Excerpted From: Steven A. Ramirez, A Vision of the Anti-Racist Public Corporation, 91 University of Cincinnati Law Review 828 (2023) (248 Footnotes) (Full Document)


StevenARamirezIn recent years, the law has concentrated further economic and political power within the publicly traded corporation. Even before these legal renovations, expert observers suggested that the legal frameworks governing the public firm permitted management sufficient legal autonomy to overcompensate themselves and to create governance structures more conducive to crony capitalism than any kind of true performance-based meritocracy. Further, the publicly traded corporation plays a larger role in the United States economy today than ever before. In a society as racially riven as the United States, this tremendous concentration of economic and political power invariably operates to reflect and propagate racial disparities in political and economic power. In other words, the publicly traded corporation replicates the racial hierarchy in the U.S. indefinitely. This article spotlights that dynamic, assesses its costs in terms of inequality-adjusted human development, and proposes mechanisms to relieve the systemic injustice the publicly traded corporation reproduces.

The power of the public corporation in contemporary U.S. society suggests that it constitutes the key economic and political institution shaping our nation and the lives of its citizens - with decisive influence across a range of issues, from the location of manufacturing plants to climate change. According to the Business Roundtable, a lobbying group representing CEOs of the nation's largest publicly traded corporations, public corporations produce $9 trillion in annual revenues, employ twenty million Americans, invest $226 billion annually in research and development, and make $9 billion annually in charitable contributions. Since 2010, corporate America doubled and redoubled their political contributions, giving $238 million to the GOP, and a relatively paltry $38 million to the Democrats. All these expenditures of shareholder wealth (under the shareholder primacy myth) occur without even the pretense of shareholder disclosure and approval. Essentially, CEOs exercise their power to spend shareholder wealth on their own political agenda. Indeed, CEOs will spout support for racial equity or diversity while monetarily supporting those directly opposed to such values. Thus, as an institution, the modern public firm holds tremendous economic and political power, and this power continues to grow.

Given this degree of power and influence, the public corporation, as an institution, holds significant influence over the contours of the U.S. racial hierarchy. That hierarchy operates from cradle to grave and manifests itself in disturbing disparities from infant mortality and childhood poverty to mass incarceration and life expectancy. In economic terms, the racial hierarchy leads to disparities in employment, income, wealth, residential housing, and business formation. The public corporation may well operate as the greatest engine of wealth generation in human history and its ability to fund innovation and human ingenuity may perhaps define American economic exceptionalism. As such, it not only plays a key role in the propagation of the U.S. racial hierarchy across generations, it likely can also operate to break down the economic oppression inherent in the U.S. in that hierarchy - by rationally investing in communities and people that the racial hierarchy marginalizes. Simply put, this article explores the extent to which the manifest prosocial elements of the public firm can address and mitigate the U.S.'s continuing racial nightmare along with its multi-trillion-dollar costs.

After all, science now teaches that race is socially constructed with no significant genetic reality. “It is an unequivocal scientific fact that race is a social construct, not a biological one. The implicit prejudices and biases we carry against those unlike us are real, but society instills them in our subconscious mind, and they are therefore malleable.” Consequently, all material disparities in social wellbeing, nearly six decades after the passage of the Civil Rights Act of 1964, seven decades after the end of de jure segregation under Brown v. Board of Education, and 57 years after the Voting Rights Act of 1965, bespeak a nation still enthralled to racial mythology. The racial hierarchy embedded and reflected in those disparities testifies to the power of governing elites to divide the masses strategically and instrumentally.

These persistent racial disparities impede human development for the entire U.S. population, and the destruction of human capital implicit in race ultimately harms the entire population as well. advantages and disadvantages must give way to true meritocratic competition in accordance with essential capitalistic theory. Today, race in the U.S. limits consumption, investment, innovation, business formation, and capabilities of the labor force. operates to destroy human capital at the behest of elites who benefit from social division. In 2022, corporate elites form the basic power foundation in the nation. facilitates the inequality that such elites leverage into power but at great cost to society as a whole.

This article argues that this fact arises largely from the current flawed legal design of the publicly traded corporation. Section I of this article highlights the key elements of the racial hierarchy in the U.S. and demonstrates how it continues to plague the nation and inflict trillions in macroeconomic costs. Section I also argues that a full societal-wide embrace of diversity would lead to massive economic gains that would enhance corporate earnings. Section II summarizes the power of the public corporation and its infirmities with a view towards understanding the key role of the public firm in perpetuating and enabling the U.S. racial hierarchy. Section III applies the learning from the first two parts to suggest mechanisms by which the institutional design of the publicly traded corporation can facilitate the dismantlement of the racial hierarchy while serving to maximize shareholder wealth and enlist its prodigious wealth generation capabilities to the battle to mitigate the impact of race in America. In particular, the article calls for improving corporate performance through a comprehensive embrace of diversity and integrating public corporations more comprehensively into communities most damaged by race through profitable corporate investments. The article concludes that the publicly traded corporation can transform itself from engine of propagation of racial hierarchy to key element of antiracist policy to deracialize our economy and society with relatively minor legal adjustments pertaining to diversity management and the funding of corporate community investments.

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The power of the public corporation can help reduce racial inequity with relatively minor adjustments to the legal infrastructure that birthed it. Instead of dragging down economic growth and exacerbating inequality while propagating the nation's racial hierarchy, a superior institutional design can unleash its economic power to open the public corporation to the entire spectrum of the U.S. population. The key to the reforms proposed herein involves recognition of the obvious power CEOs hold today to enhance their compensation at the expense of both shareholders and the macroeconomy and repairing incentives to focus on optimizing the operating environment of the public corporation. Positive outcomes for shareholders, the nation as a whole, and CEOs will follow.

The corporate governance innovation proposed herein, the Chief Diversity Officer reporting to an independent Diversity Committee, rests on the manifest costliness of our racial hierarchy and the manifest materiality of diversity management practices and strategy to investors. The disadvantaged community investment program proposed herein rests upon the manifest abuse of government benefits as proven in the Tax Cuts and Jobs Act, as well as the idea that the greatest economic potential lies in those most disadvantaged. The cradle-to-grave operation of the racial hierarchy leads to the mass destruction of human capital without any rational basis at all and should face relegation to the ash bin of history at once.

The publicly traded corporation rightly exemplifies the great potential of legal infrastructure to advance macroeconomic growth and human development. Left to its current legal and regulatory frameworks, however, it will fuel inequality and the replication of our racial hierarchy indefinitely. Taking affirmative action to broaden participation of our population at all levels of the public firm will open its ability to fund human ingenuity to all. This would vindicate the essential public purpose of the legal infrastructure governing the public corporation. It would also place capitalism itself on a firmer social foundation through the creation of a more cohesive and productive population.

Abner J. Mikva Professor of Law and Director, Center for Business Law, Loyola University Chicago School of Law.