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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 Makerere, 1977 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n 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 the r e q u i r e d s t a n d a r d 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 degree a t the U n i v e r s i t y o f 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 a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes 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 . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f 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 w r i t t e n p e r m i s s i o n . 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 ( i i ) 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 has, 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 the l i t e r a t u r e on t h e s u b j e c t . 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 made, no comprehensive r e f o r m has been u n d e r t a k e n and the 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 the 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 . C h a p t e r I d i s c u s s e s t he n a t u r e o f the 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 o r g a n i z a t i o n s . The c h a p t e r f o c u s s e s on the c o n c e p t u a l l e g a l problems t h a t 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 the s e p a r a t i o n between ow n e r s h i p 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 p o i n t e d o u t . 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 ass e s s m e n t 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 i r r e s p o n s i b l e a c t i v i t i e s o f c o r p o r a t i o n s , e s p e c i a l l y t he 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 (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 w o r l d a r e d i s c u s s e d . F i n a l l y , the c h a p t e r c o n c l u d e s w i t h a c a l l 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 i f f o r n o t h i n g e l s e , f o r t h e s u r v i v a l o f th 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 p h i l o s o p h y . ( i i i ) C h a p t e r II p r e s e n t s 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 workers 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 worker 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 aim 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 he 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 he 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 dis r . 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 . ( i v ) TABLE OF CONTENTS Page . INTRODUCTION v i i i 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 88 MEETING OF WORKERS . . . 90 ELECTIONS OF THE MANAGEMENT ORGAN 91 REFERENDUM • . 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 ( v i ) 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 ( v i i ) GROUPS OF COMPANIES 2.11 MULTINATIONALS . ". ., 213 TIME FOR IMPLEMENTATION 215 SOCIAL AUDIT 216 ENFORCEMENT OF DUTIES OF DIRECTORS 218 ( v i i i ) INTRODUCTION The t h e s i s does n o t 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. T h i s i s because i n my view, a u n i f o r m commercial law f o r t h e whole o f E a s t A f r i c a i s n o t 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 whether 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 a d o p t e d 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 o w n e r s h i p o f p r o p e r t y . The r o a d 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 . t o 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 f i r s t 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 advanced 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 . 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 in 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 E a s t A f r i c a f o r a F e d e r a t i o n . T a n g a n y i k a o f f e r e d t o postpone h e r ( i x ) i n dependence 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 independence t o Kenya and Uganda a t the 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 independence 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 the l e a d e r s . The community however remained 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 o p t i m i s m f o r c l o s e r c o - o p e r a t i o n among the p e o p l e o f "East A f r i c a . I t i s noteworthy 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 b e l i e v e i n a F e d e r a t i o n and i f a re f e r e n d u m were taken t o d a y , 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 tou c h 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 -o p e r a t i o n i n E a s t A f r i c a i s s t i l l p o s s i b l e . T h i s view i s r e f l e c t e d i n a r e c e n t s t a t e m e n t by the 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 you know we b e l o n g e d 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 complete 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 s u c h , b ut 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 i m p o r t a n t . " 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 the t r e n d towards n a t i o n a l i z a t i o n . 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 sub-s t a n t i a l . 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 the Kenya Companies A c t , t h e A t t o r n e y - G e n e r a l n o t e d : " 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 t h e l e g i s l a -t i o n i n t h i s s u b j e c t i n t h e t h r e e E a s t 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 wishes 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 here a company. . I f , i n the 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 the 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 , the 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 : ( x i ) "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 endeavour t o promote, t h e h a r m o n i s a t i o n o f t h e com-m 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 com-m e r c i a l laws." Such e f f o r t s would encourage 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 laws i n E a s t A F r i c a 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 . Lack o f u n i t y i n commercial laws w i l l make i t more d i f f i c u l t f o r commercial e n t e r p r i s e s t o c o n d u c t 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 ourage t he e s t a b l i s h m e n t o f a s i n g l e t r a d e a r e a . 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 t h e 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 he 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 c a s e 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 mergers. 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 the o t h e r s t a t e s . 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 e n t e r p r i s e s . 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 freedom 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 ( x i i ) 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 E a s t 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 com-m 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 thus 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 encourages t h e development o f c e r t a i n v a l u e s . U n i -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 th e s t a t e s and f a c i l i t a t e the 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 c o - o p e r a t i o n . 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 g r e a t e r s i g n i f i c a n c e i n r e l a t i o n t o 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 -h o l d e r s . 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 employees, 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 s a i d : 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 n o t 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 p e r s o n 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 . . . . 1 ( 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 n o t 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 ; '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 n o t 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 say t h a t t h e r e a r e t o be no cakes and a l e , b ut 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 th e 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 e m p h a t i c a l l y ; ' 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 because 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 whether 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 pay-ments 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 the company argued 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 , t h e y 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 contended t h a t t he 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 the company remained i n t a c t f o r t h e i r b e n e f i t . 'An a c c o u n t a n t o f g r e a t e x p e r i e n c e ' i n h i s e v i d e n c e showed t h a t ' a l t h o u g h 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 , t h e y 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 t h e p r o p o s i t i o n and c o n c l u d e d ; 'In my judgment, t h e r e f o r e , t he 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 he 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 the 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 . S t r i p p e d o f a l l i t s s i d e i s s u e s , t h e e s s e n c e o f t h e m a t t e r i s t h i s , t h a t t h e d i r e c t o r s o f t h e d e f e n d a n t 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 funds 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 he company, and t h a t i s an a p p l i c a t i o n o f th e company's funds which t h e law as I u n d e r s t a n d i t , w i l l n ot 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 the 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 the 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 the 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 C o . ^ ^ 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 he 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 employees, p r e s t i g e a d v e r t i s i n g , r e f r e s h m e n t s f o r s h a r e h o l d e r s b e f o r e a g e n e r a l m e e t i n g , 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 the 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 employees, i n p r o m o t i n g 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 i n i n c r e a s i n g the 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 g rounds.' (11) T h i s , however, does n o t change the c l a s s i c a l t h e o r y t h a t was once un-c h a l l e n g e a b l e . 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 ' d u t y i s t o the company. The company's s h a r e h o l d e r s a r e t h e (12) company^ ' 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 employees, the consumers, 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 . T h e i r 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 Motor Co.V c l e a r l y i l l u s t r a t e s t h e p o i n t . 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 he management o f the 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 the 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 the 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 f e e l i n g s . 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 . D e f e n d i n g - 4 -h i s v i e w s , F o r d 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; t o s p r e a d 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 s h a r e o f our p r o f i t s back i n o u r 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; ' A l s o t h a t he [Mr. Henry F o r d ] t h i n k s the F o r d Motor Company has made too much money, has had too 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 l a r g e p r o f i t s might 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 t h e p u b l i c , by r e d u c i n g t h e p r i c e o f t h e 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 t h e s e a p p e a l i n g o b j e c t i v e s , t h e C o u r t found t h a t F o r d was a i m i n g 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 n o t a l l o w . I t was h e l 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 must t a k e p r e c e d e n c e o v e r t h e i n t e r e s t s o f a l l o t h e r s ..affected by t h e 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 t h e 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 t h e 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 t h e 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 i n o r d e r t o d evote them t o o t h e r p u r p o s e s . 