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Wednesday, January 18, 2017

Is It Possible To Outmaneuver The Corporate State

I recently came across this incredible video. In it, Thomas Linzey and Mari Margil make an argument for democracy over the corporate state with regard to local agricultural rights.

There are those that believe this to be frivolous debate, however, I believe we have entered a state of crisis. Consumers are starting to make the connection between political action and purchase decisions. Investors are too. The corporate state does not know what to do. All it knows is that candy is scarce and margins are not what they used to be.


The Mentality of the Corporate State

The corporate state has the mentality of a powerful, fat, two year-old with a mind that could match any modern day legal genius. The legal genius loves candy and is near death, but is too young to listen to reason. Death would be a sad end for such an impressive creature and yet we must do something about its lack of morality if it is to survive. We must give it an education; teach it right from wrong. As investors and consumers, we need to figure out a way to push the corporate state into the next phase of development before it sacrifices our democracy for another piece of candy.

Thomas Lizeny and Mari Margil, along with the Community Environmental Legal Defense Fund (CELD) are attempting to use the law as a way to implement a development program on the corporate state at the local level. While I love what they are doing, I believe it will be ineffective from a legal perspective. No law is going to stop the two year old legal genius from getting to the candy.

It seems logical that the only way to stop a legal structure is with the law, but the corporation is actually very strong legally -- emboldened, as Linzey and Margil state above, by the constitution that appears to be working perfectly. In this vein, and in the vein of Achilles heel finding, the law may not be the best way to change the corporate state. Indeed, it is unlikely that the Achilles heel of a legal structure is the language of the legal structure.

The bad news is that as much as Linzey and Margil try to affect change via the Community Environmental Legal Defense Fund (CELD), it is doubtful that they will ever be able to outmaneuver the law. The good news is that the consumer holds all rights to the only thing the corporate state craves, profitability.

What does this mean from a sustainability perspective? It means if the corporation is concerned about the investor, and the investor is concerned with profit, then the consumer is all powerful. If the consumer is only interested in companies that respect local nature rights, then that's what the corporate state must produce. It is up to the consumer to provide the incentive structure for the corporation.


Best Strategy Moving Forward

The main issue for those of us trying to put some reigns on the corporate state (for its own good I might add) is coming up with the best strategy. We need to create a new incentive structure for the corporate state, one that is incentivized by the health and well being of a democracy.  I believe the best strategy is not legal, but consumer driven. In particular, it is based in knowledge and community education.

Ironically, the CELD may be able to affect more change through its ability to educate than in its ability to beat the corporate state with the law. It will be, as Margil alludes to in the retelling of an Ethiopian saying, the corporation that does not see how the water it swims in is changing -- waters that are not swayed by law, but consumer demand. The more the CELD spreads the word, the more educated and knowledgeable the consumer will be and the more the waters will change. Each battle lost by the CELD will lead to the winning of the war.


Next Post: Can the Corporate Citizen Be Charged Like An Ordinary Citizen

What's hard to understand is that corporations, while legally considered a person, are not. The corporation is driven by profit and profit alone. In my next post I will explore a few ways to change the incentive structure including the comparison of corporate and citizen rights. If corporations are people, they should receive all the advantages and disadvantages of citizenship.

Perhaps the best way to get the corporation to argue against citizenship is to start treating it like one.

Tuesday, January 3, 2017

A New Kingdom: Can You Profit From The New Corporate State

In the lecture above, Noam Chomsky discusses the state of human relations and our existence within an international and historical context.

The most interesting aspect of the lecture is the discussion of the corporate state and its ownership of over 50% of the world's assets. Since corporations own more than the collective state, perhaps it can also be said that the world has a new king.

Kings and Corporations

Our historical record tells us that kings and their nobility once ruled the world. The king had unlimited power. The nobility helped the king to carry-out his/her mission of gaining greater power. This has been an effective power-grabbing model over the centuries and we continue to use the same model today, but in a slightly different way. Instead of kings we have investors. Instead of nobility, we have corporations.

Why Is This Important

To impact change we must know who is truly in power. This isn't a referendum on the corporate state. It isn't bad or good. It is an acknowledgement of the emergence of a new power. The top 12 companies in the world by market share are the owners of the new corporate state.

The corporate state has no official geography and its constitution is a compilation of trade deals. Each corporation is a noble and at the head of all nobles sits the king. The king, in this case, is the investor and the religion of the investor is profitability.

In many ways, the relationship between investor and profitability is a beneficial one. Profitability, and the solutions that drive profitability, provide direct access to the king. Even more powerful is the realization that profitability is driven by 'the people' buying the product.

Though there are many loopholes in this new form of government, profitability is more reliable than the whims of the king. Whatever you believe, we have a stable system for progressive change, but it is important to pull the right lever; it is important to know the role of profitability in our new kingdom.

The Top 12 Corporate Nobles of the Corporate State

Top 12 Companies by Market-cap as of 1/2/2017:

Company NameIndustryPrior Close

Mkt Cap 
AAPLApple Inc.Communications Equipment116.73

622.4 B
MSFTMicrosoft CorporationSoftware & Programming62.90

489.0 B
XOMExxon Mobil CorporationOil & Gas Operations90.35

374.6 B, Inc.Retail (Catalog & Mail Order)765.15

363.5 B
JNJJohnson & JohnsonBiotechnology & Drugs115.49

314.1 B
JPMJPMorgan Chase & Co.Investment Services85.89

307.3 B
GEGeneral Electric CompanyAerospace & Defense31.71

280.5 B
NSRGY Nestle SA (ADR)Beverages (Nonalcoholic)71.395

277.0 B
WFCWells Fargo & CoRegional Banks54.84

275.4 B
FBFacebook IncComputer Services116.35

272.3 B
TAT&T Inc.Communications Services42.66

261.9 B
GOOGL Alphabet IncComputer Services802.88

237.7 B

These 12 companies own a great deal of wealth in the world and the owners of the corporate state have full control over it. When the price of stock in these companies falls, it impacts the entire economy, which means the owners of the corporate state are the investors.

The good and bad news is that investors are almost entirely concerned with profitability. In this way, profitability can be a double-edged sword as investors often decide to choose short-term profitability over long-term firm viability. In other words, the going concern of the firms above is not a large concern for the average investor with the ability to get in and out of stock positions at the click of a mouse. What investors will grow to count on, however, is the impact of consumer demand on earnings and stock price. The irony is that as we enter into a new era of a corporate state, never before in history will the consumer have more power.

How Can Investors Profit From The Coming Trend

Investors reward profitability, so those companies that are able to stay in touch with consumer demand will be the rulers of the new corporate state. This may sound grim to some, but it gives hope that the world can change if the investor does. Even more interesting is the connection between investor and consumer. It is the investor that can decide to move funds to smarter, more agile pockets. For example, I advise my clients to move away from business models driven by store count and price comparison like Wal-Mart and Dollar General, to business models driven by speed and agility, like Amazon.