Archive for the ‘stakeholders’ Category
NHL Lockout and the Ethics of Labour Disputes
Filed under: accountability, adversarial ethics, capitalism, compensation, justice, sports, stakeholders, unions, wages |
Comments (4) When the rich and powerful butt heads, are they obligated to look out for the little guy?
The NHL lockout may be over, but its impact is far from forgotten. Or even clear. And the impact goes far beyond the loss of income to the NHL, its member teams and its players.
The end of the dispute may mean little to the economy as a whole, but to one portion of the economy — the portion that depends for its livelihood on the actual playing of hockey games — it means everything. The economic loss to Canada as a whole as a result of the loss of half a season of hockey may amount to less than 0.05 per cent of GDP, but the impact was felt disproportionately by the thousands of businesses and individuals that depend for their livelihood on the NHL and its players. For every Sidney Crosby or Daniel Alfredsson making millions on the ice, there is an entire ecosystem of managers, announcers, hotdog vendors, and Zamboni drivers who only have jobs because hockey is being played.
The lockout resulted, in other words, in a lot of so-called ‘collateral damage.’ Some teams had to lay off staff (in some cases, that meant hundreds of employees per team) and many businesses — from sports bars to the guy selling hotdogs outside the arena — saw business dip or even bottom out entirely.
Of course, this is true in almost any labour dispute. When auto assembly-line workers go on strike, workers at companies that manufacture parts for those assembly lines may see hard times as a result. But as many have pointed out, the dispute between the NHLPA and the NHL was a dispute between millionaires and billionaires, which gives the whole thing a distinctly different feel.
Whether the 113-day dispute was worthwhile to either the players or the league — whether either side gained more than it lost — is for them to decide. The relevant ethics question, here, is what part the financial fate of these innocent bystanders should have played in the decision making of the two parties to this dispute, namely the NHL and the National Hockey League Players’ Association (NHLPA). Should the league and players have felt any obligation to end the dispute early, in order to limit financial collateral damage?
It is tempting to cast this question as a matter of what economists call ‘externalities.’ Externalities are the effects that an economic transaction has on non-consenting bystanders. Pollution and noise are standard examples. And both economic theory and ethical theory agree that externalities are a bad thing. It is typically both inefficient and unfair if significant costs are foisted on innocent bystanders.
But economic theory, at least, doesn’t typically count the income effects of competitive behaviour as “real” externalities. If I outbid you in an auction, your interests have been harmed but not in a way that results in either economic inefficiency or real injustice. If I invent a better mousetrap and put makers of lesser products out of business, the result is ‘frictional’ unemployment but also long-term social gain. And during a labour dispute, money not being spent on hockey-arena hotdogs or Zamboni-driver wages are surely being spent on something else: one man’s loss is another’s gain.
But while not technically unfair, the outcome for bystanders is certainly unfortunate, a bad thing by almost any measure even if not the result of wrongful behaviour. And when the dispute at hand is between millionaires and billionaires, it’s worth asking at least whether the rich don’t have some duty, some social obligation, to take better care of those less fortunate.
Once upon a time, the rich and powerful cleaved to the notion of ‘noblesse oblige,’ the idea that with wealth and power come responsibility. Of course, even if the team owners and the players took such social obligations seriously, that doesn’t necessarily mean the dispute would have ended earlier. An obligation to look out for the little guy doesn’t mean an obligation to throw in the towel. But the notion of social responsibility, not to say humility, might well have done something to reduce the length, and impact, of what many regard to have been a pointless conflict in the first place.
Kinder Morgan and the Ethics of Public Consultation
Filed under: accountability, activism, corporate citizenship, energy, environment, protest, public relations, stakeholders |
Comments (2) Energy company Kinder Morgan ran head-first into the complex ethics of public consultation last week. The company shut down an information session in Victoria, British Columbia, in response to what the company is calling “vandalism” of some of its on-site signs. The so-called “vandals” tell a slightly different story: they say all they did was peacefully replace the company’s signs with their own placards.
