Corporations and obligations

At a conference last year, Stephane and I were fortunate to hear a debate between Mark Kramer and Clive Crook on corporate social responsibility. Crook is a sharp guy with provocative views, and I think hear his influence in the last paragraph of this article on Bill Gates in the new Economist:

"Whatever the corporate-social-responsibility gurus say, business is a force for good in itself: its most useful contribution to society is making profits and products. Philanthropy no more canonises the good businessman than it exculpates the bad."

Crook argues that the machinery of the private sector makes society better off by doing what it's supposed to do: creating value by competing in the marketplace. To put a finer point on it, he sees two categories of 'good' (i.e., social welfare-improving) corporate behavior: good behavior that increases profits, and good behavior that doesn't. The former should be done regardless, as it makes business sense. The latter shouldn't be done, because it inhibits and distracts businesses from their core mission of pursuing profits, which is their responsibility to shareholders and yields the greater good.

It's an interesting claim. And in a way the whole point of Citizens Market is to move CSR behaviors from the second category to the first. We want to make it more profitable for corporations to reduce their carbon footprint, and more unprofitable for corporations to discriminate against minorities in their hiring practices. Our vision is to apply the marketplace's considerable innovation power to more social issues with greater intensity.

But I think there are problems with Crook's argument. Under a strict definition of short-term profitability, this gives corporations a mandate to exploit every legal and regulatory loophole and pull every unscrupulous maneuver they can get away with, as long as the payoff exceeds the reputation costs. There are opportunities all over the place to pass costs onto society (in the form of pollution and other negative externalities) and thereby improve the bottom line, and corporations are more or less obligated to pursue them when the paramount goal is profitability.

Now, you can say it's the government's job to correct market failures- to enforce property rights and regulations that prevent costs from being passed along to bystanders- and that we shouldn't expect the private sector to contort and distort itself, obeying laws that don't exist yet, just because governments aren't doing a very good job.

But I think this gets things the wrong way around. Corporations exist in the first place because societies make serious efforts to give them operating space. Representatives of the people write and enforce laws that permit the creation and protect the existence of corporations. This is very much in the interest of society- the private sector does amazing things. But there is a spirit underlying the letter of these laws. Which is another way to say, we're on the cusp of a few social and environmental crises right now, and the legal arrangement between society and corporations is not a suicide pact.

Look at least-developed countries. We might be able to think of very good ways to organize and connect public, private, and nonprofit sectors in these societies, which could include pure profit-seeking roles for businesses. But right now, on the ground, some of these countries have weak institutions, fractious politics, civil wars, endemic diseases, and people in desperate poverty. If we take these afflictions seriously on a moral level, I think we have to say that having the capacity to improve things (e.g., being a major multinational corporation with resources and expertise) imposes at least some minimal obligations to improve things. From there, I think we can have a good conversation and find a reasonable compromise on who has obligations and how far those obligations go.

I don't want to be on the wrong side of Clive Crook, so maybe I can stretch the idea of "profitability" a bit. Maybe we can agree that corporations should function to create the maximum amount of wealth over the long run, and then I can argue for a story about wealth that requires more investments in social equity and environmental stewardship than what we currently have. The world is densely connected by causal chains, and I think what I'd consider to be a full and proper accounting (for example, using a low discount rate when assessing the welfare of future generations, and including broader estimates of inaction's costs and risks) would have corporations saying things like, "Reducing my carbon footprint is worth doing, because if I do this it will pressure other corporations to follow suit, which will put many people on coastlines in a better position to buy my products in 100 years". To an extent this is just finding different ways of quantifying and arguing for my conviction that more needs to be done. But I'm betting this conviction is shared by many.

-Isaac