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The social responsibility of corporations in East Africa Twinomukunzi, Charles Mureisya 1979

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THE SOCIAL RESPONSIBILITY OF CORPORATIONS IN EAST AFRICA  by  CHARLES MUREISYA TWINOMUKUNZI LL.B. ( H o n s . ) , U n i v e r s i t y o f M a k e r e r e , 1977  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS in THE FACULTY OF GRADUATE STUDIES Department o f Law  We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e required standard  THE UNIVERSITY OF BRITISH COLUMBIA September, 1979 (c) C h a r l e s M u r e i s y a Twinomukunzi  In p r e s e n t i n g  t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r  an advanced d e g r e e a t the U n i v e r s i t y of B r i t i s h C o l u m b i a , I a g r e e t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree that permission  f o r extensive copying of t h i s t h e s i s  f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s .  It i s understood that copying or p u b l i c a t i o n  of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my written  permission.  Department o f  LAW  The U n i v e r s i t y o f B r i t i s h Columbia 2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5 Date  O c t o b e r 15.  1979  (ii)  ABSTRACT The c o r p o r a t e s o c i a l r e s p o n s i b i l i t y c o n c e p t h a s , o v e r a p e r i o d o f time, a t t r a c t e d many both i n North America and Western Europe as e v i d e n c e d by t h e l i t e r a t u r e on t h e s u b j e c t . made, no comprehensive  A l t h o u g h v a r i o u s s u g g e s t i o n s have been  r e f o r m has been u n d e r t a k e n and t h e debate c o n t i n u e s .  The t h e s i s i s an e x t e n s i o n o f t h i s debate t o t h e c i r c u m s t a n c e s o f E a s t A f r i c a . Drawing on r e f o r m p r o p o s a l s and p r a c t i c a l examples i n o t h e r c o u n t r i e s , c o r p o r a t e law r e f o r m i s d i s c u s s e d and r e l a t e d t o t h e E a s t A f r i c a n c o n d i t i o n s . The t h e s i s i s d i v i d e d i n f i v e c h a p t e r s .  Chapter I d i s c u s s e s the  n a t u r e o f t h e problem - d i s r e g a r d t o s o c i e t y and human v a l u e s by b u s i n e s s organizations.  The c h a p t e r f o c u s s e s on t h e c o n c e p t u a l l e g a l problems  that  a r e a r e s u l t o f l e g a l h i s t o r y , t h e development o f which aimed a t i n d i v i d u a l s and n o t companies.  The l i m i t e d l i a b i l i t y c o n c e p t t h a t has enhanced c o r p o r a t e  s o c i a l i r r e s p o n s i b i l i t y i s d i s c u s s e d and t h e s e p a r a t i o n between  ownership  and c o n t r o l t h a t makes i t d i f f i c u l t t o p u n i s h and c o n t r o l c o r p o r a t i o n s i s pointed out. A r e v i e w o f t h e debate on c o r p o r a t e s o c i a l r e s p o n s i b i l i t y i s f o l l o w e d by an assessment o f t h e i n t e r e s t o f t h e v a r i o u s groups ( t h e s h a r e h o l d e r s , t h e employees, t h e consumers and t h e g e n e r a l p u b l i c ) i n a company. The irresponsible a c t i v i t i e s o f corporations, e s p e c i a l l y the multinational c o r p o r a t i o n s (MNC) both i n t h e i r mother c o u n t r i e s and i n t h e d e v e l o p i n g world are discussed.  F i n a l l y , the chapter concludes with a c a l l f o r  corporate social r e s p o n s i b i l i t y i f f o r nothing e l s e , f o r the survival o f t h e f r e e e n t e r p r i s e system as an a c c e p t a b l e economic and p o l i t i c a l philosophy.  (iii)  Chapter II presents a case f o r w o r k e r - p a r t i c i p a t i o n i n c o r p o r a t e d e c i s i o n making as a means o f e x t e n d i n g p o l i t i c a l democracy beyond t h e f a c t o r y g a t e s . Worker p a r t i c i p a t i o n i s seen as a means o f e n a b l i n g w o r k e r s to a p p r e c i a t e t h e value- o f t h e i r l a b o u r and i n t h e E a s t A f r i c a n c o n t e x t , i t i s hoped t h i s would enhance w o r k e r i d e n t i f i c a t i o n w i t h n a t i o n a l economic development s t r a t e g i e s .  In t h e f i n a l a n a l y s i s , t h e a i m i s t o improve  i n d u s t r i a l r e l a t i o n s , a v o i d waste and promote e f f i c i e n c y i n p r o d u c t i o n and hence economic development i n a h e a l t h y s o c i e t y . In C h a p t e r I I I , t h e d i s c l o s u r e p h i l o s o p h y i s seen as a means o f p o l i c i n g c o r p o r a t i o n s t h r o u g h an i n f o r m e d p u b l i c , t h e i n v e s t o r and t h e government. S o c i a l a u d i t i s a d v o c a t e d as a means towards a c h i e v i n g t h e same o b j e c t i v e . An e x t e n s i o n o f d u t i e s o f t h e g o v e r n i n g b o a r d o f t h e c o r p o r a t i o n i s disr. c u s s e d i n C h a p t e r IV and f i n a l l y , i n C h a p t e r V, t h e r e f o r m p r o p o s a l s a r e r e l a t e d t o t h e h i s t o r i c , economic and s o c i a l c i r c u m s t a n c e s o f E a s t A f r i c a .  (iv) TABLE OF CONTENTS Page . INTRODUCTION  viii  CHAPTER I THE SOCIAL RESPONSIBILITY OF CORPORATIONS IN EAST AFRICA . ...  1  SHAREHOLDER DEMOCRACY  15  CONCLUSION  16  THE SOCIAL RESPONSIBILITY DEBATE  18  THE SIZE AND POTENTIAL DOMINANCE OF LARGE PUBLIC COMPANIES ...  25  CONSUMER PROTECTION  32  THE WORKERS  34  WAGES  38  THE PUBLIC .  40  FOREIGN ENTERPRISES  41  TRANSFER ACCOUNTING  46  TRANSFER PRICING ...  46  SERVICE PAYMENTS .  48  SOCIAL RESPONSIBILITY FOR SURVIVAL  49  THE GUYANA EXAMPLE  52  THE TANZANIAN EXPERIENCE .  56  THE RUBBER INDUSTRIES LTD.  57  CHAPTER II WORKER PARTICIPATION .  60  GERMANY  69  IMPACT OF CO-DETERMINATION  73  THE DEBATE IN GREAT BRITAIN  81  (v) YUGOSLAVIA MEETING OF WORKERS  88 .  ELECTIONS OF THE MANAGEMENT ORGAN REFERENDUM  . . 90 91 • . 91  THE RIGHT TO INITIATIVE  92  INDIRECT MANAGEMENT  92  THE SYSTEM IN OPERATION  93  TANZANIA  95  MEMBERSHIP OF WORKERS' COUNCIL  97  FUNCTIONS  97  THE BOARD OF DIRECTORS  98  THE SCHEME IN OPERATION  99  WORKERS' COMMITTEES  101  FINANCIAL RETURNS  106  CHAPTER I I I SOCIAL AUDIT  115  PUBLIC'S RIGHT TO KNOW  116  DISCLOSURE IN EAST AFRICA  117  REASONS FOR DISCLOSURE  121  DISCLOSURE'S BROADER ROLE: THE SOCIAL ASPECT  124  ENVIRONMENTAL IMPACT DISCLOSURE . . .  126  POLITICAL CONTRIBUTIONS  129  STOCK HOLDER PROPOSALS  132  THE PARITY GOAL OF DISCLOSURE  138  SOCIAL AUDIT  142  (vi) ELEMENTS.OF SOCIAL AUDIT  142  TYPES OF SOCIAL AUDIT  144  THE PROCESS AUDIT  145  THE COMPLETE AUDIT  147  IMPLEMENTATION OF A SOCIAL AUDIT  152  CHAPTER IV A RESPONSIBLE BOARD  157  BROADENING PERSPECTIVES OF THE BOARD  167  PUBLIC INTEREST REPRESENTATION  168  PROFESSIONAL DIRECTORS  169  OUTSIDE DIRECTORS  171  GOVERNMENT DIRECTORS... .  173  LIABILITY OF DIRECTORS  177  CRIMINAL LIABILITY  181  CHAPTER V APPLICATION IN EAST AFRICA  185  WHY NATIONALISE?  189  STATE CORPORATIONS IN PARTNERSHIP WITH MULTINATIONAL ' CORPORATIONS (MNC's)  193  COMMERCIAL RELEVANCE  198  WORKER PARTICIPATION  202  COMPANY STRUCTURE  205  . .  THE MANAGEMENT BOARD  207  WORKS COUNCIL  210  INDIVIDUAL RIGHTS  211  (vii) GROUPS OF COMPANIES MULTINATIONALS  2.11 .  ". .,  213  TIME FOR IMPLEMENTATION  215  SOCIAL AUDIT  216  ENFORCEMENT OF DUTIES OF DIRECTORS  218  (viii)  INTRODUCTION The t h e s i s does not c o n c e n t r a t e on any one c o u n t r y but i n s t e a d f o c u s s e s on company^ law r e f o r m i n E a s t A f r i c a as a whole. view, a u n i f o r m commercial  T h i s i s because i n my  law f o r t h e whole o f E a s t A f r i c a i s not o n l y  d e s i r a b l e b u t i s e s s e n t i a l f o r t h e development o f t h e E a s t A f r i c a n ' economies. I t may, w i t h j u s t i f i c a t i o n be q u e s t i o n e d w h e t h e r t h i s emphas.is i s r e a l i s t i c g i v e n the f a c t t h a t the t h r e e E a s t A f r i c a n c o u n t r i e s do not have a common economic and p o l i t i c a l p h i l o s o p h y .  T a n z a n i a has adopted a s o c i a l i s t  p o l i t i c a l and economic p h i l o s o p h y e m p h a s i s i n g s e l f - r e l i a n c e w h i l e Kenya i s more s y m p a t h e t i c t o p r i v a t e ownership o f p r o p e r t y .  The road t h a t Uganda  w i l l f o l l o w has y e t t o be d e f i n e d . The p o s s i b i l i t y o f a u n i f i e d E a s t A f r i c a has f u r t h e r been e r o d e d by r e c e n t p o l i t i c a l developments  t h a t l e d . to the c o l l a p s e o f the E a s t A f r i c a n  community l a s t y e a r . The community which e v o l v e d as a r e s u l t o f g e o g r a p h i c a l and h i s t o r i c a l c i r c u m s t a n c e s (Uganda, Kenya and T a n g a n y i k a / T a n z a n i a  a r e i n the same  g e o g r a p h i c a l l o c a t i o n and were under t h e same c o l o n i a l power) was c o n c e i v e d i n t h e 1920's and d e v e l o p e d i n t o a h i g h l y i n t e g r a t e d and o r g a n i z a t i o n f o r economic and p o l i t i c a l c o - o p e r a t i o n .  first advanced  The r e l a t i o n s between  t h e t h r e e s t a t e s were so c l o s e t h a t a t t h e time when T a n g a n y i k a  became  i n d e p e n d e n t (1961) t h e r e was tremendous e n t h u s i a s m among t h e p e o p l e o f East A f r i c a f o r a Federation.  T a n g a n y i k a o f f e r e d to postpone  her  (ix)  i n d e p e n d e n c e f o r a y e a r i f B r i t a i n a g r e e d t o g r a n t i n d e p e n d e n c e t o Kenya and Uganda a t t h e same time so t h a t a F e d e r a t i o n c o u l d be formed.  However,  a f t e r i n d e p e n d e n c e both o f Uganda (1962) and Kenya (1963) t h e e n t h u s i a s m f o r a F e d e r a t i o n waned e s p e c i a l l y among t h e l e a d e r s .  The community however  r e m a i n e d s t r o n g u n t i l t h e change o f government i n Uganda i n 1971 when r e l a t i o n s between Uganda and T a n z a n i a d e t e r i o r a t e d .  The community f i n a l l y  b r o k e up i n 1978. Recent changes i n l e a d e r s h i p both i n Kenya and Uganada have however once a g a i n r a i s e d optimism  f o r c l o s e r c o - o p e r a t i o n among t h e p e o p l e o f  "East A f r i c a . I t i s n o t e w o r t h y t h a t many p e o p l e i n E a s t A f r i c a s t i l l  believe  in a F e d e r a t i o n and i f a r e f e r e n d u m were taken today, i t i s a l m o s t c e r t a i n t h a t t h e i d e a would command a l o t o f s u p p o r t . With;these f a c t s i n mind, t h e i d e a o f a u n i f o r m commercial law i s n o t c o m p l e t e l y o u t o f touch w i t h r e a l i t y .  C l o s e economic and p o l i t i c a l c o -  operation i n East A f r i c a i s s t i l l p o s s i b l e . recent statement  T h i s view i s r e f l e c t e d i n a  by t h e then P r e s i d e n t o f Uganda who i s an i n t e r v i e w w i t h  AFRICA Magazine s a i d : "Uganda has t r a d i t i o n a l l y always had v e r y good r e l a t i o n s w i t h Kenya and T a n z a n i a . As y o u know we belonged a t one time t o the E a s t A f r i c a n community and we were p a r t o f a c o m p l e t e system o f c o l l a b o r a t i o n and c o o p e r a t i o n w i t h i n t h e r e g i o n . We hope t o use o u r i n f l u e n c e t o r e s t o r e a f o r m - o f c o o p e r a t i o n i n t h e r e g i o n . T h i s does n o t n e c e s s a r i l y mean t h a t t h e E a s t A f r i c a n community w i l l be r e c r e a t e d as such, b u t we b e l i e v e t h e r e must be some form, o f p o l i t i c a l and economic i n t e g r a t i o n i f o u r r e g i o n i s t o p r o s p e r . I b e l i e v e harmonious r e l a t i o n s between t h e c o u n t r i e s o f E a s t and C e n t r a l A f r i c a a r e c r u c i a l l y important."2  (x)  As t o t h e d i f f e r e n c e s i n economic and p o l i t i c a l p h i l o s o p h i e s , a l t h o u g h T a n z a n i a has n a t i o n a l i s e d key s e c t o r s o f t h e economy, p r i v a t e l y owned c o n c e r n s , both f o r e i g n and l o c a l c o n t i n u e t o p r o s p e r and no doubt c o r p o r a t e s o c i a l r e s p o n s i b i l i t y would reduce t h e t r e n d towards nationalization. The b e n e f i t s t o be d e r i v e d o u t o f a u n i f o r m commercial law a r e substantial.  The d r a f t s m e n o f t h e p r e s e n t companies A c t s were w e l l aware o f  t h e s e b e n e f i t s - w h e n moving t h e B i l l t o e n a c t t h e Kenya Companies A c t , the Attorney-General noted: " S i r , t h i s B i l l has i t s p a r t i c u l a r o r i g i n i n a B i l l d r a f t e d by t h e R e g i s t r a r o f companies i n Uganda i n 1954. I t i s o b v i o u s l y i n the h i g h e s t degree d e s i r a b l e t h a t the l e g i s l a t i o n i n t h i s subject i n the three East A f r i c a n t e r r i t o r i e s s h o u l d be s i m i l a r and i n d e e d , i f p o s s i b l e i d e n t i c a l . . . . [Any] b u t c h e r , b a k e r o r c a n d l e s t i c k maker on a l a r g e s c a l e who w i s h e s t o e x t e n d h i s a c t i v i t i e s t o E a s t A f r i c a w i l l . . commence h i s b u s i n e s s i n N a i r o b i and form h e r e a company. . I f , i n t h e course,;:the b u s i n e s s e x t e n d s t o t h e n e i g h b o u r i n g t e r r i t o r i e s , i t may become d e s i r a b l e t o form a f u r t h e r company o r companies i n Uganda o r T a n g a n y i k a and I t h i n k Mr. Speaker, t h a t t h e advantages which e v e r y b o d y c o n c e r n e d s h a r e h o l d e r s , d i r e c t o r s , s e c r e t a r i e s and a c c o u n t a n t s - w i l l d e r i v e from i d e n t i c a l laws a r e o b v i o u s . " 3 The r e s p o n s e i n T a n g a n y i k a was not d i f f e r e n t .  When an amendment  was s u g g e s t e d , t h e A t t o r n e y - G e n e r a l r e p l i e d : "The o t h e r [amendment] i n v o l v e s a m a t t e r o f p r i n c i p l e r e q u i r i n g an a l t e r a t i o n i n t h e d r a f t which I would be u n w i l l i n g t o c o n s e n t t o u n l e s s I have had p r e v i o u s c o n s u l ^ t a t i o n w i t h t h e law, o f f i c e r s o f Kenya and Uganda.'r The d e s i r e o f a u n i f i e d commercial law was e x p r e s s e d i n A R t i c l e 29(b) o f t h e T r e a t y f o r E a s t A F r i c a n c o r p o r a t i o n which p r o v i d e d :  (xi)  "The c o u n s e l t o t h e community s h a l l a d v i s e t h e p a r t n e r s t a t e s on, and e n d e a v o u r t o promote, t h e h a r m o n i s a t i o n o f t h e comm e r i c a l law i n o p e r a t i o n i n t h e p a r t i c u l a r s t a t e . Company law p r o v i d e s a s t a r t i n g p o i n t f o r t h e h a r m o n i s a t i o n o f comm e r c i a l laws." Such e f f o r t s would e n c o u r a g e i n v e s t m e n t t h r o u g h o u t E a s t A f r i c a both by 5  f o r e i g n e r s and n a t i o n a l s . The b a s i c argument f o r u n i f i c a t i o n o f commercial i s a p p l i c a b l e t o many o t h e r p a r t s o f t h e w o r l d . laws w i l l make i t more d i f f i c u l t f o r commercial  laws i n E a s t A F r i c a  Lack o f u n i t y i n commercial e n t e r p r i s e s t o conduct  t h e i r b u s i n e s s on an i n t e r - s t a t e b a s i s , and u n i f i c a t i o n w i l l e n c o u r a g e t h e establishment o f a s i n g l e trade area.  I t i s i n t e r e s t i n g t o n o t e t h a t even  the members o f t h e European economic community d e s p i t e t h e i r d i v e r g e n t l e g a l systems a r e making c o n s t a n t e f f o r t t o adopt a t r a n s n a t i o n a l European Company t o enhance i n t e r - s t a t e commerce.  Given, t h e c l o s e t i e s between t h e E a s t  A f r i c a n s t a t e s , t h e r e i s an even s t r o n g e r case f o r an E a s t A f r i c a n company law. S i m i l a r company l e g i s l a t i o n , f a c i l i t a t e s an easy t r a n s f e r o f companies' r e g i s t e r e d o f f i c e s w i t h o u t t h e need t o change A r t i c l e s e t c . , l e g a l movement o f c o r p o r a t e s t r u c t u r e s and l e g a l m e r g e r s .  Companies o r g a n i s e d under one  s t a t e law s h o u l d be a b l e t o pursue t h e i r economic a c t i v i t i e s i n t h e o t h e r states. A n o t h e r r e a s o n f o r u n i f o r m i t y i s t h e d i s t r i b u t i o n o f commercial enterprises.  An example e a s i l y i l l u s t r a t e s t h i s .  I f t h e company law o f  one s t a t e g i v e s t h e management o f a c o r p o r a t i o n g r e a t e r f r e e d o m from i t s s o c i a l r e s p o n s i b i l i t i e s , than t h e law o f o t h e r s t a t e s , more c o r p o r a t i o n s  (xii)  may i n c o r p o r a t e i n t h a t s t a t e though  t h e i r a c t i v i t i e s may e x t e n d t o t h e  r e s t o f East A f r i c a . The r e s u l t would be an i n e q u i t a b l e b a l a n c e i n comm e r c i a l a c t i v i t i e s among t h e s t a t e s t h u s making i t even more d i f f i c u l t f o r i n c r e a s e d economic i n t e g r a t i o n . F i n a l l y , t h e law e n c o u r a g e s t h e development o f c e r t a i n v a l u e s .  Uni-  f o r m i t y i n commercial law would c o n t r i b u t e t o a c l o s e r r e l a t i o n s h i p between the s t a t e s and f a c i l i t a t e t h e development o f common v a l u e s , c u l t u r e and a t t i t u d e s which i s d e s i r a b l e f o r c l o s e r economic and p o l i t i c a l  co-operation.  CHAPTER I THE SOCIAL RESPONSIBILITY OF CORPORATIONS IN EAST AFRICA  Each o f the t h r e e E a s t A f r i c a n s t a t e s ; Kenya, Uganda, and T a n z a n i a has a companies a c t ^ t h a t r e g u l a t e s companies o p e r a t i n g o r r e g i s t e r e d i n t h e p a r t i c u l a r s t a t e . The t h r e e a c t s , however, a r e s i m i l a r , a l l o f them b e i n g an (?)  a d o p t i o n a l m o s t word f o r word o f the 1948 E n g l i s h Companies A c t .  '  A  p r o p o s i t i o n u n d e r l y i n g company law ( a p p l y i n g t o a l l companies but h a v i n g greater s i g n i f i c a n c e in r e l a t i o n to  l a r g e p u b l i c companies) i s t h a t the  a c t i v i t i e s - o f the company must aim d i r e c t l y o r i n d i r e c t l y a t t h e making o f p r o f i t which i n the end must f a l l i n t o the hands o f i t s 'owners', the s h a r e holders.  The a c t i v i t i e s o f the company must be f o r the b e n e f i t o f the  s h a r e h o l d e r s w i t h o u t r e g a r d t o t h e e m p l o y e e s , t h e consumers, t h e s t a t e and s o c i e t y a t l a r g e . A few c a s e s c l e a r l y i l l u s t r a t e t h i s p r o p o s i t i o n . (3)  In Hutton v. West Cork Ry. Co.,  ' Bowen L . J . s p e a k i n g f o r the C o u r t  o f A p p e a l , E n g l a n d , r e f e r r i n g t o a companies p r o p o s i t i o n on d e c i d i n g t o wind up, t o pay compensation  f o r l o s s o f o f f i c e t o i t s d i r e c t o r s and e x e c u t i v e s  said: They i t h e d i r e c t o r s and s h a r e h o l d e r s [have p a i d l i b e r a l l y , perhaps not a t a l l too l i b e r a l l y , p e r s o n s who have s e r v e d them] f a i t h f u l l y . As soon as a q u e s t i o n i s r a i s e d , by a d i s s e n t i e n t s h a r e h o l d e r , o r by a person s t a n d i n g i n t h e p o s i t i o n o f a d i s s e n t i e n t s h a r e h o l d e r , sympathy must be c u t a d r i f t , and we have s i m p l y t o c o n s i d e r what the law i s . . . . ( 4 ) Having r e f e r r e d t o the f a c t t h a t the money about to^be s p e n t was not t h e s h a r e h o l d e r s ' money, he c o n t i n u e d ; 1  'They [ t h e s h a r e h o l d e r s ] can o n l y spend money which i s not t h e i r s , but the company's, i f t h e y a r e s p e n d i n g i t f o r t h e purposes which a r e r e a s o n a b l y i n c i d e n t a l t o t h e c a r r y i n g on o f t h e b u s i n e s s o f the company.' (5) He c o n c l u d e d w i t h h i s famous s t a t e m e n t ;  'The law does n o t s a y t h a t t h e r e a r e t o be no cakes and a l e , b u t t h e r e a r e t o be no cakes and a l e e x c e p t such as a r e r e q u i r e d f o r the b e n e f i t o f t h e company.' (6) Thus, a c t i v i t i e s t h a t a r e n e i t h e r o f d i r e c t n o r o f i n d i r e c t b e n e f i t t o t h e company and u l t i m a t e l y t o t h e s h a r e h o l d e r s  a r e t o t a l l y e x c l u d e d from c o n s i d -  e r a t i o n by company law. On c h a r i t y , L o r d Bowen s t a t e d  emphatically;  ' I t i s n o t c h a r i t y s i t t i n g a t t h e b o a r d o f d i r e c t o r s b e c a u s e as i t seems t o me, c h a r i t y has no b u s i n e s s t o s i t a t boards o f d i r e c t o r s qua c h a r i t y . ' (7) (8)  In Parke v. D a i l y News L t d . , ' t h e i s s u e was w h e t h e r a company t h a t was about t o c e a s e s u b s t a n t i a l b u s i n e s s c o u l d make ex g r a t i a redundancy payments t o t h e d i s m i s s e d employees.  The d i r e c t o r s o f t h e company a r g u e d t h a t  the employees h a v i n g h e l p e d t o b u i l d t h e p r o c e e d s o f an e n t e r p r i s e , they had a j u s t i f i a b l e c l a i m f o r c o n s i d e r a t i o n t o w h i c h t i t was p r o p e r f o r t h e company t o pay r e g a r d .  They c o n t e n d e d t h a t t h e i n t e r e s t s o f t h e s h a r e h o l d e r s  would  be s a t i s f i e d by e n s u r i n g t h a t t h e o t h e r a s s e t s o f t h e company r e m a i n e d i n t a c t for their benefit.  'An a c c o u n t a n t  of great experience'  i n h i s evidence  showed t h a t 'although o b v i o u s l y t h e prime d u t y o f d i r e c t o r s i s t o c o n s e r v e the a s s e t s , they a l s o have t h e s e days a p r a c t i c a l o b l i g a t i o n t o t h e i r employees.' Plowman J . h e l d t h a t t h e r e was no a u t h o r i t y t o s u p p o r t and  the proposition  concluded; 'In my judgment, t h e r e f o r e , t h e d e f e n d a n t s were prompted by m o t i v e s w h i c h , however l a u d a b l e , and however e n l i g h t e n e d from t h e p o i n t o f i n d u s t r i a l r e l a t i o n s , were such as t h e law does n o t r e c o g n i z e as a s u f f i c i e n t j u s t i f i c a t i o n . Stripped o f a l l i t s side issues, the essence o f the matter i s t h i s , that the d i r e c t o r s o f the defendant company a r e p r o p o s i n g t h a t a v e r y l a r g e p a r t o f i t s f u n d s s h o u l d be g i v e n t o i t s f o r m e r employees i n o r d e r t o b e n e f i t t h o s e employees r a t h e r than t h e company, and t h a t i s an a p p l i c a t i o n o f the company's f u n d s which t h e law as I u n d e r s t a n d i t , w i l l n o t a l l o w . ' (9)  T h i s was a s p e c i a l s i t u a t i o n where t h e company was w i n d i n g up. The expenses  - 3 t h e r e f o r e , c o u l d n o t be j u s t i f i e d on t h e grounds t h a t i t i s t o t h e b e n e f i t o f the company i n t h e l o n g r u n . In p r a c t i c a l t e r m s , such e x p e n d i t u r e w i l l be a l l o w e d under t h e b r o a d view e x p r e s s e d i n Hutton v. West Cork R a i l w a y  Co.^^  Hadden, i n h i s i n t e r p r e t a t i o n o f t h e d e c i s i o n , e x p r e s s e s t h e view t h a t most o f such e x p e n d i t u r e by a company s t i l l i n b u s i n e s s can be j u s t i f i e d under t h e law. He w r i t e s ; 'Most e x p e n d i t u r e o f a s t r i c t l y non-commercial k i n d can c l e a r l y be j u s t i f i e d on t h e s e grounds. Swimming p o o l s f o r e m p l o y e e s , p r e s t i g e a d v e r t i s i n g , refreshments f o r shareholders before a general meeting, g r a n t s t o o u t s i d e b o d i e s f o r r e s e a r c h o r f o r c h a r i t y may a l l be o f l o n g - t e r m b e n e f i t t o t h e company i n c r e a t i n g a t t r a c t i v e w o r k i n g c o n d i t i o n s f o r e m p l o y e e s , i n promoting a b e t t e r u n d e r s t a n d i n g o f the companies a c t i v i t i e s by s h a r e h o l d e r s and t h e p u b l i c a t l a r g e o r in i n c r e a s i n g t h e s u p p l y o f w e l l - t r a i n e d r e c r u i t s . As l o n g as t h e company remains p r o s p e r o u s , t h e r e w i l l be few o b j e c t i o n s t o such e x p e n d i t u r e e x c e p t perhaps on p o l i t i c a l grounds.' (11) T h i s , however, does n o t change t h e c l a s s i c a l t h e o r y t h a t was once unchallengeable.  The t h e o r y s t i l l r e m a i n s r a t l e a s t i n E a s t A f r i c a , t h a t t h e  d i r e c t o r s ' duty i s t o t h e company. (12) company^  The company's s h a r e h o l d e r s a r e t h e  ' and no o t h e r i n t e r e s t s o u t s i d e t h o s e o f t h e s h a r e h o l d e r s can  l e g i t i m a t e l y be c o n s i d e r e d .  The e m p l o y e e s , t h e c o n s u m e r s , and s o c i e t y a t  l a r g e have no r i g h t by t h e m s e l v e s t h a t company law r e c o g n i s e s .  Their  i n t e r e s t s become r e l e v a n t o n l y i f i t i s i n t h e i n t e r e s t o f t h e company and t h e r e f o r e , t h e s h a r e h o l d e r s t h a t such an i n t e r e s t be c o n s i d e r e d . (13) The c l a s s i c 1919 U n i t e d S t a t e s c a s e o f Dodge v. F o r d M o t o r C o . V c l e a r l y i l l u s t r a t e s the point.  T h i s i s a case where i n s t e a d o f p a y i n g o u t  d i v i d e n d s t o s h a r e h o l d e r s , t h e management o f t h e company d e c i d e d t o d i v e r t the money t o o t h e r i n v e s t m e n t e x t e n s i o n programs.  One o f t h e s h a r e h o l d e r s ,  who owned 10 p e r c e n t o f t h e company's s h a r e s o b j e c t e d , a l l e g i n g t h a t Mr. Henry F o r d who owned 58 p e r c e n t o f t h e s h a r e s was m o t i v a t e d by p e r s o n a l feelings.  F o r d was i n f a c t m o t i v a t e d by h i s c o n c e r n f o r s o c i e t y .  Defending  - 4 his  v i e w s , Ford s a i d 'my a m b i t i o n  i s t o employ s t i l l more men;  to spread  the  b e n e f i t s o f t h i s i n d u s t r i a l system t o the g r e a t e s t p o s s i b l e number, t o h e l p them b u i l d up t h e i r l i v e s and t h e i r homes.  To do t h i s , we a r e p u t t i n g the (14) g r e a t e s t share o f our p r o f i t s back i n our b u s i n e s s . ' The C o u r t a l s o f o u n d t h a t Ford.had c o n s u m e r . i n t e r e s t s  i n mind; 'Also t h a t he [Mr. Henry  F o r d ] t h i n k s the Ford Motor Company has made too much money, has had l a r g e p r o f i t s , and t h a t a l t h o u g h  too  l a r g e p r o f i t s m i g h t s t i l l be e a r n e d , a  s h a r i n g o f them w i t h the p u b l i c , by r e d u c i n g the p r i c e o f the o u t p u t o f the (15) Company, o u g h t t o be u n d e r t a k e n . 1  D e s p i t e these a p p e a l i n g o b j e c t i v e s , the Court found t h a t Ford was a t s e r v i n g a w i d e r c o n s t i t u e n c y which the law d i d not a l l o w .  I t was  aiming held  t h a t the i n t e r e s t s o f the s h a r e h o l d e r s must take p r e c e d e n c e o v e r the i n t e r e s t s o f a l l o t h e r s ..affected by the a c t i v i t i e s o f t h e Company.  As O s t r a n d e r  C.J.  put i t ; 'A b u s i n e s s c o r p o r a t i o n i s o r g a n i z e d and c a r r i e d on p r i m a r i l y f o r the p r o f i t o f the s t o c k h o l d e r s . The power o f the d i r e c t o r s i s t o be e x e r c i s e d i n the c h o i c e o f means t o a t t a i n t h a t end and does not e x t e n d t o a change i n the end i t s e l f , t o t h e r e d u c t i o n o f p r o f i t s , o r t o the non d i s t r i b u t i o n o f p r o f i t s among s t o c k h o l d e r s in o r d e r to d e v o t e them t o o t h e r p u r p o s e s . (16) 1  A l l t h e s e cases p o i n t t o the fundamental p r i n c i p l e ; the d i r e c t o r s o f a company must have r e g a r d t o the i n t e r e s t s o f the company, p r e s e n t and f u t u r e ) .  ( i e . i t s members,  The i n t e r e s t s o f the employees, the consumers o f the  company's p r o d u c t s o r the n a t i o n as a whole a r e l e g a l l y i r r e l e v a n t . T h i s i s an a n a c h r o n i s t i c view t h a t t o t a l l y d i s r e g a r d s modern r e a l i t y .  As  J a c k s o n J . put i t ; "... the c o r p o r a t i o n has become a l m o s t the u n i t o f o r g a n i z a t i o n o f our economic l i f e . Whether f o r good o r i l l , the stubborn f a c t i s t h a t i n our p r e s e n t system the c o r p o r a t i o n c a r r i e s on the b u l k o f p r o d u c t i o n and t r a n s p o r t a t i o n i s the c h i e f employer o f both l a b o u r a n d . c a p i t a l , pays a l a r g e p a r t o f our t a x e s , and i s an economic i n s t i t u t i o n o f such magnitude and i m p o r t a n c e t h a t t h e r e  - 5 i s no p r e s e n t s u b s t i t u t e f o r i t e x c e p t t h e s t a t e i t s e l f . ' (18) T h i s i s t h e r e a l i t y t h a t company law i g n o r e s .  The i m p o r t a n t q u e s t i o n  thus  i s w h e t h e r t h e law s h o u l d c o n t i n u e t o i g n o r e t h e s e hard f a c t s o f l i f e .  It  i s u n r e a l , i n t h e l i g h t o f t h e s t r u c t u r e o f modern companies and o f modern b u s i n e s s l i f e f o r company law t o p r o t e c t t h e narrow view t h a t t h e d i r e c t o r s o f companies s h o u l d c o n t i n u e t o f o c u s t h e i r a t t e n t i o n on t h e i n t e r e s t s o f the company, t h a t i s t o s a y , t h e s h a r e h o l d e r s  to the t o t a l disregard o f a l l  o t h e r p a r t i e s whose d a i l y l i v e s a r e a f f e c t e d by c o r p o r a t e a c t i v i t i e s and whose c o n t r i b u t i o n t o t h e s u c c e s s o f any company c a n n o t be d o u b t e d . (19) A d e c i s i o n o f t h e U n i t e d S t a t e s C o u r t , Smith Mfg. Co. v. B a r l o w , acknowledged t h i s f a c t back i n 1953. T h i s was an a c t i o n by a  '  shareholder  who w i s h e d t o p r e v e n t t h e company from making a d o n a t i o n t o P r i n c e t o n University. donation.  