1 (16) A l l t h e s e c a s e s 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, ( i e . i t s members, p r e s e n t and f u t u r e ) . The i n t e r e s t s o f the employees, t h e consumers o f t h e company's p r o d u c t s o r t h e 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 o u r economic l i f e . Whether f o r good o r i l l , t h e s t u b b o r n f a c t i s t h a t i n o u r p r e s e n t system t h e 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 o u r 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 ortance 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 whether 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 h a r d f a c t s o f l i f e . I t i s u n r e a l , i n the l i g h t o f the 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 the 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 t o the t o t a l d i s r e g a r d 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 cannot be doubted. (19) A d e c i s i o n o f the 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 s h a r e h o l d e r who wishe 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 U n i v e r s i t y . The C o u r t 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 d o n a t i o n . J a cobs 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 t h e y o p e r a t e . W i t h i n t h i s b r o a d c o n c e p t 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 i n s t i t u t i o n s . . . . . 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 the w e l l - b e i n g o f the 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 which i t o p e r a t e s . J a c o b s J . f u r t h e r n o t e d t h a t w i t h o u t t h e s o c i a l r e s p o n s i b i l i t y o f t h e c o r p o r a t i o n , t h e s u r v i v a l o f t h e 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 the b e n e f i t o f t h e - 6 -c o r p o r a t i o n : 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) o f a c t u a l s u r v i v a l o f the c o r p o r a t i o n 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 he whole t h e o r y and purpose o f t h e law g o v e r n i n g l a r g e p u b l i c companies. 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 the s h a r e h o l d e r s , d i r e c t o r s , employees, t h e community i n which t h e company o p e r a t e s and the . 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 . I t i s d i f f i c u l t t o e x p l a i n why the 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 . I t i s i m p o r t a n t t o r e c o g n i s e t h a t no law can be e f f e c t i v e so l o n g 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 which i t o p e r a t e s . O p e r a t i o n s 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 ystem 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 . A l l t h e s e i n f l u e n c e c o r p o r a t e r e s p o n s e t o l e g a l c o n t r o l . Added t o t h i s i s t h e re 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 t h e y a r e put 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 attempts 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 t i s t h e f a i l u r e 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 f e a t u r e o f b u s i n e s s c o r p o r a t -i o n s and t a k e 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 . D u r i n g t h e e a r l y s t a g e s o f l e g a l development, law responded t o the i n d i v i d u a l t h a t committed c r i m e s and n u i s a n c e s by q u e s t i o n i n g what m o t i v a t e d him. At 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 d o c t r i n e s . 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 . But 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 -s u b j e c t e d t o l e g a l 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 t h r o u g h t h e e n t i t i e s and i d e n t i f y t h e c u l p r i t l e t a l o n e p u n i s h him. T h i s n e c e s s i t a t e d a c c e p t a n c e t h a t c o r p o r a t i o n s 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 a r e 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 n o t a d j u s t t o t h e i r p r e s e n c e 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 t h e f o r m a l r e q u i r e m e n t s o f i n c o r p o r -a t i o n were f u l f i l l e d , t h e law t r e a t e d them wherever c o n c e i v a b l e l i k e any (22) o t h e r p e r s o n / ' W hile t h i s m i ght 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 / ; While company f a c t o r y p r e m i s e s 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 t o g e t h e r w i t h the 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 . I t i s a f i c t i o n t h a t 'does no a c t , speaks no word, t h i n k s no t h o u g h t ' and hence o n l y o p e r a t e s t h r o u g h t h e a g e n t s . In (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 ' 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 purposes may be c a l l e d an a g e n t , but who i s r e a l l y t h e d i r e c t i n g mind and w i l l o f t h e 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 p e r s o n c o u l d be; ' t h a t p e r s o n may be under t h e 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 p e r s o n may be t h e b o a r d 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 t h e b o a r d 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 t h e g e n e r a l m e e t i n g o f the company and can o n l y be removed by t h e g e n e r a l meet-i 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 was a c h i e v e d t h r o u g h 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 . I t w i l l be remembered t h a t t h i s c o n c e p t was n o t 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 no t e s t h a t t h i s vexed q u e s t i o n was a s u b j e c t o f h e a t e d d e b a t e . 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 , S c o t l a n d and I r e l a n d . The commission c o u l d n o t r e a c h u n i n a m i t y . In t h e i r r e p o r t t h e y s a i d t h e y had 'been embarrassed by t h e 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 . . . . Gentlememiof 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) w e i g h t 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 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 i n c o r p o r a t i o n s . I t 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 . F o r example, Bramwell c o n t e n d e d ; ' 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 t h e 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 ( 0 9 ) 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 . I t i s s i g n i f i c a n t t h a t w h i l e r a i s i n g c a p i t a l f o r b u s i n e s s e n t e r p r i s e s n e c e s s i t a t e d the development o f t h e c o r p o r a t e e n t i t y , t h e 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 n o t as s i g n i f i c a n t as t h e y a r e t o d a y 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 -i n v o l v e d 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 . 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 than the 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 . Reason, 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 emphasised. 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 t h e s e o b l i g a t i o n s . Thus, the 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 r e s p o n s i b i l i t y . 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 than the group. 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 cannot 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 group. 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. I n s t e a d o f 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 the overworked ' r e a s o n a b l e man', the 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 ' . The n a t u r e o f punishment t o o has had i t s impact. A t h e o r y o f punishment was b u i l t on the 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 , the 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 wrote t h a t 'Nature has p l a c e d mankind under t h e governance 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. ' He went\;on t o s a y ; 'The t e m p t a t i o n t o commit c r i m e may be s a i d t o be s t r o n g , when the p l e a s u r e o r advantage t o be got from the c r i m e i s such as i n the eyes o f t h e o f f e n d e r must appear g r e a t i n comparison o f the t r o u b l e and danger t h a t appear t o him t o accomp-any the 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 than what i s s u f f i c i e n t (33) t o outweigh t h a t o f the 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 re 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 but t h e f a c t i s t h a t t he 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 the 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 ' p e r s o n ' . 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 p e r s o n b ut s u b j e c t t o the same law as a n a t u r a l p e r s o n 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 he 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 . These were g r a n t s from the K i n g . 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 the 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 he 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 he 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 i n d i v i d u a l . In the 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 the 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 he b u s i n e s s community urg e d 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 the 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 n o t ^ t h e ; 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 under which companies a r e i n c o r p o r a t e d a l l o w 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 . T h i s arrangement was, and s t i l l i s , i n d i s p e n s a b l e t o the p u b l i c f i n a n c i n g o f companies. At t h e same t i m e , i t c r e a t e s t h e 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 because 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 t h e 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 t h e 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 i n t e n t i o n ? A c o r p o r a t i o n i s n o t 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 c r i m e (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 a d v o c a t e d l i a b i l i t y o f c o r p o r a t i o n s . 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 no t c a l l e d upon t o pay, t h e y were happy. Hence t h e 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 vi e w s . B e f o r e 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 t h e b e n e f i t s but t h e y had t o b e a r t h e l o s s e s as w e l l , even i f i t meant impov e r i s h m e n t . The p o s s i b i l i t y o f r u i n k e p t businessmen r e s p o n s i b l e and e f f i c i e n t . 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 p a s s e d 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 problem 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 a r e g o i n g t o r e l i e v e t h e s h a r e h o l d e r s o f some o f t h e l i a b i l i t y 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 no t 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 o n l y c a n c e l s i t . 1 The problem 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 n o t 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 . F o r many y e a r s , f r e e e n t e r p r i s e -the freedom, t o 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 -i c a l p h i l o s o p h y . 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 i n d i v i d u a l i s m . 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 n o t a d v e r s e l y a f f e c t the r i g h t s o f o t h e r s . T h i s , i t was 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 o r i n terms o f contemporary e c o n o m i c s , the o p t i m a l w e l f a r e . T h i s was i n l i n e w i t h t h e 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 which governs l e a s t governs b e s t and i n e c o n o m i c s , t h e l a i s s e z - f a i r e d o c t r i n e . These r i g h t s , however, were accompan-i e d by d u t i e s . As a r e s u l t o f i n c o r p o r a t i o n , t h e p h y s i c a l a s s e t s a r e d i v i d e d but a t the same time they a r e 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 l e g a l 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 . As Smyth 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 nership i m p l i e s r e s p o n s i b i l i t y f o r the use o f p r o p e r t y , t h e d i v i s i o n o f t h a t ownership i m p l i e s d i v i d e d (3 r e s p o n s i b i l i t y . 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 r e s p o n s i b i l i t y . R e s p o n s i b i l i t y 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 , t h e r e f o r e , must be s ought e l s e w h e r e . 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 t h e 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 t h e p roblem, 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 pro m i s e s 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 re m a r k a b l e 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 pro m i s e s 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 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 earmarked a s s e t . 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 o u t 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 ca 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 o f e n a b l i n g s o u r c e s o f c a p i t a l t o o b t a i n p r o f e s s i o n a l m a n a g e r i a l competence and thus p r o m o t i n g e f f i c i e n c y . 