Damianus Abun
Divine Word College of Laoag, Ilocos
Norte, Philippines
This paper was already published in the South American Journal of Management, in 2015. (this is the original draft).
Abstract
It has been an old argument that a Business Corporation is a legal entity, a separate entity and separate from the owner. It has a blanket to protect itself from being sued. The corporate veil has been used as a shield to protect itself from prosecution. With such protection, how can it be morally responsible for its act? Moral responsibility is only applied to humans, not to any other things. However, this paper will argue otherwise. Based on paper reviews, it is found that one of the requirements in determining moral responsibility is the presence or the absence of knowledge and free will in a certain act. Such requirements clearly strengthen the idea that a corporation, though it is a separate entity from the owner may not completely out of hand, wash its hands and can just do what it wants but it has to be also guided by moral standards and take moral responsibility for its immoral actions. The reason is that a corporation as an entity is still composed of rational beings that have the knowledge and free will to pursue their objectives. Therefore, when things go wrong in the corporation, it is not only individual employees who committed the crime who are taking the moral blame but also the corporation as a whole including the owner.
Keywords: Moral responsibility, moral standards, element of moral standards, individualism methodology, the nature of corporation, knowledge and free will.
Introduction
We are trying to understand the moral responsibility of a corporation. The concern of this particular subject is: who is responsible for what is going on in a corporation when things are going wrong? Is it an individual person or the corporation to be blamed? This question is raised based on the nature of the corporation itself, that a corporation is not the same as an individual person who has reason or knowledge and freedom because moral responsibility refers to humans only, not to anything other than humans. Now who is then to be responsible when things go wrong in a corporation? Is it only the man who has reason to take responsibility? How about the corporation? This is the main issue that we need to understand in this topic. To help us understand this issue, we need to understand the nature of the corporation. However, before going further, one needs to know about the morality of certain act. Are there moral standards to be followed? Are there moral standards being violated? Are these violations intentional or not intentional? What are the elements to be considered intentional? It is assumed that the judgment of certain acts, either to be moral or immoral, is always based on criteria or moral standards, not on anything else. A certain act must be evaluated against those moral standards. However, moral standards elements may not be enough as the basis for moral judgment and for someone to take responsibility. Responsibility involves knowledge/reason and free will. Therefore, reason and free will may be used as the starting point in any moral investigation, be it to the individual person or the corporation. After knowing the element of moral responsibility, then, we proceed to evaluate whether an organization or corporation is subject to moral evaluation, and if so, then what qualifies it to be treated as a human person so that it can be held morally responsible for its actions and what disqualifies it in order not to be held morally responsible.
The purpose of this article is to enlighten everyone on the nature of Business Corporations and their moral responsibility. We would like to know if a corporation, as a legal entity, not as a person, has a moral responsibility over the crime it has committed. The area of concern is a corporate veil. The corporate veil has been used as a shield to protect itself from prosecution. The question here is: is a corporation protected from moral responsibility? In this paper, I would like to show that corporations cannot hide behind their corporate veil and wash their hands. To support my stand, careful readings on certain authorities related to the topic are the basis of the arguments presented in this paper. The paper will only limit its argument to the main element in determining the moral responsibility of a corporation. The writer realizes the difficulty in writing this topic because it does not accommodate the idea of moral relativism. He assumes that the readers are believers of universal morality.
Moral Standards
The Meaning of Moral Standards and the Law
Moral standards are bases for moral behaviour
and bases for determining whether a certain act is moral or immoral and for
someone to be responsible or not. These are the guides of human behaviour and
decision-making. These standards are not only applied to individual persons but
also to a group or corporation. Something is unethical if it does not conform
to a particular standard of morality. They may not be written but observed and
they are assumed norms of moral conduct (Articulo, 2005). These norms are points for checking if a certain
action is good or bad. The concerns of moral standards are norms, not theory
which explains why certain acts are good or bad. Moral standards are not the same
as social norms but they are beyond social norms. Though social norms are
codes of conduct within a particular society, they are not moral standards.
Moral standards are beyond borders or may be called universal and are accepted
by all rational beings everywhere. The coverage of social norms is local, while
the coverage of moral standards is universal. Therefore, the function of moral
standards is to check if the social norms are moral or immoral. For example,
certain society allows killing in the name of God or offers humans as a form of sacrificial lamb to God. Moral standards will tell us that it is immoral,
though social custom declares that it is accepted.
Based
on the above understanding, it is clear that ethical standards guide
individuals to act in a good manner in dealing with other humans, society and
the environment. These standards should encourage individuals to make the right
decisions for their actions, and give them the courage to come forward should
they notice dishonest and unethical behavior. Individuals need to follow the
norms prescribed by all rational agents. Therefore, in deontological systems,
being morally good is defined as obeying certain moral rules (Harris1986).
When you follow those rules and do your duty, then you are good —
regardless of any other considerations like whether the consequences of that
obedience lead to suffering or happiness. On the other hand, if you ignore or
break any of those rules then you are not doing your duty and are morally bad —
once again, regardless of any consequences. These moral duties are absolute and
unconditional duties such as telling the truth, being honest, being fair, etc. They apply whatever
consequences might follow from obeying them. An example is the order not to steal.