The Court h e l d t h a t t h e company c o u l d l e g a l l y make such a  J a c o b s J . p r o c e e d e d t o make an i m p o r t a n t o b s e r v a t i o n ; ' I t seems t o us t h a t . . . modern c o n d i t i o n s r e q u i r e t h a t c o r p o r a t i o n s acknowledge and d i s c h a r g e s o c i a l as w e l l as p r i v a t e r e s p o n s i b i l i t i e s as members o f t h e communities w i t h i n which they o p e r a t e . W i t h i n t h i s b r o a d concept t h e r e i s no d i f f i c u l t y i n s u s t a i n i n g , as i n c i d e n t a l t o t h e i r p r o p e r o b j e c t s and i n a i d o f the. p u b l i c w e l f a r e , t h e power o f c o r p o r a t i o n s t o c o n t r i b u t e c o r p o r a t e funds w i t h i n r e a s o n a b l e l i m i t s i n s u p p o r t o f academic institutions. .... C l e a r l y t h e n , t h e a p p e l l a n t s , as i n d i v i d u a l s t o c k h o l d e r s whose p r i v a t e i n t e r e s t r e s t e n t i r e l y upon t h e w e l l - b e i n g o f t h e p l a i n t i f f c o r p o r a t i o n , ought n o t t o be p e r m i t t e d t o c l o s e t h e i r eyes t o p r e s e n t day r e a l i t i e s and t h w a r t t h e l o n g v i s i o n e d c o r p o r a t e a c t i o n i n r e c o g n i z i n g and v o l u n t a r i l y d i s c h a r g i n g i t s h i g h o b l i g a t i o n s as a c o n s t i t u e n t o f o u r modern s o c i a l s t r u c t u r e . ' (20)  The C o u r t r e c o g n i s e d t h a t t h e c o r p o r a t i o n has an o b l i g a t i o n t o t h e ' community and s o c i e t y i n w h i c h i t o p e r a t e s .  J a c o b s J . f u r t h e r noted  that  without the s o c i a l r e s p o n s i b i l i t y o f the corporation, the s u r v i v a l o f the f r e e e n t e r p r i s e system would be j e o p a r d i s e d .  Thus, a c h a r i t a b l e c o n t r i b u t i o n ,  he s a i d 'may l i k e w i s e r e a d i l y be j u s t i f i e d as b e i n g f o r t h e b e n e f i t o f t h e  - 6 corporation:  i n d e e d , i f need be t h e m a t t e r may be viewed s t r i c t l y i n terms (21)  of actual s u r v i v a l o f the corporation i n a f r e e e n t e r p r i s e system.  ' There  i s need t o re-examine t h e whole t h e o r y and p u r p o s e o f t h e law g o v e r n i n g p u b l i c companies.  large  The c o m p a r a t i v e r i g h t s and o b l i g a t i o n s o f t h e s h a r e h o l d e r s ,  d i r e c t o r s , e m p l o y e e s , t h e community i n which t h e company o p e r a t e s and t h e . n a t i o n as a whole s h o u l d be r e a s s e s s e d . It i s d i f f i c u l t to explain  why t h e law has so f a r f a i l e d t o c o n t r o l  companies t o a s a t i s f a c t o r y d e g r e e . can be e f f e c t i v e so l o n g which i t o p e r a t e s .  I t i s important  t o r e c o g n i s e t h a t no law  as i t i g n o r e s t h e moral and s o c i a l e n v i r o n m e n t i n  Operations  o f companies range from i n f l u e n c i n g t h e  p o l i t i c a l s y s t e m t o a h i g h l y complex t e c h n o l o g i c a l s o c i e t y . influence corporate response t o legal c o n t r o l .  A l l these  Added t o t h i s i s t h e r e d u c e d  sense o f r e s p o n s i b i l i t y o f one's a c t i v i t i e s t o which, many i n d i v i d u a l s a r e s u b j e c t when they a r e p u t t o g e t h e r and a r e c l o t h e d w i t h an i n s t i t u t i o n a l framework - a musk t h a t c o v e r s t h e i r f a c e s and h i n d e r s any a t t e m p t s t o i d e n t i f y them w i t h t h e i r r e s p o n s i b l e c o r p o r a t e a c t i v i t i e s . i n l e g a l h i s t o r y t o acknowledge t h i s i m p o r t a n t  I t i s the f a i l u r e  feature o f business  corporat-  i o n s and take i t i n t o a c c o u n t t h a t e x p l a i n s why c o r p o r a t i o n s as opposed t o human b e i n g s c o n t i n u e t o be d i f f i c u l t t o c o n t r o l . During t h e e a r l y s t a g e s o f l e g a l d e v e l o p m e n t , law r e s p o n d e d t o t h e i n d i v i d u a l t h a t committed crimes and n u i s a n c e s him.  by q u e s t i o n i n g what  motivated  A t t h a t t i m e , ( i e . about t h e t w e l f t h c e n t u r y ) , v e r y l i t t l e a t t e n t i o n  was p a i d t o e x i s t i n g i n s t i t u t i o n s l i k e c h u r c h e s , m u n i c i p a l i t i e s , and e d u c a t i o n a l i n s t i t u t i o n s . One o f t h e r e a s o n s f o r t h i s was t h e e x i s t i n g l e g a l doctrines.  I t was doubted whether a c o r p o r a t i o n - a p e r s o n a f i c t a , c o u l d  c o n c e p t u a l l y be l e g a l l y r e s p o n s i b l e .  B u t t h e r e were p r a c t i c a l r e a s o n s t o o .  T h e i r s p e c i a l f u n c t i o n s were l i m i t e d and i n a p p r o p r i a t e c a s e s , t h e o r g a n i z a t i o n was such t h a t t h e r e s p o n s i b l e i n d i v i d u a l c o u l d s t i l l be i d e n t i f i e d and  - 7 subjected to legal c o n t r o l . As t h e i r o r g a n i s a t i o n and a c t i v i t i e s became more complex and w i d e s p r e a d , i t became more d i f f i c u l t t o p i e r c e through the e n t i t i e s and i d e n t i f y the c u l p r i t l e t a l o n e p u n i s h him.  This n e c e s s i t a t e d acceptance  that corporations  t h e m s e l v e s c o u l d b e . h e l d l i a b l e f o r c e r t a i n c l a s s e s o f wrongs a l t h o u g h up t o t h i s day, t h e y are s t i l l exempt from c e r t a i n wrongs.  The l e g a l s y s t e m , a t  t h i s p o i n t , acknowledged c o r p o r a t i o n s as a c t o r s but d i d not a d j u s t t o t h e i r presence and  s i m p l y i n c o r p o r a t e d them i n t o the p r e - e x i s t i n g g e n e r a l l e g a l  system by deeming them ' p e r s o n s ' .  Once the f o r m a l r e q u i r e m e n t s  of incorpor-  a t i o n were f u l f i l l e d , the law t r e a t e d them w h e r e v e r c o n c e i v a b l e l i k e any (22) other p e r s o n /  ' W h i l e t h i s m i g h t have been the b e s t p r a c t i c a l a p p r o a c h , i t  remains the s o u r c e o f problems i n c o n t r o l l i n g c o r p o r a t i o n s . A company i s a " l e g a l f i c t i o n w i t h no pants t o k i c k o r s o u l t o damn. . . (03) ;  and by God, i t ought t o have b o t h " w r i t e s the E n g l i s h j u r i s t / company f a c t o r y premises t o g e t h e r w i t h the  While  can be p o i n t e d a t and company o f f i c e s i d e n t i f i e d  i n d i v i d u a l managers, t h e r e i s no p h y s i c a l t h i n g - the  company t h a t we can p o i n t t o . word, t h i n k s no thought'  I t i s a f i c t i o n t h a t 'does no a c t , speaks no and hence o n l y o p e r a t e s through the a g e n t s . (25)  Lennard's C a r r y i n g Co. L t d . v. A s i a t i c P e t r o l e u m  Co. L t d . ,  v  In  ' H a l d a n e , L.C.  put i t i n c l e a r t e r m s ; 'My L o r d s , a c o r p o r a t i o n i s an a b s t r a c t i o n . I t h a s n o mind o f i t s own any more than i t has a body o f ' i t s own. I t s a c t i n g and d i r e c t i n g w i l l must c o n s e q u e n t l y be sought i n the p e r s o n o f somebody who f o r some p u r p o s e s may be c a l l e d an agent, but who i s r e a l l y the d i r e c t i n g mind and w i l l o f the c o r p o r a t i o n , t h e v e r y ego and c e n t r e o f the p e r s o n a l i t y o f the c o r p o r a t i o n . ' (26) He went on t o p o i n t out who t h a t person c o u l d be; :  ' t h a t person may be under the d i r e c t i o n o f the s h a r e h o l d e r s i n g e n e r a l m e e t i n g ; t h a t person may be the board o f d i r e c t o r s i t s e l f o r i t may be and i n some companies i t i s s o , t h a t t h a t p e r s o n has an a u t h o r i t y c o - o r d i n a t e w i t h the board o f d i r e c t o r s g i v e n t o him  - 8 under the a r t i c l e s o f a s s o c i a t i o n , and i s a p p o i n t e d by the g e n e r a l meeting o f the company and can o n l y be removed by the g e n e r a l meeti n g o f the company.' (27) The p r o t e c t i o n o f members o f c o r p o r a t i o n s from i n d i v i d u a l l i a b i l i t y a c h i e v e d through the c o n c e p t o f l i m i t e d l i a b i l i t y .  was  I t w i l l be remembered t h a t  t h i s c o n c e p t was not a c c e p t e d w i t h o u t g r e a t c o n c e r n both i n the U n i t e d S t a t e s and B r i t a i n .  In E n g l a n d , P r o f e s s o r Gower notes t h a t t h i s vexed q u e s t i o n  a s u b j e c t of heated debate.  I t was r e f e r r e d t o v a r i o u s c o m m i t t e e s , i n c l u d i n g  'a s t r o n g Royal Commission' c o n t a i n i n g r e p r e s e n t a t i v e s from E n g l a n d , and I r e l a n d .  was  The commission c o u l d not r e a c h u n i n a m i t y .  s a i d t h e y had 'been embarrassed  Scotland  In t h e i r r e p o r t they  by the g r e a t c o n t r a r i e t y o f o p i n i o n  G e n t l e m e m i o f g r e a t e x p e r i e n c e and t a l e n t have a r r i v e d a t c o n c l u s i o n s  .... diamet-  r i c a l l y o p p o s i t e ; and i n s u p p o r t i n g t h e s e c o n c l u s i o n s have d i s p l a y e d r e a s o n i n g power o f  the h i g h e s t o r d e r .  I t i s d i f f i c u l t t o say on which s i d e the (28) weight o f a u t h o r i t y i n t h i s c o u n t r y p r e d o m i n a t e s . The House o f Commons, however, f i n a l l y f a v o u r e d the l a i s s e z - f a i r e p r i n c i p l e and i n t r o d u c e d the  Limited L i a b i l i t y concept i n c o r p o r a t i o n s .  was argued t h i s was i n the b e s t i n t e r e s t o f s o c i e t y . contended;  It  F o r example, Bramwell  ' I f e v e r t h e r e was a r u l e e s t a b l i s h e d by r e a s o n , a u t h o r i t y , and  e x p e r i e n c e , i t i s t h a t the  i n t e r e s t o f a community i s b e s t c o n s u l t e d by  l e a v i n g i t s members, as f a r as p o s s i b l e , the u n r e s t r i c t e d and u n f e t t e r e d (09)  e x e r c i s e o f t h e i r own t a l e n t s and i n d u s t r y .  , v  1  R e s t r i c t i o n on l i m i t e d  l i a b i l i t y i t was s a i d o f f e n d e d t h i s r u l e . It i s s i g n i f i c a n t that while r a i s i n g c a p i t a l f o r business enterprises n e c e s s i t a t e d the development o f the c o r p o r a t e e n t i t y , the p o s s i b i l i t y o f c o r p o r a t e s o c i a l i r r e s p o n s i b i l i t y was a s o u r c e o f c o n c e r n f o r many even a t a time when c o r p o r a t i o n s were not as s i g n i f i c a n t as  t h e y a r e today i n t h e i r  impact on s o c i e t y . T h i s h i s t o r i c a l development p a r t l y e x p l a i n s the d i f f i c u l t i e s  - 9 involved in controlling corporations. The i n t e l l e c t u a l c l i m a t e f a v o u r e d a l e g a l system t h a t i n s e v e r a l ways c o n s i d e r e d t h e i n d i v i d u a l r a t h e r t h a n t h e group.  Laws were d e v e l o p e d t o t a k e  i n t o a c c o u n t the n a t u r a l c a p a c i t i e s and r i g h t s o f i n d i v i d u a l s . d i g n i t y , w i l l , p e r f e c t a b i 1 i t y and freedom were e m p h a s i s e d .  Reason,  I f man had such  r i g h t s , he had t o be r e s p o n s i b l e as an i n d i v i d u a l f o r f a i l u r e t o comply w i t h these o b l i g a t i o n s .  Thus, t h e i n d i v i d u a l had t o a c c o u n t t o t h e law r a t h e r  than h i s f a m i l y , c l a n o r i n s t i t u t i o n t o which he was a s s o c i a t e d t a k i n g responsibility. group.  Punishment was f o c u s s e d on t h e i n d i v i d u a l r a t h e r t h a n t h e  P e n a l t i e s , l i k e h a n g i n g and t o r t u r e , a r e so p e r s o n a l t h a t t h e y  c a n n o t be compared w i t h a f i n e s h a r e d by i n d i v i d u a l s i n a g r o u p . F o l l o w i n g t h i s development, s t a n d a r d s o f l i a b i l i t y changed.  Instead of  s t r i c t l i a b i l i t y , t h e law d e v e l o p e d t h e overworked ' r e a s o n a b l e man', t h e man o f ' o r d i n a r y prudence and i n t e l l i g e n c e ' . had i t s impact.  The n a t u r e o f punishment t o o has  A t h e o r y o f punishment was b u i l t on t h e u t i l i t a r i a n model  o f how a human b e i n g s h o u l d t h i n k ; 'the r a t i o n a l c a l t u l a t o r o f p l e a s u r e s and p a i n s , t h e paragon b a r g a i n e r w i t h t h e l a w . ' ^ ^ One o f t h e exponents o f t h e s e t h e o r i e s was Jeremy Bentham who w r o t e t h a t 'Nature has p l a c e d mankind under t h e g o v e r n a n c e o f two s o v e r e i g n m a s t e r s , p a i n and p l e a s u r e . I t i s f o r them a l o n e t o p o i n t o u t what we ought (31)  t o do, as w e l l as what we s h a l l do. t o commit c r i m e  ' He went\;on t o s a y ; 'The t e m p t a t i o n  may be s a i d t o be s t r o n g , when t h e p l e a s u r e o r advantage  t o be g o t from t h e c r i m e i s such as i n t h e eyes o f t h e o f f e n d e r must appear g r e a t i n c o m p a r i s o n o f t h e t r o u b l e and danger t h a t a p p e a r t o him t o accompany t h e e n t e r p r i s e . '  v  In h i s l a t e r w r i t i n g s , Bentham c o n c l u d e d t h a t 'the  v a l u e o f t h e punishment must n o t be l e s s i n any c a s e t h a n what i s s u f f i c i e n t (33)  t o outweigh t h a t o f t h e p r o f i t o f t h e o f f e n c e ' / '  The p o i n t h e r e i s n o t  - 10 -  t o d i s c r e d i t t h i s l e g a l development b u t t h e f a c t i s t h a t t h e l e g a l s y s t e m b u i l t on c o n s i d e r a t i o n s o f human b e h a v i o u r and m o t i v a t i o n was b a s i c a l l y l e f t i n t a c t when t h e l e g a l f i c t i o n ; t h e c o r p o r a t i o n was a s s i m i l a t e d i n t o t h e l e g a l system and deemed a 'person'.  The c o r p o r a t i o n b e i n g an a r t i f i c i a l person b u t  s u b j e c t t o t h e same law as a n a t u r a l person has been d i f f i c u l t t o c o n t r o l . The c o r p o r a t i o n s t h a t were i n e x i s t e n c e d u r i n g t h i s e a r l y p e r i o d were the c h u r c h e s , t h e u n i v e r s i t i e s and m u n i c i p a l i t i e s . They were l a r g e l y formed t o h o l d p r o p e r t y and t h e i r i m p o r t a n t r i g h t s i n c l u d e d h a v i n g t h e i r own c o u r t s and d e v e l o p i n g t h e i r own customs and were n o t t a x e d . the K i n g .  T h e s e were g r a n t s  from  The n a t u r e o f t h e i r a c t i v i t i e s was l i m i t e d and d i d n o t a t t r a c t  the a t t e n t i o n o f t h e law. The merchant and t r a d e g u i l d s which were t h e p r e d e c e s s o r s o f t h e modern commercial c o r p o r a t i o n were l i k e a s s o c i a t i o n s which t h o s e who e n t e r e d t h e c a l l i n g j o i n e d t o l a y down r u l e s f o r t h e i r t r a d e and t o h o l d c o u r t s t o e n f o r c e t h e r u l e s . Any wrongs committed by i n d i v i d u a l s w i t h i n t h e s e c h a r t e r g r a n t s c o u l d s t i l l be a t t r i b u t e d t o t h e r e s p o n s i b l e individual.  In t h e c i r c u m s t a n c e s ,  t h i s was o n l y n a t u r a l .  The law and t h e  p h i l o s o p h e r s o f t h e day were t e n d i n g more and more towards i n d i v i d u a l as opposed t o group r e s p o n s i b i l i t y . T h i s was a l s o p o s s i b l e because o f t h e l i m i t e d range o f a c t i v i t i e s o f t h e s e e a r l y c o r p o r a t i o n s .  With t h e d e v e l o p -  ment o f t h e modern c o r p o r a t i o n whose f u n c t i o n s i n c l u d e p r o d u c t i o n , d i s t r i b u t i o n and m a r k e t i n g ,  t h e b u s i n e s s community urged t h e a d o p t i o n o f t h e l i m i t e d  l i a b i l i t y c o n c e p t and t h e a c c e p t a n c e  t h a t t h e a c t i v i t i e s o f a c o r p o r a t i o n be  a t t r i b u t e d t o ' t h e , c o r p o r a t i o n and not^the; i n d i v i d u a l s t h a t e i t h e r own i t o r a c t as i t s a g e n t s . Today, t h e v a r i o u s forms u n d e r which companies a r e i n c o r p o r a t e d the s h a r e h o l d e r s t h e p r i v i l e g e o f l i m i t e d l i a b i l i t y .  allow  T h i s a r r a n g e m e n t was,  and s t i l l i s , i n d i s p e n s a b l e t o t h e p u b l i c f i n a n c i n g o f companies.  At the  same t i m e , i t c r e a t e s the problem o f p l a c i n g r e s p o n s i b i l i t y on i n d i v i d u a l s . The slow development o f the l e g a l t h e o r y was p a r t l y b e c a u s e o f t h e many q u e s t i o n s t h a t remained unanswered.  I f the c o r p o r a t i o n c o u l d be l i a b l e a t  a l l , would i t be o n l y f o r a c t s s p e c i f i c a l l y a u t h o r i s e d by i t s c o r p o r a t e deed? What i f the d i r e c t o r s o r s h a r e h o l d e r s a u t h o r i s e d the wrong o r r a t i f i e d i t a f t e r the a c t ?  Was the c o r p o r a t i o n t o be h e l d l i a b l e f o r wrongs committed  i n the c o u r s e o f b u s i n e s s ?  S i n c e the c o r p o r a t i o n has no mind o f i t s own,  c o u l d i t be l i a b l e f o r wrongs t h a t r e q u i r e d a mental s t a t e l i k e m a l i c e o r intention?  A c o r p o r a t i o n i s not i m p r i s o n a b l e ; c o u l d i t be l i a b l e f o r a crime (34) whose punishment i n c l u d e d i m p r i s o n m e n t ? ' v  Management no doubt advocated  l i a b i l i t y of corporations.  I t became  c l e a r t h a t c o r p o r a t i o n s were b e g i n n i n g t o engage t h e m s e l v e s i n a c t i v i t i e s t h a t c o u l d c a u s e i n j u r y and so l o n g as the managers were not c a l l e d upon t o pay, t h e y were happy.  Hence the emphasis on c o r p o r a t e l i a b i l i t y .  The a c t u a l  owners o f the c o r p o r a t i o n , the s h a r e h o l d e r s , s h a r e d the same views.  Before  and d u r i n g the e a r l y p a r t o f the n i n e t e e n t h c e n t u r y , t h o s e i n b u s i n e s s e n j o y e d the b e n e f i t s but they had t o bear the l o s s e s as w e l l , even i f i t meant i m p o v e r i s h m e n t . and e f f i c i e n t .  The p o s s i b i l i t y o f r u i n kept businessmen r e s p o n s i b l e  The moral i s s u e was s u b o r d i n a t e d t o economic i n t e r e s t s .  As  Gower o b s e r v e s , by 1855 when the L i m i t e d L i a b i l i t y B i l l was passed i n B r i t a i n , 'the f o r t u n e s o f the g o v e r n i n g c l a s s e s were i n commerce r a t h e r than l a n d , t h e r e had been a number o f d i s t u r b i n g l i q u i d i a t i o n s i n 1954-1855, and (35) more were t o f o l l o w . ' L i m i t e d l i a b i l i t y was t o s t o p t h e s e d i s t u r b i n g l i q u i d a t i o n s but as Smyth has n o t e d , t h e r e would be no p r o b l e m i f the l e g i s l a t u r e c o u l d s a y , " w h i l e we are g o i n g t o r e l i e v e the s h a r e h o l d e r s o f some o f the  liability  n o r m a l l y a s s o c i a t e d w i t h o w n e r s h i p , we a r e g o i n g t o a s s i g n t h a t l i a b i l i t y t o  - 12  someone e l s e ?  -  But the law does not t r a n s f e r t h i s r e s p o n s i b i l i t y anywhere; i t  only cancels i t .  1  The p r o b l e m o f t r a c i n g r e s p o n s i b i l i t y f o r c o r p o r a t e c o n d u c t i s not l i m i t e d t o the l i m i t e d l i a b i l i t y c o n c e p t .  For many y e a r s , f r e e e n t e r p r i s e  -  the freedom, to use p r o p e r t y as one w i l l s has been c e n t r a l t o Western p o l i t ical philosophy.  The s o c i e t y was b u i l t around p r i n c i p l e s o f  individualism.  Each i s f r e e t o use h i s p r o p e r t y as he l i k e s so l o n g as h i s a c t i o n s do a d v e r s e l y a f f e c t the r i g h t s o f  others.  T h i s , i t was  not  hoped, would a c h i e v e  the g r e a t e s t good f o r the g r e a t e s t number or i n terms o f c o n t e m p o r a r y e c o n o m i c s , the  optimal welfare.  T h i s was  i n l i n e w i t h the o l d p o l i t i c a l  p h i l o s o p h y t h a t a government w h i c h g o v e r n s l e a s t g o v e r n s b e s t and i n e c o n o m i c s , the l a i s s e z - f a i r e d o c t r i n e . i e d by  These r i g h t s , however, were accompan-  duties.  As a r e s u l t o f i n c o r p o r a t i o n ,  the p h y s i c a l a s s e t s are d i v i d e d but a t  the same t i m e they are l e f t i n t a c t t o be l o o k e d a f t e r by o t h e r s .  The  legal  n o t i o n o f i n t e r e s t i n p r o p e r t y i s used t o d i v i d e p r o p e r t y f o r c o n v e n i e n c e between the s h a r e h o l d e r and t h e l e g a l e n t i t y , the c o r p o r a t i o n . a b l y puts i t ; ' U n f o r t u n a t e l y , i n so f a r as o w n e r s h i p i m p l i e s  As Smyth responsibility  f o r the use o f p r o p e r t y , the d i v i s i o n o f t h a t o w n e r s h i p i m p l i e s  divided (3  responsibility. Responsibility  And d i v i d e d r e s p o n s i b i l i t y i s g e n e r a l l y no f o r the p r o p e r t y owned by c o r p o r a t i o n s ,  responsibility.  t h e r e f o r e , must be  sought elsewhere. The development o f p r o p e r t y r i g h t s i n s h a r e c e r t i f i c a t e s as items o f commerce has o b s c u r e d the r e a l i t y o f o w n e r s h i p , and hence c o n t r o l o f p r o p e r t y . To a p p r e c i a t e  the p r o b l e m , one needs a c l e a r u n d e r s t a n d i n g o f the economic  and s o c i a l changes t h a t have o c c u r r e d and l e d t o a b u i l d o f o f w e a l t h i n t h e s e c e r t i f i c a t e s . The r e s u l t i n g c o n c e p t u a l d i f f i c u l t y has been n o t e d by  P r o f e s s o r Commons; 'Back o f t h i s i n s u b s t a n t i a l and d e l i c a t e p r o c e s s o f the mind w i t h i t s p u r e l y nominal v a l u e s o r p r i c e s , i s the g r e a t r e a l i t y o f p r o d u c t i o n and consumption, p r o s p e r i t y and p o v e r t y , p r i v a t e w e a l t h and common w e a l t h . We c a n n o t , however, c l e a r l y see the c o n n e c t i o n between promises and r e a l i t y , between p r i c e s and w e l f a r e , u n t i l we have seen a n o t h e r and most remarkable q u a l i t y o f t h i s mental p r o c e s s , by which the c o u r t s have made mere promises a c t u a l l y t o l o o k and a c t l i k e a commodity - the q u a l i t y o f n e g o t i a b i l i t y . ' (38) An i n d i v i d u a l b u y i n g s h a r e s d i r e c t l y from t h e company a c q u i r e s a l e g a l i n t e r e s t i n a l l the a s s e t s o f t h e company.  The f a c t t h a t t h i s i n t e r e s t i s  o n l y a v e r y s m a l l f r a c t i o n o f t h e a s s e t s s t i l l makes him owner.  The a t t i t u d e  o f such an owner i s e x t r e m e l y c r u c i a l a t t h i s p o i n t g i v e n the f a c t t h a t even the l e g a l i n t e r e s t i n earmarked a s s e t .  the a s s e t s o f the company i s n o t : a t t a c h e d t o any  As Smyth p o i n t s o u t ; 'the s h a r e h o l d e r o f a company who  proceeds t o t a k e t e n items o f i n v e n t o r y out o f i t s warehouse on the  grounds  t h a t he has d e c i d e d t o l i q u i d a t e h i s ownership i n the company i s a c t u a l l y g u i l t y o f t h e f t . H i s r e l a t i o n s h i p even as an. owner, w i t h any p h y s i c a l a s s e t s (39)  has become s u b t l e , t o put i t m i l d l y . '  v  '  The q u e s t i o n o f ownership i s even more remote f o r a s h a r e h o l d e r t h a t buys h i s s h a r e s from someone e l s e . The new s h a r e h o l d e r i s an. a s s i g n e e and t a k e s on a l l the c o n t r a c t u a l r i g h t s o f the a s s i g n o r .  The new s h a r e h o l d e r i s  as much an owner as the o r i g i n a l p u r c h a s e r o f the s h a r e s .  There i s no doubt  t h a t he has s e r i o u s p s y c h o l o g i c a l problems t o s o l v e b e f o r e he can b e l i e v e t h a t t h e r e i s any p r o p e r t y r e l a t i o n s h i p between him and the a s s e t s o f the company.  The r e l a t i o n s h i p i s c e r t a i n l y remote.  To t a k e i t even f u r t h e r , i n  many c a s e s t h e r e i s a f i n a n c i a l i n t e r m e d i a r y t o do the i n v e s t i n g . T h i s i m p o r t a n t s e p a r a t i o n o f ownership from p o s s e s s i o n has t h e b e n e f i t of enabling sources of c a p i t a l to and  thus promoting e f f i c i e n c y .  obtain p r o f e s s i o n a l managerial -  competence  C a p i t a l s o u r c e s do n o t h a v e t o c o i n c i d e w i t h  - 14 -  m a n a g e r i a l a b i l i t y but the s o c i a l v a l u e s t h a t go w i t h ownership s u f f e r . o r d i n a r y s h a r e h o l d e r does not c a r e about the a s s e t s o f the company.  The  The  i n t e r e s t i s l i m i t e d t o t h e p r i c e o f h i s s h a r e s and t h e d i v i d e n d s f o l l o w i n g . Q u i t e o f t e n , the s h a r e h o l d e r does not even know what the company p r o d u c e s . The i m p l i c a t i o n s o f t h i s s t a t e o f a f f a i r s a r e s e r i o u s . As a l r e a d y s e e n , r i g h t s i n property i m p l i e s d u t i e s . Although these d u t i e s e x i s t f o r the v a r i o u s forms o f p r o p e r t y , one owned a r e s h a r e s ?  may a s k ; what a r e the d u t i e s when the p r o p e r t y  I f t h i s i s a form o f p r o p e r t y w i t h no c o r r e s p o n d i n g d u t i e s ,  how s e r i o u s l y w i l l the r i g h t s be t r e a t e d ? The r i g h t t o p r o f i t s perhaps i n d i c a t e s t h a t l i t t l e w e i g h t i s a t t a c h e d t o the p r o p e r t y r i g h t i n s h a r e s .  Managers d e c i d e on how much t o d e c l a r e as  d i v i d e n d s and how much t o i n v e s t , q u i t e o f t e n w i t h o u t c o n s u l t i n g s h a r e h o l d e r s . In some j u r i s d i c t i o n s , even employees s h a r e p r o f i t s . Companies have a s s e t s and w h i l e s h a r e h o l d e r s e n j o y t h e r i g h t s , t h e r e i s none t o s h o u l d e r the r e s p o n s i b i l i t i e s o f p r o p e r t y ownership.  The owner o f  p r o p e r t y had a moral and l e g a l r e s p o n s i b i l i t y t o the use o f p r o p e r t y .  The  c o r p o r a t e c o n c e p t d e s t r o y e d t h i s r e l a t i o n s h i p and as D r u c k e r has s a i d , ' i n the modern c o r p o r a t i o n , the d e c i s i v e power, t h a t o f t h e managers, i s d e r i v e d from no one but the managers t h e m s e l v e s , c o n t r o l l e d by no body and n o t h i n g and r e s p o n s i b l e t o no one.  I t i s i n the most l i t e r a l sense unfounded,  un-  (41)  j u s t i f i e d , u n c o n t r o l l e d and i r r e s p o n s i b l e power. would a g r e e .  ' Of c o u r s e not a l l  Many would say t h a t s h a r e h o l d e r s have a duty t o c o n t r o l the  use o f the company p r o p e r t y .  They o b s e r v e the duty by a p p o i n t i n g o r e l e c t i n g  p r o f e s s i o n a l managers t o manage company p r o p e r t y i n the i n t e r e s t o f s h a r e holders.  I t i s thus r e l e v a n t t o examine how much  have o v e r t h e managers. reality?  control.the shareholders  Is m a n a g e r i a l a c c o u n t a b i l i t y t o s h a r e h o l d e r s a  - 15  -  SHAREHOLDER DEMOCRACY'; The s i z e and scope o f l a r g e p u b l i c companies i s such t h a t t h e s h a r e h o l d e r s and t h e d i r e c t o r s a r e n o t t h e same p e o p l e .  The d i r e c t o r s and  managers a r e o f t e n men o f w e a l t h and p r o f e s s i o n a l competence i n management. The d i r e c t o r s and s h a r e h o l d e r s a r e two d i s t i n c t p e o p l e a l t h o u g h t h e d i r e c t o r s o f t e n have s h a r e s i n t h e company.  From a s t r i c t l y l e g a l p o i n t o f view, t h e  directors are subordinate to the shareholders.  The d i r e c t o r s a p p o i n t manage-  ment which i s a c c o u n t a b l e t o t h e s h a r e h o l d e r s .  In p r a c t i c e , however, t h i s i s  not t h e c a s e .  Management which i s o f t e n composed o f t h e d i r e c t o r s themselves  i s a s m a l l compact group t h a t runs t h e a f f a i r s o f t h e company as i t c h o o s e s . S h a r e h o l d e r s a r e a l a r g e group o f p e o p l e each w i t h a s m a l l s t a k e i n t h e enterprise. formed.  They a r e a p a t h e t i c , n o t easy t o m o b i l i s e and q u i t e o f t e n u n i n -  They r e l y on management and t h e board o f d i r e c t o r s and a r e n o t  ready t o c h a l l e n g e management e x c e p t i n c a s e s o f o b v i o u s mismanagement by the managers.  The powers o f t h e s h a r e h o l d e r s t h e r e f o r e remain o f a s t r i c t  l e g a l n a t u r e b u t i n p r a c t i c e t h e y a r e i n no p o s i t i o n t o c o n t r o l t h e b o a r d and management.  As a r e s u l t , t h e r e i s a s e p a r a t i o n o f ownership and c o n t r o l (42)  though t h e e x t e n t must v a r y from company t o c o m p a n y /  ' B e r l e and Means,  i n t h e i r c l a s s i c work; 'The Modern C o r p o r a t i o n and P r i v a t e P r o p e r t y ' e f f e c t i v e l y demonstrated  this point.  The n o t i o n t h a t s h a r e h o l d e r s c o u l d r u n t h e company t h e y owned was d i s m i s s e d as b e i n g i l l u s o r y and i n s t e a d i t was argued t h a t c o n t r o l l e r s h e l d and e x e r c i s e d c o r p o r a t e powers f o r t h e b e n e f i t o f a l l s h a r e h o l d e r s and t h e r e b y , i t was c o n c l u d e d , c o r p o r a t i o n law formed p a r t o f t h e Law o f T r u s t s . T h i s , however, i t was contended c o u l d n o t p r o t e c t s h a r e h o l d e r s . 