Tuesday, May 19, 2009



Corporations are private profit machines. In prior essays, I noted that corporations are “legal entities” that pool money and labor for a single reason: To generate returns for shareholders. They concentrate management authority in a “Board of Directors” that makes “prudent decisions” solely to benefit the shareholders. Directors must observe a “duty of loyalty” to the corporation, meaning all their actions must serve the entity. Directors, then—as well as corporate employees and officers—are simply glorified servants. Like vassals in medieval times, they are “duty-bound” to support their corporate lords. They must not think about themselves. Their time belongs to the corporation and the shareholders who own it. The corporation pays them “compensation” for their pains; but they do not share in the overall profit unless they own stock. In short, true “business corporations” channel individual self-interest and multiply it a thousandfold. There is no room for altruism, compassion or charity. In fact, corporate leaders who spend money on others can be legally sanctioned. See, e.g., Dodge v. Ford Motor Co., 204 Mich. 459 (1919).

Corporations act largely in silence. Not many people know how they actually work. In fact, most people look upon them with some respect. After all, they look official. They own properties all over the country. Their employees wear uniforms. They have recognizable logos. Everyone can identify corporate goods, like Mercedes cars and Whopper® sandwiches. In short, major corporations play a visible role in people’s lives. They wield almost as much influence as the State. But this is the central error: Corporations have nothing to do with the government. While the State accords them special legal status, they are still private entities. They exist to sustain private enterprise. They owe no duties to anyone except their own shareholders; and their shareholders want profits. In that sense, corporations have a duty to act selfishly. There is nothing noble or glorious about their motives.

Yet corporations must cultivate a good image to win customers. If people did not to some extent “trust” a corporation, they would not buy from it. And no corporation can make a profit without customers. In that light, corporations cannot blatantly reveal that they just want to make profits. They need to advertise in such a way as to suggest that they “care” about their customers. They need to appear that they care, even though they only have one legal duty: To enrich the shareholders. This is no easy feat. After all, people do not like unabashed selfishness. So how do corporations mask their true intentions while convincing customers that they are “trustworthy” and “caring?”

I will not discuss every possible corporate ploy intended to fool customers into thinking that “corporations care.” That would take much too long. Rather, I want to discuss a specific corporate practice, namely: Advertising the company’s “family roots.” Many corporations do this. On trucks, billboards and even television commercials, they proudly claim: “We are Blah-Blah-Blah Corporation, a Family-Owned Business,” or “XYZ Inc. Family-Owned Since 1980.”

In effect, these companies want to associate themselves with the concept “family.” Why? In my view, it is quite insidious. After all, we all have a tender place in our hearts for own families. Even if we hate our siblings and our parents, we nonetheless grew up with them. We never completely forget them. On a very profound psychological level, we depend on our families for our identities, our names and even meaning in life. No matter how much we think Mom screwed us up, we still love Mom on some level. And when we think “family,” we think intimacy, familiarity, comfort, love, mutual caring, compassion, trust and “home.” This is not to say that all families nurture these positive things. Indeed, family life often brings great unhappiness and discord. But the fact remains that the word carries a generally positive connotation. No matter how bad our own family relationships may be, our mothers, fathers, brothers and sisters know us and somehow understand us. We are “linked by blood.” We are not “just strangers.”

Companies exploit these associations when they paint themselves as “family businesses.” They attempt to forge a link between their private, undifferentiated profit-seeking and the positive, “caring” complex inherent in “the family concept.” They attempt to lull customers into thinking that they will not be “just another customer;” rather, they will be like a “family member” who deserves trust, respect, love and caring. These companies want to distinguish themselves from “regular corporations” that do not involve “families.” Those corporations are “cruel, cold and uncaring” because they are not “family-like;” they are just “companies” that “don’t care.” By contrast, a “family business” wants you to think that they care about you. It wants to believe that you are “special” because “families care,” while “regular businesses” do not.

