Apparently President Obama recently made some comments about corporate social responsibility.
“Businesses have a responsibility, too,” said Obama in his weekly address on Saturday. “If we make America the best place to do business, businesses should make their mark in America. They should set up shop here, and hire our workers, and pay decent wages, and invest in the future of this nation. That’s their obligation.”
He seems to be of the belief that corporations have responsibilities to their communities and not just to themselves or their shareholders. Sounds like something a president might say. Some take issue with such a notion, however.
Stephen Bainbridge, a professor of corporate law at UCLA says of the president’s claim:
Wrong. The social obligation of business is to sustainably maximize long-term profits for shareholders. Nothing more. Nothing less.
I am not a professor of corporate law, so I will not speak from that angle. I have written recently about how two ends of our social spectrum, the State and the Individual, are crowding out the “middling” institutions. If Bainbridge is merely saying that corporations are neither the State nor an arm of the State, then I find his comments uncontroversial. I think that insofar as businesses and corporations are middling institutions they require a fair measure of independence, for their own well-being and the well-being of society as a whole. Each of the institutions of society ought, ideally, to make its own contribution to our notion of the common good. The common good is not something I can define as an individual acting on my own. Neither is it something the president can enact through executive order (or impassioned speech), congress can legislate, or the courts can proclaim. Businesses – of all sizes – need to be allowed a say in what we all take to be the good we together pursue.
But the fact that they ought to have a say in what counts as the public good, means that they are responsible to the other institutions of society and societ as a whole for what they say about the nature of that good. One might read Bainbridge a saying that as institutions corporations have no responsibility to anyone other than to themselves and their investors. Here they seem to be defining the public good in terms of profit – and doing so reductively. Maybe there are other goods, but corporations have nothing to do with them.
Many secularists argue for a strong separation of church and state. Our officials, whether elected, appointed or hereditary, ought to keep their public exercise of power separate from any religious convictions they might have, lest those public actions illicitly foist religion on others. Some would even go so far as to suggest that we’re best off having purely secular people in positions of public responsibility, lest religion somehow bleed through. as many have noted over the years, even if this is a good thing in light of constitutional jurisprudence, it is mighty difficult in practice. For those whose religion involved the holding of convictions – and not merely particular geographical location on a particular day of the week, or a name on a membership roll – convictions have a way of influencing all of life.
James Wm. McClendon, Jr. & James Smith wrote the book on Convictions. They identify convictions as beliefs that make us who we are. As such, convictions cannot be denied, set aside, or temporarily shelved without making us distinctly different people.
What happens if a person with Christian convictions enters public service? Can that person simply set aside her convictions and be a public person – at least during work hours? Well, if we approved of those convictions, we would hope not. If, however, her convictions were in conflict with our own, we would want her to compartmentalize her life. “Sure, you can love your neighbor as yourself at home. Just don’t bring that attitude into your public life.”
And what happens when a person of conviction (which, as McClendon & Smith show, is just about everyone) enters business, even a corporation? Must that person give up his convictions upon entering the corporation, replacing his prior convictions with the convictions that animate business life? No more “Do unto others as you would have them do unto you,” but “In all instances maximize shareholder return?”
I’m an investor. I want the corporations in which I invest to do well. Since Social Security may well be a fond memory by the time I reach retirement age at 85, I will need something to retire on. Assuming my children will not have to take up the burden, perhaps I will be able to draw on my pension fund investments. I would like the corporations the fund invests in to do well enough that I have something in my account come retirement. And I think most other folks think the same way. But if my financial good, and the financial good of my fellow investors is the only good sought by those corporations, I think we’ll all be in trouble.
The corporation that is allowed a say when it comes to defining the public good, has a responsibility to listen to other institutions when they give their contributions to figuring out what our common good is. When we make the shift from conceptualizing the common good to enacting the common good (and the shift is imaginary, since we are always doing both), we all discover, both institutions and individuals, that making the common good a reality costs us something. Some of that cost is in terms of taxes. I pay taxes. Corporations pay taxes. But we also pay more. We also give up some of our own desires to make room for the needs of others.
Bainbridge said, “The social obligation of business is to sustainably maximize long-term profits for shareholders.” If we consider that long-term profits are most fully realized in a society in which shareholders are not the only ones we have in view, in a society, in other words, in which individuals and institutions are invested in the common good, than Bainbridge is on the money. But if not, if I’m twisting his statement out of line to get there, then I’d have to say to him what he said to the president. Wrong.
I would say the reality is somewhere between the two. Corporations have a responsibility to act in the best interest of not only shareholders, but also employees and customers. After all, it takes these groups to maintain long-term profitability, too. (Perhaps this is what Bainbridge meant in his comments, too, but he simplified the statement considerably.)
However, a corporation has no “obligation” to the state beyond obeying the laws of the area where it operates. If the US is the best place to do business, as Obama dreams, then, yes, corporations will do all the things Obama wants. But it still is not an obligation. If anything, it is a reward. The state works to encourage a positive business environment, and the companies reward these actions by doing business.
But the companies “obligations” are only related to the business stake-holders, not to government.
Thanks for the comment, JAy. My cumulative argument is that “social responsibility” is different from and broader than “responsibility to the government.” That we take “social responsibility” to mean something like “doing what the government wants us to do” is a sign of the degradation of our political culture.
A friend and I recently were talking about how shocking we have found it, that people in the workplace can be so nasty to one another. Now, while my workplace is not strictly “business,” the point did come up in our conversation that there are those that pooh-pooh the whole idea of altruism. People do what is in their best interest … and they are being really short-sighted when they don’t realize that what is in their own best interest, is to nurture good relationships with others and to exercise what might be described as “common virtues” — honesty, fairness, charity. Proverbs talks about how being principled brings success … yes, I know Proverbs is not to be taken as a prediction of success, but rather an explanation of the way things ordinarily work.
Business people who are only after making as much money as they can, generally bring down their house of cards on top of themselves. It is good business to be honest, to make a fair (rather than exorbitant) profit, to deal fairly with both employees and customers, to be a good neighbor, to be a player in creating a more just society.
But I agree that social responsibility is not synonymous with responsibility to the government. While the government’s job is to “promote the general welfare,” such as enforcing contracts and prosecuting those who cheat others, I think it has a minimal role to play in insuring that business is socially responsible. In fact, I think that our overblown regulatory system has created ways for those with money to take advantage of the rest of us. For example, it was government that agreed NOT to hold insurance companies liable for bad outcomes, when they refused to pay for needed medical procedures for their policy holders. How is MORE government regulation the solution?