When ethics and morals drive corporate governance

Many corporations appear to be rethinking their role in society, and in the process losing their focus on the original reason(s) for their existence.

The purpose of a corporation is to serve all of its constituents, including employees, customers, investors and society at large, the Business Roundtable said Monday in a statement. Jamie Dimon, CEO of JPMorgan Chase & Co., heads the group.

“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the group said in the statement. “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity.”

. . .

The shift in corporate priorities comes as widening income inequality and the rising costs of items including health care and higher education have led some politicians and others to question whether the fundamental premise of American capitalism should be revamped. Some executives also have complained that an outsize focus on share prices and quarterly results hamper their ability to build businesses for the long term.

. . .

The idea that businesses exist primarily to benefit shareholders — also known as shareholder primacy — took hold in corporate America in the 1980s. In 1997, the Business Roundtable embraced the idea in a document outlining governance principles.

The concept has been criticized for leading to a fixation on short-term results and helping fuel the rapid increase in executive compensation.

In his annual letter to shareholders this year, BlackRock’s Fink urged CEOs to take a larger role in social and political issues rather than just focusing on profit.

“Stakeholders are pushing companies to wade into sensitive social and political issues — especially as they see governments failing to do so effectively,” said Fink, whose firm oversees almost $7 trillion in assets. The message echoed a position he took in 2018 urging CEOs to make a more positive contribution to society.

There’s more at the link.

There are huge dangers in this revised approach.  To mention just a few of them:

  1. Who elected or appointed companies to do the job of politicians and political parties?  By what right do they arrogate to themselves the duty and/or responsibility to correct what they see as societal “problems”?
  2. Who says that what corporations see as “problems” are, in fact, problems at all?  What gives them the gift to infallibly identify such things, and come up with appropriate solutions for them?  What ethical and/or moral principles are “good” or “bad”, anyway?  And who says they are?  On what authority?
  3. What happens when corporate responsibility clashes with the basic duties of government?  Take border security, for example.  Companies may benefit from an endless supply of cheap labor, provided by illegal aliens.  Pressure from progressive elements in society for open borders may therefore appear worthy of their support – but governments have the duty and responsibility to secure the nation against unauthorized and illegal entry.  How do you square one against the other?
  4. What happens if corporate budgets are set against national budgets in an attempt to fix problems?  For example, what happens if government wants to solve the homelessness problem by improving mental health programs, but corporations want to work with local pressure groups to provide more group homes and subsidize the homeless – possibly working against government efforts to divert them into mental health programs?
  5. What about the conflict of interest between corporate interests and national interests?  Remember the famous scene in the movie “Stagecoach“?

    We all know how that worked out.  What are the chances that corporations might try to sway national policy to boost their profits – say, through government subsidies?  Naw, that’d never happen . . . right?  Right?

I think the risks inherent in corporations becoming more politically and socially active far outweigh the dangers of them not being active enough.



  1. Peter, thanks for getting rid of that. Though it was a perfect example of what you spoke about in your post.

  2. We already have corporations deciding that certain types of (lawful) businesses ought not to have access to financial services, that certain types of opinions ought not to be heard, and so on. Which is kind of a big deal when those businesses have commanding positions in their markets, and the barriers (financial and/or regulatory) to entry are high.
    It's strange how the same political faction that denounces the Citizens United ruling and demands that corporations stay out of politics… also demands corporate responsibility, i.e., compulsory involvement of corporations in politics. Because, obviously, It's Different When We Do It.
    And… well, the "stakeholders" doing the pushing probably aren't the people whose money is invested in the corporations. The managers of retirement funds, maybe; the people depending on the investment for their retirement, not so much. So this sounds like a plan for executives to feel good about themselves at the cost of ordinary people's retirement money.
    Truly a bad deal all around, unless you happen to be one of the execs (corporate or activist-fund) who gets to play with a bunch of other people's money.

  3. If there's going to be some deviance from "shareholders"-orientation, I would suggest that "shareholders AND employees" should be the direction.

  4. Good article over at Ecosophia on the flaws underlying (and inherent to) a society managed by a self-styleed "elite".
    The argument in favour of such a society derives from Plato, and the author of the article necessarily throws around a couple of the Greeks terms employed by the former. The one he misses is "hubris".

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