'The i n d e f i n i t e n e s s o f i t s a p p l i c a t i o n , and t h e extreme expense and  - 16  -  d i f f i c u l t y o f l i t i g a t i o n , s t i l l l e a v e the s t o c k - h o l d e r v i r t u a l l y h e l p l e s s . In f a c t , i f not i n law, a t the moment we a r e thrown back on the  obvious  conclusion that a stockholder's  r i g h t l i e s i n the e x p e c t a t i o n o f f a i r d e a l i n g (43) r a t h e r than i n the a b i l i t y t o e n f o r c e a s e r i e s o f supposed l e g a l c l a i m s . ' I t was a r g u e d t h a t o w n e r s h i p and c o n t r o l c o u l d o n l y remain under the  same p e o p l e where shares were not s o l d on the p u b l i c m a r k e t . o f m a j o r i t y o w n e r s h i p , i t was c o n c l u d e d ; the hands o f a m a j o r i t y means  Even i n cases  ' T he c o n c e n t r a t i n g o f c o n t r o l i n  t h a t the m i n o r i t y have l o s t most o f the powers  over the e n t e r p r i s e o f which they a r e the owners.  For  them, a t l e a s t , the  s e p a r a t i o n o f o w n e r s h i p and c o n t r o l i s w e l l n i g h c o m p l e t e , though f o r the (44) m a j o r i t y the two f u n c t i o n s are combined.  '  I t was c o n c l u d e d  i o n o f o w n e r s h i p and c o n t r o l i n a p u b l i c company i s i n h e r e n t .  that ' A  separatlarge  group o f i n d i v i d u a l s c a n n o t combine t h e i r c a p i t a l e f f e c t i v e l y i n a s i n g l e e n t e r p r i s e without a loss of  c o n t r o l by some members o f the g r o u p .  Clearly  i t would not be p o s s i b l e f o r each member t o e x e r c i s e the m a j o r e l e m e n t s (45) c o n t r o l o v e r the e n t e r p r i s e . p e r p e t u a t i n g group o f  of  ' The end r e s u l t i s t h a t we have a s e l f  management t h a t i s r e s p o n s i b l e t o none. CONCLUSION  The c r e a t i o n o f a s e p a r a t e l e g a l p e r s o n a l i t y o f c o r p o r a t i o n s i s an i n d i s p e n s i b l e economic advantage but i t c r e a t e s the l e g a l l y r e s p o n s i b l e e n t i t y s e p a r a t e from i n d i v i d u a l s t h a t f o r m u l a t e the p o l i c i e s . The law p r o v i d e f o r c r i m i n a l l i a b i l i t y o f the c o r p o r a t i o n but o f c o u r s e the a t i o n c a n n o t be i m p r i s o n e d . Corporations  What would be j a i l e d ; the c o r p o r a t e  may  corpor-  seal?  can o n l y be f i n e d but i t i s l e g i t i m a t e t o wonder w h e t h e r a f i n e  imposed upon the c o r p o r a t i o n t h a t has no s o u l i s a s u f f i c i e n t s a n c t i o n t o  - 17  compel o b s e r v a n c e o f the  -  law.  The emergence o f b i g b u s i n e s s e s has c r e a t e d a r u l i n g c l a s s i n the s o c i e t y ; the managers.  new  They a r e j u d g e d by the e v i d e n c e o f p r o f i t s made when  the c o r p o r a t i o n i s under t h e i r management. The r e l a t i o n s h i p s between the manager and h i s s t a f f g i v e s him more freedom than many y e a r s back when he was a s e r v a n t o f a s o l e p r o p r i e t o r . then was p e r s o n a l .  H i s r e l a t i o n s h i p w i t h the c o r p o r a t i o n  T h i s cannot be s a i d o f a case where o w n e r s h i p i s d i f f u s e d  among t h o u s a n d s o f a b s e n t e e  shareholders.  Owner d i r e c t o r s were men o f p e r s o n a l i d i o s y n c r a c i e s but they had a sense of r e s p o n s i b i l i t y .  T h e i r replacement  by a d i s t a n t board o f d i r e c t o r s , work-  i n g f o r even more d i s t a n t s h a r e h o l d e r s , through r e s i d e n t managers who not l o c a l men makes management l e s s f r e e t o  are  f o l l o w i t s own c o n v i c t i o n s i n  b a l a n c i n g the v a r i o u s c o n f l i c t i n g c l a i m s which come t o i t from the w o r k e r s , customers and the community. Management has become impersonal  and l e s s s e n s i t i v e . With l o c a l i s e d  i n d u s t r y and o w n e r s h i p i n a s m a l l town, s o c i a l r e s p o n s i b i l i t y c o u l d be brought home by p o i n t i n g t o the o f f e n d e r i n the market p l a c e .  Today,  d e c i s i o n s on methods o f p r o d u c t i o n , employment p o l i c i e s , q u a l i t y and m a r k e t i n g o f p r o d u c t s are made by f a c e - l e s s men. appointed to community.  They a r e n o t owners but managers  make p r o f i t s . They a r e i n v i s i b l e and u n a c c o u n t a b l e  t o the  As a r e s u l t , the b u s i n e s s community has l o s t p u b l i c c o n f i d e n c e  and has become a c e n t e r o f s u s p i c i o n .  T h i s t r e n d can o n l y be m i n i m i s e d  by  increased accountability. At p r e s e n t , the d e c i s i o n makers - the managers, pass on a c c o u n t a b i l i t y 4 6  t o t h e ' i n v i n c i b l e , i n t a n g i b l e and a r t i f i c i a l b e i n g . ' ( )  What p r e v e n t s  crime i s o f t e n not the t h r e a t o f law 'but the s e n s e o f g u i l t , shame, a n x i e t y , c o n s c i e n c e and s u p e r g o . ^ ^ ^  Yet the c o r p o r a t i o n t h a t i s r e s p o n s i b l e f o r  - 18 c o r p o r a t e s o c i a l l y i r r e s p o n s i b l e a c t i v i t i e s has no "soul n o r c o n s c i e n c e ' . C i v i l as w e l l as c r i m i n a l a c t i o n s a g a i n s t c o r p o r a t i o n s s i m p l y t h r e a t e n p r o f i t s s i n c e t h e c o r p o r a t i o n c a n n o t be hanged.  On p r o f i t s , law competes w i t h o t h e r  t h r e a t s l i k e a c q u i r i n g and l o s i n g good p e r s o n n e l , new m a r k e t s and improved methods o f p r o d u c t i o n as w e l l as c o m p e t i t i o n from o t h e r f i r m s . A law s u i t i s a s m a l l t h r e a t compared t o t h e s e . o f t e n i g n o r e d by companies.  T h i s e x p l a i n s why l e g a l r e g u l a t i o n s a r e  Against t h i s background o f conceptual  difficult-  i e s i n c o n t r o l l i n g c o r p o r a t i o n s , some would s t i l l argue t h a t c o r p o r a t i o n s have no s o c i a l r e s p o n s i b i 1 i t y .  THE SOCIAL RESPONSIBILITY DEBATE C o r p o r a t i o n s have c a u s e d enormous and complex problems t o s o c i e t y and the s o l u t i o n s a r e n o t always c l e a r . C o r p o r a t e r e f o r m has f o r l o n g been c e n t e r e d on  s h a r e h o l d e r democracy b u t as d i s c u s s e d above, b e c a u s e o f s e p a r -  a t i o n o f o w n e r s h i p and c o n t r o l , t h e r e f o r m measures have n o t e r a d i c a t e d t h e problem.  S i n c e t h e l a t e 1960's, t h e r e has been once a g a i n an i n c r e a s e i n  the v o i c e s c a l l i n g f o r c o r p o r a t e s o c i a l r e s p o n s i b i l i t y .  The b u s i n e s s  community has n o t t o t a l l y r e j e c t e d t h e i d e a o f s o c i a l r e s p o n s i b i l i t y . has been l a r g e l y due t o s o c i a l and p o l i t i c a l p r e s s u r e .  This  The u n f o r t u n a t e  e l e m e n t though i s t h a t i n s t e a d o f b u i l d i n g up a d e c e n t economic o r d e r , t h e b u s i n e s s community, c o n c e r n e d w i t h n o t h i n g e l s e b u t t o make money, view s o c i a l r e s p o n s i b i l i t y as a means o f r e p a i r i n g p u b l i c r e l a t i o n s and hence indulge i n the r h e t o r i c o f corporate s o c i a l r e s p o n s i b i l i t y that i s f a r from reality.  I t i s t h u s i m p o r t a n t t o i d e n t i f y and a s s e s s t h e m e r i t s o f t h e  arguments f o r and a g a i n s t c o r p o r a t e s o c i a l r e s p o n s i b i l i t y .  This should not  o n l y h e l p i n n a r r o w i n g down what s o c i a l r e s p o n s i b i l i t y i s a l l a b o u t , i t s h o u l d a l s o p r o v i d e a base f o r e f f e c t i v e c o r p o r a t e r e f o r m m e a s u r e s .  - 19  -  One o f t h e arguments a g a i n s t s o c i a l r e s p o n s i b i l i t y i s t h a t c o r p o r a t e managers s h o u l d c o n c e n t r a t e on p r o f i t m a x i m i s a t i o n (49Y returns to the shareholders/  so as t o i n c r e a s e f i n a n c i a l  ' T h i s would mean t h a t c o r p o r a t i o n s a r e f r e e  t o c a l c u l a t e t h e f i n a n c i a l c o s t s o f o b e y i n g o r n o t o b e y i n g t h e law. F o r example, i n an i n d u s t r y where t h e law s e t s h e a l t h and s a f e t y m e a s u r e s , i f i n the o p i n i o n o f t h e managers, t h e c o r p o r a t i o n would make more p r o f i t by n o t o b e y i n g t h e s e r e g u l a t i o n s , t h e h e a l t h i n s p e c t o r s s h o u l d be b r i b e d and h e a l t h r e c o r d s l o c k e d up under t h e c o v e r o f c o n f i d e n t i a l i n f o r m a t i o n . T h i s extreme view has n o t been taken by many and i n s t e a d , i t i s s a i d , c o r p o r a t i o n s s h o u l d maximise p r o f i t s w i t h i n t h e c o n s t r a i n t s o f t h e law. T h i s would mean t h a t w h i l e s o c i a l i n t e r e s t s a r e d i s r e g a r d e d , t h e managers s h o u l d f o l l o w t h e d i c t a t e s o f t h e market and law. A s o c i e t y t h a t i s d i s s a t i s f i e d w i t h t h e l e g a l c o n t r o l c a n , through i t s d e m o c r a t i c p r o c e s s , make i t tougher.  B e f o r e t h i s i s done, c o r p o r a t i o n s s h o u l d c o n t i n u e t o s t e e r  t h e m s e l v e s by t h e p r o f i t m o t i v e r a t h e r than r e l y on t h e managers' vague p e r s o n a l n o t i o n s o f what i s i n t h e b e s t i n t e r e s t o f s o c i e t y . To p r o t e c t o w n e r s h i p i n t e r e s t i n t h e c o r p o r a t i o n , p r i v a t e g a i n must be the prime m o t i v e .  I n t e r e s t s o f t h e community as a f f e c t e d by c o r p o r a t e  a c t i v i t y must be l e f t t o t h e f r e e m a r k e t .  T h i s i s based on t h e t r a d i t i o n a l  economic model which assumes t h a t economic f o r c e s o f c o m p e t i t i o n and p r i c e mechanism w i l l a f f o r d t h e p u b l i c a f r e e c h o i c e and u l t i m a t e l y p r o v i d e t h e optimum a l l o c a t i o n o f r e s o u r c e s .  As Schwartz puts i t , ' . . . t h e l o g i c o f  t r a d i t i o n a l t h e o r y demands t h a t managers o p e r a t e a b u s i n e s s w i t h a view o n l y t o p r o f i t s e e k i n g , and t h a t they l e a v e i t t o t h e market p l a c e t o d e v e l o p 50  moral and s o c i a l j u d g m e n t s . ' ( ^  T h i s l e a d s t o P r o f e s s o r M i l t o n Friedman's  a s s e r t i o n t h a t 'few t r e n d s c o u l d s o t h o r o u g h l y undermine o f o u r f r e e s o c i e t y as t h e a c c e p t a n c e  the very  foundations  by c o r p o r a t e o f f i c i a l s o f a s o c i a l  - 20 r e s p o n s i b i l i t y o t h e r than t o make as much money f o r t h e i r s t o c k h o l d e r s as p o s s i b l e . . . . [ I ] f businessmen  do have a s o c i a l r e s p o n s i b i l i t y o t h e r than  making maximum p r o f i t s f o r s t o c k h o l d e r s , how a r e they t o know what i t i s ? (51) s e l f - e l e c t e d p r i v a t e i n d i v i d u a l s d e c i d e what the s o c i a l i n t e r e s t i s ? ' '  Can  v  Because o f the i m p e r f e c t n a t u r e o f the market s t r u c t u r e and demands o f s o c i e t y , i t i s v e r y d i f f i c u l t t o m a i n t a i n the pure p r o f i t t h e s i s and  Friedman  does not m a i n t a i n i t e i t h e r . He q u a l i f i e s p r o f i t m a x i m i s a t i o n w i t h the c a v e a t (52} t h a t managers s h o u l d a b i d e by the r u l e s o f the game.  ' T h i s he e x p l a i n s  i n v o l v e s engagement i n 'open and f r e e c o m p e t i t i o n w i t h o u t d e c e p t i o n and fraud'.  L a t e r he m o d i f y s  t h i s even f u r t h e r when he says t h a t t h e r e s p o n s -  i b i l i t y o f b u s i n e s s i s t o make as much money as p o s s i b l e w h i l e c o n f o r m i n g t o the b a s i c r u l e s o f s o c i e t y , both t h o s e embodied i n the law and e t h i c a l (53) customs.  ' Which e t h i c a l . s t a n d a r d s - o v e r and above t h e demands o f the  54  law?( > On t h i s t h e s i s e t h i c a l customs would perhaps r e q u i r e c o r p o r a t i o n s t o i n c r e a s e t h e i r e x p e n d i t u r e on p o l l u t i o n c o n t r o l mechanisms t o keep p o l l u t i o n as low as p o s s i b l e i f f o r no o t h e r r e a s o n , on the b a s i s o f "do unto o t h e r s as you would have  them do unto you."  I t i s very d i f f i c u l t to j u s t i f y a  pure economic model d e v o i d o f s o c i a l c o n c e r n g i v e n the c o r p o r a t e impact on society.  A n i t a Summers has summarised i t . 'A f a c t o r y dumps i t s wastes i n t o  an a d j o i n i n g r i v e r , and c o n s e q u e n t l y f i s h e r m e n no l o n g e r f i s h , s a i l o r s no l o n g e r s a i l and n a t u r e l o v e r s s e a r c h f o r a n o t h e r r e t r e a t . Urban c e n t e r s swarm w i t h a u t o s , the p o l l u t i o n i n d e x s o a r s , eyes b u r n , s h i r t s g e t d i r t i e r , and the view from the c i t i e s h i g h e s t p o i n t i s no l o n g e r a s o u r c e o f (55) delight.  1  E t h i c a l customs might r e q u i r e c o r p o r a t i o n s t o have r e g a r d t o  t h i s phenomenon. Even on a narrow economic c r i t e r i a , t h e v a l u e s h o l d .  Nader r e p o r t s  - 21 t h a t the Environmental  P r o t e c t i o n Agency c a l c u l a t e d t h a t h e a l t h and  property  damage from i n d u s t r i a l a i r p o l l u t i o n a l o n e would c o s t Americans $23 b i l l i o n i n 1977.  T h i s s o c i a l c o s t c o u l d have been c u t a l m o s t i n h a l f but f o r the i n d u s t r y  o p p o s i t i o n t o spending  $3.9 b i l l i o n i n added abatement g e a r .  v  ' This social  c o s t i s what those a g a i n s t c o r p o r a t e s o c i a l r e s p o n s i b i l i t y p r o t e c t .  Quite  (57)  clearly, this is a misallocation of resources/  '  A s t r o n g argument f o r those a g a i n s t s o c i a l r e s p o n s i b i l i t y does not r e l y on the d i s t i n c t i o n between p r o f i t m a x i m i s a t i o n  and n o n - p r o f i t  maximisation  o f c o r p o r a t e a c t i v i t i e s but r a t h e r they emphasise e x p e r t i s e and e f f i c i e n c y . They argue t h a t c o r p o r a t i o n s must c o n f i n e t h e m s e l v e s t o the a c t i v i t i e s they are b e s t q u a l i f i e d t o perform and a v o i d i n v o l v i n g t h e m s e l v e s i n a c t i v i t i e s which impede the c a r r y i n g out o f t h e i r main f u n c t i o n and which they a r e i n f a c t i l l - e q u i p p e d to perform. S t o n e , i n h i s a n a l y s i s , p r o v i d e s an example t h a t w o u l d seem t o 5 9  this t h e s i s / ^  The A t l a n t i c R i c h f i e l d O i l Company (ARCO) d e c i d e d  support to  engage i n s o c i a l m a t t e r s and a t t e m p t e d t o ' r e t r i e v e hard c o r e d r o p o u t s from society  1  i n P h i l a d e l p h i a by r e c r u i t i n g e x - c o n v i c t s and p e r e n n i a l  recipients.  A l o t o f money was spent to e d u c a t e and t r a i n them but the  r e s u l t s were d i s a p p o i n t i n g . developing  welfare  In the meantime, a . n a t u r a l gas seepage was  i n the v i c i n i t y o f ARCO d r i l l i n g r i g i n S a n t a B a r b a r a .  1973, the o i l had s p r e a d o v e r s e v e r a l m i l e s o f w a t e r . negligence of  any p a r t y .  In June  T h i s was w i t h o u t  the  However, i f the c o r p o r a t i o n had not i n d u l g e d i n  the i l l - f a t e d r e s c u e m i s s i o n not r e q u i r e d by law, i t would have s a v e d money, e x p e r t i s e and p e r s o n n e l  t h a t c o u l d have been used .in s u r v e y i n g  underwater  g e o l o g i c a l c o n d i t i o n s - m a t t e r s t h a t i t i s b e t t e r e q u i p p e d t o h a n d l e than t r y i n g even w i t h the b e s t o f  i n t e n t i o n s t o h e l p s o c i a l ..dropouts.  The argument i s d i f f i c u l t t o r e f u t e because i t i s t r u e t h a t we  are  - 22 b e t t e r o f f by c o n s i d e r i n g e f f i c i e n c y .  However, t h i s begs the q u e s t i o n on  d e t e r m i n a t i o n o f the p r o p e r f u n c t i o n . The impact o f c o r p o r a t e a c t i v i t i e s i s such t h a t i t i s d i f f i c u l t t o d e f i n e t h e i r main f u n c t i o n . One may ask w h e t h e r t h e y a r e b e s t q u a l i f i e d t o engage i n m i s l e a d i n g a d v e r t i s e m e n t s and l o b b y i n g t o i n f l u e n c e l e g i s l a t i o n t h a t would a s s i s t i n r e d u c i n g p o l l u t i o n . The more w i d e s p r e a d but l e a s t p e r s u a s i v e arguments a r e based on moral c l a i m s o f the supposed o b l i g a t i o n s o f c o r p o r a t i o n s t o t h e s h a r e h o l d e r s .  The  argument i s t h a t management must honour the promise t o the s h a r e h o l d e r s t h a t i t w i l l maximise p r o f i t s .  However, t h e r e i s no e x p r e s s o b l i g a t i o n between  management and the s h a r e h o l d e r s t o maximise p r o f i t s . a t i o n has n e v e r been an a p p l i c a b l e l e g a l s t a n d a r d .  Indeed p r o f i t maximisI f one a c c e p t s t h e view 9  t h a t law i s what the c o u r t s w i l l e n f o r c e , i n the words o f H e t h e i n g t o n , i s no l e g a l o b l i g a t i o n o f  management t o maximise p r o f i t s .  'there  Most o f the  s h a r e s were i s s u e d many y e a r s back and o n l y c i r c u i t o u s l y found t h e i r way t o current shareholders.  The s h a r e h o l d e r s do not s e t terms because the manage-  ment n e v e r had the o p p o r t u n i t y t o r e f u s e such terms as m a x i m i s a t i o n o f p r o f i t s for shareholders. Assuming t h e r e was a promise by management t o the s h a r e h o l d e r s and none e l s e w h e r e , say between management and e m p l o y e e s , consumers and s o c i e t y , i t might be m o r a l l y j u s t i f i a b l e t o break a promise t o an i n d i v i d u a l i n the i n t e r e s t of s o c i a l i n t e r e s t of higher concern. R e l a t e d t o t h e p r o m i s o r y p r o p o s i t i o n i s the agency argument.  Instead  o f i m p l y i n g the p r o m i s e , i t i s argued t h a t s h a r e h o l d e r s d e s i g n a t e d managers t o a c t as t h e i r agents t o maximise p r o f i t s .  Friedman, f o r example, a s s e r t s  t h a t 'the key p o i n t i s t h a t . . . the manager i s the agent o f  the i n d i v i d u a l s  (61)  who own the c o r p o r a t i o n . '  v  ;  T h i s p r o p o s i t i o n i s , o f c o u r s e , wrong as a m a t t e r o f law.  Directors  - 23 a r e agents o f  the company and not the s h a r e h o l d e r s .  F u r t h e r , as a l r e a d y  i n d i c a t e d , management uses the proxy machinery t o d e t e r m i n e who the d i r e c t o r s w i l l be r a t h e r than the s h a r e h o l d e r s making  the c h o i c e .  In the f i n a l  a n a l y s i s t h e r e f o r e , t h e argument i s t h a t f o r some r e a s o n , d i r e c t o r s ought, as a moral m a t t e r , t o c o n s i d e r t h e m s e l v e s agents o f s h a r e h o l d e r s r a t h e r than customers o r employees.  The unasnwered q u e s t i o n i s why?  As Stone has  o b s e r v e d , t h i s argument i s not o n l y m o r a l l y i n c o n c l u s i v e , but i s a l s o e m b a r r a s i n g l y a t odds w i t h how the supposed agents behave.  I f t h e managers  c o n s i d e r e d t h e m s e l v e s a g e n t s , t h e y would a c t i n a c c o r d a n c e w i t h the wishes of t h e i r p r i n c i p l e s . the s h a r e h o l d e r s .  Dow's p r o d u c t i o n o f Napalm would have been r e f e r r e d t o  I t i s a p e c u l i a r agency where " a g e n t s " spend tens  thousands o f d o l l a r s o f  of  t h e i r ' p r i n c i p a l s ' money i n l e g a l f e e s t o r e s i s t /go)  the d e t e r m i n a t i o n o f  what t h e i r p r i n c i p a l s want.  The r o l e argument i s a s t r o n g one.  '  The b a s i s o f t h i s i s t h a t p e o p l e  a r e a s s i g n e d o b l i g a t i o n s on the b a s i s o f t h e i r h a v i n g assumed some r o l e independent o f any promise. facts.  T h i s i s s t r o n g because i t i s i n l i n e w i t h the  Management n e i t h e r promises t o maximise p r o f i t s nor do the s h a r e -  h o l d e r s a p p o i n t them a g e n t s .  By the n a t u r e o f the r o l e t h e y assume, d i r e c t -  o r s and b u s i n e s s managers assume a f i d u c i a r y r e l a t i o n s h i p , and t h e r e f o r e , s h o u l d not i n d u l g e i n ' s e l f - d e a l i n g ' waste o f c o r p o r a t e f u n d s .  The argument  however, m i s s e s the g i s t o f t h e c a l l f o r c o r p o r a t e r e s p o n s i b i l i t y .  None  advocates t h a t management s h o u l d i n d u l g e i n s e l f - d e a l i n g waste o f c o r p o r a t e resources.  What i s urged i s not t h a t s h a r e h o l d e r s ' i n t e r e s t s s h o u l d be  i g n o r e d but r a t h e r t h a t a l l i n t e r e s t s - t h o s e o f e m p l o y e e s , t h e consumers and s o c i e t y a t l a r g e t o g e t h e r w i t h s h a r e h o l d e r i n t e r e s t s s h o u l d be b a l a n c e d . A s h a r e h o l d e r d i s a p p o i n t e d by the a c t i v i t i e s o f a c o r p o r a t i o n may be a b l e t o s e l l the s h a r e s but t h o s e who depend on  the c o r p o r a t e p l a n t f o r employment  - 24 and s u p p l y o f goods and s e r v i c e s might not be a b l e t o remove t h e m s e l v e s from the c o r p o r a t i o n by a s i m p l e phone c a l l . F i n a l l y , the s t r o n g e s t argument a g a i n s t c o r p o r a t e s o c i a l r e s p o n s i b i l i t y i s t h a t i f managers aim a t p r o f i t m a x i m i s a t i o n , good f o r s h a r e h o l d e r s  the end r e s u l t i s not o n l y  but the s o c i e t y as a whole.  T h i s i s based on the  a s s u m p t i o n t h a t moral judgments are p e c u l i a r , a r b i t r a r y and vague t o such a degree t h a t they cannot be s u b j e c t e d t o r a t i o n a l d i s c u s s i o n . t h a t t h i s does not p r o v i d e a s t a n d a r d a t a l l w h i l e p r o f i t  The f e a r i s  maximisation  p r o v i d e s some s o l i d and t a n g i b l e s t a n d a r d on which the p a r t i c i p a n t s i n the e n t e r p r i s e can be r a t e d . T h i s , however, i g n o r e s the f a c t t h a t p r o f i t m a x i m i s a t i o n d i f f i c u l t to define.  Both H e t h e i n g t o h  i t s e l f i s very  and P r o f e s s o r Blumberg have shown the  v i r t u a l i m p o s s i b i l i t y of defining ' p r o f i t maximisation.  ' The  business  judgment r u l e i s no more o f a s o l i d guide than s o c i a l r e s p o n s i b i l i t y . As Schwartz o b s e r v e s ,  ' c o r p o r a t e law has always r e c o g n i s e d t h i s wide and  f l e x i b l e mandate o f power t o c o r p o r a t e managers.  The p r o p o s i t i o n i s s i m p l y  t h a t the b u s i n e s s judgment r u l e , w h i c h i s the c l a s s i c way o f managerial  expressing  l a t i t u d e , would p e r m i t the c o r p o r a t i o n t o engage i n s o c i a l l y  u s e f u l work, e n t a i l i n g c o s t s o r a s a c r i f i c e i n p r o f i t s , i f a d e c i s i o n maker i n good c o n s c i e n c e c o u l d c l a i m a b u s i n e s s b e n e f i t from  it.'^^  Not o n l y a r e the moral i s s u e s i n s o c i a l c h o i c e vague but they a l s o r e q u i r e e x p e r t i s e t h a t c o r p o r a t e managers do not have.  Added t o t h i s i s the  f a c t t h a t they a l s o l a c k the a u t h o r i t y t o d e t e r m i n e the p o l i c y i s s u e s . have no mandate t o d e t e r m i n e p o l i c y  They  matters.  I f the law and market f o r c e s c o u l d keep the c o r p o r a t i o n s i n  desirable  bounds, i t would be i n the b e s t i n t e r e s t o f us a l l . T h i s i s b e t t e r than t r u s t i n g c o r p o r a t e managers t o implement t h e i r own vague n o t i o n s o f what i s  - 25 b e s t f o r us.  The t r u t h , though, i s t h a t i t i s a s t u b b o r n f a c t o f l i f e , t h a t  law and market f o r c e s have n o t kept them under c o n t r o l . The t r a d i t i o n a l r e s t r a i n t s have s h o r t comings and where they a r e i n a d e q u a t e , new a l t e r n a t i v e measures o f c o r p o r a t e c o n t r o l a r e n e c e s s a r y .  Such measures s h o u l d t a k e i n t o  a c c o u n t the s i g n i f i c a n c e and the e x i s t i n g and p o t e n t i a l impact o f l a r g e companies.  THE SIZE AND POTENTIAL DOMINANCE OF- LARGE PUBLIC COMPANIES To a p p r e c i a t e the s i g n i f i c a n c e o f c o r p o r a t e s o c i a l r e s p o n s i b i l i t y one needs t o have some i d e a o f the s i z e i n terms o f t h e work f o r c e , membership and a s s e t s h e l d by t h e s e companies.  Such f a c t s a r e d i f f i c u l t t o come by i n  E a s t A f r i c a but some examples may g i v e some i d e a .  In Kenya, f o r example, i n  1973 e x p o r t s from t h e m a n u f a c t u r i n g s e c t o r which i s a l l c o n t r o l l e d by compa n i e s , t o g e t h e r w i t h p e t r o l e u m p r o d u c t s amounted t o  25 m i l l i o n o u t o f a  t o t a l of<^123 m i l l i o n e x p o r t r e c e i p t s . Of t h e t o t a l m a n u f a c t u r e d  exports,  some 3^15 m i l l i o n was a c c o u n t e d f o r by t h e o u t p u t o f j u s t  companies;  three  the Magadi Soda Company, E a s t A f r i c a n O i l R e f i n e r i e s and the Bambuni Cement Company. In 1970, Magadi Soda Company a l o n e had i s s u e d c a p i t a l amounting  to  2,727,933 and n e t a s s e t s worth<^3,289,341, w i t h an annual p r o f i t o f 67  410,957.^ ^  A l a r g e c o r p o r a t i o n l i k e the Magadi Soda Company c o n t r o l s  i t s s o u r c e o f raw m a t e r i a l s and d e t e r m i n e s i t s own market c o n d i t i o n s a t l e a s t f o r l o c a l consumption.  The 1967 census o f i n d u s t r i a l p r o d u c t i o n i n  Kenya r e v e a l e d t h a t 433 companies,. employing 5 o r more workers ( o u t o f  the  605 t h a t were under s t u d y ) were w h o l l y o r m a i n l y owned by f o r e i g n e r s . These e n t e r p r i s e s g e n e r a t e d 71 p e r c e n t o f t h e g r o s s p r o d u c t and 72 p e r c e n t  - 26 o f t o t a l s a l e s i n the s e c t o r f o r f i r m s e m p l o y i n g f i f t y o r more p e o p l e which in turn generated  82 per c e n t o f g r o s s p r o d u c t .  I t i s thus c l e a r t h a t  t h e r e a r e a few r e l a t i v e l y l a r g e companies c o n t r o l l i n g m a j o r f a c t o r s o f p r o d u c t i o n and t h i s dominance s e r i o u s l y a f f e c t s the g e n e r a l  population.  In E a s t A f r i c a , company law p r o v i d e s no l i m i t on the s i z e o f a company and o n l y s t a t e s t h e minimum number o f s h a r e h o l d e r s .  The l a r g e p u b l i c  companies have the p o t e n t i a l t o expand as t h e law f a c i l i t a t e s e a s y o f groups o f companies.  formation  T h i s can be done i n s e v e r a l ways.  The most ost (70) common i s by c r e a t i o n o f a h o l d i n g company - s u b s i d i a r y r e l a t i o n s h i p . I t c o u l d a l s o be t h r o u g h 'take o v e r  1  a t i n g a new company as a s u b s i d i a r y .  o r t h r o u g h the holdingcompany i n c o r p o r Company law does not l i m i t the number  o f s u b s i d i a r i e s , t h a t a h o l d i n g company may have and a s u b s i d i a r y may s u b - s u b s i d i a r i e s and hence c r e a t i n g a c h a i n o f c o n t r o l .  have  Although a subsid-  i a r y may not h o l d s h a r e s i n a h o l d i n g c o m p a n y / ^ the law a l l o w s a s i t u a t i o n where two o r more companies may become c l o s e l y l i n k e d i n terms o f o w n e r s h i p and c o n t r o l w i t h o u t any h o l d i n g - s u b i s i d a r y r e l a t i o n s h i p b e i n g Because the s m a l l s h a r e h o l d e r s  present.  do not e f f e c t i v e l y p a r t i c i p a t e i n the  running  o f a company, 40 per c e n t o r e v e n . l e s s s h a r e h o l d i n g may be enough t o e n s u r e (72) control. ' v  A common but l e s s obvious arrangement i s where, by s i m p l e  contractual  arrangements companies o f v a r i o u s s i z e s w i t h o u t any form o f c r o s s - h o l d i n g a g r e e t h a t some o r a l l o f the d i r e c t o r s o f these companies s h o u l d be the same p e o p l e .  T h i s i s p a r t i c u l a r l y s i g n i f i c a n t on the i n t e r n a t i o n a l scene  where some n a t i o n a l company laws m i g h t p r o h i b i t mergers o r a c q u i r i n g c o n t r o l l ing:;shares. I t i s a l s o p o s s i b l e t o have a few l a r g e companies t h a t dominate the  - 27 market i n a p a r t i c u l a r p r o d u c t a g r e e i n g f o r m a l l y o r i n f o r m a l l y not t o compete w i t h each o t h e r i n a p a r t i c u l a r r e g i o n . S e p a r a t i o n o f groups i n t o s e p a r a t e companies o r c r e a t i o n o f a pyramid o f i n t e r - r e l a t e d companies, w h i l e each i s i n not always improper.  theory a separate e n t i t y , i s  I t might be the b e s t economical  d o i n g the b u s i n e s s .  and c o n v e n i e n t form o f  T h i s c o u l d be due t o the need f o r the d i f f e r e n t  companies t o look a f t e r m a n u f a c t u r i n g w h i l e o t h e r s do the m a r k e t i n g o r t r a d e in other products.  Large s i z e companies e n j o y the economies o f s c a l e and  have the p o t e n t i a l t o expand, r a i s e c a p i t a l and promote e f f i c i e n c y . The a r r a n g e m e n t s , however, are c a p a b l e o f abuse and t h i s i s  the  problem  t h a t causes c o n c e r n f o r t h o s e a d v o c a t i n g the s o c i a l r e s p o n s i b i l i t y o f companies.  They a r e not a g a i n s t s i z e a l t h o u g h t h i s may i n i t s e l f be a s o u r c e  o f i r r e s p o n s i b i l i t y but r a t h e r on the way i n which t h e s e a s s o c i a t i o n s a f f e c t the economy, the w o r k e r s , the consumer and the p u b l i c i n g e n e r a l . The i n d u s t r i a l i s e d d e v e l o p e d c o u n t r i e s have f o r l o n g r e c o g n i s e d the danger i n h e r e n t i n a l l o w i n g one company o r a group o f them t o become t o o l a r g e and dominant i n one p a r t i c u l a r f i e l d .  