James Farrar thinks I’m confused about governance. In his piece, James refers to the arguments put forward by John Reich for the banishment of corporate social responsibility:
Reich has always argued in the past that CSR is about the externalities. Specifically he has argued CSR is about proactively identifying the externalities that pose the greatest risk to intrude into the enterprise and become much more serious internalities if left to hang. Similarly, George Soros, arguably the world’s highest value philanthropist, in his book Open Society argues that businesses should adopt CSR to the extent that doing so reduces risk and therefore improves shareholder value. But in objecting to the enterprise culture of Asda, Sainsburys, Morrisons, Tesco and Safeways Dennis seems to be confusing the role of corporate governance and the role of government.
I am not in the least bit confused. I argue that corporate excess is a function of a distorted view of what it means to deliver shareholder value. In the Amazon reviews of Reich’s book, Izaak VanGaalen says:
As a left-leaning author, Reich makes some startling pronouncements. One, stop treating corporations as human beings. They are neither moral or immoral, they are merely “bundles of contracts.” I couldn’t agree more. Stop expecting corporations to be socially responsible, see them for what they are: profit-seeking organizations. Any socially responsible action is a ruse to bolster the bottom line anyway. Don’t even encourage them to be socially responsible because it will wrongly lead us to believe that they are solving problems when they are not. Corporations play by the rules that they are given and it is up to citizens and their elected representatives to change the rules.
I’ve no idea which way I lean seeing as I find interesting parts of what both left and right wing politicians have to say. I think VanGaalen has it wrong because he missed ‘amoral,’ something I believe to be far closer to the truth when it comes to assessing how corporations should be viewed. I also think he has it wrong when he assumes that the achievement of low prices is something that consumers want at any cost. If that is true then the farmers markets and organic producers would be faring badly.
No corporation can survive, much less prosper if it blatantly ignores or flagrantly abuses the trust that society confers upon it. The case of Nike as a proxy for sweatshop operations is one of the clearest examples of a situation that came into the public domain and which caused an uproar that Nike could not afford to ignore. Nike would have done nothing about it had the matter remained out of the public gaze. Why? Because in the corporate mind, if there is such a thing, there is only one motivating factor – profit maximzation. But it is in James’ rationalizing of choice and low prices I have the greatest problem:
If you don’t like the enterprise culture of Tesco then it really is an issue for the government to decide whether choice, quality, convenience and low prices are to offset the social and environmental issues associated with long supply chains and the overshadowing of local businesses.
This argument ignores that while the consumer may be winning on one side, (albeit in the case I was citing, the consumer has lost to the tune of £270 million) Tesco and others are exposed as abusers of trust. Tesco not only controls the supply chain but has sufficient power to hammer down the value producers achieve for the purpose of maximizing profit. Does the consumer really win?
I will readily acknowledge my analysis is skin deep. I also acknowledge that corporations like the Co-operative Bank have proven it is possible to operate ethical policies while delivering solid returns. But that doesn’t mean we should tolerate excess. Since it seems that it is impossible to rely on self-regulation then government has little choice but to step in. Whether it chooses to do so is another matter.
Simply waving the spectre of higher prices and reduced consumer choice doesn’t wash with me. These are deceits perpetrated by PR designed to keep people believing that overly powerful corporations know what’s in the best interests of citizens. That kind of thinking is precisely why we have the checks and balances of law.
Video link courtesy of another of James’ posts.
UPDATE: I notice that investors are asking the SEC to get tough on companies that don’t disclose their environmental impact.
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