Corporate roles, rights, wrongs: What's a 'person' to do?

  • Article by: D.J. TICE , Star Tribune
  • Updated: August 1, 2014 - 6:49 PM

‘Inversions’ expose confusions and contradictions in the debate.

In a recent weekly address about so-called “corporate inversions,” President Obama called on American corporations to “embrace … economic patriotism” and reject “an unpatriotic tax loophole” that allows some of them to “renounc[e] their citizenship … just to avoid paying their fair share” of taxes.

On a recent broadcast, estimable liberal commentator Bill Moyers voiced the popular progressive argument that corporations like Wal-Mart and Target have a “moral” duty to pay better wages — rather than exploiting a taxpayer “subsidy” in the form of safety-net programs that support low-wage workers.

In themselves, these are interesting arguments. But maybe it’s not just companies performing “inversions.” Logical inversions seem to abound whenever American political debate turns to the nature and ethics of the confusing creatures called corporations.

Corporations are not people — as we’ve so often been reminded in recent years, mainly by critics (like Obama and Moyers) of Supreme Court decisions upholding corporate free-speech rights.

Meanwhile, critics of this year’s controversial Hobby Lobby decision — upholding a family-owned corporation’s right to religious exemption from Obamacare’s contraceptive mandate — have argued that corporations can possess no religious beliefs government needs to respect.

But if one believes that a corporation cannot properly claim even the most basic political rights — because it’s not an individual person — is it reasonable to fault “it” for lacking a human sentiment like “patriotism” when it renounces its “citizenship”?

And can corporations have “moral” obligations if one has decided that no corporation can ever claim devotion to a belief system beyond the principles of accounting?

Such riddles, of course, can be turned around. If one believes corporations can claim political and religious rights, how then can they shrug off the ethical duties that go with them?

No doubt it’s foolish to take political arguments this seriously — as if anybody is aiming at logical consistency. But that’s a shame. Slightly more careful thinking about what actually shapes economic behavior might be useful in making effective economic policy.

The basic advantage in the corporate form of organization is its separation of ownership and management. These “artificial beings” have allowed real human beings to greatly enlarge and embolden their enterprises. They do this, above all, by limiting owners’ risks.

Shareholders in a business corporation — or donors to a nonprofit — can only lose what they put in. This “limited liability” means that huge numbers of people can dare to combine vast resources in a single entity they do not directly control.

But it works only because investors or donors can generally trust the executives they put in charge to manage the organization with the shareholders’ or donors’ purposes foremost in mind.

This is what has always complicated calls for the executives of business corporations to exercise “social responsibility” and do “the right thing” — like, say, paying more taxes or higher wages than necessary — even though those choices lower shareholders’ investment returns.

Business executives (who are real persons, technically) may well be patriotic and generous. But the corporation’s money is not their money. It commonly belongs to many thousands of other people, some of whom own stock in large portfolios, but many of whom own it in modest retirement accounts, or through pension funds, or through the endowment investments of nonprofit entities they support.

Business leaders can and do sometimes take a broader view of their companies’ interests, justifying various voluntary social contributions as being good for business in the long run. But such creative thinking can only go so far without undermining executives’ clearest and simplest moral duty — to make the best return they can for investors who are trusting them.

Something like this higher loyalty to shareholders seems to be playing a role in inspiring a small but increasing number of companies (including Medtronic, the big Minnesota medical device maker) to exploit the “unpatriotic tax loophole” Obama and other Democrats are decrying.

The “inversion” maneuver involves an American firm merging with a foreign company and officially moving its headquarters overseas, even though the larger part of its ownership or operation remains in America. The aim is to reduce high U.S. taxes on foreign earnings. For now, it’s “totally legal,” as the president put it.

It’s tempting to observe that if it is unpatriotic to minimize taxes by arranging one’s affairs in “totally legal” ways, most Americans are turncoats, taking “disloyal deductions” they could forgo if they loved their country more.

  • get related content delivered to your inbox

  • manage my email subscriptions

ADVERTISEMENT

  • about opinion

  • The Opinion section is produced by the Editorial Department to foster discussion about key issues. The Editorial Board represents the institutional voice of the Star Tribune and operates independently of the newsroom.

  • Submit a letter or commentary
Connect with twitterConnect with facebookConnect with Google+Connect with PinterestConnect with PinterestConnect with RssfeedConnect with email newsletters

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

Question of the Day

Poll: Should KC Chiefs player Husain Abdullah have been penalized?

Weekly Question
 
Close