Corporate obligation to shareholders

Here are some interesting viewpoints on corporate obligation to shareholders. One comes from Jeff Darcy and the other two from Mark R. Kleiman.

Before reading this, you should introduce yourself to the nice debate going on in the blogosphere right now on corporate responsibility, sparked by this post.

Here is Jeff’s response.

His [Mark’s] approach is reductio ad absurdum, but I think there’s an even more important flaw in Friedman’s reasoning. This flaw is the all too common assumption that “money is everything” and therefore any value not represented in monetary form is irrelevant. In this case, this leads to believing that people invest only based on (direct, short-term) monetary return, but that’s simply not true. When people buy stock, they do so based on a certain assumptions. They assume that certain legal and moral restrictions are applicable to what the company does, and they invest based on that assumption. This is particularly true of “green” or socially-conscious investors, who might be making decisions based as much on a company’s image or reputation for ethical behavior as on their purely financial performance. In a sense one might say that such investors have monetized their morals by making such investments, but that doesn’t mean they’ve given up those morals forever in return for profit. Presenting such an image and then acting in a wholly different manner is a form of fraud, and unconscionable. The same principle applies to every company and investor, though usually to a lesser degree. If the moral justification for what companies do is fulfillment of shareholder expectations, then expectations other than profit must be considered.

There’s an even more fundamental problem that shareholders do not adequately represent the interests of all who are affected by a company’s actions, and that those others deserve consideration too, but that’s probably best left for a future article.

I think what Jeff has to realize, however, is that the issue here is the morality of proximity. People feel moral obligations to things that are close to them, either physically or sentimentally. I feel moral obligations to homeless people I see on the street in front of me, but don’t feel as much of an obligation toward, say, sweatshop workers in Malaysia who are abused by their managers. Despite any of my moral principles, despite what I think and know to be right, I still end up buying clothes and things made by those sweatshop laborers, or I continue to buy products whose production destroys the environment.

Even if I had all the information in the world, say I knew Gap abuses its workers, and so I knew if I bought a Gap shirt I would be supporting a business that abuses workers. But then things get complicated. The shirt is already made. The abuse was already done. My buying the shirt doesn’t actually abuse workers. I am just buying a shirt. I need a shirt, its price is right, I’m buying it.

We can’t expect ethical principles to just come to us by people boycotting industries that subvert them. Imagine if the abolitionists, rather than forming a political party and trying to get slavery outlawed, simply said, “We will convince everyone not to invest in these companies, and to not buy these goods.” Do you think this kind of boycott would have really succeeded? Do you think without the understanding of basic human moral principles that went along with the abolitionist movement, we would have advanced past that dark part of our history?

Slavery exists today. People are indentured servants in other countries, working for outposts of American companies. I agree with both posters that laws cannot be made for every moral principle. But no one has mentioned that we aren’t asking for laws for every moral principle. We’re asking for laws for all the most basic ones that relate to labor, the environment, etc., such as not being abused in the workplace, and not polluting our precious ecosystems.

As a shareholder, I continue to invest in companies who may be doing morally bad things far away from me. Shareholders didn’t cash in their morality, they just don’t know the bad things companies are doing, or, if they do know, they are being done so far away that they simply don’t care.

If it were a company that abused American sweatshop labor, and polluted rivers in small-town USA, then [most] people probably wouldn’t want to support that company with their wallet. But when the labor is in Malaysia and the polluted rivers are in China, we do it because we simply don’t care about those other places as much.

An interesting piece of philosophy was written on this topic by Peter Unger. It’s entitled, “Living High and Letting Die.” Try to find it at your local library.

Mark also posted a response to the debate.

What the Friedman argument is missing, it seems to me, is a realistic idea of what shareholders want with regard to how their companies do their own business, and all sorts of good behavioral evidence shows that to be a lot more complicated than maximal money returns. Friedman is right that corporate leadership is obligated to advance the interests of shareholders, but it is also obligated to discern these interests and discover–I expect–that shareholders want to trade some possible returns for a clear conscience about environmental responsibility, decent treatment of workers, honesty in trade, and the like.

Yes, they would probably trade some of their returns for a clear conscious. But how about we get to the heart of the matter: shouldn’t American companies be held responsible for immoral actions they do outside of the United States? Don’t we need to come to a global understanding of the rights of workers to healthful working conditions, to a work/life balance, to less abuse? Don’t we have to come to a global understanding that harm done to the ecosystem in China does affect all of us, and shouldn’t we try to do something to stop these companies from ruining our Earth?

Shareholders are just in to make a buck off their investment. They’d prefer it be done in a way that leaves their conscious clear, sure. But we can’t expect shareholders to save the day when it comes to enforcing our society’s (that is, this one, global society’s) minimal moral standards. We need to use our power as a democracy to control these authoritarian structures, even as they hop around the globe trying to avoid any confrontation by going to places with the least restrictive set of laws.

One Response to “Corporate obligation to shareholders”

  1. Mike Says:

    I don’t fully understand the context of this, however, I just wanted to respond to one quote.

    This seems a bit odd:

    “The shirt is already made. The abuse was already done. My buying the shirt doesn’t actually abuse workers. I am just buying a shirt. I need a shirt, its price is right, I’m buying it.”

    By buying the shirt, you enable the company to continue its unethical practices, thereby ensuring the continued abuse of workers. However small a part of the process your decision is still a part. The timing of the manufacture of the actual shirt you buy doesn’t exonerate you from responsibility of what can be reasonably assumed to be the resulting consequences. This seems obvious to me.

    peace,

    Mike

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