Student Name: Astri Amanda

Student ID

: 29114338

Email Address : astri.amanda@sbm-itb.ac.id

Lecture 4: Critical Issues in Business Law

Work Sheet: The Corporation (Documentary)

1. Do you think corporations are evil? Why or why not?

Corporations are considered evil in the context of a developing country because there is a fear
that corporations are motivated by a purely by a profit motive, and because of this, its actions
would be based on its gains and not public interest at large. Corporations are seen to exploit
the system due to their ability to leverage funds. Further since there is a corporate veil i.e. the
legal separation of the owners of the corporation and the corporate entity which can allow the
owners from liability for wrongful acts of corporations even though they may have directly
made the policy decision. In other hand corporation is not the evil the problem isnt when
corporations go wrong. The problem is when they go right.
By law, the sole obligation of public corporations is to maximize profit for shareholders. Even
when corporations give money to charity, or choose an ethical way of doing business, they are
required to justify the decision by saying that itll ultimately pay off financially, perhaps in the
form of increased sales or of realizable goodwill. Unlike human beings, corporations have only
one motive: the yetzer hara, literally, the evil inclination, the part of each of us that is entirely
selfish, that wants only to get as much stuff as possible. Again, this isnt because of who runs
corporations, or because of the decency of those of us who work for them.

2. Can and should-- shareholders be held accountable for corporate wrongs?

In privately held corporations, often the principal shareholders also are members of the Board
of Directors and may be officers of the corporation. The corporate veil of liability protection is

maintained with the articles of incorporation that commonly include an indemnification

agreement creating an exemption from incurred liabilities for the directors and officers from
their actions. Each state has its own requirements, but generally state laws determine what
kind of action a board member must take to void this indemnification. As a general rule, if
Board of Directors and officers act in good faith, within the scope of their duties, and avoid
wrongful acts, they will be protected by this indemnification clause. Board of directors and
officers can guard from personal liability by getting the corporation to pay for their legal
defense and to reimburse for any damages. This indemnification clause generally authorizes the
corporation to purchase insurance, called director and officer (D&O) insurance to meet the
requirements of the indemnification clause. So, in other words, shareholders cannot be held
accountable for corporate wrongs.

3. Do you think good corporate governance can help mitigating environmental and human
rights problem caused by corporation?
Corporate governance is of paramount importance to a company and is almost as important as
its primary business plan. When executed effectively, it can prevent corporate scandals, fraud
and the civil and criminal liability of the company. It also enhances a companys image in the
public eye as a self-policing company that is responsible and worthy of shareholder and
debtholder capital. It dictates the shared philosophy, practices and culture of an organization
and its employees. A corporation without a system of corporate governance is often regarded
as a body without a soul or conscience. Corporate governance keeps a company honest and out
of trouble. If this shared philosophy breaks down, then corners will be cut, products will be
defective and management will grow complacent and corrupt. The end result is a fall that will
occur when gravity in the form of audited financial reports, criminal investigations and federal
probes finally catches up, bankrupting the company overnight. Dishonest and unethical
dealings can cause shareholders to flee out of fear, distrust and disgust.

4. How can regulatory frameworks mitigate or prevent environmental and human rights
abuses by corporation?

It is accepted wisdom that companies can significantly contribute to alleviating poverty,

creating new jobs, improving roads and sanitation, facilitating greater access to water and
enhancing health services in communities. However, greater attention is now being given to the
negative impacts of companies operations on communities, including those that can lead to
displacement. Pollution from factories and mining projects, for example, has deprived people of
their livelihoods, water sources and access to religious and cultural sites. Even where a
company is not causing damage to the environment, its mere presence can alter the social
composition of the local community or create tensions among different groups and lead to
displacement of individuals, families or whole communities.

5. Will corporations obey the law? Under what conditions will corporations disobey the law?
It is assumed that there are situations in which it is rational, strictly from a profit-maximizing
standpoint, for companies to violate the law.5 It is conceded that corporate directors are not
likely to document decisions that cause their corporation to violate the law and, with the
increase of independent directors on corporate boards, decisions that cause a corporation to
act illegally may be less likely to occur. Further, lawbreaking may be more likely to occur at the
officer level. But overzealous directors, if given the opportunity, could decide to violate the law.
With proper evidence, those decisions could be proved. Shareholders' lawsuits under these
circumstances would likely be derivative in nature because the harm would be to the
corporation and not to shareholders individually.

6. Do you agree with Bakans view that corporation if they are a human being would be
pathological?
Bakan begins in 18th Century England. He explains how the South Sea Company sold stock hand
over fist, for a shady trading proposition in nations unlikely to grant trading rights, with
company directors who knew little about the countries in which they proposed to trade, and
with which they had established no contacts. Not surprisingly, the South Sea Company
collapsed. Fortunes were lost, lives were ruined, one of the company s directors... was shot by

an angry shareholder, mobs crowded Westminster, and the king hastened back to London from
his country retreat to deal with the crisis. (p7) As a consequence, Parliament passed the
Bubble Act in 1720, which made it a criminal offence to create a company presuming to be a
corporate body, and to issue transferable stocks without legal authority.
I agree with Bakans view, because if a company doing the things mentioned above, the
company is eligible to be categorized as a firm that is a psychopath. However, in the business
world that not all companies ignore social values, there are companies that are subject to and
comply with regulations and social values.
7. What is wrong with the present good corporate governance system? What are the ways to
make it better?
The principles underlying these rules are:
1. ethical approach - culture, society; organisational paradigm
2. balanced objectives - congruence of goals of all interested parties
3. each party plays his part - roles of key players: owners/directors/staff
4. decision-making process in place - reflecting the first three principles and giving due
weight to all stakeholders
5. equal concern for all stakeholders - albeit some have greater weight than others
6. accountability and transparency - to all stakeholders
Hence, with due respect to Milton Friedman who is quoted as believing that the social
responsibility of business begins and ends with increasing profit, we contend that running the
business successfully is not simply about market domination and shareholder value. This is due
to the fact that companies in Indonesia has not fully have the corporate culture as the core of
corporate governance. And the way to overcome this is to do revatilisasi to human resources
(HR) at the company, because they have control over all the activities that take place within the
company.