Public consultation is a regular part of business for many companies these days, especially those in the energy and extractive industries. In some cases, public consultation is required by legislation; in other cases, it’s just good business sense. But none of that means that all companies are going to be at ease with the process. To say that public consultation is common is not to say it is easy. For starters, the word “public” is too broad to provide clarity about what the process even amounts to. You’re not really going to consult the entire public. So who should you consult? The activist public? The educated public? The elected or appointed representatives of the public?
For that matter, how do you even label the process? Without harping too much on words, consider the difference in attitude implied by the terms “public consultation,” “public information,” and “public engagement.” The public’s perception of the process is liable to vary considerably depending on the way the process is labeled, never mind what it implies about the role the thing is going to play in a business’s operations.
From an ethical point of view, public consultation has two distinct objectives. First, consultation is a sign of respect, a way of saying to concerned individuals and groups, “We think you matter.” The other ethically-significant reason for public consultation is to gather input that might actually affect decision-making. Unanticipated concerns can easily come to light; asking people what they care about can be much more effective than guessing. These twin objectives — expressing respect and seeking information — provide hints as to how the process needs to go.
Of course, the information gathering goal is the easy part. Give people a microphone and they’ll talk. A company still needs to make an effort to get the right people in front of the mic, but that’s not rocket science.
The harder part is how to show respect, especially when the project at hand is a controversial one over which tempers are likely to flare. Like, say, a pipeline. And that’s where Kinder Morgan ran aground, in a mutual failure of respect. It’s not nice to mess with someone’s signs, but it behooves a company to respond to such things by taking the high road. After all, a company in the energy sector needs to not just show up; it needs to be good at this stuff. In public consultation, the kind of sophistication that befits a first-rate company means more than glossy handouts. It means being able to roll with the punches, because sometimes that’s what respectful dialogue requires.
Executive Compensation at a Regulated Monopoly
Filed under: accountability, activism, boards, CEOs, compensation, consultants, governance, shareholders, stakeholders |
Leave a comment Protests broke out last week at the first annual shareholders’ meeting of Canadian energy company, Emera. Emera is a private company, traded on the Toronto Stock Exchange. But one of its wholly-owned subsidiaries, Nova Scotia Power, is the regulated company that supplies Nova Scotia with virtually all of its electricity.
The protest concerned the fact that several Emera and Nova Scotia Power executives had received substantial raises, despite the fact that Nova Scotia Power had just recently had to go to the province’s Utility and Review Board to get approval to raise the price it charges Nova Scotians for electricity. According to the utility, the rate hike was needed to add new renewable energy capacity to Nova Scotia’s grid. But protestors wondered if the extra cash wasn’t going straight into the pockets of wealthy executives.
The first thing worth pointing out for anyone not already aware is that practically no one thinks that anyone is doing executive compensation particularly well. Sure, most boards have Compensation Committees now, and many big companies engage compensation consultants to do the relevant benchmarking and to make recommendations. But no one is particularly confident in either the process or the results. So Emera’s board is far from alone in facing this kind of critique.
The second point worth making is that there are two very different kinds of stakeholders concerned in a case like this, but in this particular case they happen to overlap substantially. On one hand, there are Emera’s shareholders. They have an interest in making sure the company’s Comp Committee does its job, and sets executive compensation in a way that attracts, retains, and motivates top talent in order to produce good results. On the other hand, there are customers of Nova Scotia Power, ratepayers who want a cheap, stable supply of electricity. Now, as it happens, many of the vocal protestors at Emera’s annual meeting are members of both groups: they are shareholders in Emera and customers of Nova Scotia Power. But it is crucial to see that these are two separate groups, with very different sets of concerns. When this story is portrayed as a story about angry shareholders, this crucial distinction gets blurred. What’s good for shareholders per se is obviously not the same as what is good for paying customers. And, importantly, a company’s board of directors aren’t accountable to customers in the same way that they are to shareholders.
