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Should multinational companies use corporate resources to alleviate human misery even if this conflicts with the interests of the shareholders?

As part of my research into the theory around the Consumer and the Citizen, I’m undertaking some study in applied philosophy – after all, quite a lot of thinking has been done around the world over the last few thousand years on these questions, and it would be a little arrogant to break into that without doing a little pre-reading.  Some interesting questions have been posed to me as part of that study, and I wanted to share some rough thinking in response – as ever, feedback welcome!

There is a conventional answer to this question, with a strong internal logic – and the answer is ‘no’.

This worldview, as most famously championed by Milton Friedman in his seminal paper ‘The social responsibility of business is to increase its profits’ and expounded daily in the business pages of our newspapers would – were the course of that logic to made explicit – construct an argument broadly as follows:

  1. Companies that are listed on the stock exchange owe their resources to the financial input of – and indeed are owned by – their shareholders
  2. The shareholders have put their money into these companies on the understanding that they will receive a financial return – that is their only reason for doing so
  3. Company managers are agents of the shareholders and therefore have a fiduciary duty, a duty of trust, to use the corporation’s resources to maximise financial benefit to shareholders by maximising profit – like doctors who must put the health of their patients first, that outcome should be their only concern
  4. The boundaries of law and morality set by the government and the people should set a limit to these operations – but within these limits every effort should be made to maximise profit
  5. Any other allocation of resources would be in effect a tax on the operation of the firm – a tax on the shareholder, which would be an inversion of the role of the manager
  6. This would also be a step outside the qualifications of the manager, whose skills are in maximising profit
  7. Human misery may exist, but it always has, and is not the concern of business – if it can be addressed while maximising profit, fine, but no compromise whatsoever should be made.  Really, it is the role of government to use the revenue from taxation to solve these problems.

Mainstream debate still seems broadly stuck on whether this is completely right and we just haven’t followed it with sufficient commitment to reap the rewards; or whether it is broadly right but needs some tinkering.  This is the current ground for debate, between the Friedman fans of organisations like the Adam Smith Institute and would-be radicals like Michael Porter with his ‘Shared Value’ construct.  The questions tend to be over how long or short term the managers’ thinking with regard to the interests of shareholders needs to be at point 4; and where the lines should be drawn at point 6 with regard to the exploitation of legal loopholes, international tax havens, the use of resources to lobby for legal changes, and so forth.  Paul Polman, the CEO of Unilever, is one of those pushing within the boundaries of this logic, openly dismissing short-term shareholders as being of no relevance to the company, and acting as a convening partner for a recent set of UN guidelines on responsible corporate lobbying.

For all the goodwill of individuals like Polman, however, the problem is that we need not to refine this logic, but to throw it out entirely.  The most significant problems come not as late as steps 4 and 6, but right at the beginning, in the first three.

The greatest problem is with the idea of the fiduciary duty of corporate managers to shareholders, at step 3.  This step indicates nothing less than the total abdication of moral agency on the part of corporate managers.  The case of Albert Speer, Hitler’s architect and a senior Nazi leader, is a parable that ought to be told more often in this context.  Speer, who became known as the good Nazi, was a caring, loving man at home, who saw doing a good job as the full extent of his moral responsibility at work – a stance that can be directly equated with the concept of fiduciary duty.  He did what he was employed to do, and did it remarkably well.  He didn’t ask questions because that wasn’t his job.

The results of formalising this logic of fiduciary duty on the part of corporate managers have been devastating.  Managers who believe that to be ‘good’ they must only maximise profit and thereby shareholder return quite predictably push the boundaries of law and ethics in other ways (step 4 above); their key vector for ‘goodness’ obviously trumping the asking of wider questions, just as it did with Speer.  The race to the bottom thus created is now becoming clear.

One part of the shift must therefore be to see managers not simply as agents of shareholders, but as moral agents in themselves, human beings expected to make moral judgements about the situations in which they work.

Friedman’s argument against this would be to go to steps 5 and 6 above.  Step 6, the idea that to engage moral judgement is to step outside the bounds of expertise of the manager, is swiftly dealt with.  The manager is a human being.  She is a moral agent.  She must be able to make moral judgements.  If she is not, she is not fit to be a leader of any sort.

Step 5 provides a more interesting argument.  It is rooted in the premise established at step 2, that the only interest of the shareholder is in financial return.  This I believe falls foul of a similar failing to the concept of the fiduciary duty of the manager – it removes moral agency from the shareholder.  Why should we allow that shareholders are only interested in the financial performance of a company?  Shareholders literally own a share in a company; they are therefore endorsing and supporting the practices of that company.  As human beings and moral agents, they should also therefore express that agency through their shareholding.  Anyone who does not consider personal financial benefit to be their sole reason for being should also not consider personal financial benefit the sole purpose of shareholding.

All this is not to say that profit is not important.  But profit must be a factor, not the factor around which a new theory of business ethics is developed, as is the case in the work of Michael Porter and others.  This new theory will be rooted in a reclamation of moral agency on the part of every individual in every role in business and in society.  It will result in a complete re-evaluation of the role of business, the outright dismissal of the idea that positive social and environmental outcomes are not the business of business – indeed, such outcomes will come to be seen as the only truly viable purposes of business, with profit a means to these ends rather than the end in itself.

To return to our question, we must come to realise that the alleviation of human misery – and its causes in terms of systemic environmental and social degradation – is a far more viable purpose for a multinational business than the making of profit.  We must also come to realise that such alleviation is in fact entirely in the interests of shareholders – assuming those shareholders, at some point down the chain, are human beings themselves.

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