Corporate harm and its impact

Posted on March 1, 2010 by Victor Ofosu

Introduction

Arguments about the decline of the nation state and increasing powers of multinational corporations has encouraged both protest and debate about the uses and abuses of corporate power.

This paper highlights the problems involved in assessing corporate harm; by looking at its meaning and identifying different forms, including in the workplace and the wider environment. It also examines how corporate harm is regulated. What is corporate crime and how does it develop into corporate harm? Who are the victims of corporate crime? Are they compensated by the corporations or governments? Globalisation is a key player in assisting corporate harm. This paper also looks at the scale of corporate harm and occupational injuries.

The paper looks at regulation and its impact on corporations. To understand it, it is also important to study how regulation influences business in becoming a responsible actor in society. A critical analysis will be undertaken to understand why companies take less responsibility for their actions. We will try to establish the ineffectiveness of business regulation. The paper reflects on the level of harm caused by corporations on the environment. It develops further on this issue by looking at the cause of environmental degradation and the role of globalisation. The paper analyses recent developments in global warming. Finally the paper discusses how to protect the public by examining the main problem areas of corporate social responsibility. How these problems arise and how corporate responsibility will perhaps resolve this problem, most importantly how to sustain effective corporate regulation.

The Problem of Occupational White Collar Crime as Corporate Crime

There are as many definitions of White Collar Crime as there are commentators on the subject. Although low paid white collar workers can and may engage in illegal practices such as credit card fraud or embezzlement (Jesilow, 2003), for the purpose of this argument White Collar Crime will be taken to mean crimes committed by corporate institutions, or their highest paid staff such as company directors or lawyers, or the condoning by them of other illegal and damaging practices through inadequate regulation or management (Jesilow, 2003). Although credit card fraud makes up the highest proportion of frauds reported to the police, in terms of the amount of money lost it is the vast fraud such as that concerning the Bank of Credit and Commerce International (BCCI), the Robert Maxwell publishing company, or more recently, Enron, which dwarf the cost of all other fraud crime (Levi, 1991). In the case of Enron, legal claims from share holders and creditors amounted to $100 billion (Fooks, 2003). As Green has pointed out, Edwin Sutherland’s original definition of white collar crime is carried out by “persons of high social status and in the course of their occupation” (Green, 1993). Because of this, corporate crime is difficult to detect.

During the 1980’s in the USA, the Federal Bureau of Information (FBI) launched a number of large-scale undercover operations of hedge and speculation funds at two Chicago stock exchanges. The investigations led to forty eight criminal indictments against white collar workers associated with the exchanges, and produced evidence of extensive and systematic abuses in the trading pits. (Schlegel, 1993), Although the crimes were mainly focused within the trading pits, the fact that the activities had been extensive and systematic strongly supports the notion that even on the trading floor, white collar workers are encouraged to act illegally because it is in the ‘culture’ of the institution to do so.

There is evidence that white collar crime is under reported, particularly where banking and finance are central to the economy of a country. “English officials often appear inclined to look the other way when arguable violations of the law take place, perhaps in order not to upset a sensitive political equilibrium that tries to convey the conviction that the marketplace is under control and well regulated “(Levi, 1993). This leads to the problem that if the crimes themselves are under-reported, they are outside the boundaries of prosecution, causing difficulties in facing up to the scale of the problem.

In addition, with the continued pace of sub-contracting out of government services to the private sector, it becomes more difficult for the state to responsibly intervene to prevent white collar corporate crime within the public sector, as the recent case of the loss of sensitive data of half the adult population of Britain made clear. If private sub-contractor loses data, the government is implicated in the loss, whether it was directly responsible or not. The expansion of the private sector into the public is a further barrier to regulation of the private sector; the more the boundaries between the two sectors become blurred. Crouch gives the example of private auditing companies sent by governments to regulate the accounts of large corporations, whilst simultaneously selling “other management services to the firms whose accounts they were checking: the regulated became the customers of the regulators” (Crouch, 2004). A trend which started in the early 1980’s and has become the standard for both business and government is “..an era characterised by close relations between business and the state, active government deregulation of business, and the elevation of free-market ideology to a level unseen since at least the 1920’s” (Lofquist, 1993). Globalisation has added to the problem by introducing working practices which encourage cost cutting, lack of regulation, or in general follow a neoliberal model of economics. The collapse of the ‘Keynesian paradigm’ of the 1970’s where demand levels were never guaranteed and markets became unreliable, along with rapid technological change and the increased competition globalisation brought about intensified the need in the financial sector to make more profit more quickly than before. The motivation for corporate crime according to Crouch is profit (Crouch, 2004).