The final point to make about this is that, to observers of corporate governance, this is actually a “good news” story. As noted above, no one thinks executive compensation is handled very well. But despite that fact, corporate boards still face relatively little pushback from shareholders, and are relatively seldom held to account in this regard. There are of course exceptions (including a number of failed “say on pay” votes) but those exceptions prove the rule. And that’s unfortunate. In any ostensibly democratic system, it is a good thing when the voters take the time to show up and to ask hard questions. Even if no one is sure that such participation improves outcomes, it is an invaluable part of the process.
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(I was on CBC Radio’s Maritime Noon show to talk about this controversy. The interview is here.)
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Will Facebook’s IPO Bring New Public Responsibilities?
Filed under: corporations, profits, regulations, shareholders, stakeholders |
Comments (4) Today, with the advent of its much-anticipated IPO, Facebook, Inc. will be “going public.” From a legal and regulatory point of view, that’s a significant change, bringing for example new requirements for financial transparency. But what does it imply from an ethical point of view? The phrase “going public” here is somewhat misleading. The event doesn’t do anything as dramatic as changing Facebook from a private to a public entity. It simply means that shares in the company will now be available to members of the public, and traded on the publicly-accessible stock markets.
Regardless, many people already do think of Facebook as a “public” institution in some sense. They think of corporations in general as public institutions, with public responsibilities beyond just keeping their noses clean. The very act of incorporation, after all, requires a framework of public laws to enable it, as do key aspects of modern incorporation such as limited liability. The view here is that if the public allows, and indeed enables, incorporation, it has the right to expect something in return.
Many people also point to history: once upon a time, corporations were chartered by the government as instruments of the public good — to sail in search of treasure, to build bridges, and so on. Of course, the way things used to be is typically a pretty poor argument for how they ought to be today. It is, in general, a good thing that corporations are not now thought of as creatures of the state. If you’re an entrepreneur with a good idea, you don’t need to bow to a prince or bureaucrat to be allowed the privilege of incorporating. That is a good thing. We allow incorporation, and the limited shareholder liability that goes with it, because of the socially-useful stuff this allows corporations to do en route to building wealth for their shareholders.
So I think it is generally misguided to think of corporations as public entities, at least as this applies to corporations in general. Corporations are private entities, ones that play a role in an overall system — namely, the Market — which arguably exists to promote the public good in some sense. But to infer, from the notion that the Market has a role in promoting the public good, the notion that each corporation exists for that purpose, amounts to committing the ‘Fallacy of Division,’ the fallacy of assuming that the parts of a system necessarily share the characteristics of the system as a whole.
So Facebook isn’t, just by being a corporation, an instrument of the public good in any grand sense, and it won’t become one when it “goes public.”
But Facebook is not, in my view, a corporation just like any other. As I’ve argued before, there’s reason to think that a company like Facebook — public or not — has special obligations due to its role as a piece of communications infrastructure. It is such an integral part of so many people’s social lives and patterns of communication, and it has so few real competitors, that I think it is in some ways more like a public utility than like a private company.
From that point of view, the idea of Facebook going public is slightly more interesting. Because this quasi-utility is about to face a new set of pressures. Its managers (including especially CEO Mark Zuckerberg) will now be beholden to a greatly expanded constituency of shareholders. Of course, Facebook has long had shareholders, but they were far fewer in number. And those early shareholders were also different in terms of expectations and levels of patience. People who get in on the ground floor of a tech company like Facebook are speculating in a very significant way. They may have big dreams for their stake in the company, but they are less likely to demand growth on a quarterly basis the way shareholders in a widely-held company are likely to do.
The new wave of shareholders are likely to insist on ever-growing profits — this at a time when many people are expressing doubts about the company’s room for growth. How well the company will treat its customers in the face of such pressures is yet to be seen. For example, there are surely lots of ways for the company to make money by selling the right bits of the vast trove of information it currently has about its roughly 900 million users. Will the company sacrifice your privacy in pursuit of profits?
