The Soul of a Corporation
How Should a Corporation Act...Think?
I have previously blogged about the lack of a moral compass to direct our free market capitalistic system. The pursuit of self-interests and outright greed seems to rule the day. Our free market economic system depends on the exercise of ethical behavior by corporate officials to provide for the public good. The financial crisis that started in 2007 resulted in large part from unethical conduct including making home mortgage loans when financial institutions knew (or should have known) that borrowers were not qualified – a fact that was ignored (or overlooked) so that these institutions could earn large fees from closing and other transaction costs. In their haste to act on the potential bankruptcy of some owners rather than work with them to restructure loans, some banks processed thousands of transactions to foreclose without doing their due diligence with respect to whether the ultimate penalty could be avoided. Is it any wonder that stocks of banks and financial institutions have recovered remarkably in the past year?
My question is: Should a corporation have a soul? It is treated as a separate entity under the law -- like a person acting on behalf of shareholder interests and consistent with its responsibility to the public. Some might say the soul of a corporation is embedded in its corporate social responsibility practices including ethical behavior. Under the law, corporate officers and the board of directors must act in good faith, exercise reasoned judgment, and carry out their due diligence obligation to protect shareholder interests.
So, I believe the soul of a corporation should be informed by the following tenet: Society grants a corporate entity the right to act and obligates it to meet its responsibilities to shareholders and society. A continued violation of the public interest sacrifices the corporation's right to exist.