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 . The 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 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 n o t 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 p r o p e r t y i m p l i e s d u t i e s . A l t h o u g h t h e s e d u t i e s e x i s t f o r t h e v a r i o u s forms o f p r o p e r t y , one 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 owned a r e s h a r e s ? 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 t he 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 o w n e r s h i p . 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. ' Of c o u r s e not a l l would a g r e e . 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 d u t y 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 -h o l d e r s . I t i s thus r e l e v a n t t o examine how much c o n t r o l . t h e s h a r e h o l d e r s have o v e r t h e managers. 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 r e a l i t y ? - 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 the d i r e c t o r s a r e not 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 the 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 d i r e c t o r s a r e s u b o r d i n a t e t o t h e s h a r e h o l d e r s . 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 the 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 the c a s e . Management which i s o f t e n composed o f the d i r e c t o r s t h e m s e l v e s 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 the e n t e r p r i s e . 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 -formed. 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 not 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 the 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 bo 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 company/ ' 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 d e m o n s t r a t e d t h i s p o i n t . 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 run the 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 the 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 t h e 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 o b v i o u s c o n c l u s i o n t h a t a s t o c k h o l d e r ' 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 ed t h a t o wnership 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 s h a r e s were n o t s o l d on the p u b l i c market. Even i n c a s e s 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 ; ' 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 the hands o f a m a j o r i t y means t h a t the m i n o r i t y have l o s t most o f t h e powers ov e r t h e e n t e r p r i s e o f which t h e y a r e the owners. For them, a t l e a s t , t h e s e p a r a t i o n o f o wnership 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 a r e combined. ' I t was c o n c l u d e d t h a t s e p a r a t -i o n o f o wnership 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 . ' A l a r g e group o f i n d i v i d u a l s c a nnot 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 w i t h o u t a l o s s o f c o n t r o l by some members o f t h e g r o up. C l e a r l y 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 t h e m a j o r elements o f (45) c o n t r o l o v e r the e n t e r p r i s e . ' The end r e s u l t i s t h a t we have a s e l f p e r p e t u a t i n g group o 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 t h e p o l i c i e s . The law may 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 c o r p o r -a t i o n c a nnot be i m p r i s o n e d . What would be j a i l e d ; t h e c o r p o r a t e s e a l ? C o r p o r a t i o n s 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 whether a f i n e imposed upon t h e 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 new s o c i e t y ; the managers. 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 t h e 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 . 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 then was p e r s o n a l . T h i s cannot be s a i d o f a c a s e where ownership i s d i f f u s e d among thousands o f a b s e n t e e s h a r e h o l d e r s . 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 t h e y had a sense o f r e s p o n s i b i l i t y . T h e i r r e p l a c e m e n t 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 , t h r o u g h r e s i d e n t managers who a r e not l o c a l men makes management l e s s f r e e t o 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 i m p e r s o n a l 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 ownership 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 market-i n g o f p r o d u c t s a r e made by f a c e - l e s s men. They a r e n o t owners but managers a p p o i n t e d t o 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 community. As a r e s u l t , t h e 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 i n c r e a s e d a c c o u n t a b i l i t y . A t 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 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 . ' ( 4 6 ) What p r e v e n t s crime i s o f t e n n o t the t h r e a t o f law 'but the s ense 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 t h e 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 cannot 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 markets 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 . 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 o f t e n i g n o r e d by companies. A g a i n s t t h i s background o f c o n c e p t u a l d i f f i c u l t -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 caused 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 not 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 but as d i s c u s s e d above, because o f s e p a r -a t i o n o f ownership and c o n t r o l , t he r e f o r m measures have not 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 . T h i s 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 . The u n f o r t u n a t e element 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 but 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 i n d u l g e i n the r h e t o r i c 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 t h a t i s f a r from r e a l i t y . I t i s thus 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 the 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 . T h i s s h o u l d n o t 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 measures. - 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 so as t o i n c r e a s e f i n a n c i a l (49Y r e t u r n s t o the s h a r e h o l d e r s / ' 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 the law s e t s h e a l t h and s a f e t y measures, i f i n the o p i n i o n o f the managers, the 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 he 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 t a k e n 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 the d i c t a t e s o f the 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 , t h r o u g h i t s d e m o c r a t i c p r o c e s s , make i t t o u g h e r . 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 the p r o f i t m o t i v e r a t h e r than r e l y on the managers' vague p e r s o n a l n o t i o n s o f what i s i n the 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 wnership i n t e r e s t i n the 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 the 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 the f r e e market. T h i s i s based on the 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 t h e y 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 moral and s o c i a l j u d g m e n t s . ' ( 5 0 ^ 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 so t h o r o u g h l y undermine t h e v e r y f o u n d a t i o n s o f o u r f r e e s o c i e t y as the a c c e p t a n c e 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 ? Can (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 ? ' 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 n o t 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 l a w ? ( 5 4 > 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 y o u . " I t i s v e r y d i f f i c u l t t o 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 s o c i e t y . 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) d e l i g h t . 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 E n v i r o n m e n t a l 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 p r o p e r t y 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 t h e i n d u s t r y o p p o s i t i o n t o s p e n d i n g $3.9 b i l l i o n i n added abatement g e a r . v ' T h i s s o c i a l c o s t i s what t h o s e 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 . Q u i t e (57) c l e a r l y , t h i s i s a m i s a l l o c a t i o n o f r e s o u r c e s / ' A s t r o n g argument f o r t h o s e 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 n o t 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 m a x i m i s a t i o n 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 t h e y 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 t h e y a r e b e s t q u a l i f i e d t o p e r f o r m 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 o u t o f t h e i r main f u n c t i o n and which t h e y a r e i n f a c t i l l - e q u i p p e d t o p e r f o r m . 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 would seem t o s u p p o r t t h i s t h e s i s / 5 9 ^ 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 t o engage i n s o c i a l m a t t e r s and a t t e mpted t o ' r e t r i e v e h a r d c o r e d r o p o u t s from s o c i e t y 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 w e l f a r e r e c i p i e n t s . A l o t o f money was s p e n t t o 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 . In the meantime, a . n a t u r a l gas seepage was d e v e l o p i n g 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 . In June 1973, t h e 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 . T h i s was w i t h o u t t h e n e g l i g e n c e o f any p a r t y . However, i f the c o r p o r a t i o n had n o t 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 n o t 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 a r e - 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 whether 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 . Indeed p r o f i t maximis-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 . I 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 , ' t h e r e 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 . 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 f o u n d t h e i r way t o c u r r e n t s h a r e h o l d e r s . 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 f o r s h a r e h o l d e r s . 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 employees, 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 o f s o c i a l i n t e r e s t o f h i g h e r c o n c e r n . 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. I n s t e a d 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. D i r e c t o r s - 23 -a r e agents o f the company and n o t 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 m a c h i n e r y 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 o u g h t , 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 t h a n 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 o f t h e i r p r i n c i p l e 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 the s h a r e h o l d e r s . I t i s a p e c u l i a r agency where " a g e n t s " spend t e n s o f thousands o f d o l l a r s o f 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 i n d e p e n d e n t o f any p r o m i s e . 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 f a c t s . Management n e i t h e r promises t o maximise p r o f i t s n o r 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 adv o c a t e s 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 r e s o u r c e s . What i s urged i s n o t 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 employees, 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 t he 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 n o t 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 , t h e end r e s u l t i s n o t o n l y good f o r s h a r e h o l d e r s but the s o c i e t y as a whole. T h i s i s based on the assumption t h a t moral judgments a r e 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 t h e y 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 . The f e a r i s t h a t t h i s does n o t 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 m a x i m i s a t i o n 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 i t s e l f i s v e r y d i f f i c u l t t o d e f i n e . Both H e t h e i n g t o h 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 o f d e f i n i n g ' p r o f i t m a x i m i s a t i o n . ' The b u s i n e s s judgment r u l e i s no more o f a s o l i d g u i d e 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 , which i s the c l a s s i c way o f e x p r e s s i n g m a n a g e r i a l 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 i t . ' ^ ^ 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 t h e y 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 n o t have. Added t o t h i s i s the f a c t t h a t t h e y 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 . They have no mandate t o d e t e r m i n e p o l i c y m a t t e r s . I f t h e 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 d e s i r a b l e 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 b ut 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 comp-a 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 e x p o r t s , 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 t h r e e companies; 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 t o 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 4 1 0 , 9 5 7 . ^ 6 7^ A l a r g e c o r p o r a t i o n l i k e t he 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 t h e 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 t h e 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 i n t u r n g e n e r a t e d 82 p e r 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 major 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 t h e g e n e r a l p o p u l a t i o n . 