It is our duty not to steal, though the consequences of stealing would save the
life of the one who is stealing. It does not explain why one should not steal
because it is the concern of moral philosophy.
One
should remember that moral standards are not the same as legal
standards. Following laws does not make
one ethical. Abortion in a certain
country is legal but it does not mean that abortion is moral because it
involves killing a human being. While
this practice is certainly legal, the unethical nature of it is quite clear. Another
example is euthanasia. Some countries are legalizing euthanasia in which one
can terminate one’s life based on mercy or other reasons. Though it is
legal, such action is immoral because it is considered killing. Thus Legal
is following the law and may include exploiting holes in the legal system but
it may contradict morality. Ethics is doing the morally right thing. Some laws
may not even have any ethical connotations whatsoever. Some moral acts may be
legal but they may be also illegal. The legality of an action does not guarantee
that the action is morally right. Many issues in life cannot be resolved
by appeal to law alone. Thus Shaw, and Williams (1999) argued that law codifies a society’s customs, ideals, norms and
moral values and changes in laws undoubtedly reflect changes in what society
considers right, wrong, good and bad. However, he further emphasized that it is
a mistake to see the law as sufficient to establish moral standards that should
guide an individual, a profession, an organization or society. The law cannot cover
all individual and group conduct. Thus conformity to law does not necessarily
mean that the act is immoral or non-conformity to the law does not mean that
the act is immoral.
Sources of Moral
Standards
Related
to the moral standards issue, one may ask a question, “Where are the sources of these
standards or where do we get those standards?
If our
ethics are not based on feelings, religion, law, accepted social practice, or
science, then what are their sources? Many philosophers and ethicists have
helped us answer this critical question. They have suggested at least five
different sources of ethical standards we should use.
Common Good
The common good principle would argue that a certain act may be considered good if it
promotes the interest of the majority over individual interest. This principle originated from the utilitarianism theory. Utilitarianism emphasizes that ethical action is the one that produces the most good for the greatest majority
interest and does the least harm for all who are affected (Velasquez, 2014).
One should not act if it does not bring good to the majority of society,
though it might violate one’s individual interest. If we apply it in the
business setting, an ethical corporate action is the one that produces the
greatest good for the stockholders, stakeholders and the environment. All
actions are analyzed from their consequences, if the consequences are good for
the majority, then such acts can be pursued.
The Rights
Doctrine
Immanuel Kant classified rights as
natural and positive rights. Natural right is an inborn right while
positive or statutory right is what proceeds from the will of a legislator.
From the two classifications of rights, thus we have innate rights and acquired
rights. Innate right is that right which belongs to everyone by nature,
independent of all juridical acts of experience. Acquired right is that right
which is founded upon such juridical acts. The innate right may also be called the
“internal mine and thine” (meum vel tuum internum), for external rights
must always be acquired (Kant, 1790). Kant argued that there is only one innate
right such as birth birthright to freedom, while other rights originate from the right
to freedom such as the right to property and other rights. For Kant, freedom is
independence of the compulsory will of another; and in so far as it can coexist
with the freedom of all according to a universal law, it is the one sole
original, inborn right belonging to every man in virtue of his humanity. This
is a right to be independent and to be coerced by external force. The limit
of this freedom is the freedom of others, in the sense that the exercise of
freedom is limited by the freedom of others. Emanated from freedom is the property right. It is believed that each one is free to own a property. He/she has
the right to property if he/she is connected to it and if any other person
should make use of it with the owner’s consent and if they do it without the
consent of the owner, then they do an injury to the person or the owner. The
subjective condition of the use of anything is possession of it as Immanuel
Kant puts it, “Anything is “Mine” by right, or is rightfully mine when I am so
connected with it, that if any other person should make use of it without my consent, he would do me a lesion or
injury”. Thus anyone who would assert the right to a thing as his must have it as an object. Robert Nozick (1974) as cited by Shaw (1999) argued that property rights are
considered sacrosanct. It grows out of one’s basic moral right. Such right either reflects one’s initial creation or appropriation of the product, some
sort of exchange or transfer between consenting individuals or a combination of
the two. However, Nozick, as quoted by Shaw argued that property rights exist
before any social arrangement and are morally antecedent to any legislative
decision that a state could make.
Reading
the argument of Kant and Nozick, it can be said that there are two kinds of
rights and they are moral natural rights and legal rights. Moral
natural rights are possessed by man under their human nature; they are
born with those rights, not conferred by the state. While legal rights are
those conferred and recognized by the law. That’s why we have constitutional
rights which are conferred and protected by law. They cannot be altered by the
state. While statutory rights are derived from legislation which are drawn by
the people’s representative such as the right to minimum wage and the right to just
compensation for additional work (Articulo, 2005).
