I believe that it is an illusive goal, unless Society is willing to live up to what it expects corporations to live up to:
1. Social responsibility is defined by societal values that evolve over time. In my opinion, they are a reaction to the often unintended consequences of activities that have occurred. In the corporate sense, a business executes a plan, with a focus on its strategic objectives - namely profit but also the perpetual survival of the business.
Obviously, some of these costs are externalities that are passed on to society, just like the some of the benefits - that accrue to society I.e. Jobs, tax base, thriving economy, national position in global affairs, etcv.
2. A corporation, in this manner, acts no differently than an average individual. Where the difference lies is one of perception - a person can lose liberty without a larger social cost, but a corporation cannot be incarcerated without there being costs imposed on society - lost jobs for example. So penalizing a corporation like a person is not fruitful - from a utilitarian perspective. From a retributive perspective, the moral culpability does not exist in the corporation entity but in the managers/board and shareholders. Again, when decisions are majority based, absent fraud or criminal culpability, how does one punish the whole group - it doesn't follow from our system of justice.
3. Perhaps, the solution to encourage greater social responsibility by corporations lies in the following approach: -Require that the corporation, as part of its business plan, address long term business issues - profits are based on existence, and require a cost benefit analysis that considers the costs that society is not willing to accept. Where this may break down is that societal perceptions of cost are after the fact - so there is a lag. This way, the corporate benefit can still exist, society can still benefit, and there is a cost defined for the benefit. The individual consumer can then decide which corporation they will do business with - in theory the market will encourage corporations to be more responsive. Where this breaks down is that individual consumers will often decide and buy the cheapest product and allow the cost to be passed onto society.
But, then it is society's choice - corporations merely are a reflection of societal realities.
Social responsibility can be best achieved by making society itself be more socially responsible.
There are already laws and successful prosecutions of individuals who commit fraud - ala Ken Lay, Madoff, etc so that is not the issue. Social responsibility can only be imposed by society - in the case of corporations, it is the marketplace driven by consumers who must act in accord with their social conscience and not the near term impact on their pocket book (profit).
These are just my thoughts for your consideration.
In response to the question you posed in class, and tangentially related to the question you've posted in this blog, is my following "Solution to the Corporate Problem":
I propose attacking the problem on two fronts - First, at the larger level of creating a new corporate form, and then by creating a stronger system of checks and balances by empowering shareholders.
Corporations are often reticent to comply with socially responsible business practices, so I suggest we create a Limited Liability Compliance Corporation.
Changing the collective ethos (from wary to willing) as it relates to compliance with socially responsible norms begins with a new corporate structure that creates incentives for socially responsible business practices. I envision incentives like more pervasive protection from liability, and/or tax kickbacks.
When social responsibility is inextricably intertwined with ordinary business, companies won't even notice the seamless conversion to a more responsible, more sustainable, kinder, and gentler manner of doing business.
Even with this new business structure, there needs to be a system of check and balances between directors on the one hand, and institutional shareholders on the other. Therefore, the second portion of my proposal would be the elimination of "diversification" requirements.
In this way, institutional shareholders would be enabled to hold meaningful percentages of corporations so as to influence management. When directors/managers are beholden to a shareholder constituency whose votes actually mean something, it seems rational to believe that social responsibility would be sure to follow.
I believe that it is an illusive goal, unless Society is willing to live up to what it expects corporations to live up to:
ReplyDelete1. Social responsibility is defined by societal values that evolve over time. In my opinion, they are a reaction to the often unintended consequences of activities that have occurred. In the corporate sense, a business executes a plan, with a focus on its strategic objectives - namely profit but also the perpetual survival of the business.
Obviously, some of these costs are externalities that are passed on to society, just like the some of the benefits - that accrue to society I.e. Jobs, tax base, thriving economy, national position in global affairs, etcv.
2. A corporation, in this manner, acts no differently than an average individual. Where the difference lies is one of perception - a person can lose liberty without a larger social cost, but a corporation cannot be incarcerated without there being costs imposed on society - lost jobs for example. So penalizing a corporation like a person is not fruitful - from a utilitarian perspective. From a retributive perspective, the moral culpability does not exist in the corporation entity but in the managers/board and shareholders. Again, when decisions are majority based, absent fraud or criminal culpability, how does one punish the whole group - it doesn't follow from our system of justice.
3. Perhaps, the solution to encourage greater social responsibility by corporations lies in the following approach:
-Require that the corporation, as part of its business plan, address long term business issues - profits are based on existence, and require a cost benefit analysis that considers the costs that society is not willing to accept. Where this may break down is that societal perceptions of cost are after the fact - so there is a lag.
This way, the corporate benefit can still exist, society can still benefit, and there is a cost defined for the benefit. The individual consumer can then decide which corporation they will do business with - in theory the market will encourage corporations to be more responsive. Where this breaks down is that individual consumers will often decide and buy the cheapest product and allow the cost to be passed onto society.
But, then it is society's choice - corporations merely are a reflection of societal realities.
Social responsibility can be best achieved by making society itself be more socially responsible.
There are already laws and successful prosecutions of individuals who commit fraud - ala Ken Lay, Madoff, etc so that is not the issue. Social responsibility can only be imposed by society - in the case of corporations, it is the marketplace driven by consumers who must act in accord with their social conscience and not the near term impact on their pocket book (profit).
These are just my thoughts for your consideration.
Regards
Sanjeev
In response to the question you posed in class, and tangentially related to the question you've posted in this blog, is my following "Solution to the Corporate Problem":
ReplyDeleteI propose attacking the problem on two fronts - First, at the larger level of creating a new corporate form, and then by creating a stronger system of checks and balances by empowering shareholders.
Corporations are often reticent to comply with socially responsible business practices, so I suggest we create a Limited Liability Compliance Corporation.
Changing the collective ethos (from wary to willing) as it relates to compliance with socially responsible norms begins with a new corporate structure that creates incentives for socially responsible business practices. I envision incentives like more pervasive protection from liability, and/or tax kickbacks.
When social responsibility is inextricably intertwined with ordinary business, companies won't even notice the seamless conversion to a more responsible, more sustainable, kinder, and gentler manner of doing business.
Even with this new business structure, there needs to be a system of check and balances between directors on the one hand, and institutional shareholders on the other. Therefore, the second portion of my proposal would be the elimination of "diversification" requirements.
In this way, institutional shareholders would be enabled to hold meaningful percentages of corporations so as to influence management. When directors/managers are beholden to a shareholder constituency whose votes actually mean something, it seems rational to believe that social responsibility would be sure to follow.