A Critical Analysis of the Business Roundtable Statement on the Purpose of a Corporation
On August 19, 2019, the Business Roundtable issued a Statement of the Purpose of a Corporation that really is a mission statement, not a plan of action. As such, it is short on details about how corporations can achieve their purpose and, more important, what the moral responsibilities of a corporation are.
Delivering Value to Customers
The underlying theme of the statement is to deliver value to the stakeholders of a corporation without much consideration given to how this gets done or what it even entails. For example, “Delivering value to our customers” says that: “We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.” What’s not addressed is the ethical commitment to make products and provide services that ‘Do No Harm.’
This is a major oversight as defective products (e.g., Takata air bags, Toyota unexpected acceleration, VW defeat device, Johnson & Johnson baby powder, Monsanto asbestos and Wells Fargo unauthorized accounts) have littered the environment of corporate responsibility with dangerous products that were known to have dangers but were not disclosed to customers.
It goes deeper as the financial recession was due, in large part, to banks and other financial institutions selling a basket of investments (i.e., securitized mortgages/assets) that had undisclosed risks of default that placed purchasers in the position of having their investments become worthless.
Is the Corporation a Separate Person under the Law?
The issue of whether a corporation is a separate ‘person’ under the eyes of the law with specific ethical obligations has been debated for many years. In Riggs (203 U.S. 243 (1906)), the Supreme Court accepted that corporations are for legal purposes “persons,” but still ruled that the Fourteenth Amendment was not a bar to many state laws which effectively limited a corporation’s right to contract business as it pleased.
I have previously blogged about "What is the Purpose of a Corporation." To begin to understand, let's examine how a corporation gets started. The incorporation of a company is an artificial entity recognized by law as a legal person that exists independently with rights and liability. What this means is corporations have a right to enter into contracts with other parties and sue or be sued in a court in the same way as natural persons. This legal notion of a corporation recognized as such under the law means it exists independently of its owners, managers or employees.
Now that we’ve established corporations have legal rights and obligations separate and apart from their owners, managers or employees, we can address what are the objectives of a corporation. Milton Friedman wrote in his book. Capitalism and Freedom, 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.”
The Business Roundtable statement does not address the moral responsibility of corporations at all or why operating without fraud is so important to the health of our economy. Instead, it is a public relations piece designed to mute criticism of corporate America in the era of crony capitalism. Today, people with power and influence in corporate America buy the favoritism of regulators, legislators and governments ostensibly through decision-making that puts the interests of corporations ahead of the public good.
Buying influence is nothing new and political campaign contributions by corporations through political action committees (PAC) have become the instrument of much of the perversion of the original notion of corporate social responsibility. But, this is a topic of another blog.
The Power and Influence of Big Business
The fact is that corporations have become too big to fail and that’s why there were bailouts during the financial recession. We’ve become a society where a few corporations control much of the wealth and power of an industry and, therefore, our economy, such as technology – i.e., Google, Apple, Facebook, Microsoft – and, therefore, much of the health and welfare of customers that derives from corporate actions.
Big corporations affect our behaviors; influence our decisions; and create a barrier to serving the best interests of society, not their own interests. What’s happened with the growth of mega-technology companies means “free will” has been compromised and corporate social responsibility has morphed into irresponsible behavior designed to benefit the few at the risk of harming others while controlling our very actions.
What’s the answer? It’s not the Business Roundtable statement that ignores moral responsibilities. Instead, Congress needs to strengthen the House and Senate Oversight Committees of industries such as Technology and investigate whether companies within these industries are serving the public good.
Posted by Steven Mintz, aka Ethics Sage, on January 7, 2020. Dr. Mintz is an award-winning blogger. His Ethics Sage blog was recognized as one the top 100 in philosophy (#23) by Feedspot (https://blog.feedspot.com/philosophy_blogs/). He recently published a book Beyond Happiness and Meaning: Transforming Your Life Through Ethical Behavior that is available on Amazon. You can sign up for his newsletter and learn more about his activities on his website: https://www.stevenmintzethics.com/. Follow him on Facebook at: https://www.facebook.com/StevenMintzEthics.