Thus the ethicists agree that the
ethical action is the one that best protects and respects the moral rights of
those affected. This approach starts from the belief that humans have dignity
based on their human nature per se or on their ability to choose freely what
they do with their lives. Based on such dignity, they have a right to be
treated as ends and not merely as means to other ends (Kant, cited by Stanford
Encyclopedia of Philosophy, 2004). The exercise of any moral rights is limited
to the moral rights of others, in the sense that while the bearer of the right has
the right to exercise his/her freedom, at the same time the
bearer should not violate the rights of others. Others must protect
our rights and we must protect the rights of others.
The Justice
Doctrine
Plato
as cited by Velasquez (1996) argued that in a society that lacks norms of
justice, he suggests, people inflict injustices on each other. People quickly
conclude that they will be better off if everyone adheres to the norms of justice.
People consequently agree to cooperate in mutual adherence to norms of justice.
It is a long line of reason, we take justice as one source of moral
standards, a standard of moral behaviour. All know that just action is considered to be
ethical. Therefore, the principles of justice are some portion
of the total principles that make up ethics. There
are a lot of different ideas about justice. Aristotle and other Greek philosophers have contributed to
the idea that all equals should be treated equally. Today we use this idea to
say that ethical actions treat all human beings equally if unequally. This
kind of definition refers to fair treatment. But the question here is: who does
the treatment and who is to be treated? The answer to this question leads us
to think of individual justice and social justice or group justice. Justice is
not only fair treatment from other people toward the person but also how the person
treats other people justly. Therefore justice becomes individual virtue and
social virtue. A just person always treats other people justly and a just
society is always treating its community members justly. As a just individual,
I pay people more based on their work, based on the amount they have
contributed to the organization and so the greater the amount that they
contribute to an organization, the greater they receive. Just society, just
government, and just organization would treat individuals justly as how the
individual treats each other. In this case, justice means giving what is due to a
person fairly deserves. An act is ethical if it gives a person his proper due,
otherwise, the act is unethical. Giving what is due indicates that all persons
must always be treated equally.
Velasquez (2014) argues that there
are two kinds of justice and they are distributive and retributive justice.
Distributive justice is dealing with the way how wealth is distributed to
members of the society. Thus distributive justice refers to a fair distribution
of society’s benefits and burdens. The benefits should be distributed according
to the contribution or the burden. Someone should not expect more if he/she has
not contributed anything to the production of the output. Thus, pursuing society’s benefits but
avoiding burdens is unethical because it is unfair for anyone to benefit from
society’s economic pool without working hard for it. Such an idea of justice falls
within what Aristotle called formal justice. Formal justice is the requirement
that we should treat similar people similarly. If two persons have the same
qualifications and the same amount of contribution to the organization, they
should be treated equally or similarly. This kind of justice would contradict what Karl Marx meant by justice. For him, justice is to share benefits according
to the needs but the burden is shared according to the capability. Retributive justice refers to the punishment given to a person who committed a
crime and the punishment must be equal to the crime she/he committed. Not accepting
the punishment is considered unethical because such an act would mean that the
person avoids what is due him. Concerning this idea, it is the same when
someone destroys the property of other people, then it is his due to pay or replace
it. When he violated the law, then it is his due to be jailed.
There are other views of justice
when we talk about society as a whole (Velasquez, 2014). When a person thinks
that talents, education qualification, ability, and experience are the basis for
job distribution and salary structure, would understand justice in terms of
merit. This is what we have mentioned above justice means giving what is due
to the person who deserves it. Such an idea originated in the idea of Plato. Plato
believes that people are classified not based on their family background but
based on their talents and abilities and with such talents and abilities, those
persons can play their social role. Further, when a person considers that the
government should provide free education to all, would think that justice is
about equality. This is rooted in the belief that all men are created equally
or the same. Therefore treatment should not be based on religion, gender, race,
and nationality and all should be given the same opportunity. Therefore, since
all humans are the same, they should be given equal shares of benefits and
burdens. Next, if a person believes that business is important to the common
welfare of society and they should be given a tax break, then they view justice
as a utility. For this group, justice means what promotes the common good or common
welfare of the citizens. In this case, a business is just when it promotes the
welfare of the majority of people.
Natural
Law and Virtue Doctrine
Humans are born good, they are given
the natural knowledge and capability of knowing what is good and bad which is
already built into the reason. Such a concept would emphasize the point that humans
are rational beings and moral beings. This is true for all human beings. Peter
Singer as cited by Arneson (1998) argued that humans have special moral
privileges based on superior cognitive abilities. However, his argument has
been criticized by some for it leads to the conclusion that there are different
capacities among humans and so there must be different levels of moralities among
humans. Besides the points of different arguments, the common point in the
argument is that all humans are moral beings. All actions are commanded by reason
which makes a different from the animal and therefore actions motivated by
reason are necessarily good or moral. It makes a difference from animals. Such a concept leads us to categorize acts as human acts and acts of man. The human
act is calculated by reason, while the act of man is calculated by instinct which
is the same with animals. Therefore, an act is good if it reflects the nature of
man as a rational being and a moral being and these are the first basis for the moral
evaluation of human acts.
Since humans are moral beings, then
definitely humans must possess moral character or virtues. Therefore humans are
necessarily virtuous beings. Aristotle
argued that a virtuous person is someone who has ideal character traits. These
traits derive from natural internal tendencies, but need to be nurtured;
however, once established, they will become stable.