But this is all a naked fraud. It does not matter who owns a corporation; it is still a corporation. Corporations exist to enrich private shareholders, whether those shareholders are total strangers or whether they are blood relatives. Put another way, it is irrelevant whether a “family” owns the company because it is not your family. Only your family cares about you and your needs. The family that owns the corporation will look to its own members, not you. It merely wants you to think that it cares about you by tying its name to the concept “family.” Advertisers know how to exploit average people’s mental processes. They know that the word “family” carries unusually hypnotic power. It is no accident that modern psychiatry dwells largely on “family development” and “family trauma” to identify psychological problems. Our family lives play a significant role in forming our personalities and character. Families nurture—and corrupt—our instincts for love, caring and emotion. Companies know that “family rhetoric” packs a devastating subconscious punch. That is why they attempt to link their image to “the family.”

How crass is this? How shameless? What does petty commerce have to do with our unique family life? Can companies really stoop this low? Yes, they can. In fact, they have a legal duty to resort to any means—ethical or legal, unethical or illegal—that generate more profits than costs. If triggering a fallacious connection between “family caring” and “corporate service” generates more profit than it would without the connection, then a company will adopt it. It might be utterly groundless and tasteless, but good reason and taste mean nothing next to the bottom line. In fact, if shareholders learned that the company made less money without the “family business” tag than it did with the tag, it could hold the Directors liable for failing in their fiduciary duties to them. In the free market, companies compete for customers and profits. They need to be inventive in order to obtain an edge. In this competition, delicate tastes will not prevail. Rather, only the strong survive. And the strong are not afraid to resort to any means needed to win the competition, tasteless or not. If that means falsely insinuating that the business is “one, big caring family,” then the company will insinuate it.

This is not just hot air. Many extremely large companies claim that they are “family businesses,” not just mom-and-pop shops in small towns. Du Pont Corporation claims to be a “family business.” So does Disney. These are not “close-knit, caring organizations.” These are ruthless capitalist titans who would sooner run over their competition than show mercy or compassion. Such ruthlessness is not thematically consistent with the concept “family,” yet these moguls do their best to cultivate a “family image” in order to better pursue their fundamentally “un-family-like” private ambitions. In essence, it makes no more sense to trust a “family business” than it does to trust a “Fortune 500 Company.” They are all the same because they all seek the same thing: Private shareholder enrichment at any cost. Self-interest dictates a corporation’s actions, not family-like compassion or mercy. If a corporation is a “family business,” it does not treat its customers or its competitors any better than the cruelest industrialist would. In that sense, “family businesses” only act like “families” with their own shareholders. The family gets the profit and the riches, not the outside world. This is the central irony in the whole “family business” fraud: Corporations want you to think that you are “part of the family;” but in fact you are simply paying to keep their family wealthy. You are not “part of the family.” You are an outsider. Again, if it is not your family, you should not expect it to treat you like a family member.

It is difficult for me to write about corporations without mentioning cynicism. Cynicism provides an ideal analytical framework to understand corporate action. After all, cynicism assumes that self-interest motivates all human behavior. Cynicism immediately penetrates corporate activity because corporations institutionally enshrine self-interest. Shareholders pool their money in a corporation to advance their own self-interest for minimal personal risk. A corporation exists to enrich its shareholders, not others. This is institutional selfishness; it provides fertile ground for cynical analysis. In fact, it would be illegal for a corporation to act altruistically because altruism implies acting for another’s benefit, not your own. When corporations act for others, their shareholders sue them for deviating from the “self-interest principle.” Against this background, it is possible to deconstruct every corporate ploy and expose its selfish roots. In virtually every case, when a corporation tries to “appear caring,” cynicism instructs us to mercilessly doubt its motives. Put simply, corporations do not care about others. To that extent, when they adopt measures intended to “appear caring,” a cynical explanation will quickly reveal the true motive.