For better or for worse, the company may well be able to resist such temptations, because of the way control of the company is structured. As has been widely noted, Zuckerberg will still exercise nearly unfettered control. He will retain over 50% of voting stock, making him the controlling shareholder in addition to being both CEO and Chair of the Board. Whether that’s good or bad depends on how he exercises that power, and the goals he chooses to aim for. He has, for instance, has publicly disavowed profit as a primary motive. He’s been quoted as saying that, at Facebook, “we don’t build services to make money; we make money to build better services.” This implies, for instance, that Zuckerberg wouldn’t sell your private information just to make a buck. But — who knows? — he might conceivably do it for other reasons. But if all goes well, Zuckerberg’s profits-be-damned approach will act as a check on what might be seen as the baser impulses of the investing public. And if his own ambitions stray too much from the public good, then hopefully the ‘discipline of the market’ will act as a check on the tech visionary himself.
Citigroup Shareholders, Say on Pay, and Moral Suasion
Filed under: accountability, banking, CEOs, governance, leadership, shareholders, stakeholders |
Leave a comment Shareholders at Citigroup have voted against the pay packages granted to the company’s top executives. Under Dodd-Frank, major firms are now required to hold shareholder votes on executive compensation at least once every three years. But the vote held Citigroup’s annual meeting on Tuesday was historic: it was the very first time that shareholders at a major financial firm have used this mechanism to express displeasure.
OK, now what? Well, that’s not entirely clear. Such votes are non-binding, and so the Board at Citigroup is legally entitled to ignore this recent vote entirely. But a widely-cited statement from the company includes the following assertion: “The Personnel and Compensation Committee of the Board will carefully consider their input as we move forward.” But really, what does that mean? And really, what should a Board of Directors do in the face of such feedback?
One problem is that a simple yea or nay vote is not very eloquent: there can be lots of reasons for saying “no” to a compensation package, and of course speculation is rampant. The Board (and its Personnel and Compensation Committee) now needs to talk to major shareholders — presumably it is already doing so — to find out what the problem is.
One analyst has been quoted as noting approvingly that this vote means the owners of big corporations are finally yanking the leash, a move towards getting things back under control. Mike Mayo, author of Exile on Wall Street, says that “[T[he owners of the big banks, namely the shareholders, are finally taking a greater amount of responsibility by speaking up.” The thinking here is that shareholders may have been objecting not just to Citigroup CEO Vikram Pandit’s $15 million dollar pay, but also to the $10 million retention payment awarded to him, and the general lack of correlation between Pandit’s pay and the company’s financial performance.
But then, while the idea that shareholders “own” the company is common, it is not uncontentious. The connection between most shareholders and the company is indeed pretty tenuous. And regardless of ownership claims, lots of people reject the idea that shareholders have any special role here, or that their voices should count for more than the voices of other stakeholder groups. Under such a view, a shareholder say-on-pay vote deserves little more than a shrug. After all, if shareholders are just one more stakeholder group, then evidence that they don’t approve of CEO pay is no more important than evidence of similar disapproval on the part of workers or suppliers or whomever.
But a shareholder vote has to count as more than just one more bit of moral suasion. For better or for worse, shareholders are, under most companies’ systems of governance, the ones to whom all insiders, including the CEO and Board of Directors, swear allegiance. Managers don’t promise to make a profit — such a promise would hardly be credible — but they do promise to at least try to make a profit, to have something left for shareholders after the bills are paid. It’s the one bit of accountability that every CEO, regardless of political persuasion, pays homage to.
Is 7-Eleven My “Neighbour”?
Filed under: consumers, corporate citizenship, corporations, decision-making, public relations, stakeholders |
Comments (1) I live on the edge of Toronto’s Little Portugal. There are two corner stores in my neighbourhood. One is a 7-Eleven. The other is a small, family-owned convenience store. I shop at both stores from time to time — to pick up eggs, bread, whatever.
Is there any ethical difference between shopping at 7-Eleven, on one hand, and shopping at the little Portuguese place, on the other?