Virtue ethics
emphasize the role of character and virtue in moral philosophy rather
than either doing one’s duty or acting to bring about good
consequences. A virtue ethicist is likely to give us this kind of moral advice:
“Act as a virtuous person would act in your situation.” Or virtue ethicists would advise us, to “act always as an honest
person”. Honesty here does not refer to certain dealings or transactions but honesty is a character of the person. Human transactions must always be
honest because honesty is a reflection of humans as moral beings, virtuous
human beings. If transactions are not honest, then it is immoral because it does
not reflect the character of the human being as a virtuous human being. A
virtuous person is someone who is kind across many situations over a lifetime
because that is her character and not because she wants to maximize utility gain favours or simply do her duty (Athanassoulis, 2013).
Moral Responsibility
After knowing that someone has done something wrong based on either one or all of those moral standards, then that person should take responsibility. Responsibility means something for which one is responsible for one’s act or the state or fact of being responsible, answerable, or accountable for something within one's power, control, or management. Related to the topic of ethics, responsibility would mean being accountable for what we are doing knowingly and freely. It is the extent to which the person or group deserves blame or punishment for what he/she has done or the group has done. In other words, she/he should not wash his/her hands and throw his/her moral responsibility to other people after he/she commits certain actions. Be responsible and take the blame. Why? The person who performs an act knows why he acts and freely commits it, even though he knows his act is wrong but he/she does it and therefore she/he must take full responsibility for his/her actions. Consequently, the person deserves blame or punishment. Thus moral responsibility involves the notion of guilt or innocence (Articulo, 2005). Take an example, the employer was found to be violating the right of employees to privacy. The investigation committee recommend to the management that certain employers have to take responsibility. As a result, the employer was punished and the employer was ordered to pay for moral damages.
The example mentioned above is a case of an individual act, in the sense that the act was done by an individual person, not authorized by the management. Now our concern is, how if such an act was done out of duty or she/he was authorized by the management as prescribed in his job description? Should the individual employee or the corporation take the responsibility? Should both wash their hands? The contention here is related to the extent of moral responsibility. Moral responsibility refers to both, individual and collective moral responsibility (Risser, 2014) because the immoral act may be done either by the individual person authorized by a corporation or a group as a corporation. There can be a situation in which a group knowingly and freely plans certain activity which brings disaster to a community. Moral responsibility becomes complicated here because it involves a corporation which is not considered a human person or rational being. The corporation is only a legal entity created by law which is not an individual person that has no reason, knowledge, freedom or free will. How can it be imposed with moral responsibility? Therefore, we have reason to argue that the person or a group who has committed certain immoral acts is not always responsible for their wrongful act. It might have been the idea behind why some individuals prefer to form a corporation than a single proprietorship because it has a veil to protect from moral responsibility. It is a veil given by law. It has a limited liability. Now, what happens if a certain corporation commits a crime? Who is the one taking the blame? Let us be clear that morality and law are two different things, in the sense that what is legal may not be always moral and what is moral may not be always legal. The issue on hand is a moral issue and as a moral issue, there are simple requirements to be met if a certain act is moral or immoral. In this regard, there must be criteria or requirements to be fulfilled for one or a group to be morally responsible, and thus we need to know when the person is morally responsible and when they are not. To determine moral responsibility, we need to know what makes an act right or wrong morally. This is an important criterion to determine on which we can base our judgment and moral theories will help us in determining the extent of moral responsibility.
Element of Moral Responsibility: Knowledge and freedom
Moral standards are the guide of our moral behaviour. Everyone including corporations should be guided by those moral standards. However, in determining the moral responsibility of certain acts, moral standards may not be a good starting point. Therefore, evaluating certain acts and their moral responsibility merely based on moral standards would not be enough or sufficient. The issue of moral responsibility is framed within the nature of persons. Persons are classified as unique because of their reason, and minds (McKenna & Widerker, 2006). Thus the starting point to be investigated is knowledge and freedom. Thus, we need to see if the violation of those moral standards were intentional or not intentional. In other words, evaluation may continue if the elements of knowledge and free will are found. Thus, the primary step to be taken before a judgement can be made is to find out if there was the presence or absence of knowledge and freedom or free will (Sandel, 2014, cited from Immanuel Kant). If there was a sign that knowledge and freedom were present in the act, then the question remains: to what extent is the presence of knowledge and free will? This is relevant to the issue because it will determine the level of moral responsibility. But we will not go deeper into it because our main purpose here is to find out if a corporation can be morally responsible for its actions. A judgment on a certain act can be made if it is found that there is a presence of mind or reason and free will if the act was done knowingly and freely. In other words, the person can be blamed if the person is acting out of his knowledge and free will. The person acts knowingly and willingly even though he knows that such an act will destroy the common good, the rights of people, justice, the doctrine of his religion, and the dignity of other people. Despite that knowledge in mind, however, he still commits it.