Improper agreements t h a t l i m i t  c o m p e t i t i o n a r e a g a i n s t the law t h a t governs r e s t r i c t i v e t r a d e p r a c t i c e s . In the U n i t e d S t a t e s , the s u b s t a n t i v e p r o v i s i o n s o f a n t i - t r u s t laws are contained mainly in three s t a t u t e s .  Under the Sherman A c t o f 1890, a c o n t r a c t  i n r e s t r a i n t o f t r a d e o r commerce among the s e v e r a l s t a t e s o r f o r e i g n n a t i o n s is i l l e g a l .  ' Under the same A c t , a person (and t h i s i n c l u d e s the c o r p o r -  a t i o n ) who m o n o p o l i s e s  o r attempts t o m o n o p o l i s e  any p a r t o f t r a d e o r commerce (74) among s e v e r a l s t a t e s o r w i t h f o r e i g n n a t i o n s i s g u i l t y o f a m i s d e m e a n o r / The C l a y t o n A c t o f 1914 s p e c i f i e s c e r t a i n r e s t r i c t i v e t r a d e p r a c t i c e s , and d e c l a r e s them i l l e g a l . (a)  In b r i e f , t h e s e a r e ; (75) price discrimination^ ;  - 28 (b)  e x c l u s i v e d e a l i n g and t y i n g c o n t r a c t s 77  (dc): a c q u i s i t i o n o f competing c o m p a n i e s ; ^ ^ and (78) (d) i n t e r l o c k i n g d i r e c t o r a t e s . v  ;  A l l t h e s e p r o v i s i o n s a r e q u a l i f i e d t o the e f f e c t t h a t t h e p r a c t i c e only.becomes u n l a w f u l when ' i t s e f f e c t may be t o s u b s t a n t i a l l y l e s s e n c o m p e t i t i o n o r t e n d t o c r e a t e a monopoly'. F i n a l l y , t h e F e d e r a l Commission A c t o f 1914,;though m a i n l y c o n c e r n e d w i t h t h e e s t a b l i s h m e n t o f t h e Commission, has an i m p o r t a n t s u b s t a n t i v e p r o v i s i o n ; ' U n f a i r methods o f c o m p e t i t i o n i n commerce and u n f a i r o r d e c e p t i v e (79) a c t s o r p r a c t i c e s i n commerce a r e h e r e b y d e c l a r e d i l l e g a l . ' In B r i t a i n , m o n o p o l i e s and o t h e r r e s t r i c t i v e t r a d e agreements a r e c h e c k e d upon by t h e M o n o p o l i e s Commission e s t a b l i s h e d i n 1948.  The p u r p o s e o f t h e  Commission i s ; 'To i n q u i r e i n t o and r e p o r t on c a s e s i n which c o m p e t i t i o n i n t h e p r o d u c t i o n o r s u p p l y o f goods a p p e a r e d t o be p r e v e n t e d o r r e s t r i c t e d . T h i s m i g h t a r i s e where a monopoly s i t u a t i o n d e f i n e d as the c o n c e n t r a t i o n o f a t l e a s t one t h i r d o f t h e market i n p a r t i c u l a r goods o r s e r v i c e s i n t h e hands o f a s i n g l e company o r group o f companies, e x i s t e d o r where r e s t r i c t i v e agreements were f o u n d t o e x i s t and t o o p e r a t e a g a i n s t t h e p u b l i c i n t e r e s t . ' (80) The powers o f t h e Commission and t h e government t o i n t e r v e n e i n p o s s i b l e m o n o p o l i e s and mergers were i n c r e a s e d under t h e M o n o p o l i e s and Mergers A c t 1965 which e n a b l e s i n t e r v e n t i o n i n a p r o p o s e d t a k e - o v e r o r merger where t h e assets exceed  5 m i l l i o n o r which m i g h t l e a d t o a monopoly s i t u a t i o n .  F i n a l l y , t h e F a i r T r a d i n g A c t 1973 e x t e n d s the d e f i n i t i o n o f monopoly t o i n c l u d e c o n t r o l o f one q u a r t e r o f t h e s u p p l y o f any goods o r s e r v i c e s by any one p e r s o n , company o r group e i t h e r i n t h e U n i t e d Kingdom as a whole o r i n any p a r t o f i t . ^ ^ E x i s t e n c e o f t h e law must be d i s t i n g u i s h e d from e f f e c t i v e n e s s .  Most o f  - 29 the i n d u s t r i a l i s e d c o u n t r i e s w i t h a l l t h e i r r e s o u r c e s - both f i n a n c i a l and h i g h l y t r a i n e d and e x p e r i e n c e d p e r s o n n e l s t i l l f a c e d i f f i c u l t y i n e n f o r c i n g g e n e r a l l e g a l s t a n d a r d s f o r t h e i r a n t i - t r u s t n a t i o n a l laws.  Increased  government r e g u l a t i o n o f b u s i n e s s e s e x p e n s i v e , both f o r t h e government and the b u s i n e s s community and hence, i t i s i n c r e a s i n g l y becoming a common c o m p l a i n t among the b u s i n e s s community i n North A m e r i c a .  What i s o f t e n f o r -  g o t t e n , however, i s t h a t t h e s e r e g u l a t i o n s have become n e c e s s a r y l a r g e l y because companies have f a i l e d t o r e g u l a t e t h e m s e l v e s and o b s e r v e t h e i r s o c i a l o b l i g a t i o n s t o t h e community.  U n l e s s companies can r e g u l a t e t h e m s e l v e s ,  government i n t e r v e n t i o n i s i n e v i t a b l e . In E a s t A f r i c a , no attempts a r e made t o c o n t r o l t h e p o s s i b l e m o n o p o l i e s . What i s i m p o r t a n t i s n o t so much  t h e s i z e but t h e dominance o f t h e m a r k e t .  An example w i l l i l l u s t r a t e t h e ease w i t h which monopoly s i t u a t i o n s a r i s e . Kenya Casements L t d . , a Mombasa f i r m m a n u f a c t u r i n g metal p r o d u c t s , had a s s e t s o f <&"50,000, making a p r o f i t o f ^ 7 3 , 0 0 0 i n 1966.  A competitive  s i t u a t i o n had been c r e a t e d i n 1956 when a n o t h e r f i r m , I d e a l Casements (E.A.) Ltd.  o f N a i r o b i had e n t e r e d t h e market i n 1956.  In 1959, t h e chairman o f  Kenya Casement L t d . , i n h i s annual r e p o r t , s a i d ; 'The d i r e c t o r s a r e p l e a s e d t o r e p o r t t h a t M e s s r s I d e a l Casements (E.A.) L t d . , t h e o n l y o t h e r f a c t o r y i n E a s t A f r i c a , have r e a l i s e d t h e f u t i l i t y o f c u t - t h r o a t c o m p e t i t i o n and have c o o p e r a t e d i n t h e c r e a t i o n o f t h e M e t a l Windows Development A s s o c i a t i o n L t d . , a company w i t h o u t c a p i t a l but g u a r a n t e e d by both companies t h e r e b y making i t p o s s i b l e t o r a t i o n a l i s e , improve p r o d u c t i o n methods, s t a b i l i s e p r i c e s and put t h e i n d u s t r y on a sound f o o t i n g . ' (82) The company thus s u c c e s s f u l l y e l i m i n a t e d elements o f  c o m p e t i t i o n and  e s t a b l i s h e d a v i r t u a l monopoly. In o t h e r f i e l d s where t h e r e would have been s u f f i c i e n t c o m p e t i t i o n , t h e m a n u f a c t u r e r s r e a l i s e t h e f u t i l i t y o f p r i c e c o m p e t i t i o n t h a t would r e s u l t i n p r i c e r e d u c t i o n t o the b e n e f i t o f t h e consumer.  Hence t h e companies p r o d u c i n g  - 30 a t i n t e r n a t i o n a l l e v e l s have d e r i v e d monopoly a d v a n t a g e s from a d v e r t i s i n g r a t h e r than p r i c e c o m p e t i t i o n .  The m u l t i n a t i o n a l c o r p o r a t i o n s t r a n s f e r a  whole package o f m a r k e t i n g t e c h n i q u e s from t h e i r o p e r a t i o n s abroad t o E a s t Africa.  F o r example, U n i l e v e r g a i n e d c o n t r o l o f t h e market by s e t t i n g up a  l o c a l p l a n t t o produce d i f f e r e n t i a t e d brands o f t o i l e t soap.  Colgate  P a l m o l i v e and Cussons j o i n e d them and a d v e r t i s e d h e a v i l y t o m a i n t a i n  western  t a s t e s e s t a b l i s h e d f i r s t , d u r i n g t h e c o l o n i a l p e r i o d i n t h e form o f t h e European p o p u l a t i o n and t h e p r o s p e r o u s A s i a n community.  The changes a f t e r  independence i n t r o d u c e d more A f r i c a n e l i t e s i n t h e consumer group o f such p r o d u c t s b u t d i d n o t change t h e s t r u c t u r e o f demand.  Thus, heavy e x p e n d i t u r e  on a d v e r t i s e m e n t s  by t h e b i g companies pushed l o c a l soap m a n u f a c t u r e r s (83) the market and hence c r e a t e d a s i t u a t i o n c l o s e t o t o t a l monopoly.  out of  In t h e 1940's, t h e l o c a l s o f t d r i n k s i n d u s t r y was composed o f s m a l l s c a l e p r o d u c e r s and was h i g h l y p r i c e c o m p e t i t i v e .  By 1952, t h e b i g Coca  C o l a and Pepsi C o l a had e n t e r e d t h e market and soon Dow-Smith noted  'With  h i g h p r e s s u r e a d v e r t i s i n g and s a l e s campaigns, [ t h e y ] . . . a p p e a r t o be 1  firmly e s t a b l i s h e d . ^ ^ In E a s t A f r i c a , l i k e i n many o t h e r c o u n t r i e s , governments f o r o t h e r economic o r p o l i t i c a l reasons impose h i g h t a r i f f s o r even quotas on imports t h a t would o t h e r w i s e compete w i t h l o c a l p r o d u c t s .  T h u s , w h i l e i n most c a s e s ,  governments i n d e v e l o p e d c o u n t r i e s i n t e r v e n e t o s t o p m o n o p o l i e s ,  i n many  c a s e s i n E a s t A f r i c a governments i n t e r v e n e t o s t o p c o m p e t i t i o n and g r a n t l e g a l l y protected monopolies.  In Kenya, f o r example, t h e government has  s t r e s s e d t h a t i t w i l l i n t e r v e n e i n t h e f r e e market mechanism i f t h e p o t e n t i a l i n v e s t m e n t s u p p o r t s t h e i n f a n t i n d u s t r y model l e a d i n g t o an e v e n t u a l i n c r e a s e i n r e a l income.  A complete s t a t e m e n t o f t h i s p o l i c y  appeared i n t h e 1966 development p l a n which s t a t e d ; 'The o v e r r i d i n g c o n s i d e r a t i o n i n a l l o c a t i n g i n d u s t r i a l p r i o r i t i e s  - 31 i s , o f c o u r s e , the a c t u a l o r p o t e n t i a l e f f i c i e n c y o f t h e p r o p o s e d i n d u s t r y . E f f i c i e n t i n d u s t r i e s can meet i n t e r n a t i o n a l c o m p e t i t i o n a t home o r a b r o a d w i t h a l i m i t e d need f o r c o n c e s s i o n s o r p r o t e c t i o n .... The government i s p r e p a r e d t o p r o t e c t t h o s e i n f a n t i n d u s t r i e s which show most promise o f growing out o f t h e i r d i f f i c u l t i e s . (85) 1  In a m a j o r i t y o f c a s e s , f i r m s have been g r a n t e d t h e p r o t e c t i o n on r e q u e s t . Landgon and G o d f r e y note t h a t 'Requests f o r i m p o r t p r o t e c t i o n a l s o dominated M.N.C. ( M u l t i n a t i o n a l C o r p o r a t i o n ) e n t r y n e g o t i a t i o n w i t h the government, and (86) i n 90 p e r c e n t c a s e s c o v e r e d t h e r e q u e s t was s u c c e s s f u l .  ' Such monopoly  p r o t e c t i o n g r a n t s have r e a c h e d a b s u r d p r o p o r t i o n s i n some c a s e s as the Firestone Tyre^Manufacturing project suggests.  The advantageous  position of  the company was c r e a t e d i n 1969 by agreement between t h e company and t h e government w i t h the f o l l o w i n g c o n c e s s i o n s ; (a)  a v i r t u a l monopoly o f t h e Kenyan t y r e market, s u p p o r t e d by a ban on a l l imports.  F i r e s t o n e would have t o g r a n t w r i t t e n a p p r o v a l b e f o r e  t h e government c o u l d g r a n t a l i c e n c e t o i m p o r t t i r e s ; (b)  the r i g h t t o use i t s own p r i c e f o r m u l a i n s a l e s , d e s p i t e t h i s monopoly;  (c)  the r i g h t t o d u t y - f r e e i m p o r t o f m a c h i n e r y and m a t e r i a l i n p u t s r e q u i r e d i n the f a c t o r y ;  (d)  government f i n a n c i a l p a r t i c i p a t i o n i n  the p r o j e c t t o t h e e x t e n t  F i r e s t o n e d e s i r e d ( s u f f i c i e n t t o g i v e the government a s t a k e i n t h e s u b s i d i a r y ' s s u c c e s s , but n o t enough t o t h r e a t e n F i r e s t o n e ' s managerial (e)  control);  t h e r i g h t t o count i t s t e c h n i c a l and s e r v i c e a s s i s t a n c e i n s e t t i n g up the p l a n t as a U.S. $1 m i l l i o n c o n t r i b u t i o n i n e q u i t y ; and  (f)  the r i g h t , a t the same t i m e , t o change t e c h n i c a l f e e s , as a p e r (87) c e n t a g e o f s a l e s , on the .ongoing o p e r a t i o n s o f the f a c t o r y .  - 32 Examples o f such g u a r a n t e e d monopolies  a r e e n d l e s s i n E a s t A f r i c a . The  aim here i s n o t t o q u e s t i o n such an economic p o l i c y . T h a t w i l l be l e f t t o others.  Such p o l i c i e s have g o t t h e i r own e c o n o m i c , p o l i t i c a l and s o c i a l  justifications.  However, i t becomes a l m o s t r i d i c u l o u s under such c o n d i t i o n s  t o emphasise Adam Smith's t h e o r y o f t h e market f o r c e s t o c o n t r o l a c t i v i t i e s of corporations.  Such c o n d i t i o n s a l s o i n d i c a t e t h a t t h e r e i s no f o r e s e e a b l e  l e g i s l a t i o n against monopolies.  T h u s , t h e t r a d i t i o n a l elements o f c o n t r o l  o f c o r p o r a t e b e h a v i o u r a r e l a c k i n g and t h i s c a l l s f o r a l t e r n a t i v e forms o f control.  Reform i n t h e s t r u c t u r e and t h e o r y o f company law p r o v i d e s a s t a r t -  i n g p o i n t i n c r e a t i n g a r e s p o n s i b l e company.  CONSUMER PROTECTION Because o f t h e low p u r c h a s i n g power o f t h e E a s t A f r i c a n p o p u l a t i o n , t h e r e i s l i m i t e d market f o r p r o d u c t s .  Hence, i n o r d e r t o p r o t e c t l o c a l  p r o d u c e r s , governments impose heavy import t a x e s .  The c o r p o r a t i o n s o p e r a t i n g  i n t h e s e c o u n t r i e s a r e aware o f t h e i r monopoly p o s i t i o n . As a r e s u l t , t h e consumer has no c h o i c e b u t t o purchase t h e o n l y commodities a v a i l a b l e a t a p r i c e s e t by t h e p r o d u c e r s . by c o m p e t i t i o n .  Under i d e a l c o n d i t i o n s , t h e consumer i s p r o t e c t e d  As a l r e a d y n o t e d , many c o u n t r i e s a p p r e c i a t e t h i s t h e o r y and  have l e g i s l a t i o n a g a i n s t monopolies  t o p r o t e c t t h e i n t e r e s t s o f t h e consumer.  Thomas i n h i s s t u d y has n o t e d t h e p o s i t i o n i n which t h e consumer i n E a s t A f r i c a has found h i m s e l f . f o r the unscrupulous manufacturer  'The i n d i g e n o u s consumer i s an o b v i o u s t a r g e t and agents o f d i s t r i b u t i o n , f o r p r o d u c t s  which a r e d e f e c t i v e , a b s o l e t e , unnecessary t o t h e u n s u s p e c t i n g and d e f e n c e l e s s p e r s o n . no formal e d u c a t i o n o f any k i n d .  or exorbitantly priced  c a n be s o l d  The consumer o f t e n has had  He can n e i t h e r r e a d n o r w r i t e .  He has no  i d e a about t h e s o p h i s t i c a t e d goods and has never heard o f a n y t h i n g l i k e a  - 33 l e g a l r i g h t a r i s i n g o u t o f p u r c h a s i n g d e f e c t i v e goods.  I t i s to ignore  r e a l i t y i n t h e s e c i r c u m s t a n c e s , t o t a l k about q u a l i t y o f b a r g a i n i n g power. 'The consumer i s f a r too v u l n e r a b l e t o  be a l l o w e d t o f l o u n d e r i n the  d o c t r i n e o f c a v e a t emptor. The S a l e o f Goods A c t and the H i r e - P u r c h a s e A c t p r o v i d e p r o t e c t i o n f o r the consumer.  E x i s t e n c e , however, does not mean t h a t t h e consumer i s aware  o f t h i s p r o t e c t i o n and even i f he were, he might not be c a p a b l e o f s e t t i n g the f o r m a l machinery o f l e g a l r e d r e s s i n t o m o t i o n .  While t h e consumers  comprise o f t h e l a r g e s t group i n the term p u b l i c , t h e y a r e the  least  o r g a n i s e d and t h e e a s i e s t t o e x p l o i t ^ ' and t h i s i s not a l l e v i a t e d by the f a c t t h a t company law does not r e c o g n i z e t h e d u t i e s owed by the company t o the consumer. To t h i s add the e f f e c t o f mis 1 e a d i n g i a d v e n t i i s e m e n i s and complete.  the p i c t u r e i s  I d e a l l y , i n f o r m a t i v e a d v e r t i s i n g e d u c a t e s consumers and  ages i n t e l l i g e n t c h o i c e and a l l o c a t i o n o f r e s o u r c e s .  encour-  But as Nader has  a r g u e d , ' A l l too o f t e n , however, c o r p o r a t e a d v e r t i s i n g i s t h e i n a n e , m i s l e a d i n g , o r d e c e p t i v e f a r e we d i g e s t d a i l y on t e l e v i s i o n .  Instead of a d v e r t i s i n g  about p r i c e and q u a l i t y , l e a d i n g companies s t r i v e t o a s s o c i a t e t h e i r p r o d u c t s (92) w i t h a l l u r i n g s u p e r s t a r s o r s e d u c t i v e moods.'  v  ' The a d v e r t i s i n g i s so  s p e c i a l i s e d t h a t even the h i g h l y i n f o r m e d and t e c h n i c a l l y competent buyers are s u b j e c t e d t o the appeal o f the a d v e r t i s e m e n t . A t r e n d noted by Baran and Sweezy i s the i n c r e a s i n g emphasis on market(93) i n g r a t h e r than p r o d u c t i o n /  ' The h i g h  s o u n d i n g t a l k about  s c i e n c e and t e c h n o l o g y i s o f s e c o n d a r y c o n c e r n .  advancing  The e f f o r t i s more r e l a t e d  t o the i n c r e a s e o f s a l e a b l e goods, perhaps new i n d e s i g n and appearance s e r v i n g the same purpose as t h e o l d efficiency.  T h i s c o n c e n t r a t i o n on  p r o d u c t and o f t e n w i t h no i n c r e a s e d market r a t h e r than p r o d u c t i o n causes  but  - 34 concern f o r t h e consumer.  As Dexter M a s t e r p u t i t ;  'When d e s i g n i s t i e d t o s a l e s r a t h e r than t o p r o d u c t f u n c t i o n , as i t i s i n c r e a s i n g l y , and when m a r k e t i n g s t r a t e g y i s based on frequent s t y l e changes, there are c e r t a i n almost i n e v i t a b l e r e s u l t s ; a t e n d e n c y t o t h e use o f i n f e r i o r m a t e r i a l s ; s h o r t c u t s i n t h e time n e c e s s a r y f o r sound p r o d u c t d e v e l o p m e n t ; and a n e g l e c t o f q u a l i t y and adequate i n s p e c t i o n . The e f f e c t o f such b u i l t i n a b s o l e s c e n c e i s a d i s g u i s e d p r i c e i n c r e a s e t o the consumer i n t h e form o f s h o r t e r " p r o d u c t l i f e , a n d , o f t e n , h e a v i e r r e p a i r b i l l s . ' (94) Consumer i n t e r e s t s have been n e g l e c t e d .  In t h e e a r l y p a r t o f t h e  I n d u s t r i a l R e v o l u t i o n , t h e c o m p e t i t i v e market p r o v i d e d t h e p r o t e c t i o n . Any firm overchanging  would be u n d e r c u t by a c o m p e t i t o r .  e f f e c t i v e r e g u l a t o r y mechanism. protected?  Market i s no l o n g e r an  How a r e t h e consumer i n t e r e s t s t o be 1  Some p u b l i c i n t e r e s t groups l i k e ' t h e Consumers' A s s o c i a t i o n i n  U.K. and t h e "Housewives A s s o c i a t i o n ' i n Kenya may be u s e f u l i n p r o v i d i n g i n f o r m a t i o n about p r o d u c t s b u t t h e i r j o b i s made d i f f i c u l t by m i s l e a d i n g advertisement. Every government has a r e s p o n s i b i l i t y t o p r o t e c t consumer i n t e r e s t s . I n d u s t r i a l i s t s a r e w e l l o r g a n i s e d and c a n lobby t o i n f l u e n c e government policies.  Although the i n f l u e n c e o f shareholders i s minimal, t h e i r i n t e r e s t s  are p r o t e c t e d by t h e Companies A c t .  Companies must r e c o g n i s e a s o c i a l  o b l i g a t i o n t o s u p p l y t h e consumers w i t h t h e r i g h t p r o d u c t s a t t h e r i g h t p r i c e s o t h e r w i s e a f r u s t r a t e d p u b l i c w i l l t u r n t o t h e government f o r i n t e r vention.  THE WORKERS In t h e f i e l d o f c o n t e m p o r a r y economics where t h e a c t i v i t i e s o f t h e c o r p o r a t i o n s a r e g o v e r n e d by Adam Smith's t h e o r y o f t h e market p l a c e , c o r p o r a t i o n s have done v e r y w e l l .  They a r e l a r g e l y r e s p o n s i b l e f o r today's  - 35 economic p r o g r e s s .  Adam S m i t h , i t may be r e c a l l e d , w r o t e t h a t the p u r s u i t  o f economic s e l f i n t e r e s t i n the f r e e c o m p e t i t i o n o f the market p l a c e was i n the b e s t i n t e r e s t o f the n a t i o n .  I t was through the c o m p e t i t i v e s t r i v i n g f o r  p e r s o n a l p r o f i t by the members o f t h e s o c i e t y t h a t the w e a l t h and power and (95) hence the g e n e r a l w e l l - b e i n g o f a n a t i o n was p r o d u c e d /  ' Because b u s i n e s s  p r o f i t s e e k i n g f o s t e r e d the u l t i m a t e b e s t i n t e r e s t o f the s o c i e t y , i t was j u s t i f i e d as e t h i c a l .  Once t h i s was a c c e p t e d , i t was l e f t t o t h e market p l a c e  t o s o l v e s o c i a l problems o f c h i l d l a b o u r , poor w o r k i n g c o n d i t i o n s and p o v e r t y . I t became c l e a r t h a t man was not on e a r t h t o e n j o y but t o work and e a r n a living. The problem, however, i s t h a t we cannot m o r a l l y j u s t i f y b u s i n e s s  around  a p u r e l y economic model because i t i s n o t a p u r e l y economic t e c h n i c a l system; it  i s a s o c i a l system as w e l l .  B u s i n e s s produces not o n l y economic c o n s e -  quences, goods., s e r v i c e s , p r o f i t s and w e a l t h , but a v a r i e t y o f o t h e r s o c i a l consequences.  T h i s r e c o g n i t i o n c a l l s f o r abandonment o f s o c i a l v a l u e s as a  p e r i p h e r a l i s s u e among t h e members o f t h e b u s i n e s s community. One o f the groups l i k e l y t o be a f f e c t e d most by c o r p o r a t e a c t i v i t i e s a r e the employees. and as  As a l r e a d y n o t e d , t h e s e a r e not ' w i t h i n ' t h e company s t r u c t u r e  such a r e l e f t t o o p e r a t e through t h e i r own unions a g a i n s t the company  from o u t s i d e . T h i s form o f d i v i s i o n between l a b o u r and c a p i t a l i s a t t h e h e a r t o f the d i f f e r e n c e s between c a p i t a l i s t and communist o r s o c i a l i s t p o l i t i c a l p h i l o s ophies.  The c a p i t a l i s t economic t h e o r y assumes ' p e r f e c t c o m p e t i t i o n ' where  f i r m s i n c o m p e t i t i o n b i d f o r workers and the l e v e l o f employment w i l l be (97) d e t e r m i n e d by the government management o f monetary and f i s c a l p o l i c y / The l e v e l o f wages would be d e t e r m i n e d by the competitionkamong the r e s t goes t o c a p i t a l and the r a t e o f  '  the w o r k e r s ,  p r o f i t i s the m a r g i n a l p r o d u c t o f  - 36 c a p i t a l and measures c a p i t a l ' s c o n t r i b u t i o n t o p r o d u c t i o n .  The r a t e o f  p r o f i t i s a reward t o the s a v e r s who postponed t h e i r consumption and r i s k e d t h e i r c a p i t a l i n t h e i r investment. Marx on the o t h e r hand d e v e l o p e d h i s t h e o r y o f l a b o u r v a l u e .  He  t h a t p r o d u c t s have a v a l u e a c c o r d i n g t o the l a b o u r t h a t was used t o them.  Raw m a t e r i a l s , c a p i t a l and l a b o u r combine t o produce.  argued produce  Part of a  commodity v a l u e i s the l a b o u r used t o produce the raw m a t e r i a l s and m a i n t a i n i n g c a p i t a l equipment.  F u r t h e r v a l u e i s added by the l a b o u r used i n  a c t u a l p r o d u c t i o n o f the commodity.  the  Labour, h a v i n g produced t h a t much f o r  s o c i e t y o n l y r e c e i v e s a s m a l l p o r t i o n i n the form o f wages.  " I t i s as i f  the workers spend o n l y p a r t o f t h e i r working time working f o r themselves  and  w h i l e the r e s t i s s p e n t working f o r the c a p i t a l i s t s . . . . The r a t i o between what the c a p i t a l i s t s keep ( s u r p l u s v a l u e ) and what they are o b l i g e d t o pay the workers t o keep them a t work (wages o r v a r i a b l e c a p i t a l ) i s c a l l e d by Marx the r a t e o f s u r p l u s v a l u e o r sometimes r a t e o f e x p l o i t a t i o n . ' ^ * ^ Without g o i n g f u r t h e r i n t o the d i f f e r e n t p o l i t i c a l p h i l o s o p h i e s , i t i s i m p o r t a n t t o c o n s i d e r the e x t e n t t o which the growth o f l a r g e companies i n E a s t A f r i c a a f f e c t the b a l a n c e o f power between the e m p l o y e r and the employee. In E a s t A f r i c a , unemployment i s i n c r e a s i n g l y becoming a p r o b l e m .  I t can  be argued t h a t i n the E a s t A f r i c a n c o n t e x t , t h i s i s not so s i n c e a r g u a b l y , e v e r y a b l e b o d i e d person can g e t some c a s u a l work i n the so c a l l e d i n f o r m a l s e c t o r , ( i e . c r a f t s and s e r v i c e s )  While t h i s may be s o , the amount so earned  i s so s m a l l t h a t v e r y few f a m i l i e s can be s u s t a i n e d on i t . The problem i s not o n l y o f unemployment but a l s o o f g r o s s unequal d i s t r i b u t i o n o f income. In 1972, P a r k i n n o t e d t h a t i n Kenya, o v e r 120,000 s c h o o l l e a v e r s a n n u a l l y competed f o r a v e r y s m a l l number o f wage j o b s . doubt i n c r e a s e d .  T h i s number has no  A f o r t u n a t e s c h o o l l e a v e r may g e t a j o b as a j u n i o r c l e r k  - 37 and earn about KS. 400 per month w h i l e h i s c o l l e a g u e e q u a l l y e d u c a t e d  fails  t o do so and ends up b e i n g employed as a c a s u a l l a b o u r e r e a r n i n g about KS.  50  per month.. Q u i t e o f t e n , the o n l y d i f f e r e n c e between the two are p e r s o n a l contacts. 1.  P a r k i n , i n h i s s t u d y , c o n c l u d e d t h a t urban t r e n d s show; An i n c r e a s i n g l y i n v e r s e r a t i o i n the number o f j o b - s e e k e r s  and  a v a i l a b l e wage j o b s . 2.  An i n c r e a s i n g imbalance  i n the e d u c a t i o n manpower,  i e . educational  l e v e l s are r i s i n g but j o b o p p o r t u n i t i e s a r e , n e v e r t h e l e s s  decreas-  ing p r o p o r t i o n a l l y . 3.  A r a t e o f urban p o p u l a t i o n i n c r e a s e ( a t l e a s t 6 p e r c e n t and p r o b a b l y more) which i s r o u g h l y t w i c e t h a t o f the n a t i o n a l i n c r e a s e and t h r i c e t h a t o f the r u r a l .  (99)  The t e n d e n c y i s f o r s m a l l companies t o be bought by the l a r g e ones and t h i s c o n c e n t r a t i o n l e a v e s means o f p r o d u c t i o n i n even fewer hands. s t u d y , E g l i n , r e f e r r i n g t o f o r e i g n companies has  In h i s  noted;  Where f o r e i g n i n v e s t o r s have been unable t o break i n t o the l o c a l i n d u s t r y u s i n g t h e i r s u p e r i o r i t y i n a c c e s s t o monopoly advantages i n e i t h e r the p r o d u c t o r f a c t o r m a r k e t s , they have on o c c a s i o n r e s o r t e d t o t a k i n g o v e r l o c a l f i r m s t o e n t e r the i n d u s t r y .... Once e n t r y has been g a i n e d , the c o m p e t i t i v e s t r a t e g y employed by f o r e i g n e n t r e p r e n e u r s has tended s i m p l y t o be an e x t e n s i o n o f t h e i r e n t r y p r o c e d u r e , i n v o l v i n g heavy a d v e r t i s i n g where t h e i r monopoly advantage has been v e s t e d i n a foods market i m p e r f e c t i o n , c o n t i n u e d a p p l i c a t i o n t o the government f o r p r o t e c t i o n a g a i n s t c o m p e t i t i o n both from home and a b r o a d , and on o c c a s i o n an a g r e s s i v e s t r a t e g y o f t a k e o v e r s and mergers t o reduce c o m p e t i t i o n . . . .(100) T h i s may be a i m i n g a t g r e a t e r economic e f f i c i e n c y but i t may a l s o l i m i t employment o p p o r t u n i t i e s and the i m p l i c a t i o n s f o r E a s t A f r i c a are s e r i o u s . No s t u d i e s i n E a s t A f r i c a on the i m p l i c a t i o n s o f such a t r e n d have been found but an example o f what has happened e l s e w h e r e c o u l d p r o v i d e some i d e a o f what i s l i k e l y t o happen.  In 1968, an E n g l i s h company, the  General  - 38 E l e c t r i c Company (G.E.C.) merged w i t h A s s o c i a t e d E l e c t r i c a l I n d u s t i r e s (A.E.I.) and E n g l i s h E l e c t r i c ( E . E . ) . Of t h e merger, M a r r i o t and Jones n o t e d ; 'The  G.E.C.-A.E.I.-English  E l e c t r i c merger was a v i c t o r y f o r t h o s e members o f t h e l a b o u r government . . . who b e l i e v e d t h a t B r i t a i n ' s i n d u s t r i a l s t r e n g t h would be enhanced by t h e c r e a t i o n o f g i a n t companies comparable America and on t h e c o n t i n e n t .  i n s i z e to the leading business i n  I t was a v e r y d i f f e r e n t l a b o u r government  from t h e A t t l e r e g i m e , which had c r e a t e d t h e M o n o p o l i e s Commission t o c u r b the a c t i v i t i e s o f g i a n t companies.  But t h e r e was something o f t h e same f e e l -  i n g t h a t government s h o u l d t a k e a hand i n i n f l u e n c i n g t h e b e h a v i o u r o f businessmen,  and n o t l e a v e t h e m a j o r d e c i s i o n s t o t h e m e r c i e s o f f r e e 1  competition. (^1) 'The Times' was q u i c k t o p o i n t o u t t h a t t h e ' b e n e f i t s can be a c h i e v e d [from t h e m e r g e r ] o n l y i f G.E.C. manages t o p r o c e e d as i t i n t e n d s t o - r u t h l e s s l y towards some i d e a l e f f i c i e n c y i n o p e r a t i o n w i t h v i g o r o u s c o n t r o l o f i t s own p r o d u c t s .  1  F a c t o r i e s w i l l be c l o s e d and men made r e d u n d a n t . ^  I t d i d n o t take l o n g .  Four y e a r s l a t e r , G.E.C. had l a i d o f f some  64,000 w o r k e r s , about o n e - q u a r t e r o f i t s work f o r c e . 103  p r o f i t s r o s e from<^36,500,000 t o ( ^ 7 7 , 0 0 0 , 0 0 0 . ^ ^ but i t i s c l e a r t h a t such  D u r i n g t h e same p e r i o d , T h i s may be e f f i c i e n c y  b u s i n e s s c o m b i n a t i o n s can cause s e r i o u s  problems  t o t h e workers who t o d a t e a r e i g n o r e d by company law.  WAGES Workers a r e n o t d i s i n t e r e s t e d i n t h e a c t i v i t i e s o f companies.  