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 f o r m a t i o n o s t (70) o f groups o f companies. T h i s can be done i n s e v e r a l ways. The m  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 o r t h r o u g h the holdingcompany i n c o r p o r -a t i n g a new company as a s u b s i d i a r y . 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 have 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 . A l t h o u g h a s u b s i d -i a r y may n o t 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 wnership 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 p r e s e n t . Because t h e s m a l l s h a r e h o l d e r s 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 r u n n i n g o f a company, 40 p e r 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) c o n t r o l . v ' A common but l e s s o b v i o u s arrangement i s where, by s i m p l e c o n t r a c t u a l 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 t h e d i r e c t o r s o f t h e s e 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 might 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 n o t 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 p y r a m i d 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 t h e o r y a s e p a r a t e e n t i t y , i s not always improper. I t might be the b e s t e c o n o m i c a l and c o n v e n i e n t form o f d o i n g t h e b u s i n e s s . T h i s c o u l d be due t o t h e need f o r the d i f f e r e n t companies t o l o o k 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 i n o t h e r p r o d u c t s . Large s i z e companies e n j o y the economies o f s c a l e and have t h e 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, a r e c a p a b l e o f abuse and t h i s i s t h e 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 n o t 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 , t h e 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 t h e 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 , t h e 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 a r e c o n t a i n e d m a i n l y i n t h r e e 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 t h e 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 i s i l l e g a l . ' Under the same A c t , a p e r s o n (and t h i s i n c l u d e s t h e 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 . In b r i e f , t h e s e a r e ; (75) (a) p r i c e d i s c r i m i n a t i o n ^ ; - 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 (dc): a c q u i s i t i o n o f competing c o m p a n i e s ; ^ 7 7 ^ 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 he 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 the e s t a b l i s h m e n t o f the 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 hereby 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 checked upon by the 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 purpose 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 the p r o d u c t i o n o r s u p p l y o f goods appeared 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 ght 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 concen-t r a t i o n o f a t l e a s t one t h i r d o f the 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 the 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 found t o e x i s t and t o o p e r a t e a g a i n s t the p u b l i c i n t e r e s t . ' (80) The powers o f the Commission and the government t o i n t e r v e n e i n p o s s i b l e m onopolies and mergers were i n c r e a s e d under the 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 the a s s e t s e x c e e d 5 m i l l i o n o r which might 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 the 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 the 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 l a w s . I n c r e a s e d 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 the 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 the 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 not so much the s i z e but the dominance o f t h e market. 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 c o m p e t i t i v e 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.) L t d . o f N a i r o b i had e n t e r e d the 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 Messrs I d e a l Casements (E.A.) L t d . , the 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 the 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 he 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 advantages 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 A f r i c a . 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 the 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. C o l g a t e 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 w e s t e r n 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 the 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 but d i d n o t change t he 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 the b i g companies pushed l o c a l soap m a n u f a c t u r e r s o u t o f (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. In t he 1940's, t he 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 P e p s i C o l a had e n t e r e d t h e market and soon Dow-Smith no t e d '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 ] . . . appear t o be f i r m l y e s t a b l i s h e d . 1 ^ ^ 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 r e a s o n s impose h i g h t a r i f f s o r even quotas on i m p o r t s 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 . Thus, 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 ca 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 p r o t e c t e d m o n o p o l i e s . In Kenya, f o r example, t he 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 the f r e e market mechanism i f the 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 the 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 . 1 (85) 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 F i r e s t o n e T y r e ^ M a n u f a c t u r i n g p r o j e c t s u g g e s t s . The advantageous p o s i t i o n o f 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 i m p o r t s . 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 m a n a g e r i a l c o n t r o l ) ; (e) t h e r i g h t t o c o u n t 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 ) t he 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 m o n o p o l i e s 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 o t h e r s . Such p o l i c i e s have g o t t h e i r own economic, p o l i t i c a l and s o c i a l j u s t i f i c a t i o n s . 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 the 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 o f c o r p o r a t i o n s . 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 a g a i n s t m o n o p o l i e s . Thus, t he 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 c o n t r o l . Reform i n the 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 the low p u r c h a s i n g power o f the 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 i m p o r t 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 but t o p u r c h a s e 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 the p r o d u c e r s . 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 by c o m p e t i t i o n . 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 m o n o p o l i e s t o p r o t e c t t h e i n t e r e s t s o f the 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 he consumer i n E a s t A f r i c a has found h i m s e l f . '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 f o r t h e u n s c r u p u l o u s m a n u f a c t u r e r 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 , u n n e c e s s a r y o r e x o r b i t a n t l y p r i c e d can be s o l d 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 . The consumer o f t e n has had no f o r m a l e d u c a t i o n o f any k i n d . He can n e i t h e r r e a d nor 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 ne v e r h e a r d 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 t o i g n o r e 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 n o t be c a p a b l e o f s e t t i n g the f o r m a l m a c h i n e r y o f l e g a l r e d r e s s i n t o m o t i o n . W h i l e 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 l e a s t 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 n o t 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 t h e p i c t u r e i s complete. 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 e n c o u r -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 . 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 . I n s t e a d o f 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 n o t e d 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 a d v a n c i n g 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 . 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 but s e r v i n g the same purpose as t h e o l d 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 e f f i c i e n c y . T h i s c o n c e n t r a t i o n on market r a t h e r than p r o d u c t i o n c a u s e s - 34 -con c e r n f o r t h e consumer. As De x t e r 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 f r e q u e n t s t y l e changes, t h e r e a r e c e r t a i n a l m o s t i n e v i t a b l e r e s u l t s ; a tendency t o the 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 the time n e c e s s a r y f o r sound p r o d u c t development; 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 the form o f s h o r t e r " p r o d u c t l i f e , and, 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 the e a r l y p a r t o f the 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 f i r m o v e r c h a n g i n g would be u n d e r c u t by a c o m p e t i t o r . Market i s no l o n g e r an e f f e c t i v e r e g u l a t o r y mechanism. How a r e the consumer i n t e r e s t s t o be p r o t e c t e d ? Some p u b l i c i n t e r e s t groups l i k e 'the Consumers' A s s o c i a t i o n 1 i n U.K. and the "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 a d v e r t i s e m e n t . E v e r y 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 can l o b b y t o i n f l u e n c e government p o l i c i e s . A l t h o u g h the i n f l u e n c e o f s h a r e h o l d e r s i s m i n i m a l , t h e i r i n t e r e s t s a r e p r o t e c t e d by the 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 -v e n t i o n . THE WORKERS In t he f i e l d o f contemporary economics where the 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 governed by Adam Smith's t h e o r y o f the 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 t o d a y ' 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 , wrote 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 t h r o u g h 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 n o t on e a r t h t o e n j o y but t o work and e a r n a l i v i n g . 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 s y s t e m ; i t i s a s o c i a l system as w e l l . B u s i n e s s produces n o t 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 c onsequences. 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. As a l r e a d y n o t e d , t h e s e a r e n o t ' w i t h i n ' t h e company s t r u c t u r e and as such a r e l e f t t o o p e r a t e t h r o u g h 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 -o p h i e s . 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 w o r k e r s , the r e s t goes t o c a p i t a l and the r a t e o f 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 p o s t p o n e d 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 i n v e s t m e n t . 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 argued 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 produce 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 p r o d u c e . P a r t o f 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 the a c t u a l p r o d u c t i o n o f the commodity. La b o u r , h a v i n g p r o d u c e d 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 w o r k i n g time w o r k i n g f o r t h e m s e l v e s and w h i l e the r e s t i s s p e n t w o r k i n g 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 t h e y a r e 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 . ' ^ * ^ W i t h o u t 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 employer 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 problem. 