Reason allows us to act with a purpose and guide us to pursue the objective. With such reason, one can identify or differentiate right from wrong or good from bad and one can avoid it. Thus the absence of reason, depending on the situation or circumstance, can reduce or mitigate the moral burden of the person who committed the act. It is the reality that many times a person acts out of fear, or, anger or external force. In other words, the person is not in full control of his acts. In such a situation, the person may or may not be morally responsible. When the person acts without being aware of the consequences or the wrongness of his act, cannot take full responsibility for his act.
Knowledge and free will are the first bases for moral judgement of certain acts because we believe that only knowledge and freedom belong to humans as a rational being. Consequently, all acts performed by humans must be based on reason or knowledge and free will. This is what we call human acts; the acts specifically belong to humans, a rational being who has freedom. Knowledge and freedom are the only things that belong to humans and the acts that belong to human acts are the only acts we can judge. Humans should act based on knowledge and their free will (Widereker and Mckenna, 2006). This is to emphasize that there are other acts which we call the act of man. The act of man does not necessarily belong to humans but also belongs to animals which are not necessarily motivated by reason but by instinct like animals. For example, eating, drinking, and sleeping, are acts that also belong to animals. These acts are neutral to moral judgment. Therefore, we emphasize that it is only human acts that we can judge morally. Before we judge whether it is immoral or immoral based on the motive, the means, the ends and consequences, we need to determine first if the act was done knowingly and freely (Widerker &Mckenna, 2006).
Taking Full Responsibility, Not Full Responsibility and Exempted.
Based on the discussion on the determining factors of moral responsibilities, then we have the idea that not all wrong acts are done knowingly and freely. There are certain situations or circumstances in which a certain person committed a certain act either with full knowledge and freedom or incomplete knowledge. It is here we need to examine when someone can be fully responsible for his /her actions or not fully responsible for his /her actions (Widerker and Mckenna, 2006).
Someone is judged to be morally wrong and fully responsible for his/her actions when she/he does it with full knowledge and freedom. In other words, he/she does it knowingly and freely. The person has a complete knowledge of the wrongness of that act but he/she chooses to commit that act at his own choice and free will. In other words, the person committed such act intentionally, and voluntarily and is a product of contemplation and deliberation. After establishing facts and determining that such an act is done knowingly and freely, then the person has full responsibility and that person should be punished according to the crime he/she has committed. For example, a manager knows that bribery is immoral, however, despite such knowledge, he/she committed it.
However, there are circumstances in which a person commits certain act not because he/she has full knowledge. Despite of her lack of knowledge, she/he committed it because she /he might be pushed or forced by a certain circumstance that he/she has no choice but to do it. This is the case that we cannot throw all the responsibility and blame over that person. Given that situation, in the case of lack of knowledge of the correctness or rightness of the act, however, the person cannot also be removed from all moral responsibilities. The responsibility and blame are still with the person, however, to a lesser extent, not totally exempted because lack of knowledge is not sufficient enough to exempt the person from moral responsibility because he/she could still find ways to get information but he/she did not.
A person can be exempted totally if the person acts out of complete ignorance of the moral wrongness of the act, unintended result of a rightful act, result of an accident, coercion to the extent that the person’s reason cannot work and when such person cannot know if such act is right or wrong, good or bad. The first and the last is the case of a child or a crazy person who burns the house of their neighbour because of excitement to see the beautiful fire. The case of unintended result is the case of the double effect of certain acts. This is the case in which a person performs a certain act that leads to, either a good or bad outcome. For example, a doctor examines a pregnant mother who has cancer. The only way to deliver the baby is through caesarean; however, the result is the mother’s death.
Corporate Moral Responsibility
The Nature of Business Corporation
To determine the moral responsibility of a corporation, first, we need to know the nature of a corporation. Proper understanding is needed for us to determine if a corporation is morally responsible for its actions. This is because a corporation is not human, it is a legal entity created by law but what qualifies it to be like a human and therefore be responsible morally. It is commonly known that a business entity is an entity that is a group of people organized for some profitable or charitable purpose. Business entities include organizations such as corporations, partnerships, charities, trusts, and other forms of organization. Generally speaking, entrepreneurs incorporate their business in the state where they conduct their business (Perez, 2015). After incorporation, then the business is considered legal and it is now recognized as a legal business entity. It has a legal personality and now can legally pursue its business objectives as prescribed in its constitution and bylaws as approved by the Security of Exchange Commission. Thus the treatment to a corporation is now the same treatment to a person. Business entities, just like individual persons, are subject to taxation and must file a tax return. Some business entities are exempt from federal income tax. These include non-profit charities and non-profit corporations. Business entities may be subjected to state income tax, depending on the laws of the state or states where they conduct business.
There are different types of businesses and knowing
different types of businesses could help us understand the nature of business. The
classification of a business depends on the objective that it pursues.
