In the late 1800s, the US government tinkered with a relatively benign creature and created a monster. Like Dr Frankenstein, the US government acted with the best of intentions. It wanted to allow corporations to raise capital to finance the expansion of the railroad without exposing the investors to personal liability and bankruptcy if the venture failed. The result of the government’s intervention was a creature which is legally considered a person. This person must act in accordance with its by-laws and the law. Unfortunately this means that it is legally programmed to be self-interested, amoral and without a conscience.*
A corporation has but one purpose—to increase shareholder value (also known as maximizing shareholder wealth). In monster terms this would be “to grow big and powerful so that your owners get rich”.
The guiding principle of corporate law (let’s call it the prime directive) which governs all corporate activity is simple: the directors and officers of a corporation must act in the best interests of the corporation. The best interests of the corporation are synonymous with the best interests of the shareholders. And shareholders want to make money. If they didn’t they would donate their cash to charity (or invest it in my stock picks).
So why are two out of the three PC candidates in the race for the premier’s job prepared to privatize some of our healthcare services? Gary Mar says the wealthy are already accessing private clinics outside of Alberta, so why not capture that “economic opportunity” here. Doug Horner supports competition by healthcare providers for delivery of publicly-insured services. Alison Redford is the only PC leadership candidate who clearly understands that increased privatization will erode our universal public healthcare system.
No doubt Mr Mar and Mr Horner mean well; unfortunately they’ve forgotten the prime directive of corporate law. All corporate activity is for one purpose—to make money for the shareholder. Any CEO who fails to deliver on the prime directive has the life expectancy of a gnat. If Mr Mar and Mr Horner applied the prime directive to the private corporations jostling to offer Albertans privatized healthcare services, they would quickly realize that the offer is a “limited time offer with no warranties”. The minute healthcare services become too costly and unprofitable, they’re gone and so are the consumers (formerly known as patients) who are depending on them.
But wait. What about corporate social responsibility? Every time we turn on the TV we’re faced with self-congratulatory spots telling us all the wonderful things that corporations are doing for the little people, the environment and society as a whole. Doesn’t this offset the drive to make money at all costs?
Well, look at the history of corporate social responsibility. It’s not a new phenomenon. It emerged at the turn of the century with the growth of large corporations like AT&T whose sheer power and size created mistrust in the population. It reappeared in the 1930’s during the Great Depression, and again and again in the slipstream of corporate greed and mismanagement following the implosion of Enron, the meltdown of global financial markets and in the steady stream of environmental disasters which continue to occur on an alarmingly regular basis. History demonstrates that the ability of corporate social responsibility to moderate the drive to make money is nonexistent.
When stripped of all the rhetoric, corporate social responsibility is simply a corporation’s effort to tamp down adverse public opinion by voluntarily stepping up as a good corporate citizen and “taking responsibility” for its employees, its customers, its neighbours, the environment and the general public so that the government will not feel compelled to pass regulations to protect these stakeholders from the corporation’s actions.
Corporate social responsibility, like all things corporate, is subject to the prime directive. It must make the shareholders wealthy. Smart corporate social responsibility does just that by keeping the public and the regulators at bay, thereby avoiding litigation, remediation and other “non-value adding” activities.
The Chartwell case is a classic example of the prime directive and corporate social responsibility in a microcosm. Thirty seniors were slated for eviction from their assisted living units because Chartwell, a for-profit corporation, decided not to renew its contract with the Alberta government. The contract required Chartwell to provide accommodations, food and housekeeping for seniors for a price. A Chartwell senior vice president said renewing the contract “wasn’t in our best interest”. (Sound familiar?)
News of the evictions caused a public uproar. Chartwell relented and extended its contract for another 3 years. Was this because Chartwell suddenly developed a social conscience? Not likely. The son of a 92 year old war veteran on the eviction list put it best: ”Chartwell decided they’d had enough of being seen as the bad guys”.** Bingo. It was time to roll out some smart corporate social responsibility. Chartwell is in the business of providing independent and assisted living seniors housing. It’s not good business to act like a heartless landlord tossing disabled war veterans into the street in order to make an additional $600/month.
The underlying problem is this: public institutions are created to serve the public good; corporations are created to maximize shareholder wealth. Attempting to provide public services via a private corporate model is like trying to squeeze a square peg into a round hole. There’s bound to be a rub somewhere.
To illustrate the conundrum consider a comment from Milton Friedman, a Nobel prize winning economist. Mr Friedman argues that all social services should be handed over to the private sector—except the military. He didn’t say why but I will. The privatization of the military creates a mercenary army. Mercenaries are another one of Frankenstein’s monsters and under the prime directive will go into battle for the highest bidder, including a bidder prepared to wage war on the home country. Such a scenario is unthinkable. Ask yourself this…if Mr Friedman does not trust the private sector to protect the nation, why should we trust the private sector to protect the nation’s most vulnerable people, the young, the old, the sick and the dying?
So before Mr Mar and Mr Horner press ahead with their privatization solutions to escalating healthcare costs, they would be well advised to go back to the most important principle of all: the government takes care of its people, but corporations take care of themselves.
*This post has drawn from the concepts and ideas presented in The Corporation by Joel Bakan.
** Calgary Herald On-line July 15, 2011
This is the first in a series of posts on privatization, deregulation and what we can do about it. Next up: “Unleash the Kraken”.