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 n o t 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 p e r s o n 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 e a r n e d 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 n o t 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 . T h i s number has no doubt i n c r e a s e d . 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 e a r n about KS. 400 p e r 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 f a i l s 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 p e r 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 a r e p e r s o n a l c o n t a c t s . 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; 1. 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 . e d u c a t i o n a l l e v e l s a r e 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 d e c r e a s -i n g 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 t h e r u r a l . (99) The t e n dency 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. In h i s 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 n o t e d ; 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 t h e 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 t h e i n d u s t r y . . . . Once e n t r y has been g a i n e d , t h e 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 a r e 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, t h e G e n e r a l - 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 he merger, M a r r i o t and Jones n o t e d ; 'The G . E . C . - A . E . I . - E n g l i s h 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 the 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 the c r e a t i o n o f g i a n t companies comparable i n s i z e t o the l e a d i n g b u s i n e s s i n America and on the c o n t i n e n t . 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 the A t t l e r e g i m e , which had c r e a t e d t he 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 the 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 he b e h a v i o u r o f businessmen, and not l e a v e t he major 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 c o m p e t i t i o n . 1 ( ^ 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 he merger] 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 . 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 . 1 ^ 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 . D u r i n g t he same p e r i o d , 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 . ^ 1 0 3 ^ T h i s may be e f f i c i e n c y but i t i s c l e a r t h a t such 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 not 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 the 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 w o r k i n g 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 the s u c c e s s o f the company conve r g e s 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 o f p r o f i t s . P r e s i d e n t N y e r e r e 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 , t h e y say t h a t Mwongozo makes t h e worker 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 n o t 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 t h e 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 t h r o u g h 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 major problem f o r t h e workers i s the i n a d e q u a c y o f wages f o r a minimum s t a n d a r d o f l i v i n g . 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 d a n g e r s . 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 i n 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 e n c o u r a g e d t o remain u n o r g a n i s e d f o r easy manipu-l a t i o n . 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 w e s t e r n 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 po w e r f u l weapon f o r l a b o u r , t h e 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 h i s i s n o t 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 e r e i s - 40 -l e g i s l a t i o n i n a l l t h e 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 n o t o n l y economic but a r e a l s o an a p p r e c -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 . C o l o n i a l h i s t o r y made no e f f o r t t o t h i s end. I t becomes t h e duty o f the l e a d e r s o f t o d a y 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 t h e 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 t h e m s e l v e s 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 -i n g . T h i s w i l l not be a c h i e v e d so l o n g as workers 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 development. 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 t h e e n v i r o n m e n t i s a t s t a k e and t h e 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 e n v i r o n m e n t a r e 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 . T h e r e a r e no r e g u l a t i o n s on p o l l u t i o n c o n t r o l i n i n d u s t u r e s . 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 , t h e 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 , t he 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 c h e c k e d . I t may be argued t h a t p o l l u t i o n i s n o t y e t a b i g p r o b l e m 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 the 1960's, e c o n o m i s t s 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 d e v e l o p e d 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 f o r d e v e l o p m e n t . ^ u ^ ) 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 he e n v i r o n m e n t a l impact s i n c e t he aim s h o u l d be t o c o n t r o l p o l l u t i o n b e f o r e i t becomes a major problem. 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 the b e g i n n i n g . T h i s 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 p o p u l a t i o n . P r o f i t m a x i m i s a t i o n by companies a l s o a f f e c t s t he 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 . T a n z a n i a r e g u l a t e s r a t e s 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 b o t h t he 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 n e c e s s a r y 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 m a x i m i s a t i o n m i ght n o t be i n t h e i n t e r e s t s o f the 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 the market, demand e x c e s s i v e p r o t e c t i o n , c h a r g e - 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 s e r v i c e s . They c o n t r o l t he 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 Arusha D e c l a r a t i o n i n c l u d e t h e f o l l o w i n g ; 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 mmunications, t r a n s p o r t , banks, i n s u r a n c e , i m p o r t 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 the 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 produce e s s e n t i a l m a t e r i a l s . T h i s e f f e c t i v e c o n t r o l o f r e s o u r c e s g i v e s them a s t r o n g b a r g a i n i n g p o s i t i o n i n r e l a t i o n t o the government. The governments, 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 say 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 t h r o u g h d e b e n t u r e h o l d i n g . 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 a b r o a d as a f o r e i g n 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 a b r o a d . I f t h e i n v e s t o r i s a company, i t has the 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 t a k e s 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 the o u t f l o w o f p r o f i t s e a r n e d . ( I l l In Kenya, f o r example, under the 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 the i n v e s t m e n t i s i n the 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 i n v e s t m e n t 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 the 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 the 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 the 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 promot-i n g the d i v e r s i f i c a t i o n o f the 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 the approved f o r e i g n c u r r e n c y and a t the 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) t h e p r o f i t s , a f t e r t a x a t i o n o f h i s i n v e s t m e n t o f f o r e i g n a s s e t s ; (b) t h e approved p r o p o r t i o n o f t h e n e t proc e e d s o f s a l e o f a l l o r any p a r t o f the approved 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 the 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 the h a r d s h i p c a used t o t h e owner; and p r o v i s i o n i s made f o r the prompt payment o f f u l l c o m p e n sation. Under t h e Exchange C o n t r o l A c t / 1 1 3 ^ any Kenyan c o r p o r a t i o n i s s u i n g s h a r e s t o a n o n - r e s i d e n t 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 F i n a n c e . The funds must be br o u g h t i n t o t h e c o u n t r y i n an approved c u r r e n c y . - 44 -Non r e s i d e n t d i r e c t o r s must be approved by the 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 so 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 i n v e s t m e n t has s i m i l a r p r o v i s i o n s ' " " 4 ) e x c e p t f o r compulsory 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 the 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 the approved p r o p o r t i o n . ( H ^ ) There i s no mention o f j u d i c i a l r e v i e w 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 the 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 E n t e r p r i s e ' i s ea s y t o o b t a i n and i n the e v e n t o f n a t i o n a l i z a t i o n , f a i r compensation 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 which p r o v i d e s c a p i t a l ( H - 7 ) and t e c h n i c a l know-how f o r the 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 i n v e s t m e n t s would make economies o f d e v e l o p i n g c o u n t r i e s s u f f e r . 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 H a l e 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 the 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 the b e n e f i t o f the 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 the 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 the d o l l a r , have c o m p l e t e l y 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 h i s i s t r u e both i n the 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 . 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 the d e v e l o p i n g economies because o f t h e - 45 -weaknesses:: i n the economy and the 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 br e a c h o f s a n c t i o n s a g a i n s t R h o d e s i a . I t came t o be p u b l i c knowledge t h a t t he 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 . I t was the e v e n t s 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 he h e a d ! i n e s . ' £ v e n t h e n , though 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 . ' ^ T h e r e 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 he 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 p r o p o s e 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 , t h e y c o m p r i s e about 60 p e r c e n t o f our 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 he 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 he 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 the 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 the 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 trans-ferred from developing countries. This is especially so in the manufacturing sector. 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 difficult to quantify their effects in Kenya, we feel that any discussion of the role of foreign enterprises in the manu-facturing economy would be incomplete, and naive it 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 paper 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, the u n d e r p r i c i n g o f e x p o r t s , but 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 f i r m s . 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 the 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 the open market i n the i n d u s t r i a l i s e d +. • .(125) c o u n t r i e s . T r a n s f e r p r i c i n g i s n o t l i m i t e d t o p a r e n t - s u b s i d i a r y companies. Such r e s o u r c e s 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 . The p r a c t i c e i s n o t l i m i t e d t o the f o r e i g n companies e i t h e r . 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 put i t , though i n a d i f f e r e n t c o n t e x t ; ' M i stakes a r e m i s t a k e s : e x p l o i t a t i o n i s e x p l o i t a t i o n (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 th e e f f e c t t h i s w i l l have on the 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. There i s o f t e n no a c t u a l l o s s but an a c c u m u l a t i o n o f p r o f i t s o u t s i d e E a s t 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 p r i c e . 