Are corporations inherently wicked? - editorial

Business Horizons, July-August, 1991 by Craig Dunn, P.

Corporate Liability at law

The doctrine of limited liability is frequently cited as a primary benefit of business incorporation. Corporations are often preferred to partnerships or sole proprietorships because of the doctrine restricting shareholders' financial risk to the amount of their capital stock investment. Shareholders' personal assets may not be attached to satisfy corporate obligations - with one notable exception. Third parties may bring suits that "attempt to |pierce the corporate veil' and ask the court to look behind the corporate entity and take action as though no entity separate from the members existed" (Corley and Robert 1975). Barring such drastic judicial intervention, shareholders enjoy strict limits upon their liability for corporate misdeeds.

With the transformation of the trusteeship model into modern agency law, the doctrine of limited liability has been extended to safeguard managers. As a rule, "an agent is not personally liable on contracts that he has entered into on behalf of his disclosed principal, and the liability is solely that of the principal" (Corley and Robert 1975). As applied in the business context, this places liability for contractual mismanagement upon the corporation itself rather than upon its representatives. This ruling does not extend to the commission of torts; much to John Borowski's chagrin, establishing that an employee's wrongful act was committed within the course of employment is not grounds for relief from personal prosecution. The doctrine of respondeat superior, however, further imposes indirect liability for the commission of torts - whether committed through negligence or intention - upon the corporation. Given their "deep pockets," corporations are more attractive legal prey than are individuals.

While DeGeorge (1986) has concluded that directors and managers "must assume moral responsibility for the corporation," forensic practice often minimizes the personal liability of manager agents. One might wonder how such a tradition affects the moral habits of practicing managers.

The Corporation as

Pseudo-Religious Institution

Whereas the difference between legal liability and moral culpability is evident, it is all too common to assume that because an action is legal it is therefore "right." The converse is equally true: actions not condemned by law tend to be viewed as morally acceptable. Such close connection between legality and morality is not unusual when one considers that for legal claims to be justified they must have a moral basis (Werhane 1985). The notion that the corporation shields individuals from personal legal liability for actions taken on behalf of the firm, when conjoined with the principle that the "good society" quite naturally arises through the unreflective pursuit of profit, has been interpreted as giving managers a moral license to adopt a strict economic account of corporate responsibility.

But is the corporation a strong enough institution to shield persons from legal as well as moral accountability? After all, it is the Church that has historically functioned as intermediary between the Law and the laity. The parallel between corporate and religious practice is only strengthened as careful consideration is given to the metaphor of the corporate veil.