Virtuous Corporation: Oxymoron?

Editors’ Note: Most would agree that, contrary to Mitt Romney, corporations are not people. At the same time, however, businesses are vital actors in society with responsibility to more than shareholders and investors. Workers, communities, and the environment are essential constituents of corporate activity.

Reposted from The New York Times, September 23, 2019.


Image result for virtuous corporationAt a time when the federal government is doing little to nothing on matters of great public concern — gun control, paid parental leave, higher wages, you name it — the corporate sector has been urged, pushed and sometimes shamed to fill in the gaps.

This year Amazon decided, under pressure, to raise wages for its employees. Carmakers have voluntarily agreed to preserve higher emission standards. Walmart vowed this month to stop selling certain types of ammunition. And corporate leaders like Chip Bergh of Levi’s and Timothy Cook of Apple have been speaking out on political issues, suggesting a broader, more public vision of what the corporation is for.

It’s all part of a trend toward “corporate virtue.” This is a loosely organized movement that encompasses various efforts to promote or make high-minded policy changes. It also includes a commitment to so-called stakeholder capitalism (as opposed to shareholder capitalism), in which companies operate in the interests not just of stock owners but also of employees, suppliers, customers and the communities to which they belong.

There have been two hostile reactions to the trend. One, inspired by the work of the economist Milton Friedman, argues that it is dangerous for corporate leaders to think about anything but profit. Everything else is thought to lead to inefficiency and self-indulgence.

The other reaction, common on the progressive left, sees corporate do-gooding as little more than an opportunistic public relations strategy. The corporation is seen as irredeemably obsessed with profit, so that a virtuous corporation is an oxymoron.

Cynicism in the face of pious corporate proclamations can be healthy. But there is increasing reason to think that the virtuous corporation is not an oxymoron but a necessity.

Cynicism in the face of pious corporate proclamations can be healthy. But there is increasing reason to think that the virtuous corporation is not an oxymoron but a necessity.

Large and medium-size corporations collectively employ a majority of Americans and represent the better part of its economic activity. Even if government were more responsive to public demands, the building of a fairer economy — or a better world more generally — would fail without a change in how the private sector understands its duties. External sanctions such as laws are only partly effective in changing conduct. As the cliché goes, real change comes from within.

Many on the left, when faced with problems like climate change or exploitative work environments, contend that deliverance will occur only once we “really” strengthen the laws. I happen to be in favor of many such legal reforms, but to imagine that they alone will suffice is a liberal fantasy. Even if we had a democratically responsive government coupled with vigorous law enforcement, the law faces limits, especially when regulating a corporate sector that sees the evasion and even the subversion of the rules as a duty to its shareholders.

We need to learn a lesson from the control of violent crime: Culture matters. Harsh punishments can create a kind of stupefied compliance, but sustainably safe neighborhoods are a byproduct of respect for (just) laws, community norms and personal ethics. The reason most people don’t steal things isn’t that they’re afraid of prison; it’s that they think that stealing is wrong.

Having a law on the books is a good start, but the law reaches only so deep. Consider that sexual harassment laws have been on the books for decades, yet the #MeToo movement has arguably led to more actual change in workplaces.

Unfortunately, American corporate leadership, cheered on by Wall Street, has been steeped for several decades in a culture of profit-squeezing, one that regards the subversion of the democratic process as a price of doing business. In some cases this culture brought needed discipline to bloated industries. But what began as a campaign for greater management discipline has gone far too far, robbing corporate leaders of their natural social and moral instincts — often with disastrous results.

Consider the American pharmaceutical industry, which long refrained from extracting the highest possible prices for lifesaving or scarce drugs because it understood that doing so would be cruel and exploitative. But over the past three decades a single-minded focus on profit and other narrow metrics of success has led not only to outrageous prices but also to great suffering, addiction and death. The industry has gone from being an admired healer of the sick to the moral abomination being prosecuted around the country.

It is essential to dispel the myth that chief executives have a legal duty to maximize short-term profit and are therefore powerless to act responsibly. Nor is it a requirement of corporate organization or economic health: Businesses like Patagonia and Kickstarter have rewritten their corporate charters to serve larger social priorities without falling into bankruptcy. Tech companies like Facebook that claim to prioritize public service and building communities should consider turning themselves into nonprofits.

Most of the men and women who lead corporations are decent people, yet too often they find themselves forced by the prevailing culture to ignore their better instincts. While profit is essential to business, large profits are not the same thing as true success. The running of business is a test of character, rich in intellectual, practical and moral challenges. A better future depends on meeting that test, not pretending that it does not exist.

Categories: Issues, Local, National

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