Therefore, first, we have a sole proprietor. The sole proprietor is an unincorporated
business and it is usually owned by a single individual. There
are no forms we need to fill out to start this type of business. The only thing
you need to do is report your business income and expenses. This is the easiest
form of business to set up, and the easiest to dissolve. A Sole Proprietorship in the Philippines is also known as a
"single proprietorship, A sole proprietorship is the most simple form of
business and the easiest to register in the Philippines, through the Bureau of
Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and
Industry (DTI). It is owned by an individual who has full control or authority over
all the assets, as well as personally answers all liabilities or losses. The
fact that it is run by the individual means that it is highly flexible in which
the owner retains absolute control. Concerning liability, the sole proprietorship has an unlimited liability
as compared to a corporation. This is in case the owner puts up his/her
business not with her/his own capital but from loans either from individual
persons or from the banks. When the business is bankrupt, then the owner has to pay
all the money that he/she has loaned from other people or creditors. The
creditors can also file a case against the owner and run after the owner and can
proceed not only against the assets and property of the business but also the
properties of the owner. Therefore the laws do not differentiate between the
owner and the business, both are the same.
The second is corporation. A corporation is
an entity which is separate from its owners. Therefore, unlike a sole proprietorship, the corporation has limited liability
protection. The Corporation is formed under the laws of the state in
which it is operating, with Articles of Incorporation. It has shareholders, and the shares may be privately or closely
held, or they may be offered for sale to the public. Corporations are taxed
separately from their owners at the corporate tax rate. Since corporations
are separate entities, the debts and liabilities of the corporations are also
separate from those of the owners. This separation is sometimes called a “corporate
shield” or “corporate veil”. The corporate veil is a term used to describe the separation of corporations from their
owners. As a separate entity, the corporation is set up to shield its owners
from personal liability for the debts and negligence of the business. Since it is a separate entity, when the
corporation is sued, the individual shareholders and officers cannot be
brought into the lawsuit. But there are cases in which the corporation's
officers and shareholders could be sued for negligence or for debts; the action
of bringing in these shareholders to be sued is called "piercing the corporate veil" or
"lifting the corporate veil. “There are two instances when a corporation
can be sued: first, in the
case of fraud, in which the corporation was found to be a sham that was set up to carry on fraudulent deals or for fraudulent purposes. In
this case, they knowingly and freely pursue immoral objectives. Second, in the
case of egregious and willful activity by corporate shareholders or officers who
put corporate gain over the public good (Murray, 2015). Again they knowingly and
freely pursue immoral intentions even though they know that the common good will
be violated.
The third is a partnership. It is a legal relationship
formed by the agreement between two or more individuals to carry on a business
as co-owners. Unlike Corporation, the partnership is
not a separate entity from its owner. Since it is not a separate entity
from its owners, then the owners must take responsibility in case of
business goes bankrupt. Partnership
must have at least one general partner who assumes unlimited liability for the
business, for actions of the partnership. It may also
include limited partners who are merely investors and who do not share in the
day-to-day operations of the business and who do not share in liability. The partnership must have at least two
partners. Partnerships
are usually registered with the state in which they do business, but the
requirement to register varies from state to state. Partnerships
use a partnership agreement to clarify the relationship between the partners, the roles and responsibilities of the partners, and their respective shares in the
profits or losses of the partnership (Murray, 2015)
Fourth
is Trust. Trust
is usually formed upon the death of an individual and is
designed to provide continuity of the investments and business activities of
the deceased individual (Perez, 2015). Fifth is called the non-stock nonprofit
corporation. Their purpose is not for profit but it is for service or for
charity. Such kind of business is exempted from tax but it needs to report its
activities, income and assets to ensure that it complies with the government
laws with charitable institutions or corporations. We use the term nonprofit
because these organizations are not set up for the sole purpose
of making a profit. Rather, they pursue public benefit purposes that are
recognized by the Constitution. What makes an organization a nonprofit is:
first its mission. Its mission is to undertake activities whose goal is not
primarily for profit. Second, no person owns shares of the corporation or
interests in its property. Third, the property and income of the nonprofit
corporation are never distributed to any owners but are recycled back into the
nonprofit corporation's public benefit mission and activities. In terms of
ownership, it is owned by the public, it belongs to no private person and no
one person controls the corporation. All its assets are dedicated to service or
charity. The cash, equipment, and other property of a nonprofit cannot be given
to anyone or used for anyone's private benefit without fair market compensation
to the nonprofit organization (Fritz, 2015).
In terms of control, it is controlled and governed by a Board of Trustees
and their function is to see to it that the organization serves its purpose and
the founder does not own or control the nonprofit. The Board of Trustees does not
act as individual persons but acts as a group. Nonprofit is only accountable to
the public and it is therefore, it must file annual information returns to the
appropriate office of the government (Fritz, 2015).
After understanding the nature of business, now we have an idea of how businesses work. Some are taking full responsibility and others are avoiding responsibility which is allowed by law by creating a corporation. However, setting aside the discussion on the different kinds of business organization, from the definition, it gives us a clear view of what business organization is all about. Depending on the kind of business, each business has a different setup and has different level of liability. Some have unlimited liabilities, while others have limited liabilities. In the case of unlimited liabilities, then such a business cannot cover itself from legal charges and assume the damage. However, our concern in this particular topic is corporate moral responsibility. A corporation has a limited liability because it is a separate entity from its owners. The concern is: who is taking the moral responsibility or who is going to take the blame?