They a r e  a f f e c t e d by t h e s u c c e s s o r f a i l u r e o f a company t o which t h e y devote t h e i r working l i f e .  To t h a t e x t e n t , t h e i r i n t e r e s t i n t h e s u c c e s s o f t h e company  converges w i t h t h a t o f management and s h a r e h o l d e r s .  The problem a r i s e s when  i t comes t o the  d i s t r i b u t i o n of p r o f i t s .  P r e s i d e n t Nyerere a p p r e c i a t e d t h i s  f a c t when he s a i d ; "... s t r i k e s f o r i n s t a n c e , they say t h a t Mwongozo makes the w o r k e r s t r i k e . But we a r e i n an unequal s o c i e t y , how can you e x p e c t t h a t workers w i l l not go on s t r i k e . They w i l l s i t down and we w i l l s a y , do you u n d e r s t a n d what g o i n g on a s t r i k e means, and the workers w i l l r e p l y and say do you u n d e r s t a n d what i n e q u a l i t y means? We must have a s o c i e t y where i f you l i k e we e x p e r i e n c e the b i r t h o f s o c i a l i s m . We a c c e p t t h i s because we don't p r e t e n d we have a s o c i a l i s t s o c i e t y . ' (104) The worker e x p e c t s reward i n the form o f i n c r e a s e i n wages o r f r i n g e b e n e f i t s w h i l e the s h a r e h o l d e r e x p e c t s maximum p r o f i t s through d i v i d e n d s and t h i s a c c o u n t s f o r the e n d l e s s l a b o u r d i s p u t e s i n E a s t A f r i c a . Economic growth i n E a s t A f r i c a r e l y s on a l a r g e , low wage l a b o u r f o r c e and hence d i s couragement o f h i g h wages.  One o f the r e s u l t s o f such an economic p o l i c y i s  the r e d u c t i o n o f b a r g a i n i n g power o f l a b o u r . The m a j o r problem f o r the w o r k e r s i s the inadequacy o f minimum s t a n d a r d o f l i v i n g .  wages f o r a  T h i s i s a p o t e n t i a l l y dangerous s i t u a t i o n .  ' D i s s a t i s f a c t i o n , low p r o d u c t i v i t y and i n d u s t r i a l upheaval a r e p o t e n t i a l dangers.  H i s t o r y i n d i c a t e s t h a t t h e s e f a c t o r s can m a n i f e s t t h e m s e l v e s  in  some form o f p o l i t i c a l a c t i o n i f organs o f e x p r e s s i o n a r e d e n i e d t o l a b o u r . ^ Labour i n E a s t A f r i c a was encouraged lation.  t o remain u n o r g a n i s e d f o r easy manipu-  T h i s i s no l o n g e r p o s s i b l e and c o n t i n u e d attempts t o do so i s  p o t e n t i a l l y dangerous. The t r a d i t i o n a l western approach has been through c o l l e c t i v e b a r g a i n i n g , backed i f n e c e s s a r y by the r i g h t t o s t r i k e .  In E a s t A f r i c a , the most powerful  weapon f o r l a b o u r , the r i g h t t o s t r i k e , i s h i g h l y r e s t r i c t e d . T h i s l e a v e s v e r y l i t t l e room f o r c o l l e c t i v e b a r g a i n i n g .  The law s h o u l d a t t h i s time  r e c o g n i s e the c o n t r i b u t i o n o f l a b o u r r a t h e r than s i m p l y c a p i t a l . t o s u g g e s t t h a t employees have no l e g a l p r o t e c t i o n o f any k i n d .  T h i s i s not There i s  - 40 l e g i s l a t i o n i n a l l the E a s t A f r i c a n c o u n t r i e s t o r e g u l a t e minimum wages, maximum h o u r s , employment o f women and c h i l d r e n and i n d u s t r i a l a c c i d e n t s . E x i s t e n c e , however, i s d i f f e r e n t from adequacy and company law s h o u l d a c k n o w l edge t h i s f a c t and r e c o g n i s e employees as b e i n g ' w i t h i n ' the company by g r a n t i n g them r i g h t s t h a t the managers w i l l have no l e g a l j u s t i f i c a t i o n t o i g n o r e . The i s s u e s i n v o l v e d here a r e  not o n l y economic but are a l s o an  i a t i o n o f the d i g n i t y . a n d c o n t r i b u t i o n o f l a b o u r . e f f o r t t o t h i s end.  apprec-  C o l o n i a l h i s t o r y made no  I t becomes the duty o f the l e a d e r s o f today t o c o n v i n c e  t h e i r p o p u l a t i o n o f the v a l u e o f t h e i r l a b o u r so as t o  e n a b l e the workers t o  i d e n t i f y themselves w i t h n a t i o n a l p r o d u c t i o n , s e l f - r e l i a n c e and n a t i o n b u i l d ing.  T h i s w i l l not be a c h i e v e d so l o n g as w o r k e r s c o n t i n u e t o be l o o k e d a t  as t o o l s r a t h e r than e s s e n t i a l c o n t r i b u t o r s t o p r o d u c t i o n and d e v e l o p m e n t .  THE PUBLIC The d e s t r u c t i o n o f i n t a n g i b l e community a s s e t s i s a s e r i o u s p o t e n t i a l problem.  Here the beauty o f the environment  i s a t s t a k e and the s e r i o u s  h e a l t h problems s u r r o u n d i n g a h e a v i l y p o l l u t e d environment  are i n v o l v e d .  I n d u s t r i a l i s e d c o u n t r i e s have r e a l i s e d t h i s problem and have p o l l u t i o n c o n t r o l r e g u l a t i o n s and a g e n c i e s but even then p o l l u t i o n w i t h a l l i t s e f f e c t s remains a b i g problem.  In E a s t A f r i c a , governments do not have the r e s o u r c e s - both  f i n a n c i a l and h i g h l y s k i l l e d p e r s o n n e l t o s t u d y the e f f e c t s and implement mechanisms f o r p o l l u t i o n c o n t r o l . There are no r e g u l a t i o n s on p o l l u t i o n control in industures.  The c o p p e r s m e l t i n g c e n t r e s i n Kilembe and J i n j a ,  the i r o n and s t e e l i n d u s t r i e s i n J i n j a , the paper f a c t o r i e s which a r e s c a t t e r e d i n many p l a c e s , the c h e m i c a l i n d u s t r i e s and o i l r e f i n e r i e s i n Mombasa and Dares Salaam c o n t i n u e t o p o l l u t e the a i r and the sea w i t h o u t b e i n g checked.  I t may be argued t h a t p o l l u t i o n i s not y e t a b i g problem  due  - 41 to t h e low l e v e l o f i n d u s t r i a l i s a t i o n .  But no one wants t o b r e a t h e p o l l u t e d  a i r b e f o r e we r e a l i s e t h a t p o l l u t i o n c o n t r o l i s n e c e s s a r y . U n t i l e a r l y i n t h e 1960's, economists  urged d e v e l o p i n g c o u n t r i e s t o  s p e c i a l i s e i n a g r i c u l t u r a l produce and l e a v e i n d u s t r i a l i s a t i o n t o t h e developed c o u n t r i e s .  T h i s s t r a t e g y f o r economic development has s i n c e been  abandoned and i n d u s t r i a l i s a t i o n i s now b e i n g emphasised as a p r e - r e q u i s i t e u  for development.^ ^)  C o u n t r i e s f o c u s s i n g on i n d u s t r i a l i s a t i o n , t h e r e f o r e ,  have t o c o n s i d e r t h e e n v i r o n m e n t a l  impact s i n c e t h e aim s h o u l d be t o  p o l l u t i o n b e f o r e i t becomes a m a j o r p r o b l e m .  control  D e p o l l u t i o n may prove t o be  more e x p e n s i v e than c o n t r o l l i n g i t i n t h e b e g i n n i n g .  This c a l l s f o r  companies t o be r e s p o n s i b l e and r e c o g n i s e t h e i r impact on t h e e n v i r o n m e n t and the g e n e r a l  population.  P r o f i t maximisation  by companies a l s o a f f e c t s t h e economy o f t h e c o u n t r y .  Both d e v e l o p e d and d e v e l o p i n g economies may f i n d i t n e c e s s a r y t o r e g u l a t e the r a t e s o f p r o f i t s o r d i v i d e n d s .  Tanzania regulates rates o f d i s t r i b u t i o n  o f p r o f i t s made by s u b s i d i a r i e s o f p u b l i c s p e c i f i e d c o r p o r a t i o n s . i n the U.K., t h e C o u n t e r I n f l a t i o n A c t , 1973, s e t up a pay and p r i c e code t o c o n t r o l both t h e p r o f i t s and t h e i r d i s t r i b u t i o n . T h i s was found  necessary  because i n f l a t i o n t h a t a f f e c t s p r i c e s and wages was making i t d i f f i c u l t f o r B r i t i s h p r o d u c t s t o compete s u c c e s s f u l l y on i n t e r n a t i o n a l m a r k e t s . T h u s p r o f i t maximisation  m i g h t n o t be i n t h e i n t e r e s t s o f t h e n a t i o n ' s economy and  u n l e s s companies o b s e r v e t h e i r r e s p o n s i b i l i t y , i t might be n e c e s s a r y f o r governments t o i n t e r v e n e .  ... FOREIGN:: ENTERPRISES The i n t e r n a t i o n a l companies make e x c e s s i v e p r o f i t s l a r g e l y because q u i t e o f t e n they m o n o p o l i s e t h e m a r k e t , demand e x c e s s i v e p r o t e c t i o n , charge  - 42 e x c e s s i v e p r i c e s f o r t e c h n o l o g y and m a n a g e r i a l  services.  They c o n t r o l t h e  means o f p r o d u c t i o n which a c c o r d i n g t o t h e A r u s h a D e c l a r a t i o n i n c l u d e t h e following;  l a n d , f o r e s t s , m i n e r a l r e s o u r c e s , w a t e r , o i l and e l e c t r i c i t y ,  c o m m u n i c a t i o n s , t r a n s p o r t , banks, i n s u r a n c e , import and e x p o r t t r a d e , whole s a l e b u s i n e s s , s t e e l , machine t o o l s , arms, motor c a r , cement and f e r t i l i z e r f a c t o r i e s , t h e t e x t i l e i n d u s t r y and any o t h e r b i g i n d u s t r y upon which a l a r g e s e c t i o n o f t h e p o p u l a t i o n depend f o r t h e l i v i n g , o r which p r o v i d e s e s s e n t i a l components f o r o t h e r i n d u s t r i e s ; and l a r g e p l a n t a t i o n s , e s p e c i a l l y t h o s e which p r o d u c e e s s e n t i a l m a t e r i a l s . This e f f e c t i v e control o f resources gives p o s i t i o n i n r e l a t i o n t o t h e government.  them a s t r o n g b a r g a i n i n g  The g o v e r n m e n t s , t o i n c r e a s e t h e i r  b a r g a i n i n g power w i l l need more i n f o r m a t i o n , and a f i r m and tough a t t i t u d e . F o r e i g n i n v e s t o r s have v a r i o u s a l t e r n a t i v e l e g a l t e c h n i q u e s from which t o choose.  An i n d i v i d u a l f o r e i g n e r i n t e n d i n g t o i n v e s t s a y i n Kenya c o u l d  become a member o f a Kenyan company o r a l e n d e r t h e r e o f through holding.  debenture  He can a l s o r e g i s t e r h i s own company i n c o r p o r a t e d abroad as a  foreign c o m p a n y . H e  c o u l d a l s o i n c o r p o r a t e a company d i r e c t l y e i t h e r  by h i m s e l f o r w i t h o t h e r a s s o c i a t e s .  He a l s o has a c h o i c e o f i n c o r p o r a t i n g  a company as a s u b s i d i a r y o f h i s company i n c o r p o r a t e d  abroad.  I f t h e i n v e s t o r i s a company, i t has t h e same t e c h n i q u e s as above mentioned.  I t can r e g i s t e r i t s e l f as a f o r e i g n company o r i n c o r p o r a t e i t s  own s u b s i d i a r y i n Kenya and hence become a m u l t i n a t i o n a l i f i t i s n o t y e t one.  F o r e i g n companies, however, a r e s u b j e c t t o c o n t r o l by l e g i s l a t i o n .  G e n e r a l l y such l e g i s l a t i o n takes two f o r m s ; r e s t r i c t i o n on;,the e x t e n t t o which such a f o r e i g n owned o r c o n t r o l l e d company can c a r r y on b u s i n e s s and c o n t r o l on t h e o u t f l o w o f p r o f i t s e a r n e d . (Ill  In Kenya, f o r example, under t h e F o r e i g n Investments P r o t e c t i o n A c t ,  - 43 the M i n i s t e r o f F i n a n c e may on h i s own d i s c r e t i o n g r a n t a c e r t i f i c a t e a p p r o v i n g an e n t e r p r i s e t o i n v e s t f o r e i g n a s s e t s o r r e i n v e s t t h e i r p r o f i t s i f he i s s a t i s f i e d t h a t t h e i n v e s t m e n t i s i n t h e i n t e r e s t o f t h e c o u n t r y .  The  economic b e n e f i t s o f t h e c o u n t r y has been i n t e r p r e t e d t o mean t h a t t h e investment w i l l ; (a)  l e a d e i t h e r t o an e a r n i n g o r s a v i n g o f f o r e i g n exchange.;  (b)  r e s u l t i n a g a i n o f t e c h n i c a l knowledge t o t h e c o u n t r y ; and  (c)  r e s u l t i n an i n c r e a s e i n t h e economic w e a l t h  and s o c i a l  s t a b i l i t y o f t h e c o u n t r y by r a i s i n g t h e n a t i o n a l income o r promoti n g t h e d i v e r s i f i c a t i o n o f t h e economy.  (112)  The c e r t i f i c a t e g u a r a n t e e s two forms o f p r o t e c t i o n .  The i n v e s t o r i s  a l l o w e d r e p a t r i a t i o n which g u a r a n t e e s t r a n s f e r o u t o f Kenya i n t h e a p p r o v e d f o r e i g n c u r r e n c y and a t t h e p r e v a i l i n g o f f i c i a l r a t e o f exchange (a)  the p r o f i t s , a f t e r taxation o f h i s investment o f foreign assets;  (b)  t h e a p p r o v e d p r o p o r t i o n o f t h e n e t p r o c e e d s o f s a l e o f a l l o r any p a r t o f t h e a p p r o v e d e n t e r p r i s e . . . and  (c)  t h e p r i n c i p a l and i n t e r e s t o f any l o a n s p e c i f i e d i n t h e c e r t i f i c a t e .  F u r t h e r , t h e r e i s p r o t e c t i o n a g a i n s t compulsory a c q u i s i t i o n by t h e s t a t e e x c e p t under t h e c o n s t i t u t i o n a l p r o v i s i o n s which s t a t e t h a t no p r o p e r t y may be c o m p u l s o r i l y a c q u i r e d e x c e p t when; (a)  t h e t a k i n g i s t o promote t h e p u b l i c b e n e f i t ; and  (b)  t h e n e c e s s i t y i s such as t o a f f o r d r e a s o n a b l e j u s t i f i c a t i o n f o r t h e h a r d s h i p c a u s e d t o t h e owner; and p r o v i s i o n i s made f o r t h e prompt payment o f f u l l c o m p e n s a t i o n .  Under t h e Exchange C o n t r o l A c t / shares t o a n o n - r e s i d e n t Finance.  1 1 3  ^  any Kenyan c o r p o r a t i o n i s s u i n g  must f i r s t seek p e r m i s s i o n from t h e M i n i s t e r o f  The funds must be b r o u g h t i n t o t h e c o u n t r y i n an a p p r o v e d  currency.  - 44 Non r e s i d e n t d i r e c t o r s must be a p p r o v e d by t h e M i n i s t e r and a r e s i d e n t who borrows money from abroad must seek p e r m i s s i o n s o as t o e n a b l e t h e l e n d e r t o r e p a t r i a t e t h e p r i n c i p l e and i n t e r e s t . T a n z a n i a which i s l e s s s y m p a t h e t i c  t o f o r e i g n investment  has s i m i l a r  4  p r o v i s i o n s ' " " ) e x c e p t f o r c o m p u l s o r y a c q u i s i t i o n which p r o v i d e s ; t h e f u l l and f a i r v a l u e o f such e n t e r p r i s e o r p r o p e r t y s h a l l be a s c e r t a i n e d and t h e h o l d e r . . . s h a l l be p a i d a p r o p o r t i o n s p e c i f i e d i n h i s c e r t i f i c a t e as t h e approved p r o p o r t i o n . ( H ^ )  T h e r e i s no mention o f j u d i c i a l review e x c e p t f o r  a r b i t r a t o r s a p p o i n t e d by t h e two p a r t i e s . The T a n z a n i a n  c o n s t i t u t i o n does  not make any r e f e r e n c e t o t h e p r o t e c t i o n o f p r o p e r t y r i g h t s . In Kenya, i n p r a c t i c e , a c e r t i f i c a t e o f 'Approval to obtain  E n t e r p r i s e ' i s easy  and i n t h e event o f n a t i o n a l i z a t i o n , f a i r c o m p e n s a t i o n i s g r a n t e d  w i t h o u t d i f f i c u l t y . I t i s thus e v i d e n t t h a t w h i l e t h e governments r e c o g n i s e t h e need f o r f o r e i g n i n v e s t m e n t  - 7  which p r o v i d e s c a p i t a l ( H ) and  t e c h n i c a l know-how f o r t h e development o f r e s o u r c e s , they a l s o r e a l i s e t h a t unchecked f o r e i g n investments would make economies o f d e v e l o p i n g suffer.  countries  Thus, f o r e i g n companies cannot pursue p r o f i t m a x i m i s a t i o n t o  the t o t a l e x c l u s i o n o f a l l o t h e r c o n s i d e r a t i o n s w i t h o u t b e i n g i n c o n f l i c t w i t h t h e government p o l i c y . In Hale v. H e n k e l , t h e U n i t e d S t a t e s Supreme C o u r t remarked t h a t '[T]he c o r p o r a t i o n i s a c r e a t u r e o f t h e s t a t e . I t i s presumed t o be i n c o r p o r a t e d f o r t h e b e n e f i t o f t h e p u b l i c . I t r e c e i v e s c e r t a i n p r i v i l e g e s and f r a n c h i s e s and h o l d s them s u b j e c t t o t h e laws o f t h e s t a t e and t h e l i m i t a t i o n s o f i t s c h a r t e r . . . .' (119) However, many c o r p o r a t i o n s , i n t h e i r h o t p u r s u i t o f t h e d o l l a r , have i g n o r e d t h e i r t a b l e manners and shown no sense o f r e s p o n s i b i l i t y . t r u e both i n t h e d e v e l o p e d and d e v e l o p i n g c o u n t r i e s .  completely  This i s  However, t h e impact o f  i r r e s p o n s i b i l i t y i s f e l t more i n t h e d e v e l o p i n g economies b e c a u s e o f t h e  - 45 weaknesses::  i n t h e economy and t h e a g g r e s s i v e a t t i t u d e s o f  ..mangers who  have no sense o f l o y a l t y t o t h e s e c o u n t r i e s . In E n g l a n d f o r example i n 1973, i t came t o l i g h t t h a t Lonrho, a B r i t i s h m u l t i n a t i o n a l w i t h about f i f t y s u b s i d i a r i e s i n E a s t A f r i c a a l o n e was i n breach o f sanctions a g a i n s t Rhodesia.  I t came t o be p u b l i c knowledge t h a t t h e  r e s p e c t a b l e d i r e c t o r s were a v o i d i n g t a x , t h a t l a r g e sums o f money were b e i n g p a i d t o them f o r v e r y l i t t l e work and t h a t many o f them l i v e d i n l u x u r i o u s r e n t - f r e e houses.  To most p e o p l e , however, 'the f a c t t h a t Lonrho was a m u l t i -  n a t i o n a l o p e r a t i n g i n A f r i c a was n o t o f p a r t i c u l a r i n t e r e s t . s e t i n t h e i r B r i t i s h c o n t e x t t h a t caught t h e h e a d ! i n e s . ' though  I t was t h e e v e n t s £  v e n  then,  worse a c t i v i t i e s were g o i n g on i n A f r i c a , Lonrho's d i s r e g a r d t o  s o c i a l r e s p o n s i b i l i t y prompted t h e then c o n s e r v a t i v e Prime M i n i s t e r , Edward Heath, t o d e s c r i b e i t as 'the u n p l e a s a n t and u n a c c e p t a b l e f a c e o f c a p i t a l i s m . ' ^ There a r e examples t o s u g g e s t t h a t c o r p o r a t i o n s o p e r a t i n g i n E a s t A f r i c a have more c o n c e r n f o r t h e i r mother c o u n t r i e s than t h e h o s t c o u n t r i e s . The chairman o f R e c k i t t and Colman H o l d i n g s L t d . , a m u l t i n a t i o n a l t h a t o p e r a t e s i n E a s t A f r i c a , was quoted i n 1966 as s a y i n g (He speaks o f ' t h i s c o u n t r y ' meaning B r i t a i n ) 'I propose t o comment t h i s y e a r on o u r o v e r s e a s b u s i n e s s , s i n c e i n t o t a l , they comprise about 60 p e r c e n t o f o u r w o r l d t r a d e .  We now m a n u f a c t u r e i n 36  c o u n t r i e s o v e r s e a s , which i n c l u d e a l m o s t a l l t h e main a v a i l a b l e markets o f the w o r l d .  We can c l a i m t h a t i n t h i s way, we have b u i l t up a g r e a t n a t i o n a l  a s s e t w i t h a v a l u e o f many t e n s o f m i l l i o n s o f pounds s t e r l i n g and I would l i k e t o r e p e a t t h e s t a t e m e n t made by my p r e d e c e s s o r , Mr. Upton, a y e a r ago t h a t we a r e e a r n i n g i n f o r e i g n exchange; a c t u a l l y r e m i t t e d t o t h i s c o u n t r y o v e r 50 p e r c e n t p e r annum on t h e funds we have s e n t a b r o a d ...  We can;.;. (122)  c l a i m o u r r e c o r d p l a c e s us a t t h e t o p o f t h e b r a c k e t o f p r o f i t a b i l i t y /  '  - 46 The statement underlies the understandable concern of a British businessman with Britain's balance of  payments but i t also shows that the  development of overseas countries for the sake of i t is of no interest to the company.  Despite the restrictions, there are many evasions and some  companies have stated publically that a lot of money is repatriated beyond 1123)  the amounts allowed by the host countries/  '  Some of the methods used  can be mentioned briefly. TRANSFER ACCOUNTING Repatriation of profits is an inadequate measure of resources transferred from developing countries. sector.  This is especially so in the manufacturing  In Kenya, a study of the employment incomes and equality in 1973  concluded that transfer accounting by multinationals is a common practice. 'The amounts involved are obviously very hard to ascertain, but the existence of these procedures is widely acknowledged, frequently by the parent companies themselves.  Although i t is very d i f f i c u l t to quantify their effects in Kenya,  we feel that any discussion of the role of foreign enterprises in the manufacturing economy would be incomplete, and naive i t i t did not include some analysis of the problem, the more particularly because Kenyan officials are well aware of i t , even though they find these operations extraordinarily difficult to c o n t r o l . ' ) 1  2 4  TRANSFER PRICING Transfer pricing is a common practice.  The company over-invoices the  intermediate goods that i t imports from the parent company abroad.  The same  objective is achieved by companies involved in the processing of raw materials by selling their products to their parent companies at reduced prices.  On  - 47 t h i s , t h e ILO p a p e r s a i d ; 'We have v e r y l i t t l e e v i d e n c e o f t h e l a t t e r p r a c t i c e , namely, t h e u n d e r p r i c i n g o f e x p o r t s , b u t t h e r e i s some e v i d e n c e t h a t t h e o v e r i n v o i c i n g o f immediate i m p o r t s i s p r a c t i s e d i n some i m p o r t - s u b s t i t u t i n g  firms.  In o t h e r words, a number o f t h e s e f i r m s a r e t h o u g h t t o pay t h e i r p a r e n t companies more f o r t h e immediate goods t h e y i m p o r t f o r t h e i r p r o c e s s i n g  than  c o u l d be o b t a i n e d f o r t h o s e goods on t h e open market i n t h e i n d u s t r i a l i s e d c o u n t+.r i•e s . .(125) Transfer p r i c i n g i s not limited to parent-subsidiary resources  companies.  Such  t r a n s f e r , o f t e n t o t a x haven c o u n t r i e s , can be a r r a n g e d between t h e  companies o p e r a t i n g i n E a s t A f r i c a and t h o s e e l s e w h e r e . l i m i t e d t o t h e f o r e i g n companies e i t h e r .  The p r a c t i c e i s n o t  Some l o c a l l y owned o r c o n t r o l l e d  companies t o o i n d u l g e i n t h e p r a c t i c e and as N y e r e r e p u t i t , though i n a d i f f e r e n t context;  'Mistakes a r e mistakes:  exploitation i s exploitation (12  r e g a r d l e s s o f whether t h o s e i n d u l g i n g i n i t a r e b i g p e o p l e o r t h e m a j o r i t y . '  K  I t i s s t i l l a p r a c t i c e by t h e companies m a x i m i s i n g t h e i r r e t u r n s r e g a r d l e s s o f the e f f e c t t h i s w i l l have on t h e c o u n t r y ' s  economy. Whether t h e company i s  l o c a l l y c o n t r o l l e d o r f o r e i g n owned i s t o t h a t e x t e n t i r r e l e v a n t . Many f o r e i g n companies o p e r a t i n g i n E a s t A f r i c a c o n s i s t e n t l y make ' l o s s e s ' a c c o r d i n g t o t h e i r books.  T h e r e i s o f t e n no a c t u a l l o s s b u t an  accumulation o f p r o f i t s outside East A f r i c a .  T h e r e i s some e v i d e n c e t h a t  some companies o v e r - i n v o i c e t h e i r i m p o r t s by about 30 p e r c e n t t h e market price.  T a n z a n i a , f o r example, i n an e f f o r t t o compensate a t l e a s t  p a r t i a l l y f o r t h e d i s a d v a n t a g e o u s p o s i t i o n she f i n d s h e r s e l f i n when d e a l i n g w i t h f o r e i g n companies, a p p o i n t e d  t h e G e n e r a l S u p e r i n t e n d e n t s Company o f  Geneva t o a c t on i t s b e h a l f i n a s s e s s i n g p r i c i n g q u a l i t y and q u a n t i t y o f i m p o r t e d goods.  T h i s e x p e n s i v e , b u t j u s t i f i a b l e s e r v i c e , has on many  occasions  exposed t r a n s f e r p r i c i n g r a c k e t s i n which t h e f o r e i g n management m a n i p u l a t e m a c h i n e r y and raw m a t e r i a l p r i c e s i n o r d e r t o t r a n s f e r untaxed p r o f i t s w i t h o u t  - 48 c l e a r a n c e from the F o r e i g n Exchange c o n t r o l . In one p a r t i c u l a r c a s e , the f i r m wanted t o o r d e r some m a c h i n e r y a t t h e p r i c e o f sh 9.4 m i l l i o n .  It  was found t h a t t h e r e a s o n a b l e p r i c e a t the w o r l d market was o n l y sh 3.2 m i l l i o n \ a n d i n any e v e n t , the machinery was i n a d e q u a t e f o r the o u t p u t i t (128) was supposed t o meet. ;  The f i g u r e s i n v o l v e d i n t r a n s f e r p r i c i n g s i t u a t i o n s . a r e v e r y h i g h g i v e n t h e f a c t t h a t most o f the t r a d e o u t s i d e the c o u n t r y i s a f f e c t e d .  'Over-in-  v o i c i n g o f i n t e r m e d i a t e goods p r o b a b l y more than d o u b l e s t h e r e a l o u t f l o w o f s u r p l u s from t h e m a n u f a c t u r i n g s e c t o r as compared w i t h t h e o u t f l o w o f p r o f i t s and d i v i d e n d s . '  ( 1 2 9 )  SERVICE PAYMENTS A p a r t from t r a n s f e r p r i c i n g , t h e r e a r e v a r i o u s k i n d s o f s e r v i c e payments between t h e s u b i s i d a r i e s and p a r e n t companies.  A company, f o r  example, may pay 5 p e r c e n t o f t h e t o t a l s a l e s i n terms o f r o y a l t i e s i n o r d e r to use the brand name o f i t s parent.company.  F u r t h e r t h e companies  pay f o r  t e c h n i c a l s e r v i c e s , c o n t r i b u t i o n s t o t h e h e a d q u a r t e r s f o r management, r e s e a r c h and development.  A s i n g l e company, making payments under a l l t h e s e heads  w i l l be a b l e t o t r a n s f e r a l l i t s p r o f i t r e s o u r c e s and ask the government t o c o n t r o l i m p o r t s o f the p r o d u c t the company i s . p r o d u c i n g so as t o e n a b l e i t t o make a p r o f i t !  In t h e s e circumstances., i t might be d i f f i c u l t , even f o r the  g r e a t exponents o f p r o f i t m a x i m i s a t i o n by companies  as t h e s o l e c o n c e r n t o  d e f e n d such p r a c t i c e s . The impact o f such p r a c t i c e s on t h e workers s i n c e t h e y cannot c l a i m wage i n c r e a s e s when t h e company i s s a i d to be making ' l o s s e s ' i s o b v i o u s . i m p l i c a t i o n s f o r t h e consumer a r e c l e a r .  The  To e n a b l e the company t o c o n t i n u e  i t s o p e r a t i o n s , t h e p r i c e s , must be i n c r e a s e d s i n c e t h e company i s o p e r a t i n g  - 49 i n a monopoly s i t u a t i o n . The whole economy o f the c o u n t r y and hence, t h e general p u b l i c i s a f f e c t e d . I t i s u n r e a l i s t i c f o r company law t o i g n o r e t h e impact o f a l l t h e s e a s p e c t s on the g e n e r a l p u b l i c and s i m p l y o f f e r p r o t e c t i o n t o t h o s e w i t h s u r p l u s c a p i t a l t o i n v e s t and f a i l - t o r e c o g n i s e a l l o t h e r i n t e r e s t s . I t may, o f c o u r s e , be argued t h a t t h e s e p r a c t i c e s can be r e g u l a t e d by s p e c i a l legislation.  Indeed t h e y a r e , but d e s p i t e the law, the p r a c t i c e s c o n t i n u e .  T h i s i s because as a l r e a d y d i s c u s s e d , above, companies a r e d i f f i c u l t t o control.  Changes i n the c o r p o r a t e p h i l o s o p h y and s t r u c t u r e geared a t c r e a t -  i n g s o c i a l l y r e s p o n s i b l e b u s i n e s s e n t e r p r i s e s s h o u l d p r o v i d e an i n n e r - b u i l t sense o f r e s p o n s i b i l i t y among companies so as t o m i n i m i s e i r r e s p o n s i b l e a c t i v i t i e s t h a t s p e c i a l r e g u l a t o r y l e g i s l a t i o n has so f a r f a i l e d t o a c h i e v e by i t s e l f .  SOCIAL RESPONSIBILITY FOR SURVIVAL Because o f t h e i n c r e a s i n g i n f l u e n c e o f b i g c o r p o r a t i o n s , p r i v a t e b u s i n e s s c o r p o r a t i o n s became a m a t t e r o f i n t e n s e p o l i t i c a l d i s p u t e i n the nineteenth century. S t a t e s was t o e x p i r e .  In 1836, t h e C h a r t e r o f the Second Bank o f U n i t e d V e t o i n g an a c t t o e x t e n d the term o f the C h a r t e r ,  P r e s i d e n t J a c k s o n argued t h a t the bank was c o n c e n t r a t i n g 'power i n t h e hands o f a few men i r r e s p o n s i b l e t o t h e p e o p l e . '  In the v e t o message he s a i d ;  ' D i s t i n c t i o n s i n s o c i e t y w i l l always e x i s t under e v e r y j u s t government. E q u a l i t y o f t a l e n t s , o f e d u c a t i o n , o r o f w e a l t h cannot be produced by human i n s t i t u t i o n s . . . but when the laws undertake t o add t o t h e s e n a t u r a l and j u s t advantages a r t i f i c i a l d i s t i n c t i o n s .... t o make the r i c h r i c h e r and the p o t e n t more p o w e r f u l , the humble members o f s o c i e t y the f a r m e r s , t h e mechanics and l a b o u r e r s - who have n e i t h e r the time nor the means o f s e c u r i n g l i k e f a v o r s t o t h e m s e l v e s , have a r i g h t t o c o m p l a i n o f the i n j u r i e s o f t h e i r government.'(130) Every l a r g e i n s t i t u t i o n should u l t i m a t e l y l e g i t i m i z e i t s e x i s t e n c e i n  - 50 o r d e r t o s u r v i v e and i n a s o c i e t y committed t o democracy, l e g i t i m a c y depends on r e s p o n s i b i l i t y and a c c o u n t a b i l i t y .  Dean Edward Mason once a s k e d ;  'Who  s e l e c t e d t h e s e b u s i n e s s m e n , i f not t o r u l e o v e r us, a t l e a s t t o e x e r c i s e v a s t a u t h o r i t y , and t o whom a r e t h e y r e s p o n s i b l e ? i s q u i t e c l e a r l y , they s e l e c t e d t h e m s e l v e s . 1  3  least nebulous. ' "") economic s u c c e s s .  The answer t o the f i r s t q u e s t i o n The answer t o the second i s , a t  Corproations could only f i n d legitimacy in t h e i r  T h e i r economic s u c c e s s , however, i s p a r a d o x i c a l l y p a r t o f  the reason f o r t h e i r a p p a r e n t l o s s o f l e g i t i m a c y .  The economic s u c c e s s l e d  to i n c r e a s e i n s i z e which i s p a r t l y r e s p o n s i b l e f o r the breakdown i n t h e i r a c c o u n t a b i l i t y and hence l e g i t i m a c y . C o r p o r a t i o n s were c r e a t e d i n o r d e r t o a s s i s t i n r a i s i n g c a p i t a l and e n a b l e the p u b l i c t o r e a l i s e some s o c i a l and n a t i o n a l b e n e f i t s w i t h o u t d i r e c t involvement  of  governments.  