Corporations and the Morality of Promise-Keeping

Curtis Bridgeman, who teaches at Florida State University Law School, recently published an article criticizing those who assert that underwater borrowers (i.e., folks whose debt exceed the value of the property) have no moral obligation to pay their mortgages even when they have the economic ability to do so. Most people, I suspect, would think that words like “I hereby promise to pay,” found at the beginning of every promissory note, create at least a prima facie moral obligation, not merely a legal one.

Not so fast, asserts Adam Levitin here where he writes that “I don't see why there's necessarily any more moral content to the mortgage contract than there is to my typing or changing the toner cartridge.”  One might observe that there is moral content to typing when we compare typewritten words “I love you” with “Your money or your life,“ but I’ll let that pass.

While not incorrect, it’s also a bit unusual that Levitin refers to a mortgage “contract” since one party, the lender, has fully performed while the borrow has simply promised to repay what she has received with interest. The moral principle of unjust enrichment (and the remedy of restitution) should come into play here but this point is irrelevant to Levitin’s moral conclusion so I’ll ignore it for now.

With a little fleshing out, Levitin’s reasoning suggests the following moral argument: corporations are not moral beings; thus, a corporation creates no moral obligation when it makes a promise (let us call this the principle of non-morality). Consider the following example of the principle of non-morality in action: an avalanche caused by a thunderstorm kills a hiker. Few would assert that either the falling rocks or the cumulonimbus clouds acted wrongfully; thus, they are examples of non-moral entities. On the other hand, persons who are moral beings can create moral obligations by a promise (I think Levitin would affirm this). However, Levitin asserts that a promise by a moral being to a non-moral entity creates no moral obligations (let’s call this one the principle of reciprocity). Do these two principles hold?

For my money, the validity of the principle of non-morality is a close call. A corporation’s promissory moral obligation can arise, if at all, only by its derivation from human activity. In other words, if (since) humans can create moral obligations out of thin air, so to speak (contra Hobbes), by promising, then so can certain human instrumentalities. Unlike, say, rocks and clouds, corporations are moral agents. They choose ends and means; they exercise agency. Consider the following theological analogy: just as God created human beings in his image (which, whatever else the imago dei entails, includes moral agency) so too humans can create non-biological entities in their image that likewise are moral agents. I suspect most people believe that corporations are moral agents and, although moral intuitions don’t prove much, they should count for something. (For more, check the Stanford Encyclopedia of Philosophy here for an even-handed discussion of the contested notion of group rights.)

Even if this argument is unpersuasive, how does the principle of reciprocity fare? In other words, even if “soulless” corporations cannot create self-imposed moral obligations, is an individual’s promise to such an entity likewise bereft of moral significance? If I promise a rock to protect it from the rain, have I wronged it when I leave outdoors in the next storm? I don’t think even Immanuel Kant would buy that. But as I argued above, I believe there is a morally significant distinction between a rock and a corporation. One is natural and the other is artificial but the corporation is a human artifact. As I noted here, a corporation’s final cause must (should, anyway) be something other than its efficient cause (profitability). The ability to select the end or good of corporate activity not only cuts against the principle of non-morality but makes morally significant illocutionary acts (such as promises) that persons make to corporations. Keeping one’s promise to a corporation contributes to the good of that entity just as keeping one’s promise to another person contributes to hers. Promises to repay a loan, even if made to the big, bad bank, carry with them moral obligations. Even granting the principle of non-morality, the principle of reciprocity does not follow.

One might object to my claim that corporations have good ends, or at least that all corporations have a cause other than profitability. It cannot be doubted that the goal of many (most?) large corporations is little more than profit. Of course, the same might be said of many (most?) individuals. Does such an observation entail that there is no moral obligation to keep any promise? I hope not. Or that moral obligations exist only when someone (who?) adjudges that something other than profit motivated this promisee? I doubly hope not.

Finding morality in all promises need not make one a moralist of duty. (Hat tip to colleague Tom Folsom for his observation that Gilbert and Sullivan’s The Pirates of Penzance is a hilarious send-up of Kant’s notion of the categorical imperative.) There is a flip side to the morality of promising, and I will address it soon. I promise.