The recent collapse of British bank Northern Rock, and the governments subsequent decision to prop it up using tens of billions of tax payers money illustrates firstly, that the bank was engaged in questionable business practices, and secondly, that little has changed in terms of the regulation of the financial sector to reassure investors that their money is safe, or even that once a bank has been ‘rescued’ by a buy-out, investors money is safe. Richard Branson’s declared interest in the bank was followed by reports that his company, Virgin did not have a banking licence, and intended to simply re-brand Northern Rock as part of Virgin’s portfolio of other companies such as credit cards and telecommunications. This type of company is popular amongst company directors and boards of shareholders because they minimise financial risk by reducing expenditure on investment in buildings and other infrastructure and rely on a more casual relationship with their workforce. Essentially, the Virgin type company is a major shareholder which can buy or sell its interests whenever if feels the market will shift. These companies are mainly logo with little else. As Crouch has pointed out, flexibility is the key to their success, but makes the prospect of regulation more difficult (Crouch, 2004). As the companies may evolve, and even change their name, it is often the case that the individuals who own them do not. It is this which is key to holding to account the committing of the largest white collar crimes. There are problems involved when regulating white collar crime. One of the problems claimed to make it difficult to regulate within the banking industry is identifying the crime as it is being committed. Many crimes are often detected when companies are on the verge of dissolving. This makes it difficult to investigate and identify individuals responsible. The real victims of white collar crime are usually people from lower social classes than those who commit them. While the victor’s of crime are enjoying a luxury life style, the victims are left to deal with the stress (Geis and Jesilow, 1993).

Occupational injures and hazards in the workplace

Occupational injuries and death can be traced back to the Roman period when slaves were exposed to multiple hazards. Early periods of industrial manufacturing also exposed workers, including children to poisons such as lead. What is new is the scale of modern manufacturing and the subsequent scale of occupational injury.

The growing concerns about the health of workers in the 18th century lead to Bernardino Ramazzina’s founding of Occupational Medicine. Bernardino argued “tis a sordid profit that’s accompanied by the destruction of health. Many an artisan has looked at his craft as a means to support life and raise a family, but all he has got from it is some deadly disease, with the result that he has departed this life cursing the craft to which he has applied himself” (Geis and Jesilow, 1993). Geis and Jesilow argue that man’s ambition to be able to feed himself and his family has led to the endurance of bad health and hazardous working environments.

Intense industrialisation has increased work hazards. The development of new materials, machinery and chemicals has increased the probability of occupational injuries. The United States Council of Environment reported that 700 new chemicals were introduced into the market in the 1970s. In the same decade the National Institution of Occupational Safety and Health reported that about 880,000 workers were being exposed to carcinogens and other chemicals in the work place. In the United States asbestos related diseases is said to be the killer of 40 percent of about four million workers. Reports indicate that 15 percent of the work force is exposed to asbestos. Jones argues that in 2004/2005 4.7 percent of the people who have worked in Britain suffer from a work related illness (Jones, et al, 2006).

Rapid globalisation has meant that many governments in developing countries reduce the level of regulation on corporations to attract investment. Today in the 21st century, companies are able to relocate to countries with low regulation. Globalisation creates difficulties for governments wishing to hold corporations accountable for the harm they cause (Crouch, 2004). Corporations are seen relocating from higher regulatory Western countries to lower regulatory developing countries. Crouch argues, “large corporations have frequently outgrown the governance capacity of individual nation states. If they do not like the regulatory or fiscal regime in one country, they threaten to move to another, and increasingly states compete in their willingness to offer them favourable conditions, as they need the investment” ( Crouch, 2004).

Globalisation has made it possible for the transfer of wealth from one part of the world to the other. Globalisation creates the possibility for corporations to move from on country to another (Hay and Watson, 1999). This in the level of work hazards has prompted some corporations to call for a voluntary standard without the intervention of the government. It can be argued that they take this view to avoid any regulation which may affect profits. In addition, political and economic interest deters the government from intensifying corporate regulations. Simple measures could be introduced to reduce the level of occupational harm such as tests on machinery which can monitor the levels of chemicals. Saghal argues that the problem involved in increasing safety is the avoidance of responsibility by corporations. He argues that companies tend to blame the culture and the backwardness of maintenance in developing countries. Arguing that poor planning and inadequate regulation in poor countries contribute to harm in the working environment (Pearce and Tombs, 1993). If regular tests are conducted on machines and chemicals it will save company’s money on compensation given to victims through legal court cases.

