The last two postings of this blog addressed the role
corporations play or should play within a federated arrangement. Corporations themselves, in terms of
structure, do adopt a federalist form.
They provide the opportunity for regular folks to attain a vested
interest in the welfare of publicly traded corporations by offering their stock.
Stocks represent part ownership of some
of the world’s richest and largest business entities.
But there is a
source of conflict; that is, the conflict between the financial interests of a
stockholder versus the responsibilities of that stockholder as a citizen – a
partner in the grand partnership under the auspices of its founding agreement,
the US Constitution. As a
citizen, federation theory calls on each member to, at minimum, align his/her
interests so that they do not oppose the general welfare of the nation. But, at times (or is it most of the time?),
corporations, in their efforts to maximize shareholder profits or dividends,
have been accused, with reason, of implementing policies one can judge to be at
odds with that general welfare.
This
eventuality has led to a developing set of court cases in which, for a variety
of reasons, shareholders have sued corporate management when they deemed corporate
policy has “shortchanged” them. An
initial case that set the tone for such cases was Dodge v. Ford Motor
Company (1919). In that case, the
court mandated that Henry Ford, the chief executive of the car company bearing
his name, cease expenditures that aimed at improving social conditions at the
expense of the company’s profits and, in turn, dividends that would go to the
shareholders.
In that
precedent-setting case, the shareholders won, and the last posting reviewed the
relevant decision by the Michigan Supreme Court.[1] That posting also provided information
concerning subsequent cases (Shlensky v. Wrigley and Burwell v. Hobby
Lobby) and how they affected this whole area of the law – “business
judgement rule” and its related issues.
This posting furthers that review by
focusing on one of those related issues, corporate social responsibility (CSR). This more targeted topic narrows one’s
attention to the overall concern these postings aim at: what are the responsibilities of a federated
partner, be it a corporation, a person, or any other entity?
And this topic is not limited to
federated arrangements. It has gone
global as it is a recurring concern business, political, and other leaders
discuss at such meetings as the World Economic Forum Annual Meetings in Davos,
Switzerland or forums run by the Center on Democracy, Development, and the Rule
of Law at Stanford University.[2]
Certain factors have encouraged this
more recent interest. One, nations
generally allow limited liability companies (LLCs) to protect the personal assets
of individual investors that free them to issue corporate policies that might
be questionable in terms of the effect they might have on others. Two, the amount of political power
corporations can accrue due to their financial strength. And, three, the motivation corporations demonstrate
to “behave” in accordance to social needs and wants in order to avoid
government regulations.
One review of this corporate concern
comments:
Managers are usually accorded
significant latitude as long as they can point to a rational interpretation of
their actions as benefiting the corporation as a whole in the long term. The combination of economic and political
power in the world’s largest corporations necessitates that executives consider
the interests of a broader set of stakeholders, rather than only stockholders. Indeed, social, environmental, and charitable
programs often create shareholder value rather than take away from it.[3]
This writer enjoys watching golf on TV. As the PGA tour makes its way across the
country, conducting its individual events, each of those events is sponsored by
some corporate entity. During the
weekend broadcast of these events, a corporate representative is interviewed by
the program’s host. Inevitably, he or
she (overwhelmingly a “he”) boasts of how much money the event has generated for
local charities. Surely, this is a
public relations ploy, but the funds do have real, beneficial consequences
within those communities.
All of this is
considered the “moral minimum” that corporations are expected to fulfill. And research indicates that this is only the
beginning of how such concerns help corporations boost their profits instead of
providing obstacles to doing so.
Overall, they bestow what psychologists call a “halo effect” over those
businesses. People, consequently, tend
to look at them positively as responsible and good neighbors. One is more disposed to buy a product from a friendly,
good-natured seller and these spots or sponsorships promote that image.
But this overall positive view does
not go unchallenged. And one can detect,
among corporate policies, either a rejection of such strategies or deceptively
projecting such an image but falling short of its demands. For example, the corporate world is full of
businesses that give token amounts to charities – often collected from others –
while paying their workers below a living wage or denying them adequate health
insurance. Why? To maximize profits by using what many see as
short-term strategies.
And before one dismisses these
“short-term” policies as merely exercises in greed, one should consider the justifications
for it by reputable economists, including the late, Nobel Prize winner, Milton
Friedman. Friedman falls squarely as a
natural rights advocate and, through his and others’ work, did much to define
how that view has taken on a dominant position in how Americans see and
understand governance and politics.
Central to Friedman’s argument in
terms of CSR issues is his claim that people should have the option of how they
should make contributions to social efforts such as charities. That should include shareholders who do not
buy stocks to make such contributions. They surely do not need corporate managers
making such decisions for them. A
corporation’s responsibility should be limited to following the laws – usually
in the form of regulations – and maximizing profits so that the business can do
what it is set up to do, make money.
In addition, it is safely in a
corporation’s rights and even obligation to the owners of the corporation – its
shareholders – to seek and use their legal political influence to minimize
those regulations that affect the bottom line.
And these arguments have found a receptive audience since World War II,
especially back in the 1970s. Of course,
those are the years leading up to the Reagan era, in which natural rights
thinking hit its apogee.
The next posting will ask: are there responsibilities corporations have
toward a federated union and, if so, what are they? Federation theory, as opposed to natural
rights theory, holds that there is a duty among corporations to advance or at
least not be in opposition to the common good.
While the term, fiduciary duty, might be too strong a standard, it is
one that helps one analyze what the responsibilities of corporations, if any,
toward that common good. The next
posting will utilize that concept to delve further into this concern.
[1] Robert Gutierrez, “From Cars to Lights to
Hobbies,” Gravitas: A Voice for Civics, August 23, 2019, https://gravitascivics.blogspot.com/2019/08/from-cars-to-lights-to-hobbies.html AND “Dodge v. Ford Motor Company,” Case Briefs, n.
d., accessed August 26, 2019, https://www.casebriefs.com/blog/law/corporations/corporations-keyed-to-klein/the-nature-of-the-corporation/dodge-v-ford-motor-co/ .
[2] “Business Ethics:
Corporate Law and Corporate Responsibility,” BC Campus, n. d.,
accessed August 19, 2019, https://opentextbc.ca/businessethicsopenstax/chapter/corporate-law-and-corporate-responsibility/ .
[3] Ibid.
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