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 im p o r t e d goods. T h i s e x p e n s i v e , but j u s t i f i a b l e s e r v i c e , has on many o c c a s i o n s 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 . I t 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 m a c h i n e r y 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 . ' O v e r - i n -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 t o 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 t o be making ' l o s s e s ' i s o b v i o u s . The 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 . 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 g e n e r a l 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 l e g i s l a t i o n . 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 c o n t r o l . 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 g e a r e d 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 n i n e t e e n t h c e n t u r y . 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 S t a t e s was t o e x p i r e . 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 c a n n o t be produced by human i n s t i t u t i o n s . . . but when the laws u n d e r t a k e 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) E v e r y l a r g e i n s t i t u t i o n s h o u l d 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 usinessmen, i f n o t 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 ? The answer t o the f i r s t q u e s t i o n 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 . The answer t o t h e second i s , a t l e a s t n e b u l o u s . 1 ' 3 " " ) C o r p r o a t i o n s c o u l d o n l y f i n d l e g i t i m a c y i n t h e i r economic s u c c e s s . 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 r e a s o n 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 t o 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 the d i r e c t i n v o l v e m e n t o f 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 th r o u g h p r i v a t e i n t e r e s t s . 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 t h e 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 n o t 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 n o t 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 Europe, 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 a r e engaged i n a c o n s t a n t s t r u g g l e f o r a l a r g e r s h a r e o f 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 t h e consumer o r the s o c i e t y as a whole. None o f the two o r g a n -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 . The end r e s u l t i s i n e f f i c i e n c y and waste. 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 . O nly 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 t h e i m p l i c a t i o n s a r e l i k e l y t o t r a n s c e n d t h e f r e e e n t e r p r i s e system as we know i t t o d a y . Goyder has warned; 'T h i s 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 n o t 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 o u r 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 unchecked, l i b e r t y i n the economic f i e l d w i l l come t o appear 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 t h e m a c h i n e r y o f t h e s t a t e ; and once t h e power o f t h e 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 o u r 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 n o t 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 o u r 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 . 1 (132) C o n t i n u e d s o c i a l l y 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 w i l l i n e v i t a b l y i n v i t e governments}!'ntervention. In E a s t A f r i c a , t h e worker e a r n i n g the m a r g i n a l s u b s i s t e n c e 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 . T h i s 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 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 o the company. There i s a l o t t o 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 . The company t o 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 r e c o g n i s e 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 . H i s a t t i t u d e i s i n r e s p o n s e q u i t e o f t e n t o t h e 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 t he company has l e d t o w aste, 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 c o s t s . 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 -g o t t e n . 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 t o t h e i r l a s t b a s t i o n ; the government t o i n t e r v e n e . The f u n c t i o n o f a government, i s n o t as some s o c i a l i s t s w i l l t e l l u s , 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 , s h a r e h o l d e r s , consumers and t h e community. 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 freedom 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 . T h i s can o n l y be 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 . '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 n o t 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 i n t e r e s t s 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 -a d v e r t i s e m e n t . Some examples w i l l i l l u s t r a t e t he l i k e l y consequences o f c o n t i n u e d c o r p o r a t e i r r e s p o n s i b l e b e h a v i o u r . 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 -M cConnell L t d . , a B r i t i s h m u l t i n a t i o n a l c o r p o r a t i o n w i t h d i v e r s e i n t e r e s t s i n Guyana, has major h o l d i n g s i n t h e 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 i n d u s t r y . The s u g a r i n d u s t r y employs about 13 per c e n t o f t h e Guyanese work f o r c e and e a r n s about 35% o f h e r f o r e i g n exchange. 90 p e r 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 S e c u r i t i e s L t d . ^ 1 3 4 ^ A l c a n Aluminium L t d . , one o f t h e l a r g e s t Canadian 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 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 t h e w o r l d s ^ 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 p e r c e n t o f h e r 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 p e r c e n t o f t h i s , the r e s t b e i n g p roduced by Reynolds M e t a l s Company, a U.S. c o r p o r a t i o n . ^ 1 3 ^ 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 t h e 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 . . . . F o r 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 , t o d i s c r i m i n a t e a g a i n s t , o r t o n a t i o n a l i z e f o r e i g n - o w n e d b u s i n e s s , o r i n d e e d , t o 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 . 1 (136) N a t i o n a l governments have i n d e e d a s s a u l t e d f o r e i g n companies. T h i s o f t e n f o l l o w s p o l i t i c a l independence and an awareness o f n e o - c o l o n i a l i s m under t h e g u i s e o f f o r e i g n i n v e s t m e n t . 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 u r a l r e s o u r c e s . N a t i o n a l governments welcome t h e 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, t h e s e companies undermine t h e 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 economic-' 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 . ' ' 3 " 7 ) 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 n o t t o l e r a t e a f o r e i g n company t h a t does n o t 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. The two companies, 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 -p h i e s . 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 employees, 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 e s t a t e s . ' A l c a n d i d n o t 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 p r o f i t . 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 t he Guyana c i t i z e n s and make e f f o r t t o G u y a n i z e t h e i r management s t a f f . 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 Bookers 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. 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 n o t q u i c k a t i m p l e m e n t i n g the p o l i c y and 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 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 , t he 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 -a l i s t i c t erms. 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 r e s p o n s i b i l i t y . 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, i n many f i e l d s , A l c a n remained ' f o r e i g n ' and d i d n o t expand on o p e r a t i o n s . 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 d e c e i v i n g . 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 u n a c c e p t a b l e t o 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 h e r 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. B a u x i t e b r o u g h t i n l i t t l e r e v e n u e , 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. 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 -i o n . 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 the government would n e v e r have i n f l u e n c e and f i n d o ut any f i n a n c i a l d e t a i l s . In 1971, the government summarily n a t i o n a l i z e d Demerara B a u x i t e Company. 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 make p r o f i t s . 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 a t Kilembe. 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 he 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 the c o l o n i a l r u l e and soon a f t e r independence i n 1961, the 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 . Managers used 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 . 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 but whenever t o l e r a t e d , t h ey 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 the workers and e m p l o y e r s , the s t r o n g e s t weapon f o r the 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 the j o b . Management, s u p p o r t e d by the government, took the view t h a t t h i s was a s i g n o f non commitment, r e b e l l i o n and i r r e s p o n s i b l e b e h a v i o u r and the 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 workers 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 the 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 the workers 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 the g r e a t e s t r e s o u r c e f a c t o r i n development. The r e s u l t o f the p o l i t i c a l e d u c a t i o n , which i s n e c e s s a r y i f t h e workers 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 -(138) 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 . (140) (139) In 1971, a p o l i t i c a l document, Mwongozo v 1 was produced by t h e r u l i n g 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 p r o d u c t i o n . 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 conceded t o t h e t a k e - o v e r . 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. THE RUBBER INDUSTRIES L T D . ^ 1 4 1 ^ 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 o r i g i n . In r e c r u i t i n g s t a f f , t he company was unable t o f i n d any q u a l i f i e d p e r s o n o f 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 n o t i c e . As f o r the worker, i t was o b v i o u s . The workers were s e t t o spy on each o t h e r f o r f a v o u r s . 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 . Management s u p r e s s e d i t . 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 had 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 . 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 p u p p e t s . ' Management, on r e a l i s i n g what was g o i n g on, f i r e d t he 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 t h e m s e l v e s . 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 m a t t e r s . a f f e c t i n g t h e i r l i v e s . 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 p a i n o f h u m i 1 i a t i o n . - 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 t o 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 ponded 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 c o - o p e r a t i v e s o c i e t y , n e g o t i a t e d l o a n s from banks and compensated t h e s h a r e h o l d e r s a f t e r an i n d e p e n d e n t body had e v a l u a t e d t h e 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 t h e 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 t h e c o n s e q u e n c e s , the workers and the community a r e l i k e l y t o t u r n t o 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 e l e c t o r a t e . 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 t h e seeds o f s e l f d e s t r u c t i o n . Company law must acknowledge t h i s f a c t i f i t i s t o s e r v e the i n t e r e s t s o f s o c i e t y . Reform i n t h e 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 i s a n e c e s s a r y p r e - r e q u i s i t e 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 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 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 whether 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 under which t h e y a r e e m p l o y e d . 1 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 s p h e r e s . ' 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 i n t e r e s t s . 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 , t h e 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 l a w y e r 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 i n Western Europe f o r sometime. 