The business benefits from saving money, lives and improving the quality of life for their workers. But then corporations argue that there are significant costs in relation to performing checks on both the level of toxics in chemical production and the safety of machines. Geis and Jesilow argue that because current policy emphasises, administrative changes, corporations ignore the unique problems created by occupational harm. Traumatic injury is one form of work hazard which occurs when workers suffer from accidents in the workplace either from falling or burns. The second and most significant form of work hazard is mostly disease related. In this case workers are exposed to high level of toxins. For example long-term exposure to some forms of chemicals or carcinogens could lead to cancer. This was the case at the Union Carbide plant in Bhopal, India where leaks from the plant led to over 200,000 people being exposed to toxic fumes. It was reported that 60,000 people were seriously affected, with 20,000 permanent injuries and 10,000 people dying (Pearce and Tombs, 1997).

In addition, a different type of hazard can lead to workers suffering from high blood pressure and heart disease. Morden argues that working environments can contribute to major causes of stress. Levels of work related stress in the United States average about 23 percent of heart diseases. (Landisbergis, Schurman, Israel, Schnall, Hugentobler, Cahill, and Baker 1997 Due to the fact that occupational harm is detected after a long period, it gives corporations the opportunity to reject responsibility for the harm they cause. In cases where compensation is given to the victim, compensation to victims tends to be low minimum. Although compensation is given to victims of corporate harm sometimes through legal dispute, no amount of compensation can make up for the level of harm workers are exposed to, except to ensure future income if the worker is unable to do his or her job as a result of injury. The decline in workers health is not seen as an important focus for corporations if they can relocate factories anywhere in the world.

Environmental Harm

Rapid intensity in global warming has increased the awareness of the need to protect the environment. Environmental harm is said to be one of the most dangerous forms of harm impacting on society. Awareness of environmental degradation can be traced back to the 1940’s when industrialisation began to have an impact on the environment in the form of air pollution, earth erosion, and pollution of land and water. In the 1940’s, pioneers of corporate crime studies such as Edwin Sutherland emphasised the ability of corporations to shield themselves from liabilities of social harm. Sutherland believes that the growth in economic power of corporations gives them the ability to refuse to take responsibility for the harm they cause. (Geis and Jesilow, 1993) The disposal of toxic waste in rivers in the 1970’s provoked the enacting of legislation to protect the environment. Attention in the 1970’s was mostly on the need to prevent harm, but later that decade, increased concerns over the environment raised awareness. This awareness was mostly prompted by the environmental movement who called for the need to correct the harm already caused to the environment.

Statistics show that 200,000 litres of diluted industrial waste leaked into rivers in the USA. This indicated the impact pollution has on the environment (Carr and Scheiber, 2002). From this perspective we can argue regulatory bodies have failed to protect our environment from harm (O’Neil, 2007). This creates the view that regulatory governances are vulnerable to the multinational corporations.

In the US in the 1980’s the Superfund Act aimed to provide means to protect the environment under the Reagan administration. The targets of the act were industries within the petrochemical, metal, electrical and transportation sectors to take responsibility for the harm they caused to the environment. It was run by the Environmental Protection Agency (EPA) and its brief was to clean up some of the nations worst toxic hazards in the US, including the removal of chlorine solvents in wells and groundwater. The Superfund was financed by a combination of tax on corporations and enforced clean up at the cost of the polluters. If a corporation disputed the clean up, Superfund could pay for the costs, and in theory, bring a lawsuit to recover the costs. Not surprisingly, polluting corporations opposed Superfund aggressively. Also, because the Reagan administration set out to save money on social programmes, the EPA’s budget became a victim of cutbacks. Under this administration the EPA came under fire itself for becoming mired in political corruption and its top official resigned as a result of the ‘Sewergate’ scandal. It subsequently lost another administrator for altering a report which identified Dow Chemical as a major dioxin polluter in Michigan. In the 1990’s and recent years the United States has failed to sign significant agreements which aim to reduce carbon emissions and other forms of pollution; The Kyoto Agreement. Both the US and China, who have not signed the protocol feared both the cost of the clean-up and possible loss in industrial output, which America argued would have a negative impact on its’ countries economy. The example of Superfund and Kyoto shows the United States emphasises the creation of profit over environmental protection as its main concern. The protection of the health of its citizens is not included on its agenda (Liu, 2006). The real pressure for environmental change has been public opinion and the lobbying from grassroots organisations which has seen an increased public perception on environmental damage.