Thus, the c o r p o r a t i o n may be seen as a  c r e a t i o n o f law f o r the purpose o f a t t a i n i n g p u b l i c good through interests.  the  private  As a r e s u l t , t h e y were g r a n t e d p r i v i l e g e s o f l i m i t e d l i a b i l i t y ,  p e r p e t u a l l i f e and p r o t e c t i o n o f the law i n r e t u r n f o r the s o c i a l u t i l i t y . They were c r e a t e d and g r a n t e d p r i v i l e g e s t o e n a b l e the consumer t o choose when and what t o buy.: Today, t h i s i s n o t the c a s e .  In most c a s e s , the  consumer has no c h o i c e and i s l e f t t o b r e a t h e the p o l l u t e d a i r . He does not know what t o buy e i t h e r because the c o r p o r a t i o n s do not d i s c l o s e the m a t e r i a l f a c t s about the commodities o r because the consumer cannot d e t e c t the d e f e c t s . In the i n d u s t r i a l i s e d c o u n t r i e s o f Western E u r o p e , North America and A u s t r a l i a , o r g a n i s e d l a b o u r and c a p i t a l are engaged i n a c o n s t a n t s t r u g g l e for a l a r g e r share of  the i n d u s t r i a l p r o f i t s and power w i t h o u t r e g a r d t o the  i n t e r e s t s o f the consumer o r the s o c i e t y as a w h o l e .  None o f the two  i s a t i o n s i s a c c o u n t a b l e t o anybody and both t e n d t o a c t i r r e s p o n s i b l y . end r e s u l t i s i n e f f i c i e n c y and w a s t e .  organThe  The p u b l i c pays f o r the waste i n the  - 51 form o f i n c r e a s e d p r i c e s o r r e d u c e d q u a l i t y as w e l l as heavy r e p a i r b i l l s . Only t h r o u g h s t a t e i n t e r v e n t i o n can r e s p o n s i b i l i t y be b r o u g h t about and i m p l i c a t i o n s are l i k e l y to t r a n s c e n d  the  the f r e e e n t e r p r i s e system as we know i t  today. Goyder has warned; 'This p e r p e t u a l c o n f l i c t between l a b o u r and c a p i t a l i s not o n l y w a s t e f u l ; i t i s h i g h l y dangerous t o a l l o f us as f r e e men. I t t h r e a t e n s t o d e s t r o y our g r e a t a c h i e v e m e n t i n e s t a b l i s h i n g the s o c i a l and p o l i t i c a l c l i m a t e known t o us as democracy. For i f i t c o n t i n u e s u n c h e c k e d , l i b e r t y i n the economic f i e l d w i l l come to a p p e a r l e s s v a l u a b l e t h a n o r d e r ; o r d e r w i l l be imposed by some form o f a u t h o r i t a r i a n r u l e t h r o u g h the m a c h i n e r y o f the s t a t e ; and once the power of the s t a t e has become dominant i n the economic f i e l d , i t s e x t e n s i o n t o our s o c i a l and p o l i t i c a l l i v e s w i l l not be l o n g d e l a y e d . The freedom t h a t we c h e r i s h as the most i m p o r t a n t human a t t r i b u t e , the freedom o f c h o i c e which we f e e l e n t i t l e d t o e x e r c i s e o v e r the d e c i s i o n - m a k i n g t h a t a f f e c t s our l i v e s , wi11 be renounced i n f a v o u r o f b i g b r o t h e r , and the view o f human d e s t i n y r e p r e s e n t e d by the communist powers w i l l be paramount on e a r t h . (132) 1  Continued s o c i a l l y i r r e s p o n s i b l e corporate a c t i v i t i e s w i l l i n e v i t a b l y i n v i t e governments}!'ntervention. marginal subsistence  In E a s t A f r i c a , the w o r k e r e a r n i n g  l e v e l o f income, f e e l s i g n o r e d by the e n t e r p r i s e .  f e e l i n g i s c r u c i a l because i t l e a d s t o a d o p t i o n to the company. The company t o  the This  o f an a t t i t u d e i r r e s p o n s i b l e  T h e r e i s a l o t to be s a i d f o r t h i s i r r e s p o n s i b l e a t t i t u d e . which he has d e v o t e d a l l h i s w o r k i n g l i f e does not  him as a n y t h i n g more than a t o o l o f p r o d u c t i o n .  recognise  His a t t i t u d e i s in response  q u i t e o f t e n t o the i r r e s p o n s i b l e a t t i t u d e o f management.  Loss o f sympathy  f o r the company has l e d to w a s t e , i n d u s t r i a l u n r e s t and i n c r e a s e d  costs.  The consumer and the community f o r whom i n d u s t r y u l t i m a t e l y e x i s t s a r e . f o r gotten.  The f r u s t r a t e d p u b l i c w i l l i n the end t u r n to t h e i r l a s t b a s t i o n ;  the government t o  intervene.  The f u n c t i o n o f a government, i s not as some s o c i a l i s t s w i l l t e l l us, t o  - 52 i n t e r f e r e i n the r e l a t i o n s h i p s between the managers, w o r k e r s , consumers and t h e community.  shareholders,  The government s h o u l d c r e a t e l e g a l i n s t i t u t i o n s  t h a t a r e c a p a b l e o f g o v e r n i n g t h e m s e l v e s as t h e u l t i m a t e aim i s j u s t i c e which a c c o r d i n g t o A r i s t o t l e means t h e g i v i n g t o e v e r y man what b e l o n g s t o him. C o n t i n u e d e x p l o i t a t i o n by i r r e s p o n s i b l e companies w i l l l e a d t o government i n t e r v e n t i o n on b e h a l f o f the p u b l i c and t h i s may mean an end t o t h e o f the f r e e e n t e r p r i s e p o l i t i c a l and economic p h i l o s o p h y . a v e r t e d by r e s p o n s i b l e c o r p o r a t e b e h a v i o u r .  freedom  T h i s can o n l y be  'The g o l d e n r u l e f o r the r e s p o n s -  i b l e company i s as s i m p l e as i t i s a u s t e r e :  t o a c t i n i t s r e l a t i o n s w i t h the (133) community as i f i t were a c i t i z e n o f the community, as i n f a c t i t i s . ' ' v  An i r r e s p o n s i b l e company does not o n l y a f f e c t i t s own image i n r e l a t i o n t o the workers and t h e community but i t a l s o makes i t d i f f i c u l t f o r the o t h e r companies i n the community t o m a i n t a i n good r e l a t i o n s w i t h o t h e r c i t i z e n s . As an economic e n t e r p r i s e , the company i s j u s t i f i e d i n p u t t i n g i t s interests f i r s t .  But once i t i s e s t a b l i s h e d , the i n t e r e s t s o f the community  must be taken i n t o c o n s i d e r a t i o n , not as a branch o f i t s p u b l i c r e l a t i o n s p o l i c y as u s u a l l y i s the c a s e , but as a m a t t e r o f genuine r e s p o n s i b i l i t y l i k e any o t h e r r e s p o n s i b l e c i t i z e n .  To use t h e community f o r s e l f - a d v e r t i s e m e n t  i s t o f a i l i n s o c i a l r e s p o n s i b i l i t y as the aim here i s t o c o n f u s e t h e minds o f t h e p u b l i c and the w o r k e r s .  P u b l i c a p p r o v a l and s u p p o r t i s i n c r e a s i n g l y  becoming n e c e s s a r y f o r s u r v i v a l and such s u p p o r t cannot be bought by s e l f advertisement.  Some examples w i l l i l l u s t r a t e the l i k e l y consequences  of  continued corporate i r r e s p o n s i b l e behaviour.  THE GUYANA EXAMPLE Guyana, a s m a l l c o u n t r y w i t h a m u l t i - r a t i o p o p u l a t i o n and a B r i t i s h c o l o n y from 1814 t o 1966, i s t y p i c a l o f a d e v e l o p i n g c o u n t r y .  Booker  - 53 McConnell L t d . , a B r i t i s h m u l t i n a t i o n a l corporation with d i v e r s e i n t e r e s t s i n Guyana, has m a j o r h o l d i n g s i n the a g r i c u l t u r a l s e c t o r t h r o u g h i t s s u b s i d i a r i e s i n c l u d i n g Booker Sugar E s t a t e s t h a t c o n t r o l s t h e i r i n t e r e s t s i n the s u g a r industry.  The s u g a r i n d u s t r y employs about 13 per c e n t o f the Guyanese work  f o r c e and e a r n s about 35% o f her f o r e i g n exchange.  90 per c e n t o f the s u g a r  p r o d u c t i o n i s c o n t r o l l e d by two B r i t i s h companies; Bookers and J e s s e l l Securities Ltd.^  1 3 4  ^  A l c a n Aluminium L t d . , one o f the l a r g e s t Canadian m u l t i n a t i o n a l  corpor-  a t i o n s had i n t e r e s t s i n Guyanese B a u x i t e i n d u s t r y t h r o u g h i t s s u b s i d i a r y Demerara B a u x i t e Company (Demba) u n t i l 1971.  Guyana ranks f o u r t h as the  worlds^  l a r g e s t p r o d u c e r o f b a u x i t e which e a r n s i t 45 per c e n t o f her f o r e i g n exchange. The Canadian s u b s i d i a r y p r o d u c e d 80 per c e n t o f t h i s , the r e s t b e i n g p r o d u c e d by Reynolds M e t a l s Company, a U.S.  1 3  corporation.^ ^  The h i s t o r y o f the two s u b s i d i a r i e s , one B r i t i s h and one C a n a d i a n , o p e r a t i n g i n two main areas, o f a c t i v i t y i n i n d e p e n d e n t Guyana i l l u s t r a t e the need f o r c o r p o r a t e s o c i a l r e s p o n s i b i l i t y . T h e i r h i s t o r y r e f l e c t what s e n a t o r Church has s a i d ; ' I t i s p o s s i b l e t h a t murder ( o f m u l t i n a t i o n a l companies) c o u l d o c c u r .... For d e s p i t e t h e i r enormous growth and w e a l t h , i t i s s t i l l an unequal c o n t e s t . Armies march f o r n a t i o n a l g o v e r n ments, whether l a r g e o r s m a l l , and each o f t h e s e governments p o s s e s s e s , i n i t s s o v e r e i g n r i g h t , the power t o t a x , t o r e s t r i c t , to d i s c r i m i n a t e a g a i n s t , or to n a t i o n a l i z e foreign-owned business, or indeed, to c o n f i s c a t e t h e i r p r o p e r t i e s . (136) 1  N a t i o n a l governments have indeed a s s a u l t e d f o r e i g n companies.  This often  f o l l o w s p o l i t i c a l i n d e p e n d e n c e and an awareness o f n e o - c o l o n i a l i s m under the guise of f o r e i g n investment. natural resources.  The m u l t i n a t i o n a l s c o n t r o l and d e v e l o p most  N a t i o n a l governments welcome the f o r e i g n i n v e s t m e n t t o  a s s i s t i n development.  Q u i t e o f t e n , however, these companies undermine the  n a t i o n a l development s t r a t e g i e s and hence government i n t e r v e n t i o n .  - 54 The new n a t i o n s a r e , perhaps w i t h j u s t i f i c a t i o n , e x t r a - s e n s i t i v e about p o s s i b l e i n v a s i o n o f t h e i r n a t i o n a l s o v e r e i g n t y and hence c o n s t a n t r e f e r e n c e t o d e c o l o n i s a t i o n and s o v e r e i g n a u t h o r i t y . The major cause o f s t r a i n i n r e l a t i o n s between f o r e i g n companies and n a t i o n a l governments i s the c o n c e p t o f s o c i a l r e s p o n s i b i l i t y which a c c o r d i n g t o Andrews i m p l i e s ' s e n s i t i v i t y t o the s o c i a l c o s t s o f economic a c t i v i t y and t o the o p p o r t u n i t y t o f o c u s c o r p o r a t e power on o b j e c t i v e s t h a t a r e p o s s i b l e but sometimes l e s s e c o n o m i c 3  7  ' a l l y a t t r a c t i v e than s o c i a l l y d e s i r a b l e . ' ' " ) S o c i a l c o s t s must be weighed a g a i n s t b u s i n e s s when f o r m u l a t i n g p o l i c y . A c o u n t r y w i t h s o c i a l , economic and p o l i t i c a l problems w i l l not t o l e r a t e a f o r e i g n company t h a t does not pay r e g a r d t o the s o c i o - e c o n o m i c development o f t h e c o u n t r y , e s p e c i a l l y where a few c o r p o r a t i o n s c o n t r o l the c o u n t r y ' s economy. Guyana's e x p e c t a t i o n s from Bookers and A l c a n were n o t d i f f e r e n t from the above. phies.  The two c o m p a n i e s , however, d i f f e r e d i n t h e i r b u s i n e s s p h i l o s o -  Bookers a d v o c a t e d a p h i l o s o p h y t h a t acknowledged f o u r r e s p o n s i b i l i t i e s ;  t o the s h a r e h o l d e r , the e m p l o y e e s , the customers and the community, and the chairman d e c l a r e d ; 'people a r e more i m p o r t a n t than s h i p s and shops and s u g a r estates.' A l c a n d i d not s h a r e t h i s view and c o n s i s t e n t l y made i t c l e a r t h a t t h e i r d e c i s i o n s would be g u i d e d by s h a r e h o l d e r s ' i n t e r e s t s and t h a t p r o f i t a b i l i t y was d e t e r m i n a t i v e .  Any o t h e r c o n s i d e r a t i o n s were s a i d t o be s u b o r d i n a t e t o  profit. In i n d u s t r i a l r e l a t i o n s , the Guyana government urged t h e f o r e i g n companies t o t r a i n the Guyana c i t i z e n s and make e f f o r t t o Guyanize management s t a f f .  their  Bookers took up the p o l i c y , awarded s c h o l a r s h i p s and  a f t e r t r a i n i n g implemented  the G u y a n i z a t i o n p o l i c y . More p e o p l e than  needed were t r a i n e d and t h e y took r e s p o n s i b l e p o s i t i o n s i n government.  Bookers In  - 55 t h i s r e s p e c t Bookers was i d e n t i f i e d w i t h n a t i o n a l a s p i r a t i o n s and m a i n t a i n e d good i n d u s t r i a l r e l a t i o n s w i t h the w o r k e r s . On the o t h e r hand, A l c a n was not q u i c k a t implementing c o n t i n u e d t o s e g r e g a t e management from l a b o u r .  the p o l i c y and  The r e s u l t was the i n e v i t a b l e  c o n f l i c t and because management was w h i t e and f o r e i g n w h i l e l a b o u r was c o l o u r e d and l o c a l , the c o n f l i c t was e a s i l y t r a n s l a t e d i n r a c i a l and n a t i o n alistic  terms.  A l c a n i n s i s t e d t h a t Guyanese were n o t w e l l q u a l i f i e d and took l o n g t o employ them.  A l t h o u g h the t r a i n e d were g i v e n t o p p o s i t i o n s l e a v i n g o n l y 10  per c e n t o f management f o r e i g n by 1971, i t was t o o l a t e t o show a sense o f responsibility.  While Bookers was seen t o be i n t e g r a t e d i n Guyanese economy  a c t i n g as an e n g i n e f o r s o c i a l and economic development, remained  ' f o r e i g n ' and d i d not expand on o p e r a t i o n s .  i n many f i e l d s , A l c a n  Attempts by A l c a n t o  r e p a i r t h e p u b l i c image were viewed by the community as window d r e s s i n g and deceiving.  A l c a n p l a n n e d f u r t h e r i n v e s t m e n t but i n a r e a s and under c o n d i t i o n s  unacceptable to  the government.  Because i t was i s o l a t e d from t h e r e s t o f the  economy, i t o f f e r e d no s t i m u l u s t o the development o f r e l a t e d i n d u s t r i e s . Guyana c o n t i n u e d t o have problems w i t h i t s b a l a n c e o f payments l a r g e l y due t o f o r e i g n companies i n v e s t i n g a b r o a d , p a y i n g d i v i d e n d s and e x p a t r i a t e s t a f f and f o r e i g n s e r v i c e s . To a v o i d s u s p i c i o n , Bookers e x t e n s i v e l y d i s c l o s e d her f i n a n c i a l a c t i v i t i e s  t o t h e government.  Bauxite brought i n l i t t l e  revenue, r e s i s t e d d i s c l o s u r e of... f i n a n c i a l d e a l i n g s and c r e a t e d s u s p i c i o n o f t r a n s f e r p r i c i n g s i n c e A l c a n marketed a l l the b a u x i t e .  The government  d i s t r u s t e d A l c a n and i t was s u s p e c t e d A l c a n was making e x c e s s i v e p r o f i t s t o the d e t r i m e n t o f Guyana. ion.  The government f i n a l l y d e c i d e d on e q u i t y p a r t i c i p a t -  Bookers a l l o w e d l o c a l e q u i t y p a r t i c i p a t i o n by the government but A l c a n  r e s i s t e d adamantly and i n s t e a d a d v i s e d the Guyanese government t o i n v e s t i n  - 56 the p a r e n t company where t h e government would n e v e r have i n f l u e n c e and f i n d out any f i n a n c i a l d e t a i l s . Demerara B a u x i t e Company. make p r o f i t s . at Kilembe.  In 1971, t h e government summarily n a t i o n a l i z e d Bookers i s s t i l l i n o p e r a t i o n and c o n t i n u e s t o  The same Canadian f i r m A l c a n o p e r a t e d t h e Uganda Copper Mines T h e r e i s no r e a s o n t o b e l i e v e t h a t t h e p r a c t i c e i n Uganda was  any d i f f e r e n t o r more b e n e v o l e n t .  THE TANZANIAN EXPERIENCE D u r i n g t h e c o l o n i a l r u l e and soon a f t e r i n d e p e n d e n c e i n 1961, t h e T a n z a n i a n w o r k e r s , l i k e many o t h e r s i n E a s t A f r i c a , q u i e t l y and humbly s u b m i t t e d t o a u t h o r i t y even under v e r y h a r d c o n d i t i o n s . d e r o g a t o r y terms and t h r e a t e n e d t h e w o r k e r s .  Managers used  They were d e n i e d t r a d i t i o n a l  forms o f l a b o u r n e g o t i a t i o n s t h r o u g h t h e i r own o r g a n i s a t i o n .  Labour unions  were n o t e n c o u r a g e d b u t whenever t o l e r a t e d , t h e y c l a i m e d i n c r e a s e i n payment, improvement i n w o r k i n g c o n d i t i o n s , p r o v i s i o n s f o r h e a l t h and s a f e t y as w e l l as any o t h e r f r i n g e b e n e f i t s .  I t was always a s t r u g g l e between t h e w o r k e r s  and e m p l o y e r s , t h e s t r o n g e s t weapon f o r t h e workers b e i n g t h e i r a b i l i t y t o l a y down t h e i r t o o l s and walk o f f t h e j o b . Management, s u p p o r t e d by t h e government, t o o k t h e view t h a t t h i s was a s i g n o f non commitment,  rebellion  and i r r e s p o n s i b l e b e h a v i o u r and t h e s t r i k e s q u i t e o f t e n were d e c l a r e d i l l e g a l and t h e w o r k e r s f o r c e d back t o work. In 1967, P r e s i d e n t N y e r e r e , i n an e f f o r t t o  b u i l d up ' A f r i c a n s o c i a l i s m ' ,  n a t i o n a l i s e d some o f t h e f o r e i g n owned e n t e r p r i s e s and c a l l e d upon t h e w o r k e r s t o i d e n t i f y t h e m s e l v e s w i t h n a t i o n a l economic development.  The p r e s i d e n t  c o n s t a n t l y emphasised t h a t man i s t h e g r e a t e s t r e s o u r c e f a c t o r i n d e v e l o p m e n t . The r e s u l t o f t h e p o l i t i c a l e d u c a t i o n , w h i c h i s n e c e s s a r y i f t h e w o r k e r s a r e t o a p p r e c i a t e t h e i r c o n t r i b u t i o n t o development was the growth o f a s p i r i t o f  - 57 s e l f - a w a r e n e s s and a g r e a t degree o f a p p r e c i a t i o n o f e q u a l t r e a t m e n t .  (138)  (139) v  1  In 1971, a p o l i t i c a l document, Mwongozo was produced by t h e r u l i n g (140) p a r t y and a d v o c a t e d p a r t i c i p a t i v e management and d e m o c r a t i c l e a d e r s h i p . These p o l i c y s t a t e m e n t s were l a r g e l y i g n o r e d by the p r i v a t e s e c t o r and t h e s t a t e c o r p o r a t i o n s . The w o r k e r s , as a r e s u l t o f  t h e i r new awareness and the  p r e s i d e n t i a l c a l l f o r i n c r e a s e d p r o d u c t i o n f o r development, were f r u s t r a t e d by the n e g l e c t "of t h e s e p o l i c i e s i n t h e e n t e r p r i s e s . F i n a l l y , t h e y  changed  t h e i r s t r a t e g y . They d i d n o t l a y down t h e i r t o o l s but i n s t e a d i n c r e a s e d production.  I n s t e a d , i n many companies, t h e y d i s c u s s e d 'take o v e r ' o f f u l l  management o f the p r i v a t e l y owned companies„and  a c t u a l l y l o c k e d o u t managers  i n a few c a s e s , and e s t a b l i s h e d t h e i r own management.  In some c a s e s , t h e  government r e a l i s i n g t h e d e t e r m i n a t i o n and m i l i t a n c y o f the workers to the take-over.  conceded  The Rubber I n d u s t r i e s L t d . was such a c a s e and i l l u s t r a t e s  t h e pace a t which the f r e e e n t e r p r i s e system w i l l go u n l e s s the s o c i a l r e s p o n s i b i l i t y , o f the companies  i s r e c o g n i s e d by management.  1 4 1  THE RUBBER INDUSTRIES L T D . ^ ^ The company was s t a r t e d i n 1969 by a group o f s i x p e o p l e , a l l o f A s i a n origin.  In r e c r u i t i n g s t a f f , the company was unable t o f i n d any q u a l i f i e d  person of A f r i c a n o r i g i n !  Hence, a l l management p o s i t i o n s were i n t h e hands  o f A s i a n s and the A f r i c a n s d i d mannual work as c a s u a l " l a b o u r e r s . The women, i n o r d e r t o g e t j o b s had t o promise t o work o v e r t i m e w i t h o u t pay. Any s u p e r v i s o r s y m p a t h i s i n g w i t h the workers would be f i r e d w i t h o u t notice.  As f o r the worker, i t was o b v i o u s .  each o t h e r f o r f a v o u r s .  The workers were s e t t o  spy on  Once t h e y were s e t a g a i n s t each o t h e r , they c o u l d  not t a k e u n i f i e d a c t i o n . Management n e g l e c t e d the n a t i o n a l p o l i c y o f t h e w o r k e r s ' c o u n c i l . NUTA, t h e n a t i o n a l t r a d e u n i o n , s e t up a committee a t the  - 58 f a c t o r y t o t a k e c a r e o f the i n t e r e s t s o f t h e w o r k e r s . it.  Management s u p r e s s e d  Working c o n d i t i o n s became d i f f i c u l t and as B e l l put i t n e a r l y f o u r t y  y e a r s ago; ' I t i s a m a t t e r o f s o c i o l o g i c a l f a c t , t o be o b s e r v e d i n h i s t o r y and p o l i t i c a l l i f e , t h a t i n p e r i o d s o f c l a s s f e r m e n t t h e r e ' s a q u i c k e n i n g o f i n t e l l e c t u a l l i f e . L i t t l e groups s p r i n g up e v e r y where, each announcing t o the w o r l d i t s t h e o r y , remedy and the way o u t o f the c r i s i s , as t h e o n l y way.' (142) One o f t h e workers r e c a l l e d C o l e s views t h a t , ' p o v e r t y i s a symptom, s l a v e r y the d i s e a s e .  The extremes o f r i c h e s and d e s t i t u t i o n f o l l o w i n e v i t a b l y  from t h e extremes o f l i c e n c e and bondage.  The many a r e n o t e n s l a v e d because (143)  they a r e p o o r , t h e y a r e poor because t h e y a r e e n s l a v e d .  ' He o r g a n i s e d  f o r what he c a l l e d 'a R e v o l u t i o n a r y C o u n c i l . ' He argued t h a t the workers no a l t e r n a t i v e but t o l i b e r a t e t h e m s e l v e s .  had  A group o f workers was o r g a n i s e d  and t h e i r d u t y was t o a r o u s e 'the c o n s c i o u s n e s s o f f e l l o w workers and unmask the e v i l s o f t h e employer and h i s puppets.'  Management, on r e a l i s i n g what  was g o i n g on, f i r e d the l e a d e r s . The workers were q u i c k t o r e a c t .  They  r e s o l v e d t h a t i t was time f o r management t o be s a c k e d , and t h e y would do i t themselves. On 29th March 1973, a l l the workers a r r i v e d e a r l y a t the f a c t o r y , c l o s e d the g a t e s and when the G e n e r a l Manager a r r i v e d he was t o l d ; 'Go home.'  The  l e a d e r o f t h e ' R e v o l u t i o n a r y C o u n c i l ' r e a d a p r e p a r e d s t a t e m e n t and d e c l a r e d t h a t ' f o r and on b e h a l f o f the w o r k e r s ' , i t was n o t o n l y the i n t e n t i o n o f the workers t o t a k e o v e r and run the f i r m but t h a t t h e y had t a k e n i t o v e r and were r u n n i n g i t .  1  ' ^  They quoted Mwongozo and a f f i r m e d t h a t even i f t h e i r  t a k e - o v e r o f the f i r m d i d n o t i n c r e a s e t h e i r b r e a d o r improve t h e i r w o r k i n g c o n d i t i o n s , i t was an a c t o f l i b e r a t i o n because i t i n c r e a s e d t h e i r say i n matters.affecting their lives. pain of humi1iation.  N o t h i n g , t h e y a r g u e d , h u r t s more than t h e  - 59 The w o r k e r s , a f t e r t h e i r v i c t o r y , i n a m i l i t a n t mood, guarded the f a c t o r y o n l y g o i n g home one a t a time t o e a t and change c l o t h i n g .  They c o n t i n u e d  to  work w i t h o u t pay f o r a month and the government, a f t e r a n a l y s i n g the f a c t s , r e s p o n d e d i n f a v o u r o f the w o r k e r s .  The t a k e - o v e r was r e c o g n i s e d and a i d  p r o v i d e d i n terms o f t e c h n i c a l a s s i s t a n c e .  The workers r e j e c t e d f i n a n c i a l  a i d from the government and i n s t e a d r e g i s t e r e d the f i r m as a society, negotiated  co-operative  loans from banks and compensated the s h a r e h o l d e r s  after  an i n d e p e n d e n t body had e v a l u a t e d the a s s e t s o f the company. T h i s i s but one e x a m p l e ^ - ^ ^ o f what a f r u s t r a t e d p u b l i c can r e s o r t t o . U n l e s s the companies r e c o g n i s e the e f f e c t o f t h e i r a c t i v i t i e s on the p u b l i c and a p p r e c i a t e the c o n s e q u e n c e s , the w o r k e r s and the community are l i k e l y t o t u r n to v i o l e n c e and no doubt a r e s p o n s i b l e government w i l l r e s p o n d t o i t s electorate.  C o n t i n u e d s o c i a l i r r e s p o n s i b i l i t y c a r r y s w i t h i t the seeds o f  self destruction.  Company law must acknowledge t h i s f a c t i f i t i s t o  the i n t e r e s t s o f s o c i e t y .  Reform i n the c o r p o r a t e p h i l o s o p h y  and  is a necessary pre-requisite for corporate s o c i a l r e s p o n s i b i l i t y . s u g g e s t e d r e f o r m measures i n c l u d e w o r k e r - p a r t i c i p a t i o n  serve  structure The  i n d e c i s i o n making,  i n c r e a s e d d i s c l o s u r e t h r o u g h the s o c i a l a u d i t and the c r e a t i o n o f more r e s p o n s i b l e boards o f d i r e c t o r s t h a t manage the companies.  - 60 CHAPTER II WORKER PARTICIPATION I n d u s t r i a l democracy, i n many r e s p e c t s resembles p o l i t i c a l democracy. L a t e i n t h e n i n e t e e n t h c e n t u r y and e a r l y i n the t w e n t i e t h c e n t u r y , a d v o c a t e s o f p o l i t i c a l democracy f a c e d h o s t i l i t y and s u s p i c i o n when t h e y urged p o l i t i c a l l e a d e r s t o e x t e n d p o l i t i c a l democracy t o t h e masses.  Today, t h e r i g h t t o v o t e  f o r e v e r y a d u l t i s a c c e p t e d as an i n t e g r a l p a r t o f s o c i a l and p o l i t i c a l development.  E x t e n s i o n o f employee p a r t i c i p a t i o n i n d e c i s i o n making i n  i n d u s t r y may sound a l a r m i n g t o many but i t has been w i t h us f o r a l o n g time and the r a p i d i n c r e a s e s i n c e the t u r n o f t h e c e n t u r y i s s u f f i c i e n t e v i d e n c e t h a t i t has come t o s t a y .  The q u e s t i o n i s no l o n g e r w h e t h e r i t i s d e s i r a b l e  o r n o t but r a t h e r what form i t s h o u l d t a k e . In 1919, the F e d e r a t i o n o f B r i t i s h I n d u s t r i e s recommended t h a t  'workers  i n e v e r y i n d u s t r y s h o u l d be g i v e n the f u l l e s t p o s s i b l e v o i c e i n the c o n d i t i o n s 1  under which t h e y a r e e m p l o y e d . D e m o c r a c y i t was urged s h o u l d n o t s t o p a t the f a c t o r y g a t e .  Myers, a n o t e d p s y c h o l o g i s t has s a i d ;  'the i m p a r t i a l o b s e r v e r c a n n o t deny the j u s t i c e o f w o r k e r s ' demand f o r g r e a t e r i n d u s t r i a l c o n t r o l i n t h e s e days o f government by c o n s e n t , o f i n c r e a s i n g d e m o c r a t i c s p i r i t i n e d u c a t i o n , and growth o f p e r s o n a l i t y and r e s p o n s i b i l i t y . ' (2) In h i s e n c y c l i c a l l e t t e r , Mater e t M a g i s t r a , Pope John XXIII w r o t e ; 'The p r e s e n t demand f o r workers t o have a g r e a t e r say i n t h e c o n d u c t o f the f i r m a c c o r d s not o n l y w i t h man's n a t u r e , but a l s o w i t h r e c e n t p r o g r e s s i n the economic, s o c i a l and p o l i t i c a l spheres.' The s u b j e c t o f worker p a r t i c i p a t i o n i s o f c o n c e r n t o p e o p l e o f v a r y i n g interests.  I t i s a s u b j e c t o f s t u d y f o r the i n d u s t r i a l r e l a t i o n s s p e c i a l i s t ,  the t r a d e u n i o n i s t , the s o c i o l o g i s t , t h e p o l i t i c a l s c i e n t i s t , t h e e c o n o m i s t , the lawyer and the p o l i t i c i a n .  - 61 The i n c r e a s i n g i n f l u e n c e on e n t e r p r i s e d e c i s i o n s t h a t a f f e c t t h e i r l i v e s a t work has been a s u b j e c t o f s t u d y and e x p e r i m e n t a t i o n sometime.  i n Western Europe f o r  The d i s c u s s i o n k h a s been c e n t e r e d on two a s p e c t s ; an a t t e m p t t o  g i v e more v a l u e t o human d i g n i t y i n a l l s o c i a l r e l a t i o n s i n t e a c h i n g s o f the C h r i s t i a n C h u r c h e s .  l i n e w i t h the  In t h e a l t e r n a t i v e , i t has been seen as  a demand o f e t h i c a l p h i l o s o p h y as f o r m u l a t e d by Immanuel K a n t , t h a t men be s u b j e c t s and not o n l y o b j e c t s o f d e c i s i o n s a f f e c t i n g them.  Thus,  should  attempts  may be made w i t h m o d i f i c a t i o n s t o u t i l i s e the b a s i c p r i n c i p l e s o f democracy as they a p p l y i n the p o l i t i c a l sphere where d e c i s i o n s a r e made by c o n s e n s u s through the s y s t e m o f checks and b a l a n c e s .  The same p r i n c i p l e s can be used  in a l t e r i n g the s t r u c t u r e of big c o r p o r a t i o n s . Of r e c e n t , t h e r e i s i n c r e a s i n g r e c o g n i t i o n o f the need f o r w o r k e r - p a r t i c i p a t i o n i n c o r p o r a t e d e c i s i o n making as a means o f i n c r e a s i n g p r o d u c t i o n .  It  i s becoming i n c r e a s i n g l y c l e a r t h a t t e r r i b l e waste by s t r i k e s , a b s e n t e e i s m , d i s i n t e r e s t , s a b o t a g e and o t h e r e f f e c t s o f j o b a l i e n a t i o n c o u l d be reduced attempts  t o humanize and d e m o c r a t i z e  by  the i n d u s t r i e s . Views t h a t i t i s w o r t h -  w h i l e t o s a c r i f i c e economic e f f i c i e n c y f o r human s a t i s f a c t i o n t o  be d e r i v e d  by the i n d i v i d u a l from work were n o t c o n v i n c i n g enough s i n c e t h i s c o u l d be d e t r i m e n t a l .to the weak e c o n o m i e s .  T h u s , i f i t can be shown t h a t i n d u s t r i a l  democracy c o u l d improve economic e f f i c i e n c y and p r o d u c t i v i t y , the case becomes s t r o n g e r . A l t h o u g h many c o u n t r i e s have s t a r t e d implementing  some form o f i n d u s t r i a l  democracy programmes, some are s t i l l engaged i n r e s e a r c h .  