CORPORATE GOVERNANCE AND PRODUCT SAFETY: IS THERE A RELATIONSHIP?

  A close up of a steering wheel inside a car, keys dangle from the ignition.          When corporations that manufacture consumer products put profit ahead of safety innocent people can be killed or sustain catastrophic, permanent injuries.  For example, when a car manufacturer like GM keeps quiet about problems with an ignition system that it knows can cause accidents and fails for many years to recall these defective cars, dozens of people can die.  Or when drug manufacturers play fast and loose with the FDA drug approval process, severe injury and death result.

                Corporate governance describes the way in which the company is managed.  It also has everything to do with the culture in which the corporation exists and in which it designs, manufactures and markets its products.  Every corporation has a structure that enables it to operate and have continued existence.  There are several different models for corporate governance.  Some models focus almost exclusively on the interests of the stockholders and other models focus on the interest of all the stakeholders of the corporations, such as workers, creditors, suppliers, customers and the environment, in addition to the stockholders.  The model that the management of a particular corporation adopts can have a great effect on the safety of the products that the company designs, manufactures and sells.  Here’s why:

                Corporations are owned by their stockholders.  Corporations exist to make a profit which can then be passed on to the stockholders in the form of dividends.  This is the main, even the sole interest of the stockholders.  The other stakeholders, on the other hand, are concerned about the safety of the workplace, the financial health of the company, the effect on the environment of the corporation’s operations and the safety of the products that the corporation sells.  If a corporation puts too much emphasis on the rights of only the stockholders, the rights of the other stakeholders will suffer.  Case in point: yesterday a federal judge in New Orleans ruled that BP committed gross negligence that resulted in the worst economic disaster in history.

                Corporate models differ throughout the world.  The Anglo-American model emphasizes the interests of shareholders.  This is the model that prevails in the United States and in Great Britain.  In other parts of the world, Europe and India, for example, there seems to be more of an emphasis on balancing the rights of all of the stakeholders, including the consumers, in such a way that management is encouraged to engage in ethical and safe business conduct as well as making a profit for the stockholders.

                Politicians and MBAs will continue to debate the proper balance between models of corporate governance that ignore the rights of other stakeholders in favor of the desire of the stockholders for profits.  It does not take a rocket scientist to figure out, however, that when this emphasis gets out of balance, people get hurt.

                Collectively, the lawyers at Jinks, Crow and Dickson have over one hundred years of experience in law and business.  We can see the issue from both sides and know how important it is for corporations to manufacture safe products and not to just care about profits for the stockholders.  We will continue to help people who have been killed and permanently injured by dangerous products; because when corporations put profit ahead of safety, people get hurt.     

 

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