In developing counties such as Ghana industrial waste from mining are deposited in drinking water and on farmland. The effects of environmental pollution on these societies, usually impact on the people in the form of disease, lack of agriculture and an increase in infant mortality and death rates. “The chief executive of the Ghana chamber of mines Joyce Aryee has called on companies operating in Ghana to see their corporate social responsibility as a core component of their business” (Business Respect, 2006).

Globalisation has also given corporations the opportunity to transfer waste from one country to the other. This means corporations are able to avoid regulation from Western Countries, by depositing waste in less regulated developing countries. Globalisation creates the difficulty in detecting the impact of corporate harm in developing counties, as data from developing counties is sometimes fabricated to suit the needs of corporations. In most cases document are signed to help corporations create the perception in public that they are green (O’Neil, 2007). Hay and Watson argue that “Globalisation is, then, by no means experienced equality: it may well be empowering for those already empowered by their access to capital and the resources it might lead them to acquire, but by the same token it is correspondingly disempowering to those on the receiving end” (Hay and Watson, 1999)

Corporate social responsibility

Corporations are fundamental establishments in society. They are responsible for the production of goods and services and aim to make profits for their shareholders. Intense lobbying from grassroots and anti-corporate campaigners has forced businesses to consider the wider interest of society. For companies to show consumers they have taken responsibility for both human and environmental harm, corporations have adopted a policy, which perhaps goes beyond complying with regulations, and rests on marketing and advertising strategies to promote their companies. The aim is to sell more products, rather than to improve the quality of life for their employees and their families.

The early 20th witnessed a debate on the concept of corporate responsibility; these debates looked at the growth of corporations and their impact on society. Corporations’ development in Corporate Social Responsibility (CSR) saw corporations adopting charitable causes and writing annual CSR reports. The reports usually aim to show regulatory bodies and the public changes in business policy and improvement in harm related areas. Corporate social responsibility developed from the United Nations millennium development goal. It aims to increase contribution assistance from multi-national corporations to deprived developing countries. This, it can be argued, is not possible as dependency on aid and corporations stagnate the development of developing countries.

The implementation of CSR is usually seen in a form of community based development project. Shell is involved in such project. Its development programme aims to educate communities as well as developing adult skills. Another corporation, Marks and Spencer is also engaged in development programmes.

Marks and Spencer concentrate on developing trade networks with communities using fair trade policies. Most of these projects are in Africa. From this context we can argue that in an attempt to demonstrate good business citizenship, firms report in compliance with legislation or pressure from regulatory bodies. Some argue that reports produced by firms are misleading and not reliable. They go further to argue that there is an underling motivation that lead firms to produce reports in an attempt to be socially responsible. Friedman argues “there is no place for social responsibility as a business formation. However a business comprises people who possess both the humanistic and naturalistic view point.” Friedman’s argument creates the notion that a corporation cannot be interested in the well being of its workers and society. But on the other hand individuals in corporations with humanitarian notions can be interested in the development of society, but on an organised scale, corporations do not have an interest in social responsibility.

Conclusion

One of the major problems involved in measuring corporate harm is the unavailability of reliable public information. Misleading information tends to drift investigations when measuring corporate harm and its impact.” Calhoun and Hiller argue that the corporations “interest are best served by having asbestosis receive the minimum of publicity” Congress argues that the “problem was one of ‘individual susceptibilities” (Calhoun and Hiller, 1988) The complexity in measuring corporate harm and its impact develops from the issue of unfavourable research through corporation funding research. It can also be argued that corporations lobby for protective legislation which creates difficulties in measuring levels of harm. Calhoun and Hiller raise questions that causation and responsibility remains unsolved for so long because of how the corporations. Based on Calhoun and Hiller we can conclude that because of corporations’ ability to protect themselves, the level of corporate crime cannot be measured with any accuracy.

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Website

http://www.businessrespect.net (22/02/2010)



By Victor Ofosu