Applying cynicism, we can easily deconstruct the “family business” ploy. Now, if we assume that all corporations have a legal duty to enrich their shareholders, we can also assume that all their actions will advance that duty. Enriching shareholders requires business success. Business success, in turn, requires loyal and trusting customers who funnel money into the corporation. It is not easy to convince undifferentiated customers to fork over cash, especially when competitors offer the same goods or services. Thus, success requires some gimmick, some special “catch” that convinces customers to choose one business over another. Customers must have some mental connection to the corporation that distinguishes it from the competition. Claiming that a company is a “family business” amid ostensibly “cruel competitors” can forge the necessary “mental connection.” After all, “family” carries a positive, “caring” connotation. An average customer would respect that connotation when choosing between undifferentiated commercial competitors. That extra “zing” might increase the chances that a new customer would choose the “family business,” leading to increased sales, more money and more “shareholder enrichment.” In the end, it does not matter whether the company treats the new customer “like family.” All that matters is that the customer spent his money with the company, not the competition. That fulfills the core corporate mission. The shareholders win. They advance their self-interest by exploiting “family” appeal with average customers.

Does it matter whether the company treats the customer “like family?” Certainly not. From a cynical perspective, it does not matter whether a company means what it says. It does not matter that the method is dishonest or even facetious, because results matter more than methods. When analyzing corporate action, I have learned to expect dishonorable, unethical conduct. After all, corporate action is all about the profit. If an unethical method wins more profit than an ethical one, a corporation must adopt the unethical method in order to please its shareholders (provided, of course, that the unethical method does not generate costs down the road). There is no honor in corporate practice. When results matter, methods become irrelevant. There is no room for principle. Corporations want results, not the psychic satisfaction that flows from vindicating impractical abstractions such as “honesty.” As long as the company appears honest to the extent necessary to maintain customer trust—and keeps healthy profit levels—there is no need to actually be honest. This is dishonorable. But it is also practical. And in corporate life, practicality beats abstraction every time.

From a principled perspective, a private business corporation cannot in good conscience claim that it is a “family.” Private business corporations are not “caring institutions.” They do not show love. They do not raise children. They do not nurture tenderness or show mercy to relatives. Rather, they are legal entities dedicated solely to their shareholders’ private profit interests. To suggest, then, that a company will “treat others like family members” is hypocritical in the extreme. Commerce is war. It is a war for profits, customers, market share and success. Commerce is no place for warmhearted “family feelings.” If a company treated its customers and competitors “like family,” it would fail almost instantaneously. There is no room to be tender or merciful in commerce. A “good corporation” wins accounts and collects its money. By contrast, a “good family” forgives its wayward sons and let them off the hook with a kiss. Families forgive, forget and nurture. Corporations pursue, win and collect—by contract and suit if necessary. These are not consistent ideologies. In that light, it is both misleading and fraudulent to equate “corporate values” with “family values.”

We should expect both deception and fraud from corporations because deception and fraud reveal dishonor. Honor means adhering to principles, no matter the circumstances. Honor means suffering for ideas, even when abandoning those ideas might abrogate the suffering. Corporations, however, cannot be honorable. They must win profits. That means “going with the flow” and breaking principles when necessary. In short, corporations must be “flexible,” not “honorable.” It is honorable to “tell the truth” and “to be honest.” But if honesty and truth endanger results, a corporate leader can be neither honest nor truthful. He has a duty to enrich his shareholders by any cost-effective means necessary. That is why he resorts to misleading characterizations, such as calling his for-profit entity “A Family Business.” If corporate leaders were honorable, they would refuse to equate their quest for private profit with tender family emotions. Yet they do not refuse. They serve their shareholders because they have a duty to make them rich. If calling the business “family-like” wins profits, they have no choice but to be dishonorable.

In the world of corporate morality, deception and fraud are not ethical transgressions. They are “calculated measures intended to win maximum profit for minimal risk.” A good corporation knows how to be unethical without ever arousing suspicion. Conscience and honor play no role in this analysis. It is unfortunate. But it is a jungle out there; and commerce is commerce.

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