2001-11-22: Tyranny of the Bottom Line

Tyranny of the Bottom Line

Why Corporations Make Good People Do Bad Things (1996)

by Ralph Estes (19?-)

Estes deplores the way that modern corporations, particularly very large corporations, are not accountable to any outside control, and are motivated by a distorting ethic.

He starts with a historical perspective. Corporations were originally chartered by kings to carry out a project that the government could not do. Rather than being paid by the state, the corporation was allowed to entice investors with the prospect of profits. Early charters were often limited in time, for instance to twenty years. As the corporate idea developed, investors demanded a way for the corporation’s profits to be accounted for, leading to the accounting profession. The only purpose of the accounting was to assure that investors received their due, without financial shenanigans by the directors of the corporation. The goal was purely to derive a “bottom line”, representing the profit to be divided among the stockholders.

However, the original purpose of corporate charters was to achieve some public end of benefit to the state. In the 1800s and through the 1900s, corporations were granted increased privileges, at the same time that public benefit became less of a requirement.

Estes ascribes many ills perpetrated by corporate managers as due to the emphasis on the bottom line, at the expense of the interests of other stakeholders: employees, customers, suppliers, localities, and society. He proposes a solution, interesting (and promising) for its simplicity. In short, he says that the traditional annual stockholder report (which is required by laws protecting investors from the shenanigans of corporate executives) should be replaced by an annual Corporate Report that details the information needed by all stakeholders to assess corporate performance. He advises that the Securities and Exchange Commission, currently charged with the oversight of investor interests, should be re-designated the Corporate Accountability Commission, with responsibility for determining the information needs of all stakeholders, and assuring that Corporate Reports provide the necessary information. Estes believes that disclosure in a centralized manner will have the beneficial effects of other, haphazard, disclosures. he also believes that corporations would find such a disclosure regime less costly and cumbersome than current disclosures.

Estes is a member of The Center for the Advancement of Public Policy, which is (as of 1996) promoting his ideas as voluntary disclosure to be willingly adopted by corporations. If voluntary adoption fails, they have plans to introduce legislation to require stakeholder disclosure.

Estes provides appendixes describing in detail Customer Information Needs, Worker Information Needs, Community Information Needs, and Society’s Information Needs.

 

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