Sunday, 6 February 2011

A Brilliant Take on Hypocrisy of Corporations

From Joel Bakan's The Corporation:

Friedman thinks that corporations are good for society (and that too much government is bad). He recoils, however, at the idea that corporations should try to do good for society. “A corporation is the property of its stockholders ... Its interests are the inter­ests of its stockholders. Now, beyond that should it spend the stock­holders’ money for purposes which it regards as socially responsible but which it cannot connect to its bottom line? The answer I would say is no.” There is but one “social responsibility” for corporate execu­tives, Friedman believes: they must make as much money as possible for their shareholders. This is a moral imperative. Executives who choose social and environmental goals over profits — who try to act morally — are, in fact, immoral.

There is, however, one instance when corporate social responsibil­ity can be tolerated, according to Friedman — when it is insincere. The executive who treats social and environmental values as means to maximize shareholders’ wealth — not as ends in themselves — commits no wrong. It’s like “putting a good-looking girl in front of an automo­bile to sell an automobile ... That’s not in order to promote pulchritude. That’s in order to sell cars.” Good intentions, like good-looking girls, can sell goods. It’s true, Friedman acknowledges, that this purely strategic view of social responsibility reduces lofty ideals to “hypocritical window dressing.” But hypocrisy is virtuous when it serves the bottom line. Moral virtue is immoral when it does not.


Corporations are created by law and imbued with purpose by law. ... at least in the United States and other industrialized countries, the corporation, as created by law, most closely resembles Milton Friedman’s ideal model of the institution: it compels executives to prioritize the interests of their companies and shareholders above all others and forbids them from being socially responsible — at least genuinely so.


[Adam] Smith, in his 1776 classic, The Wealth of Nations, said he was troubled by the fact that corporations' owners, their shareholders, did not run their own businesses but delegated that task to professional managers. The latter could not be trusted to apply the same "anxious vigilance" to manage "other people's money" as they would their own, he wrote, and "negligence and profusion therefore must prevail, more or less, in the management of such a company."

The "best interests of the corporation" principle, now a fixture in the corporate laws of most countries, addresses Smith's concern by compelling corporate decision makers always to act in the best interests of the corporation, and hence its owners. The law forbids any other motivation for their actions, whether to assist workers, improve the environment, or help consumers save money. They can do these things with their own money, as private citizens. As corporate officials, however, stewards of other people's money, they have no legal authority to pursue such goals as ends in themselves - only as means to serve the corporation's own interests, which generally means to maximize the wealth of its shareholders.

Corporate social responsibility is thus illegal - at least when it is genuine.

Now isn't that sweet.


Anonymous said...

I don't think you quite understand the matter as well as you think you do. You presuppose that helping the consumers isn't in the best interest of the corporation. Which, in fact, most of the time, it is. Private unionized large corporations often have a tremendous amount of benefits - this is because it is within their own interests to do so. Don't forget Smith's maxim that states what is good for the individual is good for the collective (I'm paraphrasing if you can't tell).

Anonymous said...

*ununionized (if thats a word)

Jose said...

Hi Servati, thanks for your comment. I'll try and respond to this as best as I can rationally without sounding offensive (I guess you can tell from my selections from the book that my stance, like the author's, is technically antagonistic). As most of us are aware, debates revolving these issues can become emotional and heated, but I'm all for an intellectual dialogue on this.

I'd like to address first your point that I "presuppose that helping the consumers isn't in the best interest of the corporation". I never said this; on the other hand, what I'm trying to draw attention to is the fact that corporations are legally and morally bound to protect and maximize, first and foremost, the interests (wealth) of their shareholders. The key point is the part in bold - if the interest of the consumer happens to overlap with the interest of the corporation, then indeed the corporation will be in a great position to help those consumers. And often this is the case - if consumers do not consume goods produced by a particular corporation, the corporation wouldn't be able to maximize the interests of its shareholders. Consumers are served because they are a means to the shareholders' end of profit. That's fine insofar as the interests of consumers are protected and served.

However, the most problematic aspect of this "best interest of the corporation" principle is that if people stand in the way of a corporation, the corporation has a moral/legal duty to 'overcome' those human obstacles. In many cases these obstacles are trivial, but in some serious cases, these obstacles can come in the form of regulation that is meant to protect the environment, schools, health care, etc. This is the reason why many still feel uneasy whenever public goods become privatized. If, for instance, health care in Country A had been privatized to Corporation B and, one day, Corporation B no longer deems providing coverage to the elderly profitable, it is not legally bound to continue providing that coverage.

I would carry on, but first I'd like to hear how you'd comment on that.


Anonymous said...

" but in some serious cases, these obstacles can come in the form of regulation that is meant to protect the environment, schools, health care, etc." I understand what you are getting at. But I think that there is something you are missing entirely. People seem to have this perception of corporations as if they are some evil death star - they aren't. They would be if their interests didn't lie in the consumers, but the fact of the matter is that their interests do.

