eFlash: Global Corporate Responsibility

Federal Laws/History

A Brief History of American Corporate Responsibility

Around the end of the 19th century, the modernization of technology, industry, communications, and business accelerated to an unbelievable rate. Around the world small local farms and shops were being replaced by companies that controlled assets and employees over large regions. This was especially prevalent in the United States, where capitalist competition encouraged the rise of corporations. But with this transformation of business, a number of problems arose: the fall of one huge enterprise affected many people, unhealthy monopolies developed, and the owners of corporations gained immense power and wealth that they often used corruptly, to the chagrin of customers, investors, and the competition. Gradually, the American government found ways to control the new breed of titanic corporations and protect the public from their errors.

In the early twentieth century, the government found itself in conflict with businesses called “trusts.” Theodore Roosevelt was one of the first to work at this new issue when poor laborers and miners were going on strike all over the country because their corporate employers were abusing them. In 1903 Roosevelt created the Department of Commerce and Labor, a new division of the Cabinet that contained the Bureau of Corporations. This bureau could investigate big businesses and monopolies and prevent them from cornering the market, underpaying workers, and tricking consumers.

Numerous acts passed by Congress soon followed to protect consumers from the wrongdoings of the nation’s companies. All types of corporations, from railroad lines to meat packing plants were controlled and regulated. President Wilson, known for his progressivism, followed the “trust-busting” trend. He signed the Federal Trade Commission Act of 1914, which provided for more thorough investigations of trusts and monopolies, and the Clayton Anti-Trust Act of 1914, which enumerated objectionable corporate practices.

After the great stock market crash of 1929 and the Great Depression, many more measures had to be taken to ensure the stability of the stock market and the reliability of corporations. President Franklin Delano Roosevelt, as part of the New Deal, passed countless laws to curb unemployment, help industry, reform banks, and control businesses. For example, in 1934 the Securities and Exchange Commission was created with the mission of controlling and giving order to the stock markets. The government grew in power and influence in domestic and financial matters during the thirties, out of a need to rescue a faltering national economy.

Following victory in the Second World War, the United States began to take on the appearance of an empire. Economic interests and “spheres of interests” expanded into the Third World as America competed with the Soviet Union for world domination. American corporations began to own land, farms, and factories in poorer nations. Often the people and resources of developing countries were exploited and abused by American enterprises, and yet the government frequently needed to intervene to protect the interests of those companies. For instance, in 1954 the CIA supported a coup against a reformist government in Guatemala led by General Arbenz. Arbenz had overthrown a dictator in the previous decade but his agrarian reforms were threatening the interests of an American enterprise, the United Fruit Company, so he was removed from power.

In the 1980s a new crisis developed in corporate America: savings and loan companies were going bankrupt right and left. This conflagration was caused in part by loans being taken out to use on properties with less than the apparent value, in part by the general recession of the economy and the faltering of the real estate market, and finally in part by criminal executives and board members in the S&L corporations. Many such companies lost their money to fraudulent board members, who walked off with large hunks of capital, and the government subsequently investigated them. In the end things were so bad that the government had to bail out these companies by buying all their assets and selling them at low prices through an organization called the Resolution Trust Corporation. This cost at least $166 billion.

In the present day, the number of laws and government agencies that seek to control America’s ever-expanding corporate world is mind-boggling. Perhaps the most important is still the Securities Exchange Commission, which, according to its online mission statement, makes sure that, “all investors, whether large institutions or private individuals, …have access to certain basic facts about an investment prior to buying it.” More recently, the American Bar Association created the ABA Task Force of Corporate Responsibility, which investigates all kinds of wrongdoings in the business world. Also in response to the latest onslaught of corporate scandals, Congress in 2002 passed the Sarbanes-Oxley Act. This monumental act details how companies should be organized at the top levels, how they should disclose important information to investors, and how government organizations should regulate them.

Overall, the corporate world in America seems to function smoothly enough, as do the government regulatory systems. As the economy and technology continue to advance, companies get bigger, more efficient, and hopefully more trustworthy and responsible.