Corporate Moral Responsibility and Individual Responsibility
The starting point of discussion is: is a corporation not morally or morally responsible for its actions? This question is raised because of the fact that a corporation has a limited liability. Such nature of corporations has brought controversies among theorists about whether a corporation is morally responsible or only the individual person, not the corporation. Answering the above question would be simple if we follow the previous argument on the determining factor of moral responsibility, then we can give an immediate answer to this question. As long as the act was done knowingly and willingly by the corporation, the organization is morally responsible. However, the problem becomes complicated because it is not a matter of applying such a principle but the theory of corporation makes it complicated. The idea of a corporate veil makes things harder. Pursuing this idea, we encounter a problem and the problem is a corporation has no reason and free will because it is a legal entity created by law that can carry out a business for a certain objective. It is not an individual person who acts knowingly and freely. The corporation is a separate entity from its owners and thus it has a limited liability, in the sense that it cannot take all the blame for its actions. Why? Two opposing groups present their views. Those who use the individualism methodology would argue that "corporations don't commit offences; people do (Bodenheimer, 1980). The strategy of Individualism, as revived by numerous commentators in recent years, is to abolish corporate criminal liability and rely instead on individual criminal liability (Lederman, 1985). He continued that the theoretical basis for imposing criminal liability on the corporation remains unclear. Such a situation has encouraged the trend toward a slight restriction in the scope of corporate criminal liability.
How can we apply moral responsibility and blame to a corporation? Friedman (1967) as cited by Lederman (1985) argued that many debates have come out to discuss issues related to the moral responsibility of corporations. Indeed, the very substance of the corporate body is controversial and various views concerning it have emerged. Some treat the corporate body as a mere legal fiction devoid of the ability to function independently and requiring permanent representation by human beings. Others treat corporations as real entities claiming that the law merely recognizes the existence of corporate bodies rather than creates the corporate entities. A third group of jurists rejects both these approaches and offers additional explanations. The upholders of the theory of individual responsibility rooted in methodological individualism and its related metaphysics, argue that one cannot ascribe moral responsibility to a corporation but only to “flesh and blood” individuals who are moral persons but Soarez (2003) argued that corporations have sufficient structural complexity to be agents whom it makes sense to call to account for their actions and the consequences of those actions. It may not be possible for corporations to be responsible in the way that the individual can be but they can be responsible appropriate to corporations. J. Braithwaite and B. Fisse, (1998) in an article, “The Allocation of Responsibility for Corporate Crime: Individualism, Collectivism and Accountability” as cited by Soarez (2003) argue that methodological individualism amounts to a dualistic ontology. On the one side are individuals and on the other are corporations. Individuals are observable and therefore, real, while corporations are abstractions without the possibility of direct observations. If it is so, it is not possible to ascribe to a moral responsibility to a corporation and ideas such as agency, autonomy and rationality do not apply to a corporation. Therefore we cannot expect formal organization or their representative to take the moral blame. It is along such line of argument, that Soarez (2003) lamented that moral responsibility is a word without meaning. Amidst those conflicting discussions, however, debate along such ideas never ends because of the desire to settle the score on who is holding the moral responsibility. The question of who is holding the responsibility remains alive because of different interpretations of the nature of the corporation. Trying to settle the interpretation, Lederman (19850 suggested that distinctions must be made between human beings and corporate bodies. Those distinctions are not to clear one and punish one but to clear the responsibility in terms of the extent to which both are responsible morally. Some argue that even assuming that the individual desires of a group of people working in concert can form a "collective will" as a result of the interdependence and mutual influence within the group, and even assuming that this synthesis of desires is distinct from the separate wills forming it (Braithwaite &b Fisse, 1998), the problem of personifying the corporate body is not thereby brought to a clear-cut solution. The corporate entity is an enterprise devoid of the physical ability characteristics of the human race. Man possesses consciousness and physical aptitude, as well as the power to exercise them. Corporate bodies, in contrast, are bereft of those capacities and depend totally on a human source to function.
To clear such issue, Soarez (2003) presented two arguments from two contestants: Nominalists and realists. For the Nominalists, corporations are collections of individuals or aggregations of human beings. The Realists argue that a corporation has its own existence and meaning as well as a moral/legal personality of its own. He further emphasized that both of these views have implications for moral and legal responsibility. In the Nominalists' view, corporations do not exist apart from their members; any blameworthiness or responsibility can only be obtained from the culpability of an individual employee. Therefore, in line with this nominalist view, corporations are moral persons in the sense that they are entities and they are intentional actors. Corporations are entities with a dominant role to play in our society. Corporations are more than mere collection of individuals which means that they are capable of moral decisions and therefore susceptible to moral blame. However, this would leave one with the problem of deciding whether the corporations should be responsible for the behaviour of their employees or only for some of them. Definitely, if employees or employees act on behalf of the corporation because they are or he/she is carrying out their duty or/duly authorized by the corporation, then, in this case, the corporation has to take the blame. In the realist's view, corporations represent something beyond individuals which means that following this point of view, it may be possible to find a new candidate for attributing responsibility. In the realist's view, the corporation is not morally responsible. However, Lederman (1985) settles this issue by using the conspirator theory. He said that the theory of conspiracy holds any conspirator liable for crimes committed by fellow conspirators in the furtherance of the conspiracy, even if the conspirator was not capable of committing the offence himself. The analogy to the theory of corporate criminal liability suggests that each breach of law the corporate body has been accused of is in furtherance of an offence previously plotted between the corporation and the perpetrator. Hence, the corporation is criminally liable for the acts of the perpetrator in the execution of the plan of the conspiracy.