Jane Eyre

Saw the latest film adaptation of Jane Eyre last night after the severe weather that afflicted Raleigh. Very well done (the movie, that is), although one not having read the book would probably have found the extensive use of flashbacks a bit challenging. Mia Wasikowska was a superb Jane but even the younger folks with us found her swallowed enunciation at times a bit hard for American ears. Michael Fassbender was perhaps a bit too pretty for Rochester and, to my embarrassment, I didn't recognize Judi Dench as Thornfield's housekeeper. Jamie Bell delivered an excellent performance as St. John Rivers but the screenplay didn't allow for the full development of his deeply-held but conflicting evangelical motivations.

In short, a film well worth seeing.

Environmental Rights or Rights of the Environment?

An entry on my Facebook "Top News" today linked to the "news" that Ecuador had recently granted "the environment" legal rights. I wasn't able to track down the link but a brief search on the web revealed that the citizens of Ecuador amended their constitution in 2008 to provide that:

Natural communities and ecosystems possess the unalienable right to exist, flourish and evolve within Ecuador. Those rights shall be self-executing, and it shall be the duty and right of all Ecuadorian governments, communities, and individuals to enforce those rights

One's suspicion that the amendment might have been a political stunt is reinforced when one reads that less than a year later the government of Ecuador's recently elected president, Rafael Correa, who had been instrumental in drafting the amendment, withdrew the legal status of Acción Ecológica, Ecuador's leading environmental group.

In any event, even putting aside the question of what it means for the rights of an ecosystem to be "self-executing," there is a fundamental question of whether such entities can have rights. In my lengthy series of blog entries on Nicholas Wolterstorff's book "Justice," I skipped this question. My bad.

My soon-to-be-published article on a distinctively Christian foundation for human rights (in short, the image of God thing) might lead some to conclude that "nature" cannot have rights. Not so fast, my friend. I suspect my answer will be no, at least not directly, but I'm not sure yet. For those whose visceral reaction might be "hell no," I have a question: If nature cannot have rights, how can a corporation?

Empiricism and Evidence

Scientific evidence, whether in litigation or administration, has been privileged for a long time. In other words, even though the scientist was not a witness to the events at issue in a trail, the scientist's testimony is admissible. The scientist's testimony tends to be given great weight; in other words, it often seems more believable than the contrary testimony of a lay witness.

Scientific evidence has these unique privileges because we've assumed that the scientific method produces Truth. The scientific method, in turn, presumes the validity of empiricism.

But can empiricism be empirically verified? One cannot help but wonder after reading this piece in The New Yorker describing the "decline effect." The decline effect is the observation that the results of valid empirical studies often cannot be replicated. More recent attempts to replicate the results of earlier studies that have been long-standing stalwarts of scientific and popular consciousness have been failures.

The article describes some plausible reasons to account for some of the decline effect but these reasons can't account for it completely. Ultimately, author Jonah Lehrer astutely concludes that: 

The decline effect is troubling because it reminds us how difficult it is to prove anything. We like to pretend that our experiments define the truth for us. But that’s often not the case. Just because an idea is true doesn’t mean it can be proved. And just because an idea can be proved doesn’t mean it’s true. When the experiments are done, we still have to choose what to believe.

Human beliefs, even the most "factual," do not exist apart from faith.

I would appreciate hearing from anyone on the extent to which the decline effect has been used in litigation or administrative proceedings.

What’s A Corporation Good For?

Last week Campbell Law School colleague Kevin Lee mentioned the unusual mission statement of Quebecois corporation Ouimet-Tomasso, Inc. I’m not sure this is the current version but here is one I found:

As a highly ethical, economically competitive provider of
    quality frozen diners and entrées,    
centered on and driven by our people,
and in cooperation with a loving God,
to innovatively generate continuous growth,
    in human well-being,
    in customer enthusiasm, and
    in long-term economic performance.

