Sydney Law Review
Books - WEALTH BY STEALTH: CORPORATE CRIME, CORPORATE LAW AND THE PERVERSION OF DEMOCRACY
by Harry Glasbeek, Toronto, Between the Lines, 2002, 370pp, ISBN 1–896357–41–5
The pictorial cover of Harry Glasbeek’s polemic on corporate irresponsibility speaks the proverbial thousand words. A pair of besuited corporate wolves, fangs bared, conspire together in a wood-paneled gentlemen’s club library. Fine china tea cups are laid beside them on a table bearing a cloth patterned with international currency. On the wall behind hangs an artwork depicting two leaden Monopoly tokens, passing ‘Go’ (and no doubt collecting $200) on their gallop toward profits around the board. Here are the ‘captains of industry’, the powerful and wealthy insiders who control global capital, closeted in the luxury of a private club. Here are the wolves, exempted from the moral responsibilities imposed by society on the rest of us sheep, by the deviously clever artifice of the modern corporation.
Professor Glasbeek’s thesis in this passionately written treatise is plain: the corporate law practised in western liberal democracies allows and indeed encourages the accumulation of wealth by a very few at the expense of the wellbeing of the broader global community. The two principal tenets of corporate law – the separate legal personality of the corporation, and limited liability for shareholders – provide the means for a wealthy elite to shirk the usual responsibilities borne by ordinary citizens to pay the costs of any harm they cause. The camouflage of the corporate form allows these privileged few to shift the social and environmental costs of creating their wealth onto others. In this, Glasbeek asserts, the corporation is the antithesis of the democratic and individualistic ideal supposedly enshrined in the liberal market economy. The theory that freely competitive, rational economic actors will allocate resources to those pursuits which will maximize general welfare – the true Adam Smith Wealth of Nations ideal – is aborted when the most powerful players in the market are able to abscond with profits, without meeting the true costs of making those profits. This corrupts not only the workings of the so-called ‘free market’, but also our conception of a democratic legal and political system ‘in which the central principle is that sovereign individuals are to be responsible for their conduct’ (p41).
Glasbeek draws an analogy with children who claim that an invisible playmate is to blame for the spills and breakages of their games. Only a foolishly fond parent would allow a child to escape punishment by such a ruse. But our system of law frequently allows the controllers of these invisible corporate friends to avoid responsibility entirely, or at most to bear relatively insignificant fines and penalties for the types of wrong-doing which would render an individual perpetrator liable to criminal sanctions. Moreover, the powerful elite who enjoy this privilege also assert for these invisible corporate friends the rights of natural persons: the right against self-incrimination, the right to freedom of speech (much abused in Glasbeek’s view by the likes of the tobacco industry), and in some jurisdictions the right to sue for defamation (a powerful tool to curb public criticism).
Those familiar with Professor Glasbeek’s scholarship will find nothing surprising in this book. Its 14 chapters capture the wealth of several decades of research and scholarship in the fields of political economy, industrial law, occupational health and safety, and corporate crime. The arguments – as extreme as many may find them – are buttressed by evidence drawn from example after example of corporate crimes and misdemeanours, most of which escaped any serious sanction when they occurred. The examples span a panoply of sins: revenue avoidance, anti-competitive conduct, environmental depredation, flagrant and deliberate disregard of product safety standards, extreme exploitation of indigent labour, and, not least, one of Professor Glasbeek’s special research areas – industrial manslaughter. He does not simply tally up ‘lifeless aggregate data’ (p139) – although this tells a shocking story in itself – but narrates many true stories.
Those familiar with Professor Glasbeek’s charismatic persona and compellingly direct speaking style will recognize the strident, no-beating-around-the-bush prose, and will appreciate the book’s publishing format, which is designed to appeal to a broad readership. For a legal academic, it was first a little disconcerting to read such a forcefully argued narrative apparently unsupported by any footnoted authority. But the evidence is all there, in a thick section of very detailed scholarly References from pages 285 to 335. There is also an extensive bibliography, and for those who would dip in and out of the pages, an index. The word ‘greed’, for instance, notes six separate entries.
