Wednesday, September 19, 2007

Why Corporations Cannot be Moral

"Every publicly-held company is dependent on the stock market for obtaining more capital. Its stock price reflects the present discounted value that investors place on its future profits and dividends. No matter how far-sighted a company claims it is being, it must watch its stock price; if that price falls too low, investors will either leave the company, causing the price to fall further, or some investors will take over the company. It's very important for progressives to understand that there is no moral company. Companies are not and cannot be socially responsible if that means sacrificing profits. To assume otherwise is to buy into corporate public relations, and to deflect attention away from the far more important job of pushing for new laws and regulations that force companies to act in the public interest and not solely in the interests of shareholders and consumers."

- Robert Reich

17 comments:

Rambodoc said...

With due respect, this is BS!
Companies are not obliged to be "moral" and self-sacrificing. Their duty is only to their shareholders to make profits. This is a given, a no-brainer.

Paul said...

Actually, Rambodoc, I think you and Reich are making the same point.

aos said...

Exactly.

I like the point made in The Corporation that corporations are not only recent developments but that they exist at our behest. And yet they are treated as entities with rights, and seem to be natural.


I have always felt that investment is inherently parasitic and ultimately damaging to our world in how it shapes corporate decisions, concentrates wealth in fewer hands and how it removes that healthy connection between capital and real goods.

Rambodoc said...

Paul,
I object to the implication that corporations are evil parasitic entities, and don't have your interests at heart.
What I mean is that for a corporation, making profits is THE moral thing to do. And we should not grudge them that.
@aos: if you really think these corporations are inherently evil, I would say that any class of entity that has given us the PC, phone, mobile, or the airplane should be proud of being called so. We just need to change the concept of evil, that's all.

Nita said...

A company's morality can be judged by how it treats its shareholders and customers.
If it does that well, it needn't do anything else. If it does, its an added bonus.

Paul said...

I think corporations are forced by economic necessities to look first and foremost after their bottom lines. Sometimes that means they do wonderful things for us, and sometimes that means they do things we wouldn't consider at all in our best interests. At least that's how I see it.

Paul said...

What about how it treats its employees, Nita? Does it have any moral obligation towards them?

Mahendra said...

Paul: I'm absolutely with Rambodoc here, but further:

//I think corporations are forced by economic necessities to look first and foremost after their bottom lines.//
This is a very moral thing! If they do not do so, they would cease to exist.

//Sometimes that means they do wonderful things for us, and sometimes that means they do things we wouldn't consider at all in our best interests. At least that's how I see it.//
No corporation has best interests of everyone as its goal. It's goal is to make profits for its shareholders.

If each and everyone of the public started to claim his/her best interests behind the actions of each and every corporation, we will effectively destruct capitalism, entrepreneurship, and all businesses.

//What about how it treats its employees, Nita? Does it have any moral obligation towards them?//
First of all, the employees would cease to be employees if the corporation didn't exist in the first place.

Any employer's moral obligations towards its employees are that it state it's contractual terms clearly and explicitly when the potential employee signs up for employment. Nothing less, nothing more. If the employee chooses not to consent to those terms, he/she is free to refuse employment.

Webs said...

What I mean is that for a corporation, making profits is THE moral thing to do. And we should not grudge them that.

This is a very moral thing! If they do not do so, they would cease to exist.

No corporation has best interests of everyone as its goal. It's goal is to make profits for its shareholders.

Again you're already making the point this post made. And it's the problem with pure capitalism. And consequently is why we have laws guiding corps and OSHA.

If each and everyone of the public started to claim his/her best interests behind the actions of each and every corporation, we will effectively destruct capitalism, entrepreneurship, and all businesses.

Which is not what anyone is asking corps to do? Would you consider the slave labor taking place off the coast of US territory (essentially US territory that was given back to Asia once lawmakers found out they could get in trouble for it) funded by lawmakers that dealt with Abramoff to be evil? Would you consider the companies that purchase and use these products to be evil?

No one is saying corps are evil because they don't take into account everyone's interest. But it's the fact they take into account no one's interest but their profits and stakeholders that some of us have a problem with. This leads to companies not caring about how their products might hurt someone.

For instance, auto manufacturers will not do a recall of cars with a defective product if the cost of the recall does not exceed the cost of paying out in court settlements and other fees. So you could still theoretically have people that died from car accidents where a part failed. But since x number of people didn't die there will be no recall. How much is one life worth? Well apparently corps have a value assigned, me I can't answer that question.

First of all, the employees would cease to be employees if the corporation didn't exist in the first place.