At least some advocates of the “buy local” movement would say I absolutely ought to shop at the locally-owned Portuguese place. After all, it’s a part of my community, whereas 7-Eleven is a multinational corporate entity. But wait…7-Eleven is a franchise. So even though the parent company isn’t local, the owners of the franchise very likely are. The owners of that franchise are just as much part of my community as the owners of the Portuguese place are…minus the franchise fee they pay to Seven-Eleven Japan Co. Ltd. (Does that count?)
But still, the 7-Eleven, even if locally-owned, is still part of the 7-Eleven empire. When I shop at my 7-Eleven, I’m patronizing that empire. I am, to some extent, entering into a relationship with the parent company. So this question occurs to me: is Seven-Eleven Japan Co. Ltd. in any sense my “neighbour”, one to which (or to whom!) I owe the neighbourly obligation of shopping at their franchise?
Major corporations are increasingly expected to think of themselves as good neighbours, and as having obligations to local communities. But the “neighbour” relation is generally thought of as being reciprocal, as are the duties it implies. If you are my neighbour, then I am your neighbour, and vice versa. So if 7-Eleven, and other major corporations, are expected to act as good a neighbour, should we all reciprocate, and act as good neighbours to them in turn?
I don’t have an answer to offer to this question. But I think the reciprocity that is normally a feature of the concept “neighbour” ought to be part of the larger conversation about how we think of the role of business corporations not just in our economy, but in our communities.
How Can Business ‘Give Back’ to Society?
Filed under: consumers, contract, corporate citizenship, corporations, government, markets, philanthropy, public relations, stakeholders, taxpayers |
Comments (1) A recent story quotes Fred Green, the CEO of the Canadian Pacific Railway, as saying that he won’t sacrifice safety in pursuit of profits. In his words, he won’t violate the terms of his company’s unwritten ‘social licence’ to operate.
The notion of a ‘social licence to operate’ reflects the notion that in order for a business to be successful, in the long run, the support and goodwill of society is essential. This includes everything from the willingness of a local community to walk into your store to buy things, to the willingness of neighbours to put up with the noise of your trucks driving past, to the willingness of duly elected representatives of the people to pass the kinds of legislation that makes modern commerce possible.
This raises the question: just how does a company earn, and maintain, its social licence to operate? How, in other words, can — or should — a business show its gratitude, or pay its debt to society?
There are a number of ways, and they are not mutually exclusive.
One option is through charitable donations. Corporate philanthropy is as old as the hills, but is generally pooh-poohed by proponents of modern CSR, who favour instead things like collaborative efforts to build local skills and capacity.
Another way is by paying special attention to social impacts, beyond what is required by law. For example: selling junk food is perfectly legal, and arguably fully ethical, at least on a case-by-case basis. But a food seller that looks to the aggregate social consequences of its junk-food sales, and tries to mitigate negative impacts, might be said to be doing so as part of its social licence to operate.
Another way is by paying its taxes. That might seem trivial, a mere matter of following the law. But given the complexity of the tax code, the number of loopholes, and the size of some companies’ accounting departments, a commitment to paying your fair share is probably non-trivial.
Another way a company can earn and keep its social license to operate is by a commitment to looking for ‘win-wins.’ In this category, we could place various efforts at seeking energy efficiency and waste reduction. Of the many ways a company can look to save money, some are socially valuable, and opting to pursue those over others might be seen as supportive of a company’s social licence.
And finally, there’s the old (and true) point made by Milton Friedman years ago, which is that companies contribute socially by making goods and services that people want. What does Merck ‘give back?’ It gives us pharmaceuticals that relieve pain and suffering. What does BP contribute? It finds and refines the oil without which our economy would literally grind to a halt. What does my local coffee shop do for the community? It provides a place to get in out of the rain, have a cup of coffee, and chat with a friend.
Now it’s quite likely that no one of these is sufficient. Each of them is a plus, and counts towards a company’s social licence, but likely some combination is necessary. From this range of options, each company chooses how it thinks it can best earn and keep its social licence to operate. Different mixes will make sense for different companies in different industries. There’s no one right combination that will let a company merit its social licence. Innovation and variety are a good thing, here. Let a hundred flowers blossom!
