nearly a hundred years before the modern corporation was conceived. They could not have foreseen the day coming when big companies would engage in highly destructive behaviour and the government would be unable to pass laws to make them stop.
Flash forward to the second half of the 19th century when the Industrial Revolution was beginning to take hold. Businessmen wanted more flexibility in running their companies. State legislatures designed the modern corporation.
The corporate law they adopted didn’t include any balancing provision (i.e, a conscience) to safeguard the environment or the interests of others. This meant that the destructive behaviour of big companies could only be stopped by legislation. When passing legislation fails, the public interest continues to be harmed by institutions which government designed and licensed to operate. This should never occur.
Experience has taught, that imposing restraints on corporate behaviour by enacting new laws is not always possible. If government is going to allow large commercial institutions to be created, it must design them in a way that constrains their ability to inflict severe harm. This limitation must apply from the day they are organized, not rely on government to impose it later.
The Code for Corporate Citizenship (Code) will solve this problem by constraining the power of the corporation. In effect, it says that no company formed under the corporate law may severely harm the public interest (even though the behaviour is not otherwise prohibited by law). If a company is discovered causing severe harm, the Code requires its directors to make it stop.
The way it works is that the Code amends current law requiring directors to “serve their company’s best interest” by adding the following phrase:
“but not at the expense of severe harm to the environment, human rights, the public health and safety, the dignity of employees or the wellbeing of the communities in which the company operates.”
The Code will not just encourage company managers to choose to protect the public interest as the corporate social responsibility and ESG movements do now. It will legally require them to protect it from severe harm in all circumstances - even when the cost to the company is substantial. The Code will also eliminate the justification directors now have under existing law to perpetuate destructive behaviour.