About Tyranny of the Bottom Line by Ralph Estes (Berrett-Koehler Publishers, 1996)

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Why do corporations make good people do bad things? How did the purpose of the corporation come to be perverted, from serving the public good to serving narrow private interests, and in so doing threatening all those that come within the reach of its substantial power?

Like Frankenstein's monster, the corporate system did not develop through evil intent. Its harmful effects are the product of centuries of seemingly benign activities, undertaken by ordinary people merely doing their job. But their direction comes from a perverse scorekeeping system that has become the soul of the soulless corporation. Today this scorekeeper accounting's profit and loss statement, the "bottom line" controls all corporate managers, driving them to actions in their corporate jobs they would never consider as private citizens.

It is a flawed scorekeeper. In its perverse calculus pollution prevention is only a cost; the benefits to society are not recognized. Jobs eliminated reduce internalized corporate costs and so are counted as good; the pain of the newly unemployed is counted not at all. This scorekeeper is concerned only with the private interests of stockholders, and ignores all other stakeholders.

Tyranny shows how to fix the scorecard. It lays out a practical, specific program for a system that will account for the effects of corporate actions on all stakeholders, and so empower them to hold corporations and their managers fully responsible for their actions.

The potential consequences of Tyranny's prescription are profound: less air and water pollution, less toxic waste, fewer workplace injuries, more equitable compensation, more stable and secure jobs, fewer product-related injuries and illnesses, a fairer return to communities on corporate tax breaks, and a better quality of life for all those affected by corporate behavior.

Corporate accountability will not cure all the ills of the corporate system. But it will encourage -and allow - honorable managers to make honorable choices, choices that balance the interests of all stakeholders. Tyranny of the Bottom Line will help put a human face on capitalism.

Chapter 1: The Manager Held Hostage: Why Corporations Make Good People Do Bad Things

PART ONE: THE ROOT OF THE PROBLEM

Chapter 2: The Perversion of Corporate Purpose

Chapter 3: Power Without Accountability: Who Controls the Corporation

Chapter 4: The Dominion of the Corpocracy

PART TWO: CONSEQUENCES OF UNACCOUNTABILITY

Chapter 5: The Harm to Our Communities and Our Nation

Chapter 6: Expendable Employees, Disposable Suppliers

Chapter 7: Customers Pay Twice

Chapter 8: The Public Cost of Private Corporations

PART THREE: A PRACTICAL PRESCRIPTION

Chapter 9: The Solution: A Better Scorecard

Chapter 10: What the Scorecard Should Contain

Chapter 11: How Do We Get There

Appendix 1: The Corporate Accountability Act

Appendix 2: Customer Information Needs

Appendix 3: Worker Information Needs

Appendix 4: Community Information Needs

Appendix 5: Society's Information Needs
 

PART ONE: THE ROOT OF THE PROBLEM

An analytical study of history reveals the now-forgotten purpose of corporate chartering -to serve a public purpose and so benefit society. During the past 150 years this purpose has been perverted by a false scorecard that emphasizes the "bottom line" over the public purpose.

No longer responsible to society, corporations now exercise great power without accountability. Their power is not effectively constrained by government, labor unions, "the market," stockholders, or even the board of directors; only top management has real control over the corporation.

And the power of corporations is great indeed: day in and day out we are much more affected by the actions of these private entities than by those of government. Tyranny particularly examines the pronounced effects of corporate advertising, product marketing, management philosophy, and lobbying on our culture, educational institutions, and national morality.

PART TWO: CONSEQUENCES OF UNACCOUNTABILITY

Cases of harmful corporate behavior are reviewed, such as General Motors' trucks with explosive "sidesaddle" gas tanks, "hot" batches of DPT vaccine, falsification of repair records by airlines ("pencil-whipping"), raiding of employee pension plans, Dow Corning's internal coverup of problems with silicone breast implants, coal companies' doctoring of mine dust samples, defense contract fraud, and the epidemic of layoffs and plant closings, all driven by the tyranny of the bottom line with little consideration for workers, customers, and communities.

Dollar estimates are then developed for the aggregate external or social costs of corporations, the "public costs of private corporations." These include environmental damage, price-fixing, discrimination, defective and dangerous products, workplace injuries and illness, tax evasion, and defense contract fraud, and add up to a whopping national cost of some $2.6 trillion per year. This is more than 20 times total corporate tax payments (and total corporate profits), and raises the intriguing prospect that 40% of our national economic output is due to the questionable inclusion of corporate social costs. By achieving corporate accountability to stakeholders, many of these costs would be eliminated to the benefit of victims and the national economy.

PART THREE: A PRACTICAL PRESCRIPTION

A plan of action is presented to begin the process of creating more effective and more humane corporations, by restoring the original public purpose of the corporate system.

A critical step will be to achieve corporate accountability through full and fair disclosure to stakeholders, following the model adopted sixty years ago to bring a degree of order and fairness to financial markets. The full light of accountability will change management's behavior and substantially reduce corporate abuse and misbehavior.

This prescription calls for bringing stakeholder interest groups - consumer organizations, labor unions, civil rights and feminist organizations, neighborhood and community groups, environmentalists, the religious community - together in a national Stakeholder Alliance to seek corporate accountability as part of each group's action agenda. While such voluntary and grassroots-based action is emphasized, a draft of a federal Corporate Accountability Act is also presented in case national legislation becomes necessary. Appendices review in detail the Information needed by stakeholder groups.

The book concludes by reviewing the consequences of corporate accountability: less air and water pollution, less toxic waste, fewer workplace injuries and illnesses, less racial and sexual discrimination, more equitable compensation, more stable and secure jobs, fewer product-related injuries and illnesses, communities that are stronger both economically and socially, and a better quality of life for all those affected by corporate behavior. The book concludes that corporate accountability will not cure all the ills of the corporate system, but it will allow honorable managers to make honorable choices - choices that balance the interests of all stakeholders. Such balancing choices are now extremely difficult, when the corporation's objective is taken to be the maximization of the bottom line at whatever cost to stakeholders.

A well-researched shocker that will make most readers rethink the mission of the nation's corporate powers. It makes a strong plea for accountability but also equips the stakeholders to demand more by arming them with potent information. . . Read it! -- Barbara Reynolds, national columnist

Been wondering how our democracy became a corporate state? . . . Read this book! -- Ernest Fitzgerald, Pentagon engineer; author; The High Priests of Waste and The Pentagonists

I couldn't put the book down. A moral, compassionate, wise and informed treatise that analyzes the problem and lays the groundwork for practical solutions. Community organizers and activists should read and use this book. So too should money managers and investment advisers. If they are smart, corporate CEOs and their Boards will schedule a serious discussion of Estes' proposals at their next Board meeting. -- Stephen Viederman, President, Jessie Smith Noyes Foundation

Ralph Estes has been at the forefront of development in corporate financial disclosures and corporate social accounting for two decades. In Tyranny of the Bottom Line he has linked his research and prescriptions into a practical solution to the problem of the lace of disclosure of stakeholder interests. His book should prompt managers, regulators, and legislators to rethink the role of the corporation in society. Well worth reading. -- Marc J. Epstein, Graduate School of Business, Stanford University

Ralph Estes is clearly one of the leading experts in the country on the problems that deficiencies in financial reporting and accountability have added to the burdens faced by corporate America in our attempt to compete in the global economy. -- Joseph Duffey, Director, USIA, in recommending to President Clinton that Estes be appointed chair of the SEC.
 

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