Should Penn State’s Board Resign?
Filed under: accountability, boards, education, ethics, excuses, governance, public relations, sports, stakeholders, transparency, trust |
Comments (4) In the wake of the Sandusky sex-abuse scandal the question has arisen whether Penn State University’s Board of Trustees should tender its collective resignation. And now, following the death of Coach Joe Paterno on Sunday, the question has taken on additional emotional resonance. The university’s Faculty Senate is scheduled to discuss a motion to strike an independent committee to investigate the Board’s role in the whole affair, and indeed has seen at least one motion calling for the entire Board’s resignation.
So, should the members of the Board be asked to resign? And if not, should they do so of their own volition?
To answer these questions, here are some questions that need to be considered:
Fist, did indeed the Board fail in its fiduciary (‘trust-based’) duties? It’s worth noting that the Board has been under fire from two different directions, here. Some think the Board failed in not staying sufficiently ‘on top of’ the Sandusky situation, and in resting satisfied with whatever dribbles of information the university administration saw fit to feed them. (The only detailed account I’ve read so far paints the Board in a rather sympathetic light, in this regard.)
Others think the Board failed in firing — in their eyes, scapegoating — the beloved Paterno. Both sides think the Board screwed up, but for very different reasons. Of course, both can be right at the same time. Perhaps the Board has just generally done a bad job, first by letting the situation get out of hand and then second by botching the task of responding to it. Rather than cancelling each other out, maybe these two sets of complaints just compound each other.
Next, we need to ask, if the Board failed, was it a failure of people or a failure of structure? A board, after all, is both an institutional structure and a set of people occupying that structure.
If it was a failure of structure (and, as governance expert Richard Leblanc wrote back in November, there are serious problems with how Penn State’s board is configured) then there’s little reason to think that a change of personnel on the Board is either necessary or sufficient to fix the problem. And if instead it was a failure of people, then getting rid of them all is a blunt, but perhaps effective, way to solve the problem — providing, of course, that the new people brought in to replace them are better.
Of course, the problem is that it’s difficult to distinguish between a failure of people and a failure of structure, in a case like this. Perhaps people better-suited to the job would have risen above the confines of a poorly-structured board, or lobbied to have its structure revised. Human behaviour and institutional structure shape each other.
And finally, regardless of the above questions about the sources of failure, it might be the case that the removal or resignation of the Board is necessary in order to restore public confidence. That is, even if the individuals currently on the Board are not in any way to blame, the fact that key stakeholders have lost faith in the Board might be sufficient grounds for calling for the entire Board to go. Without the confidence of key stakeholders, any Board is going to find it hard to do its job.
But then, while the current Board certainly faces challenges, so would an entirely new Board. The loss of continuity that would result from a 100% change in membership could seriously impair the Board’s functioning, and make it even more reliant on — and susceptible to control by — university administrators. There’s a good reason why well-governed boards have careful plans in place to make sure that new blood is brought in regularly, rather than en masse. In the end, it seems to me that the best prescription is this. The Board of Trustess at Penn State needs to see substantial structural change. It also needs enough new blood to restore confidence, while retaining enough of the old guard to ensure continuity. Beyond that, the Board is just going to have to do its best to muddle through whatever challenges lie ahead, with whatever strengths and limits it possesses, just like any other board.
The Virtues of Local Ownership
Filed under: accountability, corporations, CSR, decision-making, entrepreneur, governance, retail, shareholders, SME, stakeholders, values |
Leave a comment There’s plenty in the news these days about the supposed virtues of “buying local.” Buying local usually means buying from small businesses. As I’ve argued before, in at least some cases buying local also means opting for small-scale, inefficient production processes. And in other cases, it means an unhealthy kind of insulation from the outside world.
But what about the virtues of specifically local ownership, when the ownership in question is ownership of what is otherwise a standard-issue department store, replete with goods ‘Made in China,’ as the stereotype goes?
