Corporate Law Inhibits Social Responsibility.

March 7, 2002 12:57 AM

Corporate Law Inhibits Social Responsibility. Chainsaw Al saw maximizing shareholder profit as the primary, if not only goal of a corporation. Does your employer or favorite company take part in corporate philanthropy? Isn't it about time you found out about socially responsible investing, anyways? What do you feel is the role and/or goal of corporate management?
posted by jacobw (7 comments total)

I think the article is flawed. Yes, corporations' prime directive is to increase shareholder value, and this is codeified in law, but time and again the courts have held that corporations (and wealthy individuals) are responsible, to some (varying) extent a) for the public good, and b) for bearing an apparently public burden where they are more financially capable than others, whether it is "just" or not. Look at US tort law in the last 50 years and you can find examples of judges (and juries) putting public good over shareholder value in the list of corporations' legal responsibilites.

This is certainly not to say that the people who run corporations aren't crooks a lot of the times. "Maximizing shareholder value" is almost a generalization to the corporate entity of the assumption that underlies economics: agents make rational choices to maximize individual utility. One could say that, while not legally bound to, we are expected (even assumed) to maximize some financial number like shareholder value for ourselves, but the system isn't perfect, and for it to work, we must hold ourselves to some moral or ethical code. We don't hop the turnstile cause we can, and so on. Sometimes, corporate officers don't do this and use the shareholder value argument as some type of shield (Burroughs-Wellcome in the 80s, Enron, Drexel...), but individuals commit the same acts independently of corporate law.

Then again...I just had a bunch of stuff about this presented to me in a school-type setting, so maybe my head got spun...
posted by jeb at 1:19 AM on March 7, 2002

If corporate officers view diverting resources to the "public good" as an investment in good public relations and can expect a reasonable (and not too intangible) return on that investment, then they are fulfilling the terms of corporate law.
posted by mischief at 6:14 AM on March 7, 2002

For a lawyer, this guy is making a huge leap in logic. As he dutifully notes most state corporate rules require that corporate officers discharge their duties with a view to the interests of the corporation and of the shareholders. But, nowhere does the law automatically equate the interests of shareholders with profits, or even money for that matter. While the article quite ablely demonstrates that the law does not promote corporate responsibilty, it doesn't even come close to demonstrating that the law inhibits responsibility (of course, from a progessive standpoint I guess you could claim that failure to promote social responsibility is the same as inhibiting, but that's a different discussion). As Jeb notes, the law already includes inducements for corporations to behave responsibly (punitive damages, strict liability, fines and penalties for bad behavior, tax breaks for socially beneficial investment). There is definitely (and always will be) room for improvement in current law (I personally believe that the corporate shield should be more permeable in egregious cases of illegal activity by corporate officers), but room for improvement <> inhibition of social responsibility.

The law or the state does not demand that coporations "make the numbers", the market does. And the market is us. Corporations are only responding to what we as a society value - and right now that's profit over social responsibility. The problem isn't legislative at its nature it's social.
posted by dchase at 6:15 AM on March 7, 2002

I think its ridiculous to expect the Ken Lay's and the Chainsaw Al's of the world to look out for society anyway. They are obviously incentivized to look out only for their shareholders. Anything else is a farce.

There is only one enity that can look out for the public good, and that is government.
posted by brucec at 6:17 AM on March 7, 2002

check out trillium asset management, "investing for a better world!" though their performance has dragged in a tough market, they've done good work, recently.

btw, there're christian ones, too :)
posted by kliuless at 7:38 AM on March 7, 2002

A corporation exists to make money for its shareholders. They should do that by any legal means.

That's the bare essence of it.

However, speaking as a small business owner, I also firmly believe (and have implemented as policy, with varying degress of success) in the idea of being a good corporate citizen. I look at it this way - if you're prospering, you owe it to the "community" (define it as you will) to give something back. And guess what? It's astonishingly rewarding, not only in terms of having pride in your accomplishments, but in a larger karmic sense. You could call it noblesse oblige if you wanted.

Good attracts good. And the reverse is true.

Now if you'll excuse me, my arm is sore from patting myself on the back. Ow.
posted by ebarker at 10:03 AM on March 7, 2002

Let's not forget that Ken Lay and Chainsaw Al are incompetent failures who actually minimized shareholder value through too slavish devotion to a short-term, numbers-based conception of shareholder value (or perhaps paid lip service to that conception while pursuing another agenda). ebarker is on the right track to actually maximize shareholder value.
posted by anewc2 at 11:04 AM on March 7, 2002