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What is the Purpose of a Corporation?

Business Roundtable Issues a Public Relations Piece

Have you read the “Statement on the Purpose of a Corporation” put out by the Business Roundtable on August 19? It suggests that corporations should no longer advance only the interests of shareholders. Instead, according to the group, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers.

The Business Roundtable is a lobbying group that represents many of the largest corporations in the U.S. It includes 200 chief executives, including the leaders at Apple, The Coca-Cola Company, JP Morgan Chase and Walmart. Why did they issue the Statement now?

There is growing distrust of corporate America in the U.S. It’s not just the disparity in compensation of chief executive officers when compared to employees, which is 254:1. There is a growing global discontent over income inequality, harmful products and poor working conditions.

We can thank Democratic hopefuls like Bernie Sanders and Elizabeth Warren for scaring straight corporate America into thinking capitalism will take a big hit if either of them become the next President of the U.S. The Statement is a defense of capitalism at a time when its very existence is being questioned.

The core issue is what is the social responsibility of business? Corporate America recognized the need to attend to corporate social responsibility initiatives long ago. It started in 1970 after the economist Milton Friedman argued in the Times magazine that there is one and only one social responsibility of business: “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” Purpose of corporation

Issues surrounding corporate social responsibility have been debated since the 1970s because Friedman’s statement seems to dismiss it, yet the Business Roundtable would have us believe it’s something new and corporate America has now seen the light. Nonsense. The Statement is designed to divert attention away from the bad things top companies and their CEOs do and focus on their spiritual awakening, or new-found ethical awareness.

It’s important to realize that some of the signatories to the document represent companies that have been involved in improper behavior these past few years. Three examples are General Motors, Boeing and Johnson & Johnson.

GM auto workers have been out on strike for one month protesting about wage issues, job security, workplace safety and retirement benefits, and they are deeply concerned that jobs are leaving the U.S. for Mexico. GM is now the top auto maker in Mexico. GM workers also point out they accepted pay cuts during the 2007-2008 recession and now that the company is profitable, it should return the favor to workers.

Boeing’s 737 Max airplanes have been involved in two fatal crashes in five months that killed 346 people, according to a report released by the Federal Aviation Administration on October 11. The report criticizes the culture at Boeing with one employee saying they were “undue pressures’ at times during the plane’s development because of “conflicting priorities.” Hours after the report was released, Boeing’s stripped its chairman of the board of that title while allowing him to remain CEO. Quite frankly, he never should have been allowed to serve as both CEO and chairman of the board of directors because the board oversees the work of the CEO. This is not socially responsible behavior and limits accountability.

The last example is Johnson & Johnson. J&J settled a lawsuit in Oklahoma on August 30 that was brought by users of its painkillers. The judge ruled that J&J had intentionally played down the dangers and oversold the benefits of opioids and ordered it to pay $572 million in the first trial of a drug manufacturer for the destruction wrought by prescription painkillers. In his ruling, the Judge wrote that J&J had promulgated “false, misleading and dangerous marketing campaigns” that had “caused exponentially increasing rates of addiction, overdose deaths” and babies born exposed to opioids.

The Business Roundtable says its Statement on the Purpose of a Corporation is more of a mission statement than a plan of action, which means it’s largely a public relations document. They’re likely to file it away and never look at it much like corporate codes of ethics.

Corporate America has let us down time and time again. In addition to those just mentioned, there are many examples of bad behavior.

Wells Fargo opened unauthorized bank and credit card accounts and charged customers fees for unwanted services during the 2016-2018 period. The company has paid hundreds of millions of dollars to settle a myriad of lawsuits and fired 5,300 employees implicated in the scandal.

In 2015, Volkswagen admitted it had installed software designed to cheat U.S. emission standards in around half a million diesel cars sold in the U.S. between 2009 and 2015. The computer program would detect when the car was undergoing emissions evaluations and decrease its nitrogen oxide emissions to comply with U.S. standards. When the software recognized the car was on the road, however, it would allow emissions of up to 40 times higher than standards permit. The company agreed to pay $4.3 billion in criminal and civil fines and settled with consumers for $15 billion.

A simple way to view the mission of a corporation is: First, Do No Harm. Beyond that, corporations should manufacture and deliver safe products to consumers, pay workers a fair salary in the context of the compensation packages of those in the C-suite, build communities through job creation, expand business in the U.S., support community activities, be transparent about their activities and foster respect and responsible action in everything they do.

Posted by Steven Mintz, aka Ethics Sage, on October 15, 2019. Dr. Mintz recently published a book, Beyond Happiness and Meaning: Transforming Your Life Through Ethical Behavior, that explains how doing the right thing and being a good person can enhance well-being. The book is available on Amazon. Visit his website, sign up for his newsletter, follow him on Facebook and “Like” his page.