In a recent article in the Wall Street Journal, Dr. Karnani makes the case that corporate responsibility is a distraction from the true purpose of companies, to maximize shareholder value. Reading through his article, I found myself persuaded in the opposite direction.
At EchoDitto, we are engaged in a continuous conversation about what it means to be a responsible company: who we want to work with, what we want to do, and how we work for a sustainable world.
In another sense, this is a question we all ask ourselves. For most of us, it's not enough to make money, we need meaningful lives, and psychological theories like logotherapy agree. Even those that desire to make money are ultimately seeking not just money itself, but freedom, safety, love, or power, things that bring meaning to their lives that they believe money will bring.
And when U.S. corporations were originally chartered, they were required to justify their meaning in terms of the common good. Private individuals within companies have always been guided by their ethics, as have shareholders. A company has a meaning, whether it be to make shoes or websites.
Wouldn't social responsibility simply be a part of the way that companies, the most highly-organized and ubiquitous organization perhaps in the world, organize towards a meaningful existence?
But according to Dr. Karnani, "Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests."
That's all well and good, but the problem arises when profits conflict with the common good, for instance, in the case of the so-called tragedy of the commons. One of the current tragedies of the commons is global warming, and polluting companies have paid good money to suborn scientists.
According to Dr. Karnani, corporations should wait until they are forced into ethical or sustainable behavior by regulatory law. But let's look at that argument in the light of common sense. What if individuals decided they would only be moral insofar as the law required them to? We would live in a very violent world.
Government regulation is useful, but governments have difficulty regulating big-money corporate lobbies that work directly to corrupt their defense of the common good. For instance, the Arizona anti-immigration legislation arose from meetings with private prison lobbyists. What happens when corporations have an undue influence over legislators?
With 195 countries in the world, there is nearly always a country that can be induced to look the other way at the worst corporate behavior. That is, multinationals can and have found their way around most restrictions in this world, despite organizations like the WTO that often advocate for destructive freedoms instead of corporate responsibility.
And even when regulators work their hardest, as we saw in the financial crisis, large banking institutions found their way around regulations. This is because regulators were not as acquainted with the day-to-day realities of the financial industry. After all, who can know what is being done better than those doing it? Regulation in this globalized, instantly-traded world is increasingly difficult.
This is why it has become necessary that consumers and companies themselves begin the work of asking companies to be socially responsible, because regulations cannot fully encompass all behaviors that companies might enact across the globe, that may ultimately heat the planet beyond its current capacity or impoverish people to death.
There is a long history of commodifying the invisible, for instance, the commodification of cool, and the creation of a brand that is sexy or powerful. If cool can be commodified, so can sustainability. We have to introduce ethics into the sphere of profits, and then make it profitable for corporations to genuinely pursue ethical behavior. Next, we need to advocate for corporate transparency so that people can know the difference between green and greenwashing.
It is possible to create structures that will measure and track social responsibility. It is that which we measure that determines our direction. It is also possible to create internal rules and processes that promote ethical practices. So it's not all a pipe-dream.
At times, this social responsibility will be an illusion, something we tell ourselves so that we can sleep through the night. But the best illusions we call dreams, dreams for a better future, a sustainable world. It is true that much of social responsibility is illusory, like a vision for the future that has not fully arrived, but it is a necessary dream whose time has come.
Business ethics are not optional, nor have they ever been. Unless we are not very attached to the future of the planet.
If corporate responsibility is a dream, it is a dream to fight and die for.