So corps can treat employees how ever they want? A wise decrepit fool once told me, "When you treat an employee as a dispensable object, that's all you get..."

Any employer's moral obligations towards its employees are that it state it's contractual terms clearly and explicitly when the potential employee signs up for employment. Nothing less, nothing more. If the employee chooses not to consent to those terms, he/she is free to refuse employment.

This is a given, but does not give employers the right to willfully harm employees. Go look at OSHAs website if you want to see all the different reasons why OSHA was started, or why corporations need oversight.

But on another note, the corporations that do the best seem to also treat their employees well. And for a company to say, well I would give you all health care, but then I would take a 5% drop in profit, that's being short sighted. In the long run you'll get more productivity from employees that aren't stuck on the bottom of Maslow's Hierarchy.

aos said...

Many great points here. It reminds me of a Seinfeld that I keep coming back to. An apartment above Jerry becomes free and Elaine is thinking of moving in. The upshot is that the superintendent radically raises the rent to the point where she cannot afford it. When Jerry hears this, he says to the super 'I understand, you are a businessman". Somehow the mere fact of being in business brings into play a new morality, one of taking advantage, which because you have identified yourself as being part of the businessman class, allows you to engage in honour in what was previously dishonourable activity. It becomes moral for you to take advantage of your fellow man.

Trinifar said...

Rambodoc and Mahendra,

The Reich quote that Paul provides is a comment on a longer post. Did you read that? In the interview Reich responds to the points you raise. In short he says corps exist to increase shareholder value which neither moral nor immoral, just the way things are. And that is the reason we need government regulations. Have a look at the whole thing. Here's one bit:

"The economy should work for us, rather than the other way around. And the economy doesn't exist independent of the laws and regulations that define private property, fair contracts, responsibility for accidents or injuries or bad luck, and so on. In other words, we as citizens should have it in our power to define the rules of capitalism, so that it serves our needs."

Paul,

Great post. I just finished reading Reich's book Reason: Why Liberals Will Win the Battle for America. It was fabulous. He has a great, easy going style that I hope reaches a wide audience. Too few like him today.

Paul said...

I just want to pop in to thank everyone for the excellent comments I've been reading here. Your remarks are inspiring me!

Does anyone believe that it would be beneficial to completely do away with any corporate regulation?

Nita said...

Well, Mahendra has answered that questions and yes roughly I do agree. An employee can always quit or not sign the contract...but one is assuming that the company itself is a legitmate one! And example would be a person who employs slave labour for example.
Actually in a poor country where the employee has less choice, the situation can be slightly different, than say in a country like the US where workers have access to welfare etc. Here a worker might feel obliged to work as slave labour because he has nowhere else to go.

Trinifar said...

I'm quite tired of the religious fever of the free-market capitalists who see all regulation as bad regulation. That's an incredibly naive view and one not held by many corporate leaders most of whom know that good regulation is vital to the proper functions of markets. See the discussion here for example, where I spent far more effort in the comment thread than was likely useful.

The larger issue that Reich speaks to is about democracy. Our nation was not founded on the principle that the rich and powerful simply have their way or that unbridled capitalism is a good in itself. The US is founded on the idea that the people get to decide how to govern themselves and regulate the economy, and our voice has been made smaller as corporations have gained power.

Rambodoc said...

Trinitar,
"Our nation was not founded on the principle that the rich and powerful simply have their way or that unbridled capitalism is a good in itself. The US is founded on the idea that the people get to decide how to govern themselves and regulate the economy, and our voice has been made smaller as corporations have gained power."//

This is plain misinterpretation of a free society. Regulation is not part of a free society. The fact that the US has regulation makes it not a free society, but a freer society compared to many other countries. However, at the end of the day, it is another mixed economy in a world of mixed economies.
There is a very respectable and highly regarded school of economic thought that refutes all regulation. This has people like Ludwig von Mises and Nobel laureate Milton Friedman.
Those who espouse regulation have a distorted view of rights. There cannot be a right to regulate, as this is, after all, done with gunpower and threat (by the government).

Anonymous said...

There is a very respectable and highly regarded school of economic thought that refutes all regulation. This has people like Ludwig von Mises and Nobel laureate Milton Friedman.

Modern Gods whose ideas and theories are to be blindly obeyed and followed because they are respected?? Kissinger, Sharon and Arafat were awarded Nobel prize too.

Anonymous said...

Why do "rationalists" (Orwell must be so proud!!) get their panties in a twist if anyone disagrees with their views? Their behavior is not much different from some extremist Muslims, IMO. ;)