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 attempt 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 l i n e w i t h the 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 . 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 Kant, t h a t men s h o u l d be s u b j e c t s and n o t 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, 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 t he 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 s p h e r e where d e c i s i o n s a r e made by consensus through the system 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 i n a l t e r i n g t h e s t r u c t u r e o f b i g 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 . I t 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 r e d u c e d by attempts t o humanize and d e m o c r a t i z e 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 t h e weak economies. Thus, 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 i m p l e m e n t i n g some form o f i n d u s t r i a l democracy programmes, some a r e s t i l l engaged i n r e s e a r c h . In 1973, a b i l l was p a s s e d i n t h e 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 problem.' (3) - 62 -I t was recommended t h a t e f f o r t s s h o u l d be madeto encourage the humaniz-a t i o n o f w o r k i n g c o n d i t i o n s and the work so as t o i n c r e a s e worker 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 a r e a r e f l e c t i o n o f t h e views o f the p e o p l e . The spontaneous worker c o u n c i l s i n Hungary i n 1956, F r a n c e i n 1968 and I t a l y i n 1969; t h e 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 , C h i n a , P e r u , 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, B e l g i u m , E n g l a n d 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 t h e v a r i o u s e x p e r i m -e n t a l schemes i n t h e 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 t h e development o f one model o r a n o t h e r a l l aim-i n g a t worker i n v o l v e m e n t 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 l i f e . 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 worker p a r t i c i p a t i o n i n t h e management o f a company, o n l y T a n z a n i a has t a k e n p o s i t i v e s t e p s towards i t s i m p l e m e n t a t i o n . A fundamental q u e s t i o n i s whether workers n o t o n l y i n E a s t A f r i c a but t h e w o r l d o v e r a r e 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 workers towards worker 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 t h e y a r e n o t w i l l i n g t o use it. ' V a r i o u s 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 t h e 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 v e r y (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 t h e same time and c o n c l u d e d ; - 63 -'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 worker 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 p r o p o n e n t s 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 r e v i e w 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. Such c o n s i s t e n c y I submit i s r a r e i n s o c i a l r e s e a r c h . ' ^ 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 n ote o f the V o i c e of; Uganda, Wednesday 1 May 1974 where i t was a s k e d ; '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 t he s t a t u s , d i g n i t y and r e s p e c t o f the worker 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 n o t 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 u n i o n . 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 s y s t e m a t i c e d u c a t i o n o f t h e l a b o u r f o r c e n o t 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 co-o 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 through 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 c a s e ; ' E x p l o i t a t i o n o f man by man has n o t 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 Unions) 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 s h a r e s 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 independence would r e s u l t i n development o f s t r o n g t r a d e unions 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 d e v e l o p -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 n o t always welcomed by the c e n t r a l a u t h o r i t y f o r they a r e u n i f i e r s o f l a r g e b o d i e s o f 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 speeches sound f a v o u r a b l e t o the w orkers but i n p r a c t i c e i t i s a n o t h e r m a t t e r . F o r 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 t h e n a t i o n s a i d ; 'To w o r k e r s , t h e y 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 might n o t 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 t h e 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 a r e 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 p r o c e d u r e s 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 c o n t e m p l a t e d , b y l a b o u r i f a t a l l . . T hus, t h e r e i s an even s t r o n g e r c a s e f o r worker p a r t i c i p a t i o n i n manage-ment 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 rker p a r t i c i p a t i o n can be l i m i t e d t o t h e 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 t h r o u g h 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 n o t 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 , poor c o n d i t i o n s o f work and the l i k e . 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 t h e 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 , t h e 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 workers 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 t h e 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 , t h e 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 n o t t a k e 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 o u r 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 a t t e m p t t o improve c o n d i t i o n s o f workers and main-t 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 i m p l e m e n t i n g some program t h a t i n v o l v e workers - 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 i n d u s t r y . 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. I t , f o r 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 the b u s i n e s s e n t e r p r i s e . I t 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 c o n c e r n t h e e n t e r -p r i s e . 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 the p a r t i c i p a t i o n by workers i n the p r o c e s s e s o f management. T h i s i n c r e a s i n g 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; ' c o - d e t e r m i n a t i o n ' 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 boards as non e x e c u t i v e 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 the o n l y l o g i c a l and d e s i r a b l e outcome i n the l o n g run so as t o e l i m i n a t e management and l a b o u r c l a s h . ' " " ) Worker p a r t i c i p a t i o n can t a k e 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 o v e r m a t t e r s t h a t d i r e c t l y c o n c e r n 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) c o n c e r n and worker 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 , which i s r e q u i r e d a l m o s t by e v e r y European c o u n t r y , 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 the aim i n a l l c a s e s 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 b o a r d s . 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 e q u a l 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 t h o s e s e l e c t e d by t h e s h a r e h o l d e r s . A few c o u n t r i e s have a l s o a t t e m p t e d o r a t l e a s t c o n s i d e r e d i n v e s t m e n t 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 s h a r e h o l d -e r s . 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 a t t e m p t s a r e o f t e n u n s u c c e s s f u l . The r e s p o n s e t o worker 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 , t h e 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 . I t p r e d i c t e d t h a t l a b o u r r e p r e s e n t -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 h e r d o f b u l l s i n t o a c h i n a 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 development. I t has been l i n k e d w i t h t h e 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 t he 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 , worker p a r t i c i p a -t i o n was and c o n t i n u e s t o be opposed by both management and l a b o u r . The debate i s even more h e a t e d o v e r b o a r d r e p r e s e n t a t i o n . Management i s alarmed by the i m p l i c a t i o n s o f i t s r e d u c e d power. Ther e i s f e a r t h a t 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 workers b e l i e v e t h a t worker 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 tempt t o r e c o n c i l e i n c o m p a t i b l e v i e w p o i n t s . ' ^ ' - 68 -Some have argued t h a t e x p e r i e n c e has shown t h a t worker p a r t i c i p a t i o n on the board has n o t been e f f e c t i v e and 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 dorminance by management. 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 t h e y a r e not w i l l i n g t o r e d u c e 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 t h e m s e l v e s . 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 o f u n i o n s . '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 system . . . And we b e l i e v e workers 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.' (17) 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 worker) 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 . ' (18) De 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 , worker p a r t i c i p a t i o n has been on t h e i n c r e a s e e s p e c i a l l y s i n c e t h e 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 t a k e n 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 worker 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 t h e 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 a t t e m p t s t o i n v o l v e workers i n d e c i s i o n making. Any c o u n t r y a t t e m p t i n g anyform o f worker 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 p r o p o s e d e l s e w h e r e . S u c c e s s o r f a i l u r e i s n o t 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 . T h e r e 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 . A t t i t u d e s o f managers and employees 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 . The 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 s u i t t h e i r own c i r c u m s t a n c e s . The schemes as implemented 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 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 o t h e r c o u n t r y . 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. T h e r e 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 t o d a y 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 c o n c e r n e d w i t h s o c i a l m a t t e r s o f t h e 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 workers 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 t h e 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 Vagts n o t e s t h a t ' i t i s g e n e r a l l y a g r e e d 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 t o s u p e r v i s o r y c o u n c i l s , f a i l e d i t s p u r p o s e , owing t o t h e 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 t h r o u g h (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 ' / ' The Nazi regime, i n 1933 p a s s e d the O r der o f N a t i o n a l Labour A c t ( G e s e t z 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 l a b o u r 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 t h e 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 e n t r e p r e n e u r 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 u n i o n 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 c o u n t r y , e s p e c i a l l y i n t h e Rhur c o a l and s t e e l r e g i o n . The N o r t h German i r o n and s t e e l c o n t r o l which managed t h e i r o n and s t e e l i n d u s t r y t h r o u g h 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 c o - d e t e r m i n a t i o n on an equal r e p r e s e n t a t i o n b a s i s . Thus, t h e r e were t o be e q u a l 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 l a b o u r 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 b o a r d . T r a d e un i o n s 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 e q u a l 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 law o f 1951. - 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 t h o u s a n d 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 i n d e p e n d e n t member nominated by agreement. Thus, 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 d e c i d e i n c a s e o f 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. Disagreement beyond t h i s would become a m a t t e r f o r the c o u r t . In 1956, t h i s model was e x t e n d e d 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 -determ-i n a t i o n i n a l l companies e m p l o y i n g more t h a n - f i v e hundred p e o p l e u n l e s s t h e 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 . O n l y o n e - t h i r d o f the members o f t h e board r e p r e -s e n t e d employees. 