In 1973, a b i l l  was passed i n the U n i t e d S t a t e s ; 'to p r o v i d e f o r r e s e a r c h s o l u t i o n s t o the problem o f a l i e n a t i o n among American workers i n a l l o c c u p a t i o n s and i n d u s t r i e s and t e c h n i c a l a s s i s t a n c e t o t h o s e companies, u n i o n s , s t a t e and l o c a l governments s e e k i n g t o f i n d ways t o d e a l . w i t h the p r o b l e m . ' (3)  - 62 I t was recommended ation of  t h a t e f f o r t s s h o u l d be madeto e n c o u r a g e the humaniz-  working c o n d i t i o n s and the work so as to i n c r e a s e w o r k e r j o b  s a t i s f a c t i o n and d i m i n i s h the n e g a t i v e e f f e c t s o f j o b d i s s a t i s f a c t i o n . In B r i t a i n , a l t h o u g h , t h e r e i s no agreement on the form w o r k e r - p a r t i c i p a t i o n s h o u l d t a k e , a l l p o l i t i c a l p a r t i e s agree on some form o f i n d u s t r i a l democracy.  These developments i n the top p o l i t i c a l c i r c l e s are a r e f l e c t i o n  o f the views o f the p e o p l e . The spontaneous w o r k e r c o u n c i l s i n Hungary i n 1956, France i n 1968 I t a l y i n 1969; the government i n i t i a t i v e i n Y u g o s l a v i a , C z c h o s l o v a k i a ,  and China,  Peru, C h i l e and A l g e r i a ; the l a b o u r s t r u g g l e s o v e r w o r k e r - p a r t i c i p a t i o n i n F r a n c e , Germany, Belgium, England as w e l l as government and management i n i t i a t e d schemes i n the S c a n d i n a v i a n c o u n t r i e s , H o l l a n d and the v a r i o u s e n t a l schemes i n  experim-  the U n i t e d S t a t e s and Canada a l l i l l u s t r a t e u n i v e r s a l  s o c i a l p r e s s u r e t h a t f a v o u r s the development o f one ing a t w o r k e r i n v o l v e m e n t  model o r a n o t h e r a l l aim-  i n t a k i n g d e c i s i o n s t h a t a f f e c t h i s work and  life.  In E a s t A f r i c a , a l t h o u g h a l l the t h r e e c o u n t r i e s ; Kenya, Uganda and T a n z a n i a have a t one time o r a n o t h e r c o n s i d e r e d w o r k e r p a r t i c i p a t i o n i n the management o f a company, o n l y T a n z a n i a has taken p o s i t i v e s t e p s towards i t s implementation.  A fundamental  q u e s t i o n i s whether w o r k e r s not o n l y i n E a s t  A f r i c a but the w o r l d o v e r are i n t e r e s t e d i n such schemes.  The a t t i t u d e o f  the w o r k e r s towards w o r k e r p a r t i c i p a t i o n i s c r i t i c a l s i n c e i f t h e r e i s l i t t l e i n t e r e s t and p r e s s u r e among w o r k e r s , l i t t l e d i f f e r e n c e i s made by t h e i r (4) h a v i n g the c a p a c i t y and power i f they are not w i l l i n g t o use it. ' Various s t u d i e s have r e v e a l e d t h a t t h e r e i s s u f f i c i e n t i n t e r e s t among the w o r k e r s . Pateman w r i t e s t h a t ' t h e r e i s a t p r e s e n t w i d e s p r e a d  desire.among very (5)  d i f f e r e n t c a t e g o r i e s o f workers f o r such p a r t i c i p a t i o n .  1  T h i s , however,  i s c o n t r a d i c t e d by Derber who d i d h i s r e s e a r c h a t about the same time and  - 63 concluded; 'In none o f the c o u n t r i e s t h a t I have v i s i t e d was t h e r e much e v i d e n c e o f w i d e s p r e a d o r i n t e n s e w o r k e r i n t e r e s t i n p a r t i c i p a t i o n i n management d e c i s i o n making, even a t t h e shop o r d e p a r t m e n t a l l e v e l . In E n g l a n d , I s r e a l and A u s t r i a s t r o n g proponents o f the i d e a conceded t h a t e d u c a t i n g workers t o t h i n k i n p a r t i c i p a t i v e terms was e s s e n t i a l b e f o r e more p r o g r e s s c o u l d be a c h i e v e d . ' (6) I t i s s u b m i t t e d t h a t the workers a r e i n t e r e s t e d and w h i l e t h e r e i s need f o r more e d u c a t i o n t o make t h e i r p a r t i c i p a t i o n e f f e c t i v e , i t i s the duty o f each n a t i o n t o g i v e them t h e n e c e s s a r y e d u c a t i o n .  A f t e r an e x t e n s i v e review  o f the l i t e r a t u r e , Blumberg c o n c l u d e s t h a t ' t h e r e i s h a r d l y a s t u d y i n t h e e n t i r e l i t e r a t u r e which f a i l s t o demonstrate  t h a t the s a t i s f a c t i o n i n work i s  enhanced o r t h a t o t h e r g e n e r a l l y acknowledged b e n e f i t s a c c r u e from  genuine  i n c r e a s e i n the w o r k e r s ' d e c i s i o n - m a k i n g powers.  I submit  is rare in social research. ' ^  Such c o n s i s t e n c y  With such p r o m i s i n g b e n e f i t s , the c o s t o f  i n c r e a s e d e d u c a t i o n both t o the workers and management t o t h i n k and a c t i n p a r t i c i p a t i v e terms i s worth the p r i c e . In Uganda, t h e a t t e n t i o n o f the government was drawn t o the i s s u e o f w o r k e r - p a r t i c i p a t i o n i n t h e e d i t o r i a l note o f the V o i c e of; Uganda, Wednesday 1 May 1974 where i t was  asked;  'why s h o u l d one who has d e d i c a t e d h i s l i f e t o the s u c c e s s o f a p a r t i c u l a r b u s i n e s s o r g a n i s a t i o n and has a c h i e v e d a l o t i n the way o f making t h e v e n t u r e o f the b u s i n e s s o r g a n i s a t i o n a s u c c e s s s u f f e r the a n a c h r o n i s t i c d e v i c e o f making him l e s s i m p o r t a n t than a s h a r e h o l d e r o f a company who has s i m i l a r l y o f f e r e d h i s p r o p e r t y f o r the v e r y same r e a s o n ? ' The paper went on t o say t h a t workers have been g i v e n a g r e a t e r say i n t h e i r companies i n many c o u n t r i e s and i t was time t o b e g i n r a i s i n g the s t a t u s , d i g n i t y and r e s p e c t o f the w o r k e r i n the c o u n t r y .  The paper warned  t h a t such a s t e p s h o u l d not be sudden and d r a s t i c o t h e r w i s e the r e s u l t may be a hampering o f t h e advancement o f  any i n d u s t r y i n s t e a d o f making a mutual  - 64 and a d v a n c i n g  union.  The s o l u t i o n s u g g e s t e d  was g r a d u a l and  systematic  e d u c a t i o n o f the l a b o u r f o r c e not o n l y t o a p p r e c i a t e the b e n e f i t s o f the coo p e r a t i o n but a l s o t o have a c o n t r i b u t i v e and u s e f u l r o l e so as t o r e a l i s e t h e i r dreams and u l t i m a t e l y t h a t o f  the whole n a t i o n .  The workers t h r o u g h t h e i r r e p r e s e n t a t i v e s have had o c c a s i o n t o s t a t e t h e i r case; ' E x p l o i t a t i o n o f man by man has not ended as b l a c k Ugandans c o n t i n u e t o m i l k t h e i r f e l l o w countrymen. NOTU ( N a t i o n a l O r g a n i s a t i o n o f T r a d e U n i o n s ) has s t r o n g f e e l i n g s t h a t workers s h o u l d p a r t i c i p a t e i n n a t i o n a l economic p l a n n i n g , and buy shares i n i n d u s t r i a l u n d e r t a k i n g s t o e n s u r e t h a t they a r e p a r t arid p a r c e l o f the c o u n t r y ' s economy.' (8) I t was e x p e c t e d  t h a t p o l i t i c a l i n d e p e n d e n c e would r e s u l t i n development  o f s t r o n g t r a d e u n i o n s f r e e from government i n t e r f e r e n c e .  Such a s s o c i a t i o n s  would p r o v i d e g u i d a n c e , a s s i s t a n c e and a l o n g term p l a n o f a c t i o n r e s u l t i n g i n h i g h e r wages and b e t t e r c o n d i t i o n s f o r w o r k e r s .  However, i n most  develop-  i n g c o u n t r i e s , emergence o f p o w e r f u l , autonomous t r a d e u n i o n s i s not always welcomed by the c e n t r a l a u t h o r i t y f o r they are u n i f i e r s o f l a r g e b o d i e s  of  m i l i t a n t men who may e a s i l y be o r g a n i s e d as a t h r e a t t o the e s t a b l i s h e d p o l i t i c a l regime. Sometimes, p u b l i c s p e e c h e s sound f a v o u r a b l e t o the w o r k e r s but i n practice i t i s another matter.  For example, i n 1974, the then p r e s i d e n t o f  Uganda i n h i s a d d r e s s t o the n a t i o n s a i d ; 'To w o r k e r s , they a r e f r e e t o o r g a n i s e t h e m s l e v e s i n T r a d e Unions as they choose. The l e a d e r s m i g h t not i n c i t e them t o s t r i k e . The government p o l i c y i s f o r a s t a b l e , d i s c i p l i n e d and p r o g r e s s i v e w o r k f o r c e , i n d u s t r i a l r e l a t i o n s , t r a i n i n g , w o r k i n g c o n d i t i o n s , l a b o u r exchange s e r v i c e s and p r o v i s i o n o f s o c i a l s e c u r i t y f o r employees. The T r a d e D i s p u t e s A c t , F a c t o r i e s A c t , the S o c i a l S e c u r i t y Fund and Minimum Wages a r e t o p r e v e n t emergence o f extreme h a r d s h i p among t h o s e i n p a i d employment.' (9)  - 65 In p r a c t i c e however, a s t r i k e may be d e c l a r e d i l l e g a l a t the d i s c r e t i o n o f the M i n i s t e r o f Labour and t h e r e are c o m p l i c a t e d a d m i n i s t r a t i v e t o e x h a u s t b e f o r e a l e g a l s t r i k e can be contemplated,by  procedures  labour i f at all..  Thus, t h e r e i s an even s t r o n g e r c a s e f o r w o r k e r p a r t i c i p a t i o n i n management i n most d e v e l o p i n g c o u n t r i e s where the c e n t r a l a u t h o r i t y c o n s i d e r s t r a d e unions a p o l i t i c a l t h r e a t .  U n l i k e t r a d e unions which a r e o r g a n i s e d a t the  n a t i o n a l l e v e l and thus i n c l u d i n g many p e o p l e , w o r k e r p a r t i c i p a t i o n can be l i m i t e d t o the e n t e r p r i s e and hence may be more p o l i t i c a l l y t o l e r a b l e .  The  U n i t e d S t a t e s and Canada may c l a i m t h a t t h e r e i s no room f o r w o r k e r - p a r t i c i p a t i o n s i n c e c o l l e c t i v e b a r g a i n i n g through t r a d e unions i s q u i t e e f f e c t i v e . With a l l the i m p e r f e c t i o n s o f such an i n d u s t r i a l p o l i c y , i t i s not even open t o workers i n E a s t A f r i c a . No c o u n t r y i n E a s t A f r i c a can j u s t i f i a b l y make such a c l a i m and y e t we a r e aware t h a t companies employ a t r a d i t i o n a l l y dangerous group o f  p e o p l e which i f h i s t o r y r e p e a t s i t s e l f as i t o f t e n does,  becomes more and more d i s c o n t e n t e d w i t h the low wages, m i s t r e a t m e n t , c o n d i t i o n s o f work and the l i k e .  poor  I f management and c o n t r o l o f b u s i n e s s  e n t e r p r i s e s i s l e f t i n the hands o f s h o r t s i g h t e d , u n i n t e r e s t e d o r p o l i t i c a l l y i g n o r a n t i n d i v i d u a l s , the c o n d i t i o n s o f work c o u l d d e t e r i o r a t e t o an e x t e n t where w o r k e r s may be c o n v i n c e d t h a t r e s o r t t o p h y s i c a l v i o l e n c e i s the o n l y s o l u t i o n . T h i s view was a p p r e c i a t e d by the Common Man's C h a r t e r a UPC (Uganda P e o p l e s ' C o n g r e s s , the then r u l i n g p o l i t i c a l p a r t y ) p o l i t i c a l document which s t a t e d ; " i f we do not take i n i t i a l e f f e c t i v e measures t o change the c o u r s e o f e v e n t s a t t h i s s t a g e o f our h i s t o r y , i t may be too l a t e t o a v o i d v i o l e n c e i n f u t u r e y e a r s . ' (10) Many c o u n t r i e s i n an attempt t o improve c o n d i t i o n s o f w o r k e r s and maint a i n good i n d u s t r i a l r e l a t i o n s have e i t h e r by i n i t i a t i v e s o f management, government o r l a b o u r s t a r t e d implementing  some program t h a t i n v o l v e w o r k e r s  - 66 i n d e c i s i o n making. Worker p a r t i c i p a t i o n g e n e r a l l y r e f e r s t o a wide range o f programs t h r o u g h which employees a r e a b l e t o i n v o l v e t h e m s e l v e s i n t h e management o f industry.  The employees o r t h e i r r e p r e s e n t a t i v e s a r e g i v e n a r i g h t t o t a k e  p a r t i n and i n f l u e n c e management d e c i s i o n s which a f f e c t them.  It, for  example, r e q u i r e s t h e management t o show a w i l l i n g n e s s t o t a k e l a b o u r i n t o i t s c o n f i d e n c e about i t s p r o p o s a l s and p l a n s f o r t h e b u s i n e s s e n t e r p r i s e .  It  r e q u i r e s c o n s u l t a t i o n between management and employees o r t h e i r r e p r e s e n t a t i v e s about o p e r a t i o n a l and o t h e r day t o day m a t t e r s t h a t concern t h e e n t e r prise. With t i m e , i t has a c q u i r e d f u r t h e r meanings.  I t has come t o mean t h e  p a r t i c i p a t i o n by workers i n t h e p r o c e s s e s o f management.  This increasing  f e a t u r e has become common i n Western Europe where i t has a c q u i r e d t h e name; 'co-determination'  which i n v o l v e s workers a c q u i r i n g s e a t s on b o a r d s as non  executive d i r e c t o r s .  T h i s s h o u l d , however, be i m m e d i a t e l y d i s t i n g u i s h e d  from 'worker c o n t r o l ' , a c o n c e p t a d v o c a t e d by many l e f t wing t h e o r e t i c i a n s who view i t as t h e o n l y l o g i c a l and d e s i r a b l e outcome i n t h e l o n g r u n s o as t o e l i m i n a t e management and l a b o u r  clash.'"")  Worker p a r t i c i p a t i o n can take p l a c e a t d i f f e r e n t l e v e l s . P a r t i c i p a t i o n , (12) on t h e p l a n t l e v e l , o f t e n known as shop f l o o r democracy^  ' a l l o w s employees  to have c o n t r o l over m a t t e r s t h a t d i r e c t l y concern t h e q u a l i t y o f w o r k - l i f e . In many c o u n t r i e s i n Western E u r o p e , shop f l o o r democracy i s a n a t i o n a l (13) concern and w o r k e r i n f l u e n c e has i n c r e a s e d . ' The Works C o u n c i l , w h i c h i s r e q u i r e d a l m o s t by e v e r y European  country,  v a r i e s from c o u n t r y t o c o u n t r y b u t t h e aim i n a l l cases i s t o p r o v i d e some forum t o employees below t h e management group t o p r e s e n t t h e i r o p i n i o n s t o management.  The works c o u n c i l s , f i r s t e s t a b l i s h e d by Germany i n 1922, have  - 67  -  from a p r a c t i c a l p o i n t o f view been c o n s i d e r e d the most i m p o r t a n t form o f worker p a r t i c i p a t i o n . The most s e n s i t i v e and p o l i t i c a l l y s i g n i f i c a n t form o f p a r t i c i p a t i o n i s the d i r e c t employee r e p r e s e n t a t i o n on boards o f d i r e c t o r s o r s u p e r v i s o r y boards.  T h i s i s what has been c a l l e d c o - d e t e r m i n a t i o n  and i n v o l v e s e l e c t e d  r e p r e s e n t a t i v e s o f employees on the board w i t h equal d u t i e s , r e s p o n s i b i l i t i e s and powers as those s e l e c t e d by the  shareholders.  A few c o u n t r i e s have a l s o attempted  or at l e a s t considered  investment  programs t h a t would e n a b l e workers t o i n v e s t i n t h e i r companies as ers.  Most p e o p l e have viewed t h i s w i t h h o s t i l i t y and the attempts  shareholdare o f t e n  unsuccessful. The response t o w o r k e r p a r t i c i p a t i o n has v a r i e d from c o u n t r y t o c o u n t r y . In Germany, f o r example, when i t was f i r s t i n t r o d u c e d , the a t t i t u d e o f managers was  'one o f h o r r i f i e d o u t r a g e .  It predicted that labour  represent-  a t i v e s would come b l u n d e r i n g i n t o management a f f a i r s l i k e a herd o f b u l l s i n t o a china s h o p . ' ^ ^  A f t e r l i v i n g w i t h i t f o r some t i m e , many o f them have come  t o r e g a r d i t as a f o r t u n a t e d e v e l o p m e n t .  I t has been l i n k e d w i t h the r e l a -  t i v e l y good i n d u s t r i a l r e l a t i o n s t h a t p r e v a i l i n t h a t c o u n t r y .  In o t h e r  c o u n t r i e s l i k e the U n i t e d S t a t e s , Canada, I t a l y and F r a n c e , w o r k e r p a r t i c i p a t i o n was and continues t o be opposed by both management and l a b o u r . debate i s even more heated o v e r board r e p r e s e n t a t i o n . by the i m p l i c a t i o n s o f i t s reduced power.  The  Management i s alarmed  There i s f e a r that workers w i l l (15)  reduce e f f i c i e n c y and t u r n 'the boards i n t o i d e o l o g i c a l b a t t l e g r o u n d s . T h e r e i s s t r o n g o p p o s i t i o n from t r a d e union l e a d e r s .  '  'Some w o r k e r s  b e l i e v e t h a t w o r k e r p a r t i c i p a t i o n d i l u t e s the n a t u r a l and i n e v i t a b l e f r i c t i o n between l a b o u r and c a p i t a l . I t i s thus c r i t i c i z e d as c l a s s c o l l a b o r a t i o n and as an u n r e a l i s t i c a t t e m p t t o r e c o n c i l e i n c o m p a t i b l e  viewpoints.'^'  - 68 Some have argued t h a t e x p e r i e n c e has shown t h a t w o r k e r p a r t i c i p a t i o n on the board has not been e f f e c t i v e and dorminance by management.  s e r v e s as w i n d o w - d r e s s i n g f o r c o n t i n u e d  Labour c l a i m s t h e r e has been s u b s t a n t i a l p r o g r e s s  w i t h c o l l e c t i v e b a r g a i n i n g and they a r e not w i l l i n g t o reduce t h e i r e s t a b l i s h e d p o s i t i o n by j o i n i n g management t o make d e c i s i o n s a g a i n s t  themselves.  In the U n i t e d S t a t e s , the p r e s i d e n t o f the M a c h i n i s t s ' Union has s t a t e d the p o s i t i o n of unions. 'We have no i n t e r e s t i n replacing f r e e e n t e r p r i s e w i t h a more Utopian s y s t e m . . . And we b e l i e v e w o r k e r s can r e c e i v e a b e t t e r s h a r e o f the f r u i t s o f f r e e e n t e r p r i s e a t b a r g a i n i n g t a b l e s than i n board rooms.' ( 1 7 ) The S e c r e t a r y t r e a s u r e r o f the AFL-CIO has b l u n t l y s a i d ; 'He ( t h e American w o r k e r ) i s smart enough t o know, i n h i s bones, t h a t s a l v a t i o n l i e s - not i n r e s h u f f l i n g t h e c h a i : r s ' i n the board room o r i n the e x e c u t i v e s u i t e - but i n the growing s t r e n g t h and b a r g a i n i n g power o f h i s autonomous o r g a n i z a t i o n . ' ( 1 8 ) D e s p i t e t h e s e v a r y i n g r e s p o n s e s , w o r k e r p a r t i c i p a t i o n has been on the i n c r e a s e e s p e c i a l l y s i n c e the 1970's.  Only about twenty y e a r s „ a g o , Germany  s e r i o u s l y pursued employee r e p r e s e n t a t i o n a t board l e v e l .  Today, a l m o s t  e v e r y European c o u n t r y e i t h e r has board l e v e l r e p r e s e n t a t i o n o r i s s e r i o u s l y d e b a t i n g the i s s u e .  Even Japan has taken l i m i t e d a c t i o n i n t h i s d i r e c t i o n .  But the b e s t example o f i n c r e a s e d i n t e r e s t i n w o r k e r p a r t i c i p a t i o n i s p r o v i d e d by the p r o p o s a l s f o r the European Economic Community Company Law which p r o v i d e s f o r a s t a n d a r d company s t r u c t u r e among the common market c o u n t r i e s . (19) The p r o p o s a l s p r o v i d e f o r both works c o u n c i l and board r e p r e s e n t a t i o n . 1  A l g e r i a and T a n z a n i a p r o v i d e A f r i c a n examples o f attempts workers i n d e c i s i o n making.  to i n v o l v e  Any c o u n t r y a t t e m p t i n g anyform o f w o r k e r  p a r t i c i p a t i o n must s t u d y the v a r i o u s schemes t h a t have been implemented o r proposed e l s e w h e r e .  Success o r f a i l u r e i s not c o n c l u s i v e e v i d e n c e t h a t a  - 69 scheme i s e i t h e r s u i t a b l e o r n o t .  There a r e economic, s o c i a l , c u l t u r a l and  p o l i t i c a l d i f f e r e n c e s t h a t must be c o n s i d e r e d . employees  A t t i t u d e s o f managers and  t h e m s e l v e s d i f f e r c o n s i d e r a b l y . However, a s t u d y o f the schemes  i n d i f f e r e n t c o u n t r i e s can shed some l i g h t on the a v a i l a b l e a l t e r n a t i v e s . E a s t A f r i c a n c o u n t r i e s can s t u d y t h e s e a l t e r n a t i v e s and m o d i f y them t o t h e i r own c i r c u m s t a n c e s .  The schemes as implemented  The  suit  o r p r o p o s e d i n Germany,  G r e a t B r i t a i n , Y u g o s l a v i a and A l g e r i a w i l l be d i s c u s s e d and t o g e t h e r w i t h t h e T a n z a n i a n example, p r o p o s a l s f o r worker p a r t i c i p a t i o n i n E a s t A f r i c a w i l l be made.  GERMANY Germany has p r o b a b l y other country.  had more e x p e r i e n c e w i t h c o - d e t e r m i n a t i o n than any  The f i r s t s t a t u t e was e n a c t e d way back i n 1894.  The Work  P r o t e c t i o n A c t ( A r b e i t s s c h u t z g e s e t z ) e s t a b l i s h e d and r e g u l a t e d w o r k e r s ' committees.  There was no r i g h t o f c o - d e t e r m i n a t i o n as u n d e r s t o o d today but  the s t a t u t e gave the committees  a d v i s o r y f u n c t i o n s . They became a l e g a l l y  r e c o g n i s e d i n s t i t u t i o n r e p r e s e n t i n g the w o r k e r s .  However, t h e y were o p t i o n a l  and the employer had the r i g h t t o choose whether t o have them o r n o t . D u r i n g the F i r s t World War, t h e A u x i l i a r y S e r v i c e A c t ( H i l f s d i e n s t g e s e t z 1916) made them mandatory.  Members o f the worker's committees  and  committees  o f the o f f i c e s t a f f were e l e c t e d by the r e s p e c t i v e groups and were m a i n l y concerned with s o c i a l matters of the p e r s o n n e l . T h e  German l a b o u r e r f e l t  and r e s e n t e d a sense o f p o w e r l e s s n e s s and as the l a b o u r movement g a i n e d f o r c e (21 and momentum, the demand f o r a v o i c e i n i n d u s t r i a l d e c i s i o n s became l o u d e r / In 1920, the f i r s t Works C o u n c i l A c t was p a s s e d t o a p p l y both t o p u b l i c and p r i v a t e works.  'The Works C o u n c i l s had.now a l r e a d y genuine c o - d e t e r m i n a t i o n (22) r i g h t s i n s o c i a l , p e r s o n n e l and fundamental economic q u e s t i o n s . Manage-  - 70 ment c o u l d s t i l l t a k e any d e c i s i o n but w o r k e r s had a r i g h t t o  be h e a r d .  The  S u p e r v i s o r y Board A c t o f 1922 e n a b l e d the employees t o be a p p o i n t e d members o f the s u p e r v i s o r y board h a v i n g equal r i g h t s . T h i s r e p r e s e n t a t i o n , however, was not e f f e c t i v e and V a g t s notes t h a t ' i t i s g e n e r a l l y agreed t h a t t h i s l e g i s l a t i o n , p a r t i c u l a r l y w i t h r e s p e c t to  supervisory councils, failed i t s  p u r p o s e , owing t o the weakness o f l a b o u r ' s economic p o s i t i o n i n a p e r i o d o f unemployment and t o the h o s t i l i t y o f management, which used e v e r y d e v i c e t o i s o l a t e the l a b o u r r e p r e s e n t a t i v e s and t o bypass s e r i o u s d e c i s i o n s (23) committees o r i n f o r m a l p r i v a t e g a t h e r i n g s o f i n s i d e r s ' / '  through  The Nazi r e g i m e , i n 1933 passed the O r d e r o f N a t i o n a l Labour A c t  (Gesetz  Zur ordnug der n a t i o n a l e n A r b e i t ) which a b r o g a t e d the p r o v i s i o n s and weakened labour i t s e l f .  The p o s i t i o n o f management was l i f t e d t o t h a t o f a t r u s t e e  f o r the e n t e r p r i s e and w h i l e management c o u l d s t i l l c o n s u l t the w o r k e r s , the entrepreneur  had t h e f i n a l word w i t h o u t r e s t r i c t i o n s .  The end o f World  War  II marked the emergence o f an even s t r o n g e r t r a d e union movement whose f i n a l goal was f u l l c o - d e t e r m i n a t i o n .  The c o n s t r u c t i o n o f the t o r n economy  demanded good i n d u s t r i a l r e l a t i o n s and the l a b o u r movement won the sympathy o f the B r i t i s h l a b o u r government t h a t had o c c u p a t i o n f o r c e s i n the  country,  e s p e c i a l l y i n the Rhur c o a l and s t e e l r e g i o n . The North German i r o n and  s t e e l c o n t r o l which managed the i r o n and s t e e l  i n d u s t r y through t h e i r a r t i c l e s o f a s s o c i a t i o n i n t r o d u c e d on an equal r e p r e s e n t a t i o n b a s i s .  co-determination  T h u s , t h e r e were t o be equal numbers o f  employee and s h a r e h o l d e r r e p r e s e n t a t i v e s on the s u p e r v i s o r y b o a r d .  A labour  d i r e c t o r , r e s p o n s i b l e f o r s o c i a l and p e r s o n n e l m a t t e r s would be a p p o i n t e d a member o f the board.  T r a d e unions e x e r t e d p o l i t i c a l p r e s s u r e f o r equal  r e p r e s e n t a t i o n i n a l l i n d u s t r i e s . The r e s u l t was c o - d e t e r m i n a t i o n 1951.  law o f  - 71 Under t h i s law, e v e r y company i n the i r o n and s t e e l i n d u s t r y whose number o f employees exceeded one thousand had t o have a s u p e r v i s o r y board e l e c t e d on equal b a s i s .  On the same board was t o be an independent  member  nominated by agreement.  T h u s , the r e s u l t i n g model was f i v e s h a r e h o l d e r  r e p r e s e n t a t i v e s , f i v e employee r e p r e s e n t a t i v e s , and a so c a l l e d n e u t r a l 11th man on the s u p e r v i s o r y b o a r d .  The n e u t r a l member was t o  a s t a l e m a t e w i t h no f o r e s e e a b l e compromise. become a m a t t e r f o r the c o u r t .  decide i n case of  D i s a g r e e m e n t beyond t h i s would  In 1956, t h i s model was extended t o c o v e r a l l  h o l d i n g companies i n the i n d u s t r y . The works c o u n c i l c o n s t i t u t i o n law o f 1952 i n t r o d u c e d p a r t i a l c o - d e t e r m i n a t i o n i n a l l companies employing more t h a n - f i v e hundred p e o p l e u n l e s s the companies c o u l d be c l a s s i f i e d as f a m i l y c o r p o r a t i o n s .  Under t h i s law, t h e r e  was no l a b o u r d i r e c t o r . Only o n e - t h i r d o f the members o f the board r e p r e s e n t e d employees. voted.  As a r e s u l t , employee r e p r e s e n t a t i v e s c o u l d e a s i l y be o u t -  F u r t h e r , i n c o n t r a s t t o the i r o n and s t e e l s e c t o r , n o m i n a t i o n o f the  employee d i r e c t o r d i d not have t o be by t r a d e u n i o n s . The C o - D e t e r m i n a t i o n  Law o f 1976 made changes i n t h i s s t r u c t u r e .  A c t was a r e s u l t o f p o l i t i c a l developments i n Germany. P a r t y and the L i b e r a l Democratic  The  Social-Democratic  P a r t y n e g o t i a t e d a c o a l i t i o n and  i n t r o d u c e d the b i l l on C o - d e t e r m i n a t i o n  together  based on equal r e p r e s e n t a t i o n i n a l l  j o i n t - s t o c k and l i m i t e d l i a b i l i t y companies employing more than two people.  The  thousand  The B i l l was debated both i n P a r l i a m e n t and i n p u b l i c and a l l l i k e l y  c o n s t i t u t i o n a l problems were s c r u t i n i s e d and r e s o l v e d . F i n a l l y , the B i l l was p a s s e d .  Each company a f f e c t e d has twenty members  on the s u p e r v i s o r y b o a r d , t e n r e p r e s e n t i n g s h a r e h o l d e r s and t e n r e p r e s e n t i n g employees.  Only t h r e e o f the t e n employee r e p r e s e n t a t i v e s a r e d i r e c t l y  l i n k e d w i t h t r a d e unions and one o f the r e m a i n i n g seven r e p r e s e n t s t a f f and  - 72 m i d d l e managers.  The F e d e r a l C o n s t i t u t i o n g u a r a n t e e s p r o p e r t y r i g h t s and  thus t h e r e was f e a r t h a t equal r e p r e s e n t a t i o n would i n f r i n g e t h e p r o p e r t y r i g h t s and the l e g i s l a t i o n would be d e c l a r e d n u l l and v o i d by a c o n s t i t u t i o n a l court.  To a v o i d t h i s o b j e c t i o n , the chairman o f the s u p e r v i s o r y b o a r d , who  has a c a s t i n g v o t e cannot be chosen a g a i n s t the wishes o f t h e s h a r e h o l d e r s ' representatives. Companies i n the s t e e l and c o a l i n d u s t r y s t i l l have t o a p p o i n t a l a b o u r o r p e r s o n n e l d i r e c t o r who i s a c c e p t a b l e t o the s u p e r v i s o r y b o a r d .  His  c o n c e r n i s m a i n l y i n d u s t r i a l r e l a t i o n s and o t h e r s o c i a l m a t t e r s which i n c l u d e s a f e t y , w e l f a r e , l e i s u r e and p e n s i o n s f o r employees.  I t was f e a r e d t h a t t h e  p o s i t i o n o f the l a b o u r d i r e c t o r was u n t e n a b l e due t o d i v i d e d l o y a l t i e s as a working member o f the e x e c u t i v e board and a t the same time an i n d i r e c t r e p r e s e n t a t i v e o f employees.  But as Hadden has o b s e r v e d , ' i n p r a c t i c e , i t  appears t h a t w h i l e l a b o u r d i r e c t o r s have u s u a l l y been s e l e c t e d w i t h f u l l c o o p e r a t i o n from t r a d e u n i o n s , t h e y have n o t been e x p e c t e d t o and have n o t i n f a c t s i d e d w i t h unions o r employees  a g a i n s t the c o l l e c t i v e view o f the  1  e x e c u t i v e b o a r d . H o w e v e r , the f a c t t h a t t h e y a r e on the b o a r d and a r e i n c l o s e c o n t a c t w i t h u n i o n s , added t o t h e r i g h t o f employee r e p r e s e n t a t i v e d i r e c t o r s ' r i g h t t o v e t o t h e i r d i s m i s s a l 'has h e l p e d t o e n s u r e t h a t i m p o r t a n t i s s u e s o f i n d u s t r i a l r e l a t i o n s a r e n o t l e f t o f a c c o u n t i n the p r e p a r a t i o n and d i s c u s s i o n o f company p o l i c i e s . ' The Labour Management R e l a t i o n s A c t o f 1972 p r o v i d e d t h a t each u n i t o f an e n t e r p r i s e w i t h f i v e o r more employees  s h o u l d have a works c o u n c i l .  