I'll explain. Let us pretend that you and I are both a part of a multi-billion dollar corporation. We are the CEOs. In our world (and in the real world we live in), there is tremendous concern for environmental safety and protection. Clearly, we aren't going to try to circumvent these laws which could lead to lawsuits against us for damaging one's property - in the instance that we pollute a lake and thus someone else's water supply; this is obvious. However, I'm sure you are pointing to the fact of global warming and corporations influences on the matter. This is still just as simple. If you and I are the CEOs, do we really want to be polluting the air? Yes, because likely it is cheaper to do so. However, a corporation is ALWAYS subjected by its consumers. If consumers are unhappy with the way a corporation is doing something, they are not likely to want to buy from them, hence the new "green" revolution that all the corporations are trying to jump into. You see, the public image of a corporation is so important that it can always be subjected by the consumer. If the CEOs were to, for lack of a better word, say "fuck it its cheaper to pollute the environment. It would, in fact, be worse for the corporations profits.

This is the beauty of mass media and its ability to hold corporations true to its consumers. As long as the will of the consumer is against pollution, it will be in the interest of the corporation to "go green."

As for the global warming issue, which you may or may not be implying: one volcano releases more carbon dioxide into the atmosphere than humans have ever. I'm not a right-wing conservative who believes there is no such process occurring though; I think it is from sunspots. But this, is a whole other matter.

Jose said...

Hey sorry for the late reply.

That’s pretty much where my concerns lie, because while it might seem like most corporations are doing good because they are bounded by the interests of their consumers, big corporations exist that are too powerful to be constrained. It would be fine and dandy if a free market world really did exist because then a firm wouldn’t be able to accumulate capital to the point that it becomes a political entity, but today’s corporations are so big they can significantly manipulate consumers’ lives, influence regulation and shape both domestic and global public policy. And when consumers become dependent and reliant on big companies, those consumers’ ability to limit the actions of corporation will undeniably be compromised. In theory, the will of the consumer is supposed to regulate the corporation. In reality, it does not. I’ll touch on this more later. Once more, if I can profit by harming the environment, and consumers need me so much they can't do anything, why wouldn't I do it?

Consider, for instance, General Electric, one of the largest and most highly respected firms in the world. From 1990 to 2001, it committed 42 major legal breaches of environmental standards, fraud, worker safety and deception. Time and again GE is fined hundreds of thousands of dollars, but time and again, because it doesn't cost much to be fined, GE continues trying its luck as it can afford to pay petty fines. I’d go into a whole list of other big corporations that compromise on human rights and environmental standards but I believe the GE example should suffice.

And I’m not even faulting the corporation for this; the fact is that any decision-making entity given the legal capacity to pursue its own self-interest the way that the corporation is allowed (and, in fact, mandated to) will do just that – get away with murder if it can.

I think that you brought up a number of worrying points though. Firstly, I think the idea that the mass media can keep the corporation in check sounds rather naive, considering that the mass media is the number one propagator of corporate advertising. If the corporation is powerful enough to buy over media space to proclaim that something it is doing is good, wouldn’t that be the “truth” we’re fed? I would be more charitable on the press and the news as a source of regulation, but even then, with the US as an example, Noam Chomsky has acutely pointed out that news media outlets are dominantly right-wing by association (see Chomsky's Interventions), so collaboration between news sources and corporations are commonplace today. Even scientific research is increasingly being funded by corporations, so “truths” and knowledge generated in the interest of corporations will be most desirable. Next, I think you’re giving far too much credit to the will of the consumer. I’m not sure if I even need to argue the point that humans are notoriously capable of being influenced (see Predictably Irrational by Dan Ariely), and marketing experts exploit this to devastating effect. As mentioned earlier, the will of the consumer can be bent and while in most mundane cases the corporation can’t survive by serving trash to people, huge firms are capable of, for e.g., making us purchase a whole load of things we do not need, breeding immense reliance on consumer products (this has more room for elaboration but I’ll leave it at this for now). Most consumers also either do not care enough about the background activities of corporations or are unaware of them, and so covert harms to the environment are rife. Lastly, I'd be labeled typical stereotypes by being this conservative, but if it can’t be argued beyond reasonable doubt about the impact of particular activities of corporations on the environment - such as global warming as you've mentioned - and other human rights (e.g. sweatshops), then why risk it? In all seriousness of rationality I don’t see reason to forgo the precautionary principle and go ahead with something when it might incur potential harms.

Anonymous said...

I think you're right about the fact that corporations have far too much influence on the government. However, they only succeed because of the regulation in the first place. We could get into economics, but it will give just as much credence to both of our opinions - given the fact that economics is a lot like philosophy, at least in the sense that there are a ton of theories that cannot necessarily be proven. Anyways, I definitely think there should be some sort of public funding for candidacy for those wanting to assume public office.

If a corporation can profit by harming the environment, then of course they would. However, if it is the within the will of the majority's concerns to preserve the environment, then companies who want to have a more profitable business will find ways to be more environmental.

Regarding GE, you're right. There is a huge problem there. They paid no taxes this year either. I think we both can agree that corporations are given way too much power in the political realm, which is obviously due to the relationship between politics and business.