Quite interesting but it’s not what most folks take to the purpose of business organizations generally. Many (most?) believe that profit limited, if at all, by positive law is the ne plus ultra of the modern corporation. But if not profit, then what? Businesses that lack profit tend not to survive long. At least not in their non-profitable form. Perhaps Aristotle’s doctrine of the four causes can help us understand the relationship between profit and corporate purpose.

Aristotle recognizes four types of causes to identify to answer a “why” question like, “Why do corporations exist?” The material cause (that out of which something is made), the efficient cause (the source of the change of or to the material cause), the formal cause (the form or structure of what is it we are asking “why?”), and the final cause (the end/purpose/goal of the thing).

The material cause of a corporation is that which it does--build cars, produce drugs, clean carpets, or stream internet porn. The efficient cause of corporate activity is capital, which turns the “stuff” of corporate activity, its material cause, into what folks buy. Capital lasts only so long, however, if the corporate activity doesn’t yield a profit. So it’s here, at the level of efficient cause, that profits fit in an Aristotelian account. Then it’s on to the formal cause, the stuff of law school courses in business associations, like Articles, By-laws, resolutions, minutes, and so on. Finally, the final cause.

Before suggesting a corporation’s final cause, however, we should note that it won’t be the same as the corporation’s efficient cause. In other words, profit is not the goal of corporate activity; it is simply one of the “causes” that permits the corporation to achieve its goal. Many probably intuitively recognized this when I listed steaming internet porn among the material causes of a corporation. It strikes most folks that something other than profitability (believe me: internet porn is profitable) should serve as the corporate goal. But the leading contemporary theoretical accounts of the firm in fact stress profitability--shareholder return--as the corporation’s only goal, at least for publicly traded ones.

I think we can trace the single-minded emphasis on profit über alles on themes of success and envy. The rapid and increasing success of natural sciences beginning in the 16th century can be attributed to their turn away from contemplating final causes to a focus on efficient ones. In turn, the social sciences like law were envious: “why can’t we be a ‘real’ science, too?” So beginning with Legal Realism in the 1920s and continuing through law-and-economics from the 1980s to today, we have seen a virtually exclusive emphasis on what is taken to be law’s efficient cause--welfare maximization. And welfare maximization for a corporation can be little other than profit.

An entity without a final cause or goal is like a powerful chainsaw spinning out of control: it can do a lot of damage. Corporate profitability alone, like breathing alone, is not good. Only profit directed toward an end that is good is profit worth earning.

Medea

The online squib about Regent University's production of Medea describes Euripides' play "as the classic tale of a woman scorned." Well, yes, I suppose, if killing one's own children for revenge on a philandering husband counts as a typical response to his scorn.

The staging was, as usual, excellent. No unnecessary props. A solid chorus and nurse. Tabitha Ray was superb as as Medea. Zachary Bortot was a bit young for an over-the-hill Jason (of the Argonauts fame) but there's not much he can do about that. I found the end, when Medea is to be whisked away to Athens in the chariot of Helios, a bit confusing. Medea's disappearance behind the stage seemed to suggest that director Derek Martin was unwilling to follow the play through to its original end. The voice-over quoting Proverbs 14:12/16:25), while not inappropriate, likewise suggests that Martin was concerned that the typical Regent audience might have found the unadorned version too discomfiting.

A woman scorned and vengeful? Indeed. But let's not miss the nature of oath-taking and the dire consequences of oath-breaking. Perhaps a concluding reference to Psalm 15:4 would have been even more appropriate.

Symposium

Props to the able leadership of the Campbell University law review, faculty advisor Kevin Lee,  and the law school administration for last week's superb symposium. "Liberalism, Constitutionalism, and Christianity" brought together eight scholars who analyzed the influence of Christianity on classical liberal thought from a variety of perspectives. Personally, I enjoyed this conference more than most that come to mind. I won't forget Tony Baker's searing blend of natural law/natural rights and biography of Frederick Douglass. Barry Shain's contrarian take on pre-Revolutionary American history was thought-provoking. A couple of folks even asked for copies of my paper considering foundations for human rights. Keep an eye open for the next issue of the Campbell Law Review to read all the articles.