Members o f the works c o u n c i l cannot be d i s m i s s e d d u r i n g t h e i r term o f o f f i c e and a r e a l l o w e d time o f f t h e i r w o r k i n g hours t o c o n d u c t the b u s i n e s s o f t h e c o u n c i l as and when n e c e s s a r y .  The works c o u n c i l a r e m a i n l y c o n c e r n e d w i t h  s o c i a l matters at the p l a n t l e v e l .  T h e i r f u n c t i o n i s t o see t o i t t h a t t h e  - 73 l e g i s l a t i o n p r o t e c t i n g w o r k e r s i s implemented, f o r example, s a f e t y and regulations. and make  health  The c o u n c i l has a r i g h t t o d i s c u s s m a t t e r s a f f e c t i n g p e r s o n n e l  suggestions.  I t h a n d l e s i s s u e s r e l a t i n g t o t h o s e s e r i o u s l y d i s a b l e d and promotes (26) employment o f the o l d e r employees. be informed  ' To be e f f e c t i v e , the c o u n c i l must  i n t i m e by the employer on problems t o be d i s c u s s e d . ..On  request,  the employer must a l l o w the c o u n c i l a c c e s s t o a l l r e c o r d s and d a t a t h a t the c o u n c i l needs f o r i t s d u t i e s .  On a l l the i s s u e s , the works c o u n c i l  presents  a case to the employer but c a n n o t f o r c e a c e r t a i n d e c i s i o n . In a l l p l a n t s w i t h more than one hundred e m p l o y e e s , t h e r e has t o be an economic committee under t h e a u s p i c e s o f the works c o u n c i l .  Management i s  r e q u i r e d t o i n f o r m the committee m a t t e r s r e l a t i n g t o the economic and f i n a n c i a l s i t u a t i o n o f the e n t e r p r i s e . tion,-investment  Management r e p o r t s on s a l e s , p r o d u c -  p l a n s , e x p a n s i o n o r c l o s u r e o f the p l a n t and any  arrangement t h a t may a f f e c t the employees o f the f i r m .  other  The committee thus  p r o v i d e s a forum f o r d i s c u s s i o n o f m a j o r i s s u e s but the power o f d e c i s i o n making r e s t s w i t h the e x e c u t i v e and s u p e r v i s o r y b o a r d s . IMPACT OF CO-DETERMINATION The B i e d e n k o p f Commission p r o d u c e d a d e t a i l e d a n a l y s i s o f the of co-determination.  The Commission was g i v e n the  experience of co-determination. q u e s t i o n n a i r e , compiled  operation  task of evaluating  the  For two y e a r s , i t made i n q u i r i e s by  a l l important  p u b l i c a t i o n s on the s u b j e c t ,  the a v a i l a b l e d a t a and had comments from l e a d i n g s c h o l a r s , union (27) a t i v e s as w e l l as b u s i n e s s e x e c u t i v e s /  analysed represent-  The Commission found t h a t where t r a d e u n i o n s had n e i t h e r a r i g h t o f n o m i n a t i o n nor a r i g h t o f d e l e g a t i o n ( i e . where c o - d e t e r m i n a t i o n  was  only  - 74 p a r t i a l w i t h 1/3 employee r e p r e s e n t a t i v e s ) the r e p r e s e n t a t i v e s came from the company i t s e l f and not from the o f f i c i a l s o f the t r a d e u n i o n .  By i m p l i c a t i o n  employees p r e f e r e l e c t i n g t h e i r own c o l l e a g u e s from the company u n l e s s have no c h o i c e under the law.  Hence, under the 1976 law, where union  s e n t a t i o n i s needed, i t i s p r o v i d e d by On i n t r o d u c i n g c o - d e t e r m i n a t i o n ,  repre-  law. d r a m a t i c c o n f r o n t a t i o n was  but e x p e r i e n c e has shown t h a t t h e r e i s not structures f o r co-determination  they  much o f i t . The  expected  formal  have r e s u l t e d i n an i n f o r m a l network o f (28)  communication between management and e m p l o y e e s /  ;  In h i s s t u d y , Hadden  n o t e s ; ' I t was r e p o r t e d t h a t a l m o s t a l l d e c i s i o n s a t s u p e r v i s o r y board  level  were unanimous, l a r g e l y as a r e s u l t o f p r i o r n e g o t i a t i o n between the p a r t i e s . E a r l i e r on, P r o f e s s o r Vagts had n o t i c e d the same t r e n d when he s a i d ; ' I t i s now g e n e r a l l y agreed t h a t t h e r e a r e a few c o n f r o n t a t i o n s w i t h i n s u p e r v i s o r y c o u n c i l s and t h a t the overwhelming b u l k o f the d e c i s i o n s are made unanimously o r , i n a few c a s e s , by d i v i s i o n s t h a t c u t across, the l a b o u r management front.' (30) The Commission found t h a t f e a r o f f r e q u e n t d e a d l o c k was  groundless.  Between 1964 and 1968, the n e u t r a l member o f the s u p e r v i s o r y board i n the c o a l and s t e e l i n d u s t r y had never had o c c a s i o n t o use the c a s t i n g vote i n the 2/3 o f the companies s u r v e y e d and i n the r e m a i n i n g 1/3 o f the c o m p a n i e s , the (31) c a s t i n g vote f a v o u r e d s h a r e h o l d e r s more f r e q u e n t l y / ' The e x p l a n a t i o n f o r n o n e - c o n f r o n t a t i o n  i s t h a t most i m p o r t a n t  issues  are not d i s c u s s e d a t the m e e t i n g but r a t h e r i n the p r e l i m i n a r y t a l k s .  'The  r e s u l t o f the new r e a l i t i e s i n the s u p e r v i s o r y board i s t h a t open end c o n t r a v e r s i a l d i s c u s s i o n s h a r d l y e v e r take p l a c e .  The d i s c u s s i o n s happen i n  p r e l i m i n a r y t a l k s which the management s e t s g o i n g s e p a r a t e l y w i t h the i n d i v i d u a l g r o u p s , t h i s i s t o say t o a much g r e a t e r e x t e n t w i t h the group o f the employees' r e p r e s e n t a t i v e s than w i t h the r e p r e s e n t a t i v e s o f the  - 75 proprietors.  In t h e s e p r e l i m i n a r y t a l k s , the r e a l d i s c u s s i o n s take p l a c e and  the i m p o r t a n t m a t e r i a l d e c i s i o n s a r e t a k e n .  Then the m e e t i n g o f the  super-  v i s o r y board i s c o n f i n e d v e r y o f t e n t o the formal e x e c u t i o n o f the d e c i s i o n s taken b e f o r e .  1  ^2)  The Commission a l s o found t h a t c o - d e t e r m i n a t i o n  i n the spheres o f equal  r e p r e s e n t a t i o n d i d not l e a d t o impairment o f the w i l l t o make p r o f i t s , the r e a d i n e s s t o i n v e s t o r expand.  The r e p r e s e n t a t i v e s o f the employees f a v o u r  the development and e x p a n s i o n o f t h e i r e n t e r p r i s e .  S e c u r i n g o f more work,  s a l a r y and wage i n c r e a s e s has l e d i n many cases to i n v e s t m e n t (33) i n i t i a t i v e s by r e p r e s e n t a t i v e s o f the e m p l o y e e s / '  and  expansion  These f i n d i n g s must, however, be seen i n the l i g h t o f who has a c t u a l power i n the companies. power. ment.  The s u p e r v i s o r y board does not have d i r e c t e x e c u t i v e  I t s ' d e c i s i o n s ' are q u i t e o f t e n a rubber stamp o f p o l i c i e s o f manageQ u i t e o f t e n , a l l the s u p e r v i s o r y board does i s t o r e f e r back the  p o l i c i e s t o the management aboard f o r f u r t h e r . s c r u t i n y . T h i s was  acknowledged  by the Commission when i t s a i d ; ' I t was c o n s t a n t l y s t a t e d t h a t o n l y i n e x c e p t i o n a l c i r c u m s t a n c e s d i d c o n t r o v e r s y a r i s e i n s u p e r v i s o r y board m e e t i n g s o v e r management's i n v e s t m e n t p r o p o s a l s . . . . as a r u l e the i n d i v i d u a l member o f the s u p e r v i s o r y board has n e i t h e r the t e c h n i c a l a b i l i t y nor the time t o examine the c a l t u l a t i o n s which are a t t a c h e d t o the s u b s t a n c e o f i n v e s t m e n t proposals.' (34) In the end, however, management i s c o n s c i o u s o f the f a c t t h a t a d e c i s i o n t h a t a f f e c t s employees s h o u l d be s c r u t i n i s e d w i t h c a r e and sometimes, a b a l a n c e has t o be s t r u c k between t e c h n i c a l and economic c o n s i d e r a t i o n s and the s o c i a l demands o f employees. A n o t h e r f i n d i n g o f the r e p o r t was t h a t both the s u p e r v i s o r y board the works c o u n c i l had o p e r a t e d w i t h o u t i n t e r f e r i n g w i t h the c o l l e c t i v e  and  - 76 bargaining s t r u c t u r e that i s l e f t to t h e trade unions.  The workers and t r a d e  unions l e a d e r s had agreed t o keep the two s e p a r a t e by making s u r e t h a t i n d i v i d u a l s i n v o l v e d i n one were not i n v o l v e d i n the o t h e r .  Although  d i r e c t o r s come from the t r a d e unions q u i t e o f t e n , the B i e d e n k o p f  labour report  c o n c l u d e d t h a t the i n s t i t u t i o n o f the l a b o u r d i r e c t o r had n o t i n t e r f e r r e d w i t h collective bargaining.  The t r a d e unions are much b e t t e r i n f o r m e d on the  economic s i t u a t i o n o f the e n t e r p r i s e and they r e s p e c t the r o l e o f the l a b o u r d i r e c t o r t o r e p r e s e n t the i n t e r e s t s o f the  enterprise in c o l l e c t i v e bargain-  3 5  ing.( ) T h e r e have been a few i n s t a n c e s where a l a b o u r r e p r e s e n t a t i v e has  found  h i m s e l f i n a d i f f i c u l t s i t u a t i o n when the t r a d e union i s i n c o n f l i c t w i t h the firm.  I t may be r e c a l l e d t h a t E n g l i s h law emphasises  i n t e r e s t s o f the company.  I t i s f o r t h i s reason t h a t no d i r e c t o r i s bound t o  r e p r e s e n t a s e c t i o n a l i n t e r e s t o f the members. by Green M.R.  the paramouncy; o f the  i n Re Smith and F a w c e t t  v  T h i s p r i n c i p l e was  stressed  ' when he s a i d t h a t the duty o f the  d i r e c t o r s i n managing the company i s t o a c t 'bona f i d e i n what they not what the c o u r t may c o n s i d e r , i n (37) some c o l l a t e r a l p u r p o s e .  1  consider,  the i n t e r e s t s o f the company and n o t f o r  The same p r i n c i p l e a p p l i e s i n Germany.  A  w o r k e r r e p r e s e n t a t i v e must not n e c e s s a r i l y s u p p o r t h i s c o n s t i t u e n c y but r a t h e r has t o e x e r c i s e the a u t h o r i t y i n a c c o r d a n c e w i t h what i s i n the b e s t i n t e r e s t o f the company.  The r e p r e s e n t a t i v e s are not e x p e c t e d t o o r g a n i s e o r p a r t i c i -  pate a c t i v e l y i n a s t r i k e . ' A l l s t r i k e a c t i v i t i e s i n f r i n g e the duty t o c o o p e r a t e p e a c e f u l l y w i t h the employer. The i n t e g r a t i o n a l f u n c t i o n o f the concept thus becomes e v i d e n t . P a r t i c i p a t i o n i s t o l e r a t e d but not as an i n s t r u m e n t e x c l u s i v e l y d e s i g n e d t o s a f e g u a r d the i n t e r e s t s o f w o r k e r s . The l i n k between p a r t i c i p a t i o n and the p l a n t ' s b e n e f i t d i s s o c i a t e s the r e p r e s e n t a t i v e s from the workers and t r a n s f o r m s them i n t o a s p e c i a l k i n d o f manager.' (38) A w o r k e r r e p r e s e n t a t i v e may f i n d h i m s e l f i n the u n e n v i a b l e s i t u a t i o n  - 77 when the union p r e s e n t s a case f o r wage i n c r e a s e s and f i n a l l y r e s o l v e s t o strike.  A German case on t h e i s s u e h i g h l i g h t s the p r o b l e m .  In 1955, a l a b o u r  s u p e r v i s o r y c o u n c i l member a c t i v e l y urged the employees t o s t r i k e . He became the c h a i r m a n o f the s t r i k e s committee a f t e r the s t r i k e had s t a r t e d .  Another  member o f the board though l e s s a c t i v e s u p p o r t e d the s t r i k e . A f t e r the s t r i k e , the company sued the two c l a i m i n g a l l the damages r e s u l t i n g from the c o n f l i c t . The lower c o u r t h e l d t h a t the i n v o l v e m e n t t h e i r duty o f l o y a l t y s i n c e  by the two was i n breach o f  they were not 'to r e p r e s e n t s p e c i a l w o r k e r s '  i n t e r e s t s but t o conduct t h e i r f u n c t i o n s s o l e l y f o r the good o f  the c o r p o r (39)  a t i o n and i t s employees w h i l e t a k i n g account o f the common w e l f a r e .  , v  '  The  dilemma i n which the l a b o u r r e p r e s e n t a t i v e s were p l a c e d was acknowledged by the c o u r t and i n an ambiguous language s a i d the r e p r e s e n t a t i v e s c o u l d p a r t i c i pate i n a s t r i k e p a s s i v e l y but n o t a c t i v e l y . T h i s was the b e s t the c o u r t 'could do w i t h . a p a r a d o x i c a l s i t u a t i o n c r e a t e d f i r s t by the l e g i s l a t u r e , which c r e a t e d t h i s o f f i c e , and then by the union which gave i n d i v i d u a l s e n t i r e l y i n c o m p a t i b l e o f f i c e s o f l a b o u r l e a d e r s and members o f management.  1  Perhaps t h i s was the o n l y way the c o u r t c o u l d acknowledge the paramouncy o f the company's i n t e r e s t s w h i l e a t the same time u p h o l d i n g the w o r k e r s ' r i g h t t o s t r i k e . The c o u r t o f appeal u p h e l d t h i s view. German a u t h o r s , however, r e j e c t the q u e s t i o n o f c o n f l i c t as b e i n g a major problem and they p o i n t out t h a t t h i s i s not a u n i q u e s i t u a t i o n .  Resolv-  i n g c o n f l i c t i n g l o y a l t i e s i s an e v e r y day e x e r c i s e t h a t e v e r y p u b l i c o f f i c i a l e n c o u n t e r s . T h e concept u n d e r l y i n g c o - d e t e r m i n a t i o n  i s t h a t the company  s h o u l d be run not e x c l u s i v e l y f o r the i n t e r e s t s o f the s h a r e h o l d e r s but the workers as w e l l and such a r e s o l u t i o n i s n e c e s s a r y .  On the a v a i l a b l e e v i d e n c e ,  those i n v o l v e d i n c o - d e t e r m i n a t i o n have always reached a w o r k a b l e compromise. On a p p o i n t m e n t on the management b o a r d , a r e s p o n s i b i l i t y o f the  - 78 s u p e r v i s o r y b o a r d , the B i e d e n k o p f r e p o r t n o t e d t h a t the p r o c e s s was more d i f f i c u l t due t o the n e c e s s a r y arrangements employees'  t h a t have t o be made w i t h the  r e p r e s e n t a t i v e s . However, i t was r e p o r t e d t h a t c o n t r a r y t o t h e  views e x p r e s s e d when c o - d e t e r m i n a t i o n was f i r s t i n t r o d u c e d , employee r e p r e s e n t a t i v e s have n o t used undue i n f l u e n c e i n f i l l i n g v a c a n c i e s on the management b o a r d . The r e p o r t e x p r e s s e d c o n c e r n o v e r the independence o f the management b o a r d , n o t so much because employee r e p r e s e n t a t i v e s p a r t i c i p a t e i n t h e i r appointment but r a t h e r t h a t the chances o f moving from one e n t e r p r i s e t o a n o t h e r might be c u r t a i l e d and thus r e d u c i n g t h e positions.  market f o r t o p management.  For example, i f one member o f t h e board was u n a b l e t o g e t a l o n g  w i t h some members o f the t r a d e u n i o n , t h e r e i s a p o s s i b i l i t y t h a t he might not g e t a p o s i t i o n i n a n o t h e r company i n which members a r e the same o r are i n c l o s e c o n t a c t . Members o f t h e management board t h e r e f o r e might n o t f e e l f r e e t o t a k e d e c i s i o n s t h a t c o u l d prove u n p o p u l a r w i t h the t r a d e u n i o n s .  The  r e s u l t would be a v o t e t o g e t h e r w i t h the s u p e r v i s o r y board i r r e s p e c t i v e o f (no)  the i n t e r e s t s o f the c o m p a n y /  1  T h i s f e a r , however, l o s e s ground i n view o f the commission's  finding  t h a t on the b a s i s o f i t s h e a r i n g s ; ' t h e r e was no fundamental d i f f e r e n c e i n approach by s h a r e h o l d e r and employee r e p r e s e n t a t i v e s o v e r b a s i c company p o l i c y o r o v e r t h e c r i t e r i a t o be a p p l i e d i n making d e c i s i o n s on i n v e s t m e n t , (43) l a y - o f f s o r even d i s c l o s u r e s . ' C o - d e t e r m i n a t i o n both a t the s u p e r v i s o r y board and works c o u n c i l l e v e l s i s f i r m l y e s t a b l i s h e d i n Germany and t h e r e i s no p r e s s u r e t o d i s m a n t l e the structure.  The w o r k e r s , t o o , a r e happy w i t h the s t r u c t u r e . 'Numerous  o p i n i o n p o l l s and s u r v e y s have r e p o r t e d t h a t most German workers a r e happy w i t h the system, even though t h e y a r e a p p a r e n t l y l e s s c o n v i n c e d t h a t i t had  - 79 brought a b o u t any r e a l change i n t h e i r p o s i t i o n w i t h i n t h e i r own companies and  4 4  plants.'^ ) I t i s d i f f i c u l t t o g i v e c l e a r c u t answers as t o t h e ways i n which c o -  d e t e r m i n a t i o n has h e l p e d i n d i v i d u a l w o r k e r s .  Wages f o r example a r e u s u a l l y  n e g o t i a t e d by t h e r e p r e s e n t a t i v e s o f t h e union and t h e E m p l o y e r s ' A s s o c i a t i o n . A c t u a l wages may be c o n s i d e r a b l y  h i g h e r than i n many o t h e r c o u n t r i e s b u t t h i s  c o u l d be due t o o t h e r f a c t o r s l i k e t h e t r e n d o f t h e l a b o u r m a r k e t . on wage i n c r e a s e a r e made by t h e managing board. v i s o r y board g e t s d i r e c t l y i n v o l v e d .  Decisions  I t i s rare that the super-  I t was f e a r e d t h a t management and l a b o u r  would r a i s e wages a t t h e expense o f t h e consumer b u t t h i s does n o t seem t o have happened.  ' S t u d i e s o f what has i n f a c t o c c u r r e d a r e v e r y c a u t i o u s i n  assessing the contribution of co-determination (45) has taken p l a c e s i n c e t h e e a r l y 1950's. '  t o t h e i n c r e a s e i n wages t h a t  O t h e r f a c t o r s l i k e i n t e n s e l a b o u r s h o r t a g e a r e used t o e x p l a i n t h e increase.  'One can a l s o f i n d s p e c i f i c e p i s o d e s i n which t h e l a b o u r r e p r e 4  s e n t a t i v e s have h e l p e d t o dampen wage demands o f t h e rank and f i l e . ' ^ ^ Vagts c o n c l u d e s  t h a t 'the most one can d e v i n e from t h e German i m p e r i c a l  s t u d i e s , then, i s a cautious estimate that f u l l co-determination  has somewhat  s p u r r e d t h e r i s e o f wages i n t h e c o a l and s t e e l i n d u s t r i e s , i n comparison both w i t h o t h e r German i n d u s t r i e s and w i t h t h e c o a l and s t e e l i n d u s t r i e s i n the r e s t o f Europe.  In t h e p r o c e s s i t has kept t h e man hours l o s t  through  s t r i k e s a t a f a n t a s t i c a l l y low l e v e l , an a c h i e v e m e n t t h a t h e l p e d t o pay f o r 1  4 7  the i n c r e a s e s . ^ ^ Labour r e p r e s e n t a t i v e s s u c c e s s f u l l y s t r u g g l e d f o r i n c r e a s e d f r i n g e benefits.  T h i s , however, s h o u l d be seen i n t h e c o n t e x t o f Germany, an  i n d u s t r i a l s o c i e t y w i t h a t r a d i t i o n o f p a t e r n a l i s m whose v o l u n t a r y s o c i a l b e n e f i t s program, by 1957, made up 16.5% o f t h e t o t a l income r e c e i v e d by l a b o u r .  - 80 Labour r e p r e s e n t a t i v e s have a l s o taken i n t e r e s t i n j o b s e c u r i t y . have as a r e s u l t improved j o b s t a b i l i t y and c o n t i n u i t y o f employment. o u t s i d e r -is f a v o u r a b l y i m p r e s s e d by the humanity and c a r e w i t h which new  They 'An jobs  have been f o u n d , o r even c r e a t e d by b r i n g i n g i n new i n d u s t r i e s , and w o r k e r s r e t r a i n e d or pensioned.'  ^)  Labour r e p r e s e n t a t i v e s are r e p o r t e d t o have i n c r e a s e d concern over investments.  I t i s s a i d t h a t they are not c o n c e r n e d w i t h  new  the p r o f i t a b i l i t y  o f new i n v e s t m e n t s but r a t h e r they emphasise the e f f e c t i n d i s p l a c i n g w o r k e r s , o f f e r i n g new j o b s or i m p r o v i n g w o r k i n g c o n d i t i o n s . money so l o n g as  They are w i l l i n g t o spend  the a l t e r n a t i v e i s a payment o f d i v i d e n d s .  They are opposed  t o i n v e s t m e n t s i n p l a n t s a l l o c a t e d o u t s i d e Germany and would p r e f e r t o see a l l p r o f i t s p l o u g h e d back i n t o the e n t e r p r i s e . I t i s f u r t h e r a l l e g e d t h a t t h e r e i s 1 i t t l e concern about the g o a l s o f the w o r k i n g c l a s s as a whole o r the consumer.  Emphasis i s l a i d on wage  i n c r e a s e , w o r k i n g c o n d i t i o n s , f r i n g e b e n e f i t s and j o b s e c u r i t y a t the p l a n t . These a l l e g a t i o n s , however, a r e not s u p p o r t e d whole, c o - d e t e r m i n a t i o n  has been s u c c e s s f u l .  by the f a c t s and on the  D e s p i t e p r o b l e m s , i t has made  i t p o s s i b l e f o r w o r k e r s t o improve t h e i r c o n d i t i o n s a t v e r y l i t t l e e x t r a c o s t to the economy.  Vagts n o t e s t h a t ;  ' I t has r a i s e d i n d u s t r i a l m o r a l e and e r a d i c a t e d the w o r s t f e a t u r e s o f the o l d p a t e r n a l i s m by p r o v i d i n g a v e h i c l e f o r c l o s e c o l l a b o r a t i o n and s h a r i n g o f r e s p o n s i b i l i t y . I t has made p o s s i b l e the r a p i d c l i m b t o power o f i n d i v i d u a l s who m i g h t o t h e r w i s e have been h e l d back by the r i g i d German s t a t u s s y s t e m . Many o f t h e s e have p r o v e d t h e m s e l v e s c a p a b l e and a d a p t a b l e men. More b r o a d l y , i t has opened channels o f communication between l a b o u r and management t h a t were d e s p e r a t e l y needed by a s t r a t i f i e d s o c i e t y . Thus c o - d e t e r m i n a t i o n has e s t a b l i s h e d i t s e l f q u i t e s o l i d l y on the German s c e n e , has won a good deal o f a c q u i e s e n c e from management and, i f the S o c i a l D e m o c r a t i c p a r t y have t h e i r way, i s l i k e l y t o be i n t e n s i f i e d and e x t e n d e d . ' (49) T h i s i s i n f a c t what has happened w i t h the 1976 l e g i s l a t i o n .  - 81  -  There can be no doubt t h a t c o - d e t e r m i n a t i o n has h e l p e d i n the r e c o n s t r u c t i o n and r a p i d b u i l d up o f t h e German economy s i n c e World War I I .  A  German d i p l o m a t , Rudolph V o l l m e r , has a b l y summarised the s u c c e s s o f c o d e t e r m i n a t i o n i n the f o l l o w i n g words; ' I f you asked me a g a i n what i s c o - d e t e r m i n a t i o n , I would s a y ; The f a c t t h a t a l i t t l e c o u n t r y l i k e West Germany which you can put i n t o Lake O n t a r i o , i s a b l e t o compete on equal terms w i t h America on the w o r l d markets, t h a t i s c o - d e t e r m i n a t i o n . ' (49)  THE DEBATE IN GREAT BRITAIN A l t h o u g h t h e r e i s no l e g a l c o m p u l s i o n f o r w o r k e r p a r t i c i p a t i o n i n  U.K.,  i t has been a s u b j e c t o f s t u d y and d i s c u s s i o n . A r e v i e w o f t h e debate f u r t h e r throws some l i g h t on the problems anyone c o n t e m p l a t i n g r e f o r m i n company law by r e q u i r i n g d i r e c t i n v o l v e m e n t o f workers i n d e c i s i o n making must c o n s i d e r . In B r i t a i n , i n v o l v e m e n t o f w o r k e r s i n d e c i s i o n making has been a c c e p t e d by a l l p o l i t i c a l p a r t i e s and the problem i s what form i s s h o u l d t a k e .  This i s  e v i d e n t from the terms o f r e f e r e n c e to t h e B u l l o c k Committee; ' A c c e p t i n g t h e need f o r a r a d i c a l e x t e n s i o n o f i n d u s t r i a l democracy i n the c o n t r o l o f companies by means o f r e p r e s e n t a t i o n on boards o f d i r e c t o r s , and a c c e p t i n g the e s s e n t i a l r o l e o f t r a d e u n i o n o r g a n i s a t i o n s i n t h i s p r o c e s s , t o c o n s i d e r how such an e x t e n s i o n can b e s t be a c h i e v e d , t a k i n g i n t o a c c o u n t i n p a r t i c u l a r the p r o p o s a l s o f t h e T r a d e s Union Congress Report on i n d u s t r i a l democracy as w e l l as e x p e r i e n c e i n B r i t a i n , the European Economic Community and o t h e r c o u n t r i e s . Having r e g a r d t o the i n t e r e s t s o f the n a t i o n a l economy, e m p l o y e e s , i n v e s t o r s and consumers, t o a n a l y s e the i m p l i c a t i o n s o f such r e p r e s e n t a t i o n f o r t h e e f f i c i e n t management o f companies and f o r company law.' (50) Management and s h a r e h o l d e r s a r e w o r r i e d about t h e r e f o r m .  They f e a r the  c a p i t a l i s t s t r u c t u r e w i l l be t r a n s f o r m e d beyond r e c o g n i t i o n . T h i s f e a r i s i n c r e a s e d by some i d e a s expounded by c e r t a i n t r a d e union l e a d e r s who word  - 82 t h e i r p r o p o s a l s i n a r e v o l u t i o n a r y language i m p l y i n g t a k e o v e r o f workers.  power by  Trade union p r o p o s a l s a r e a r e s u l t o f t h e f e a r t h a t p a r t i c i p a t i o n  c o u l d undermine t h e i r power. While management i s w o r r i e d about t h e p o s s i b l e l o s s o f p r e r o g a t i v e powers, t h e y a r e c o m f o r t e d by the f a c t t h a t t r a n s f e r o f l e g a l c o n t r o l i s d i f f e r e n t from e f f e c t i v e c o n t r o l . D e s p i t e the f a c t t h a t l e g a l c o n t r o l i s h e l d by s h a r e h o l d e r s , management s t i l l has e f f e c t i v e c o n t r o l and i t might make l i t t l e d i f f e r e n c e i f l e g a l c o n t r o l i s s h a r e d between s h a r e h o l d e r s and employees. The T r a d e s Union C o n g r e s s , i n 1974 made p r o p o s a l s f o r r e f o r m o f t h e Companies A c t and s u g g e s t e d t h a t i n d u s t r i a l democracy s h o u l d be i n t r o d u c e d (51) both i n the p r i v a t e s e c t o r and the n a t i o n a l i s e d i n d u s t r i e s / '  I t was  proposed t h a t a l l e n t e r p r i s e s employing more than 2,000 e m p l o y e e s , on r e q u e s t by t h e i r t r a d e union r e p r e s e n t a t i v e s s h o u l d be a l l o w e d t o have equal r e p r e s e n t a t i o n w i t h the s h a r e h o l d e r s on the s u p e r v i s o r y b o a r d .  The s u p e r v i s o r y  board would a p p o i n t members o f the management board and would have the power t o v e t o d e c i s i o n s o f management and the s h a r e h o l d e r s ' annual g e n e r a l  meeting.  I t was a l s o proposed t h a t company law s h o u l d be changed so t h a t a l l companies o f a l l s i z e s a r e r e q u i r e d by law t o have r e g a r d t o the i n t e r e s t s o f both t h e s h a r e h o l d e r s and the w o r k e r s .  Below board l e v e l , p r o p o s a l s f o r  f l e x i b l e e x p e r i m e n t a t i o n w i t h v a r i o u s forms o f r e p r e s e n t a t i o n and c o n s u l t a t i o n were made. By t h e time o f the B u l l o c k i n q u i r y , the Trade Union Congress  had  changed t h e i r views and i n t h e i r e v i d e n c e , a s i n g l e board w i t h 50% w o r k e r r e p r e s e n t a t i o n was  proposed.  The recommendations o f t h e B u l l o c k Committee have been w e l l summarised (52) by D e n t o n / ' The m a j o r i t y view was t h a t the Companies A c t s h o u l d be  - 83 amended t o r e q u i r e boards o f p u b l i c companies t o have r e g a r d t o both the s h a r e h o l d e r s and the employees.  Worker p a r t i c i p a t i o n s h o u l d be i n t r o d u c e d i n  e n t e r p r i s e s employing more than two thousand workers but the employees and t h e i r t r a d e unions s h o u l d be g i v e n the o p t i o n whether t o adopt i t o r n o t . Workers i n t h e e n t e r p r i s e s h o u l d f i r s t v o t e on w h e t h e r t h e y want p a r t i c i p a t i o n or not. The Committee f u r t h e r recommended t h a t employee d i r e c t o r s s h o u l d be e l e c t e d t h r o u g h t h e t r a d e union machinery i n t h e e n t e r p r i s e and t h a t once e l e c t e d , a l l d i r e c t o r s s h o u l d have the same l e g a l r e s p o n s i b i l i t i e s ; i e . t o pursue the i n t e r e s t s o f the company but h a v i n g r e g a r d t o employees and s h a r e h o l d e r s . . The t w o - t i e r system as i s o p e r a t i n g i n Germany was r e j e c t e d and i n s t e a d , the Committee recommended t h a t a u n i t a r y board s t r u c t u r e s h o u l d be r e t a i n e d , but t o be chosen on the 2.x i y f o r m u l a , i e . equal r e p r e s e n t a t i o n f o r workers and s h a r e h o l d e r s , p l u s an i n d e p e n d e n t member c o - o p t e d by o t h e r s w i t h p r o v i s i o n s f o r a r b i t r a t i o n i n case o f  disagreement.  An I n d u s t r i a l Democracy Commission was recommended whose d u t i e s would i n c l u d e a r b i t r a t i o n , promotion and s u p e r v i s i o n o f the i n t r o d u c t i o n o f the new system.  F u r t h e r , the government s h o u l d e s t a b l i s h a fund f o r t r a i n i n g  workers and t r a d e u n i o n i s t s i n the o p e r a t i o n o f the  system.  The government s t u d i e d the r e p o r t and i n May 1978, the Prime M i n i s t e r (53) p r e s e n t e d t h e government paper t o P a r l i a m e n t /  ' The government acknowledged  t h a t i n d u s t r i a l r e l a t i o n s s h o u l d be c o n d u c t e d on v o l u n t a r y arrangements  and  l e g i s l a t i o n p r o v i d e s minimum s t a n d a r d s t h a t s h o u l d o n l y be t u r n e d t o as a l a s t resort. The problem o f c o n f i d e n t i a l i n f o r m a t i o n which i f d i s s e m i n a t e d by employee d i r e c t o r s t o c o m p e t i t i v e f i r m s c o u l d be d e t r i m e n t a l t o t h e s u c c e s s o f t h e e n t e r p r i s e . However, the s e n s i t i v i t y o f the i n f o r m a t i o n v a r i e s from  - 84 company t o company and o t h e r s may n o t . by a l l employees.  w h i l e some i s s u e s may a l r e a d y be known t o the p u b l i c ,  Not a l l i n f o r m a t i o n i s s e n s i t i v e and such may be d i s c u s s e d The s e n s i t i v e a s p e c t s l i k e development o f new  products,  i n v e s t m