The New York Times recently reported on an effort by a small town in upstate New York to ensure its residents have access to some sort of local department store. When the local Ames department store went out of business a few years back, residents of Saranac Lake — pop. 5,041 — took matters into their own hands. They raised the capital, at $100/share, to open their own department store.
It’s a charming story, and an interesting experiment, but we ought to exercise some caution before attaching too much significance to it.
First, it will be tempting to see this as radical re-visioning of modern capitalism. To see examples of such a temptation, see the 2004 Avi Lewis and Naomi Klein documentary, The Take, about the takeover of a defunct Argentinian factory by its former employees. Lewis and Klein portray that takeover as an example of the pursuit of a real alternative to capitalism — despite the fact that the cooperatively-run factory is still buying inputs on the open market, selling goods on the open market, and so on.
Were it not for movies like The Take, it might go without saying that innovations in ownership structure don’t eliminate the fundamental challenges of capitalism, and certainly don’t eliminate the standard ethical issues that face all businesses. The department store in Saranac Lake is — setting aside a few nods to local sourcing — just a regular department store. It’s got employees, so it will face questions about how those employees are treated. It’s smaller than your typical Walmart, but it will still face questions (or at least it should) about where its products come from, the conditions under which they’re manufactured, and so on. And its managers will still face questions about how to balance the good of the community as a whole with their obligation to be fiscally responsible. And so on.
Not that we need to be entirely cynical about the Saranac Lake experiment, and others like it. There’s at least a prima facie case to make for the significance of local ownership. Managers of a locally-owned store have at least some sense of what kinds of things shareholders would want them to do, and hence seem less likely to violate the trust placed in them. When you know your shareholders by name, you can ask them what they want, and they can tell you what obligations they feel to the community, and they can then ask you, their representative, to make good on those obligations.
In the end, I think experiments in capitalism are good. Indeed, the way it fosters experimentation is one of the great virtues of capitalism. We ought to keep a careful eye on such experiments, both for what we can learn about their particular virtues, and for what we can learn about the nature and structure of capitalism more generally.
Corporations as “People” vs Corporations as “Persons”
Filed under: corporations, critical thinking, definitions, personhood, stakeholders |
Comments (11) There are two ways to think about corporations. One is as a mechanism for letting a bunch of individual people interact. Seen this way, General Motors is just a mechanism for letting employees, customers, shareholders, suppliers, and managers interact in mutually-beneficial ways. The other way is to think of the corporation as an entity in its own right. Seen this way, GM is an entity that owns property, hires employees, is a party to contracts, and has obligations (e.g., via warrantees) to millions of customers. The people involved come and go, but the 103-year-old institution remains. These two views aren’t incompatible. Each illuminates one important characteristic while obscuring another. We need to be able to see corporations both ways, depending on the circumstance.
But it is important not to confuse the two. One is about people. The other is about legal personhood.
Here’s an important case of that confusion. As was widely reported at the time, US presidential hopeful Mitt Romney said, in a speaking engagement, that “corporations are people.” (You can see it for yourself on YouTube: Mitt Romney- Corporations Are People!) This happened over six weeks ago, but it is still causing confusion, and muddying the waters of the debate over the role of corporations in modern society.
What did Romney mean by what he said? I think the point Romney was clearly making is very different from the one he is often thought to have been making. In fact, he was making the exact opposite point. In clarifying what he meant, Romney said, in reference to corporate profits:
“Everything corporations earn ultimately goes to people. Where do you think it goes?”
In other words, he’s pointing to the first of the two viewpoints mentioned above, the one according to which what really matters is the people, the individual stakeholders, behind the corporation. And yet I keep seeing Romney’s “Corporations are people” claim bandied about sarcastically as if it’s yet another example of the much-hated (and much-understood) notion that corporations are legal persons.
(Greg Sargent at the Washington Post did try to explain this, but the point has generally been missed.)
If you don’t like Romney, fine. And if you don’t agree with the point he was making — that corporate profits end up in the pockets of human beings — that’s fine too. But please don’t confuse his point with the exact opposite point, namely the fact that corporations are (and need to be) legally regarded as persons.
The Business Ethics Blog 