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 -v o t e d . 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 t h e 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 . The 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. The S o c i a l - D e m o c r a t i c P a r t y and the L i b e r a l D e m o c r a t i c 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 t o g e t h e r 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 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 e m p l o y i n g more than two thousand p e o p l e . The B i l l was d ebated 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 , t he 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 u n i o n s 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 c o u r t . 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 ' r e p r e s e n t a t i v e s . 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 . H i s 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 e x e c u t i v e b o a r d . 1 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 m a t t e r s a t t h e 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 workers i s implemented, f o r example, s a f e t y and h e a l t h r e g u l a t i o n s . 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 and make s u g g e s t i o n s . 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. ' To be e f f e c t i v e , the c o u n c i l must be i n f o r m e d i n t ime by the employer on problems t o be d i s c u s s e d . ..On r e q u e s t , 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 t h e c o u n c i l needs f o r i t s d u t i e s . On a l l t h e i s s u e s , the works c o u n c i l p r e s e n t s a c a s e t o the employer but c a nnot 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 employees, 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 t h e 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 t h e e n t e r p r i s e . Management r e p o r t s on s a l e s , p r o d u c -t i o n , - i n v e s t m e n t 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 o t h e r arrangement t h a t may a f f e c t the employees o f the f i r m . 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 major 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 produced a d e t a i l e d a n a l y s i s o f t h e o p e r a t i o n o f c o - d e t e r m i n a t i o n . The Commission was g i v e n the t a s k o f e v a l u a t i n g the e x p e r i e n c e o f c o - d e t e r m i n a t i o n . For two y e a r s , i t made i n q u i r i e s by q u e s t i o n n a i r e , c o m p i l e d a l l i m p o r t a n t p u b l i c a t i o n s on the s u b j e c t , a n a l y s e d 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 , u n i o n r e p r e s e n t -(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 / 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 o n l y - 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 t h e company i t s e l f and n o t 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 t h e y have no c h o i c e under the law. Hence, under the 1976 law, where un i o n r e p r e -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 law. 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 , d r a m a t i c c o n f r o n t a t i o n was e x p e c t e d but e x p e r i e n c e has shown t h a t t h e r e i s n o t much o f i t . The f o r m a l s t r u c t u r e s f o r c o - d e t e r m i n a t i o n 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 b o a r d l e v e l 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 t h e 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 t h e 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 a g r e e d 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 t h e overwhelming b u l k o f the d e c i s i o n s a r e 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 f r o n t . ' (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 g r o u n d l e s s . 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 b o a r d i n the c o a l and s t e e l i n d u s t r y had n e v e r had o c c a s i o n t o use the c a s t i n g v o t e i n t h e 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 t h e companies, the (31) c a s t i n g v o t e 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 i s s u e s are n o t 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 t h e 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 t h e 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 t a k e 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 t h e - 75 -p r o p r i e t o r s . 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 t a k e 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 t h e m e e t i n g o f the s u p e r -v i s o r y b o a r d i s c o n f i n e d v e r y o f t e n t o the f o r m a l 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 s p h e r e s o f e q u a l r e p r e s e n t a t i o n d i d n o t l e a d t o impairment o f t h e 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 t o i n v e s t m e n t and e x p a n s i o n (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 t h e e m p l o y e e s / ' 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. 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 power. I t s ' d e c i s i o n s ' are q u i t e o f t e n a r u b b e r stamp o f p o l i c i e s o f manage-ment. Q u i t e o f t e n , a l l the s u p e r v i s o r y b o a r d does i s t o r e f e r back t h e 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 meetings 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 b o a r d 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 t h e 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 p r o p o s a l s . ' (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 b o a r d and 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 - 76 -b a r g a i n i n g s t r u c t u r e t h a t i s l e f t t o t h e t r a d e u n i o n s . The workers and t r a d e unions l e a d e r s had a g r e e d t o keep t h e 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 no t i n v o l v e d i n the o t h e r . A l t h o u g h l a b o u r d i r e c t o r s come from t h e 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 r e p o r t 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 c o l l e c t i v e b a r g a i n i n g . The t r a d e unions a r e much b e t t e r i n f o r m e d on t h e economic s i t u a t i o n o f the e n t e r p r i s e and t h e y 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 e n t e r p r i s e i n c o l l e c t i v e b a r g a i n -i n g . ( 3 5 ) There 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 f i r m . 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 the paramouncy; o f the i n t e r e s t s o f the company. I t i s f o r t h i s r e a s o n 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. T h i s p r i n c i p l e was s t r e s s e d by Green M.R. i n Re Smith and F a w c e t t v ' 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 t h e y c o n s i d e r , not what t h e c o u r t may c o n s i d e r , i n the i n t e r e s t s o f the company and n o t f o r (37) some c o l l a t e r a l p u r p o s e . 1 The same p r i n c i p l e a p p l i e s i n Germany. A worker r e p r e s e n t a t i v e must no t 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 a r e n o t 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 t h e 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 c o n c e p t 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 n o t 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 t h e 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 worker 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 t h e u n e n v i a b l e s i t u a t i o n - 77 -when the u n i o n p r e s e n t s a c a s e 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 s t r i k e . A German case on t h e i s s u e h i g h l i g h t s the problem. 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 chairman o f the s t r i k e s committee a f t e r t h e s t r i k e had s t a r t e d . A n o t h e r 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 t h e 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 by the two was i n b r e a c h o f t h e i r duty o f l o y a l t y s i n c e t h e y 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 c o n d u c t 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 a c c o u n t 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 t h e c o u r t ' c o u l d 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 o u t t h a t t h i s i s n o t a unique s i t u a t i o n . R e s o l v -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 c o n c e p t 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 t h e 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 t h e s h a r e h o l d e r s b u t 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 , t h o s e 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 r e a c h e d a w o r k a b l e compromise. On appointment 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 t h a t have t o be made w i t h the employees' 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 manage-ment bo 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 bo 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 market f o r t o p management. p o s i t i o n s . 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 company/ 1 T h i s f e a r , however, l o s e s ground i n view o f the commission's f i n d i n g 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 s t r u c t u r e . 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 about 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 p l a n t s . ' ^ 4 4 ) 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 the 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 the r e p r e s e n t a t i v e s o f the union and the Employers' 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 ut 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 the t r e n d o f the l a b o u r market. D e c i s i o n s on wage i n c r e a s e a r e made by the managing b o a r d . I t i s r a r e t h a t t he s u p e r -v i s o r y b o a r d g e t s d i r e c t l y i n v o l v e d . 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 the consumer but t h i s does not 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 a s s e s s i n g t h e c o n t r i b u t i o n o f c o - d e t e r m i n a t i o n t o the i n c r e a s e i n wages t h a t (45) has taken p l a c e s i n c e t he e a r l y 1950's. ' 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 the i n c r e a s e . '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 the l a b o u r r e p r e -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 . ' ^ 4 ^ 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 , t h e n , i s a c a u t i o u s e s t i m a t e t h a t f u l l c o - d e t e r m i n a t i o n has somewhat s p u r r e d t he r i s e o f wages i n the 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 he 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 the p r o c e s s i t has kept t he man hours l o s t t h r o u g h 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 achievement t h a t h e l p e d t o pay f o r the i n c r e a s e s . 1 ^ 4 7 ^ 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 b e n e f i t s . T h i s , however, s h o u l d be seen i n the 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 the 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 . They 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. 'An 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 t h e humanity and c a r e w i t h which new j o b s 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 workers r e t r a i n e d o r p e n s i o n e d . ' ^ ) Labour r e p r e s e n t a t i v e s a r e r e p o r t e d t o have i n c r e a s e d c o n c e r n o v e r new i n v e s t m e n t s . I t i s s a i d t h a t t h e y a r e not c o n c e r n e d w i t h 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 t h e y 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 o r 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 . They a r e w i l l i n g t o spend money so l o n g as t h e 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 a r e 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 c o n c e r n about t h e 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 t h e p l a n t . These a l l e g a t i o n s , however, a r e n o t s u p p o r t e d by t h e f a c t s and on the 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 . 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 workers 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 t o the economy. Vagts notes t h a t ; ' I t has r a i s e d i n d u s t r i a l m orale 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 t h e 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 might 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 system. 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 c h a n n e l s 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 d e a l 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 m a r k e t s , 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