The book was first published in Canada in 2002, and many of the examples are specifically Canadian. Nevertheless the general themes are equally relevant in Australia. North America had Enron; we had HIH. Canada had Westray, we had the Longford gas explosion. Indeed, the book provides both a timely and a timeless perspective on important questions about how a liberal democracy should regulate corporate activity.
The early chapters of Wealth by Stealth flesh out the argument in stages. Chapter 4, ‘The Small and the Ugly’, documents case studies on the abuse of the corporate form by the so-called ‘entrepreneurs’ in closely held corporations. This is principally a Canadian work, so the examples are drawn from that jurisdiction, but Australian readers will have no difficulty in substituting examples from our own. The 2003 budget estimate for the federal government’s General Employee Entitlement Redundancy Scheme, which picks up the bill for unpaid entitlements when small companies fail owing workers money, was $85 million. That represents quite a number of ‘invisible friends’ who have escaped paying their own debts and passed the cost on to general taxpayers.
Chapter 5, ‘The Westray story’, documents an example of an especially horrific and apparently avoidable mining ‘accident’, in which government bodies were implicated, to demonstrate the how much harm a corporation can cause, and how little responsibility it may be required to bear. The following chapters analyse the operations of large public companies, particularly their influence over government policy (Chapter 7), their general avoidance of criminal liability, even for causing death and large scale environmental destruction (Chapters 8 and 9), and their assertion of rights to the constitutional freedoms enjoyed by natural persons, even though they escape the legal responsibilities of natural persons (Chapter 7).
Chapters 10 to 12 move on to examine responses to the problem of corporate irresponsibility. Chapter 11 provides an excellent critique of the ‘stakeholder’ theories of corporate governance, which should be essential reading for undergraduate corporate law courses. In telling the story of the emergence of these communitarian approaches to corporate governance (which argue that corporate captains should be held accountable to a broad range of interests, not just shareholders), Glasbeek places the Adolf Berle versus Charles Dodds debate within its historical and socio-political context of the Great Depression, when corporate capitalism was patently not delivering on its promise of wealth and prosperity for all (p 190). In the course of this chapter, Glasbeek provides a concise explanation of the law and economics ‘nexus of contracts’ theory of the corporate firm, which students may well find useful. Ultimately, Glasbeek argues that the stakeholder theories, as laudable as they seem, are inherently self-contradictory. The corporation remains essentially a tool for profit-maximization and the ‘private accumulation of socially produced wealth’. As such, it is demanding nothing short of schizophrenia to expect this vehicle to promote public policy.
In Chapter 12, Glasbeek examines the prospects for consumer activism to bring aberrant corporations into line by using the consumers’ market power. Although he recounts some limited successes for consumer boycotts, the picture he paints is largely pessimistic. The worst abuses are the hidden ones. As an example he cites extensive harms caused by the mining of coltan mud in Africa to make the invisible microchips in electronic equipment (p210). The consumer boycotts, which may have had some influence in markets for a few wearable luxuries – like Nike runners and Body Shop beauty products – are making no impact on silicon mining in Africa.
Finally in Chapter 14 Glasbeek asks his own version of Marx’s question: ‘What is to be done?’ Here it is clear that Glasbeek’s chief grievance is that the wealth created by corporations is not shared with those at whose expense it is created.
The perspective of the ordinary working class people is never far from the surface in this book. Workers’ chief grievances include weak (or non-existent) rights to corporate information (p68), deliberate risk-taking with workers health (p161), and cavalier attitudes to workers’ deaths through avoidable industrial accidents (p171). Glasbeek proposes a number of measures to address these grievances: a need to personalize responsibility for corporate wrong-doing; statutory requirements for adequate capitalization before a firm may enjoy corporate status; ‘outing’ the captains of corporate industry who are complicit in corporate crime by publicizing their association with criminal activity; and improvements in workers’ rights to participate in corporate decision-making especially concerning safety standards and the introduction of new technology.
Principally, Glasbeek proposes a change to the corporate Monopoly rules. Invisible corporations which commit crimes, together with their controlling shareholders – those wolvish captains of industry – should bear full responsibility for their crimes. His message for them is clear: ‘Go to Gaol. Go Directly to Gaol. Do Not Pass Go and Do Not Collect $200.’
JOELLEN RILEY Senior Lecturer, Law Faculty, University of Sydney