Once again, you're right. Corporations are in control of the advertisements etc. However, I think you are missing the reciprocity of it all. You are acting as if man is a herd and corporations are the herders. I think you are giving them more power than they deserve. Of course, they try to do anything to appeal to us - and in certain circumstances they do get us to buy a whole bunch of things we don't need. But they can't sell anything they want - there are boundaries.

By the way: you have to be kidding me about the right-wing thing. Nearly all news outlets are of left-wing. The only exceptions are fox news and the wall street journal. I think that the reason why corporations have obtained all of their power is precisely because of government intervention. And as long as politicians say, "we will work together with business," we should be afraid. I do not think the problem is the free-market. I think the problem is with the collaboration between government and corporations. I'm not sure you are familiar with such names, but likely you are - Tom Sowell, Milton Friedman, and Ayn Rand have been saying that without help from government, there would be no such corporations that could have ever existed. They have been using the government to crush their competition: I think this is the greatest problem of all.

Jose said...

Hi Servati, sorry for the absence as I've been traveling! I think we've hit quite a bit of common ground on the issue so far, so there are only two points I'd like to clarify or emphasize.

I think we agree that in most cases companies are constrained by the will of the public and have behaved reciprocally. In a large part of the world, most businesses are honestly run.

However, once again, as with the emphasis of this post in the first place, I am still adamant that the legal rules (I guess if we were to seek out their roots, it would be particularly in the case of US policies) do encourage corporations to tend towards exploitation, gaining political power and generally "bad behaviour" if they are able to get away with it. Once again, the "bad behaviour" is simply because the legal rules allow big corporations to override what the public wants. I'm not sure if you feel this way, but I think there are far more products out there than I care to buy, but I am told to get them anyway, everyday through advertising and other dependency means. Consumers may think that they know what they want (and through that knowledge dictate the behaviour of corporations), but there is alot of research now indicating that consumers are more often in fact herded (to borrow your word) by the most pervasive and powerful of corporations.

Secondly, I'd like to back up the point about right-wing media outlets but I do not have my book sources with me at the moment. Give me a day or two and I'll have it here.


Jose said...

Regarding "the right-wing thing", I'll follow up by citing Peter Hart, Advocacy Director and Media Analyst for Fairness and Accuracy In Reporting.

"There are any number of ways to study the mass media - comparing what is reported to what is neglected or buried in the back pages, or analyzing the sources and experts who dominate discussions of important events. Doing that sort of work helps to measure the distance from the rhetoric of media executives and superstar pundits to what appears on the printed page or TV screen. This gap between the values that corporate media barons profess to cherish - a robust, skeptical and adversarial press - and the product they sell is often considerable, but in elite circles paying lip service to the most cherished principles of the First Amendment seems to count more than actually living up to its principles.

Most op-ed pages fall well short of these lofty goals, though the Times' mission statement gets close to describing what is really going on. In the elite papers - the ones with the largest circulations which wield the most influence among the powerful (primarily the Los Angeles Times, Washington Post and New York Times) - the op-ed page serves as one more place where the parameters of acceptable debate are clearly delineated. That which can be published regularly is obviously within these boundaries, and the ideas that never or rarely appear most certainly do not. So the Times can say without exaggeration that their page, and many others like it, "reflects" a certain type of public debate - namely, the one that the elite political classes and corporate interests will tolerate... The related field of television punditry - the handful of journalists and commentators who make a living offering pithy sound bites about almost any subject - suffers, by no accident, from the same very limited spectrum, often relying on the very same people to provide opinion and analysis... While a freewheeling, broad debate sure sounds nice, this wasn't what was appearing in the Times. Former Times columnist Anthony Lewis, for example, once explained that the page was clearly a creature of the Times' own establishment-friendly politics, and the idea that he represented a left or progressive viewpoint that might balance the likes of William Safire was absurd. When Ben Bagdikian surveyed the opinion pages in the mid-1960s, he found that editors' claims that they sought out a wide ideological range of columnists was difficult to square with the fact that the papers had a "preponderance of conservative columnists."

Surveying the terrain nearly thirty years later, Croteau and Hoynes found a similar rightward skew in the distribution of political columnists. Of the top seven most-circulated columnists, four were well-known conservatives (George Will, James Kilpatrick, William Safire, and William F. Buckley). Rounding out the top tier were centrist political reporter David Broder and Columnist Mike Royko, with Ellen Goodman as the lone liberal. As Croteau and Hoynes concluded, "The most widely distributed columnists of the day still deliver messages that resonate with the right, and there is still no coherent presentation of the 'other point of view.'"

About ten years later, another survey by FAIR found much the same - the ideological spectrum had hardly changed, but some names had shifted places. Archconservatives James Dobson and Cal Thomas were at the top of the list (calculated by the number of papers carrying their column), which fellow conservatives Robert Novak and George Will not far behind... the opinion pages of daily newspapers are yet another corner of the corporate media universe where right-wing voices dominate, and the general debate extends from the far-right to the center, occasional exceptions notwithstanding.

This hardly seems open to serious debate, no matter what the most conservative pundits and cable news hosts have to say about the allegedly left-wing tendencies of the corporate press."