Abstract
This paper shows the major points of Dr. Michael Novak. He pointed out the origins of the corporation and how it was modified by the American corporations. The changes made an impact that was detrimental to the civil society yet very attractive to private individuals. He also defined various concepts relative to corporation. These include social democracy, stakeholders, among others.
Introduction: How a Corporation Emerged
Dr. Michael Novak makes a historical development of the concept of a corporation. He wants to show that a corporation was inherently and originally formed with the utmost interest of the people. It used to serve a very defined and noble purpose – for the good of others. This purpose has been blurred when the Americans modified the concept of corporation to meet their own interests and needs. The natural purpose of the corporation must be revived. It must be altered to the more ideal purpose than just profits.
According to Dr. Novak, the corporation has existed long ago. This is because commerce or trading has started long before corporations were formed. This was indicated by the Bible, in the Old Testament, and in writings of Aristotle and Cicero, in the Early Middle Ages, etc. (Jennings, 2011) Dr. Novak, however, asserted that the first corporations emerged in the Middle Ages. (Jennings, 2011)
Centuries ago, association of men who further trading and commerce as middle men, traders, etc. The elements incorporated then were administered by the States to community groups, those who would do good for others such as city residents, parishioners of a religious faith, group of students, etc. (Jennings, 2011) The early incorporated organizations were burial societies, cities, monasteries, and universities. These corporations performed customized functions for their States and they served special needs of the constituents. Its rights were deeply rooted in the functions similar to those of the associations. Corporations were tightly controlled by the states to dispense its own purposes.
The Context of the Evolution of the Corporation
The legal concept of incorporation in Britain and in Europe was originally to service the needs of their people. They have established it long before it was copied by the United States. (Jennings, 2011) As a civil society, the United States modified corporations to fit their needs.
The alterations made by the American corporations in the rules of incorporation enabled commercial interests to be incorporated and the original format of a social service organization to an agency of self or vested interests of private individuals. (Jennings, 2011) This specific modification changed the concept of a corporation to a modern one that is adoptive to capitalist economies.
Dr. Novak feels that this difference resulted in the proliferation of the corporations in the United States. These include religious corporations, manufacturing corporations, etc. They were given legal order by the state in terms only of incorporation. However, their perpetual survival depends on how these crafty men would supply its own needs and even make more. The proliferation also resulted to the lack of supervision and the lack of moral direction of these mushrooming entities. Hence, Dr. Novak felt that the corporations became vulgarized. It also led to the greed and unsatisfied wants of the corporation because they have no moral responsibility to the state. (Salacuse, 2002) While they have no other privilege from the state, their activities are flexible and they may dare to risk all of their resources or gather all that they deem their gains out of the capitalist system.
Historically, stakeholders refer to those who have a stake in the land, as protected by the state, because the state wanted to develop a free state and it wanted the constituents to reap the rewards of tilling the soil as private individuals who enjoys their own private properties. (Jennings, 2011)
This relates to the first definition of a stakeholder. This definition takes the orientation of a civil state wherein individuals have a voluntary interest in a system. These individuals are ready to face the risks associated with what they may yield as stakeholder expect from the rules or the system of their group. (Jennings, 2011) By this conceptualization, the returns or gains of the stakeholders depends on the system’s performance. Sometimes, it depends on the efforts of all the members or stakeholders. Stakeholders are considered as “owners” or “private risk takers.”
The second definition of stakeholders as explained by Dr. Novak refers to those who take a socialist orientation of the system. In this particular point of view, the stakeholder is an individual who retrieve from the system certain benefits as they are entitled to. (Jennings, 2011) This means they have a right to secure their needs from the system because they have surrendered their rights to the system for their own protection and their basic needs. They even demand their rights out of this system.
Corporations vis a vis Democracy
Social democracy can be defined in relations to the concept of a socialist stakeholder. This implies that stakeholders have the right to demand from the system they belonged to in order to fulfill their needs and to secure their protections. While in theory, social democracy is very ideal and desirable, this is not what happens in real life.
If in the theory of social democracy, there is a common good for all and the members have the feeling of fullness and belongingness all at the same time, this is not true in real life. The practical applications of social democracy lead to mass dissatisfaction among the members of the system. It also fails because for one, the members are not genuinely interested with upholding their system. They just want to get their needs and desires out of the system. They do not fully cooperate to make the system successful and self sustaining. As the system disintegrates, the stakeholders become more dissatisfied and unhappy. (Jennings, 2011)
If the stakeholder is in the socialist mode of production, they may abuse their rights to demand from the state or the general economic system. This is because the author believes that in a stakeholder’s society, the individuals can claim their needs and/or rights from the government. The problem now is about the human nature of needs and demands. Generally, the people have expanding needs. In other words, they never get satisfied.
Hence, as the needs from each member continue, perpetual dissatisfaction of the stakeholders is certain. (Jennings, 2011) The state or the system can never fully satisfy them. Hence, a social democratic system is actually a group wherein the stakeholders are “claimants to the public purse.” (Jennings, 2011) The paradox of a social system becomes the reality.
