Rechartering The Giant Corporations
To most Americans, a company without a country would seem suspicious and puzzling. But not to many leading corporate executives who are finding that their multinational corporations’ American nationality is something of a drag. Last month, at the White House Conference on the Industrial World Ahead, Carl A. Gerstacker, chairman of Dow Chemical Company, revealed this yearning by his big business colleagues. He declared that an “anational corporation,” without any national ties, could operate more flexibly and freely around the world. Later he told an inquirer that for a decade, Dow had been studying the possibility of locating on an island in the Caribbean. The chief obstacle, he added, would be unfavorable tax consequences to investors in the exchange of stock involved in such a corporate emigration.
If ever there was a new argument for federal chartering of the top 1000 U.S. companies, currently chartered by the states, Mr. Gerstacker’s candid expression supplied it. The spectacle of large companies operating interstate and internationally yet chartered by such states as Delaware or New Jersey has stoked political controversy since the late 19th century. At that time and later by Presidents Roosevelt and Wilson, and just before World War II, the issue of federal chartering replacing the states for interstate business firms arose and each time was defused by narrower reforms centering around the passage of antitrust amendments or establishment of regulatory agencies such as the Interstate Commerce Commission or the Securities and Exchange Commission.
Now, even stronger reasons compel a new consideration of the public benefits offederal chartering. Fewer corporations not only control a larger portion of the economy but also are dealing with the technologies and political power that heavily shape the society.
The states,.which now charter corporations, are no match. The history of state chartering has been a very unequal contest between corporate giants and legal pygmies. As one measure of sheer size, a list of the top 50 corporations, states and cities by gross revenue in 1968, seven of the top 10 and 41 of the top 50 were corporations. Half of the nation’s 100 largest companies and one third of the firms listed on the New York Stock Exchange have made their legal home in the tiny state of Delaware. About 70 years ago Delaware decided to launch a vigorous sales program to attract corporate chartering. Its law was for sale; its legislature and courts developed a veritable “corporate Reno” facilitating the softest of chartering conditions. GM, Ford, ITT, big bank holding companies have since flocked to its friendly embrace.
The impact of Delaware corporate law on the remaining states has been decisive. No state or combination of states could cope with the lowest common denominator pull of Delaware. No state permits such power to the officers/directors while absolving them of much responsibility and providing them with a most sympathetic judiciary. The law of corporate charters in the US has been almost literally determined by Delaware law.
This all may sound as if it should interest only lawyers. But federal vs. statechartering has consequences which affect the ways corporations behave toward their employees, consumers, governments and environment as well as the ability of the society to respond to such behavior. The corporation, as the Supreme Court has said, is “a creation of the state. It is presumed to be incorporated for the benefit of the public. . . Its rights to act as a corporation are only preserved to it as long asThe charter is basically the contract between the corporation and the state acting as representative of the people. As a legal entity, the corporation is given many privileges, such as limited liability, by its charter. These privileges together with the enormous powers of money and technology possessed by these giant companies require a modernization of the conditions and responsibilities which must be met. The charter hasn’t changed much in nearly a century, but the corporate impact on society, direct and indirect, has vastly increased. The air people breathe, the safety of the products they buy, from autos to drugs, the quality of government they receive, the nature and uses of taxes, the distribution of wealth and opportunity — these and many others are shaped by corporate institutions.
New federal charters for the 1000 largest companies would be, in effect, a new constitution for their activities. There would be new conditions for corporate democracy affecting shareholders and employees, new strictures against conflicts of interest among officers and directors, new disclosure requirements to overcome the many costs of secrecy, explicit anti-monoply standards to promote genuine competition and consumer sovereignty in the marketplace, workable enforcement procedures and sanctions and other basic ways to let the abused and deceived obtain a more farsighted accountability from corporate officials.
Replacing the antiquated state charter would provide affected people with the tools and information to anticipate other problems, as well, such as America’s biggest companies quitting their legal residence in the U.S. for some tiny oceanic island.