Based on those arguments presented in the discussion, we can settle our case on the question of “who is taking the blame?” Following the argument, the traditionalists and the nominalists definitely would answer that the one who is taking the blame is an individual person or employees because they are the ones who have reasons and freedom. They have the knowledge of what is right and what is wrong and the knowledge of what is good and what is bad. Therefore using their freedom, individual employee or employees could refuse to carry out a job which is not moral, even though they or she/he is authorized to do so. Further, they argue that individuals had to carry out the particular actions that brought about the corporate act. Contrary to the traditionalists' and nominalists’ view, French (1979) as cited by Velasquez (1998) claimed that when an organized group such as a corporation acts together, their corporate acts may be described as the act of a group and consequently the corporate group and not the individuals who make up the group must be held responsible for the act. Take an example, the defective product of beauty product cannot be attributed to the individual person but it is attributed to the corporation or the company where the product is made, so long the cause of defective product was not caused by the individual employee but a consequence of following the order of the company. Velasquez pointed out that more often than not, employees of large corporations cannot be accused of “knowingly and freely” joining their actions together to pursue corporate objectives. Often time they may not be aware of the intention and the ends/objective of the corporation’s act because they are not involved in the discussion during the planning process and they have no way of finding it out and are not capable of stopping it. In this case, the excusing factor is ignorance and inability.
However there are situations wherein employees know
that the corporation’s plan is immoral, however, they just ignore it
because they have no power and no choice to do otherwise except to follow the
order. They can question and withdraw their cooperation
but they choose to go along because of the fear and pressure that they might be
fired. However, such a situation could not be used as an excuse by the employees
or employees from their moral responsibility. Velasques (1998) claimed that
following orders out of fear of his/her boss cannot absolve the
employees/employees from moral responsibility. Unwillingly cooperating with the
corporation to do a certain crime cannot excuse him/her from moral
accountability because such reason is not serious enough to cause his/her mind to go blank but she/he is still in full control of her knowledge about the
wrongness of her/his action. For example, an employee was authorized by his/her
employer to put a bump near the gate of their business competitors. The
employee cannot claim that he/she is just following orders because the employee
knows that it is wrong but still doing it. Doing a certain crime because of
fear, threat, and uncertainties may lessen or mitigate the moral responsibility
of the employees. The employees/ employee can only be exempted from moral
responsibility if the employees/employee is found to be in complete ignorance
about the wrongness of their act and if he/she was coerced by his/her boss to
commit a certain crime, however, such reason can only be accepted if the
coercion was very serious up to the point that her reason cannot function
well. Moral responsibility requires
merely that one acts knowingly and freely and it is irrelevant to use the reason
of “following orders only”. Following orders because of pressure may only
mitigate the employee’s moral responsibility over the crime.
Conclusion
Moral standards are applied to all who are called
rational beings, be it an individual person or a corporation. Consequently, all
must take responsibility if they are found to violate moral standards. We
conclude that employees and corporations are morally responsible for the crime
they have committed. However moral responsibility depends on the circumstance
in which how the crime is committed. The determining factors of the moral
responsibility of a corporation are knowledge and freedom or free will. Though a
corporation is a separate legal entity from the owner and is not considered as an
individual person, however, a corporation is composed of rational human beings
who have knowledge and freedom. There are situations in which, as a group, it
knowingly and freely pursues objectives that are in violation of moral
standards. When they violate ethical standards, they are acting as a group with full knowledge and free
will. Employees are acting on behalf of the corporation. They are authorized by
the corporation to carry out their job as prescribed by the organization or in
other words, they are just doing their job. However, employees cannot just wash
their hands and throw the blame to the corporation because the elements of
reason and free will are retained with them. Thus as individual employees,
he/she has still the freedom to choose to follow or not to follow if the order
is not moral.
It is based on such argument, that we conclude that both: employees and corporations are morally responsible to the crime committed by the corporation. This position may be opposed by those who are using the argument of individualism methodology; however, our determining factor is knowledge and free will. As long as these two factors are present in certain acts, then the corporation is morally responsible. In this regard, we have a group and individual moral responsibility. Individual responsibility maintains that only individual human agents can be held morally responsible, and group responsibility maintains that groups, such as corporations, can be held morally responsible as a group, independently of their members. These opposing positions rest on a deeper conflict between methodological individualists, for whom all social phenomena, such as group activities, can be explained by reference only to facts about individual humans, and methodological holists who defend the ontological position that there are social groups capable of actions that cannot be reduced to the actions and interests of their individual members. Though they are using different approaches, the two approaches lead to the same conclusion that both individual employees and corporations are morally responsible because both are still considered rational beings who have knowledge and free will.
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