The corporation is “not a cold meteor fallen from the sky.”
Dr Novak’s Theory Compared with Dr. Freeman and Dr. Friedman’s
Dr. Freeman’s fundamental notion of a stakeholder is relative to the success or failure of a corporation. He makes the stakeholders pivotal to the success of the corporations. (Jennings, 2011) In contrast to Dr. Novak, he was not seeing it in the form of a “stake” in community or service efforts but in the manner by which the corporate entity will be benefitted by the people working behind it or for it.
As mentioned earlier, Dr. Novak’s stakeholders refer to those who have a stake in the land, as protected by the state, because the state wanted to develop a free state and it wanted the constituents to reap the rewards of tilling the soil as private individuals who enjoys their own private properties. Hence, there is goodwill expected out of each stakeholder. Meanwhile, in Dr. Freeman’s conception, the perpetual success and longevity of the corporation is central to the stakeholders who are making the corporations work.
Dr. Novak also likened the stakeholder concept to “serfdom” because in this social system, the serfs or the slaves surrendered their rights and privileges to the master or the landowners, who, in turn, will provide for all their needs and who will give them protection. In principle, this is similar to the critical view of Dr. Friedman that stakeholders were frowned upon because they have to dispense of the wealth they have accumulated in their corporations. People do now like private individuals to have wealth all for themselves. Hence, they criticize the capitalist system. They have an old notion that wealth must be disposed of by the government or a central agency for the public good. (Machan, 2007)
Dr. Friedman said the term socialism or its concept has just been translated into “corporate social responsibility” to give it more apolitical meaning. Thus, corporations are now being called to share their profits by doing public good. This is what he meant by saying that “the stakeholder theory is socialism.”
Conclusion
It is evident that Dr. Novak sees a deeper and worthy purpose for a corporation and he stated it firstly in the initial part of his article. Dr. Novak reiterates this when he says that “the corporation is not a cold meteor fallen from the sky." (Jennings, 2011) This statement meant that a corporation is a social institution with higher and lofty goals than just mere profits. People originally incorporated themselves to do good for others and to help or assist their community or states. This is what he means when he said that.
Corporations are catalyst for change. (Davenport, 2011) They have other utilities aside from capital gains. Business activities of corporations have a solid and deep impact in the environment and this is not just for economic means (whether positive or negative) but also in terms of social responsibility. (Thompson, Strickland, & Gamble, 2008) It is not just the form or the format as a corporation which Dr. Novak implies; it is the heart and soul of the business that he refers to. (Thompson, Strickland, & Gamble, 2008)
For Dr. Novak, corporate responsibility is a calling. (Novak, 1996) Novak said that business and morality is unitary and businessmen must take it as a sacred calling. Hence, corporation means not just deriving profits but also taking the efforts to apply one’s moral beliefs into his business activities.
References:
Davenport, E. (2011). The Next Catalyst for Change: How Corporate Shared Value is Reshaping Capitalism. Claremont McKenna College. Retrieved from, http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1197&context=cmc_theses&sei-redir=1&referer=http%3A%2F%2Fscholar.google.com.ph%2Fscholar%3Fhl%3Dtl%26lr%3D%26q%3Drelated%3APgZQDAEFRk8J%3Ascholar.google.com%2F%26um%3D1%26ie%3DUTF-8%26ei%3DYl8uT93AI-jOmAXgtqz2Dw%26sa%3DX%26oi%3Dscience_links%26ct%3Dsl-related%26resnum%3D4%26sqi%3D2%26ved%3D0CDgQzwIwAw#search=%22related%3APgZQDAEFRk8J%3Ascholar.google.com%2F%22>.
Jennings, M.M. (2011). Michael Novak: Capitalism and the Corporation. In Business Ethics and Case Studies and Selected Readings. (7th Edition). Mason, OH: South-Western Cengage Learning.
Machan, T. (2007). Morality of Business, A Profession for Human Wealthcare. New York: Springer.
Salacuse, J. (2002). European Corporations American Style? Governance, Culture and Convergence. A Conference Hosted by the John F. Kennedy School of Government. Retrieved from, https://docs.google.com/viewer?a=v&q=cache:cBSLe5hQKQUJ:www.hks.harvard.edu/m-rcbg/Conferences/us-eu_relations/salacuse_corporate_culture.pdf+difference+between+British+and+European+corporations+and+the+US+corporations&hl=tl&gl=ph&pid=bl&srcid=ADGEESiTyvI07kEeN0w8MCVLvIC4eObTztefTIFQ-vR9CKZ9Y7KHaavtGJ56QOJOr7ZrlhjtXgaoEkwh3ZVEUuIkOHA5Dt1g8t7LRJKnFKMYY5sexD1RItq3TDPo5n_OuaOd50TGDA1N&sig=AHIEtbRRgL0E3B55PD7sHPg9AAFxHBEPOA.
Thompson, A., Strickland, A., & Gamble, J. (2008). Crafting and Executing Strategy: The Quest for Competitive Advantage. 17th ed. New York: Mc Graw Hill.
