Corporations are creatures of state law. When first created, they were given charters to fulfill specific purposes for society, such as building churches, hospitals, and the like.
Gradually, however, the social purpose of corporations was overtaken by a private profit motive. Over time this model propelled globalization, leaving a few with fortunes and masses with much too little.
As corporate power has grown, income inequality has steadily increased. According to the Organisation for Economic Cooperation and Development (OECD), this inequality is higher today than in the past half-century. The average income of the richest ten percent of the population is around nine times that of the poorest ten percent across the OECD. Little wonder that the blowback to globalization has become so intense in recent years.
In the face of such extreme inequality and unfairness, blame is being placed on those who have gained from the system – primarily corporations. A Gallup poll conducted in 2016 found that a majority of Americans, 63 percent, say they are dissatisfied with the size and influence of major corporations, while 35 percent are satisfied. A Harvard University poll focusing on millennial views found even greater discontent, with 51 percent of respondents, aged between 18 and 29, opposing capitalism itself.
These are ominous signs for the current economic model in the West. But theyalso contain tremendous opportunities to challenge globalization and develop a vision for a sustainable, rights-based global economy. A key to unlocking that potential is to return the corporate form to its original purpose.
When the now-ascendant business-and-human-rights agenda first gained traction, civil society efforts focused on the worst cases to drive home the point that business was literally getting away with murder. The determined advocacy of civil society groups worldwide arose in response to governments’ unwillingness to rein in corporate excess or to punish corporate malfeasance.
Meanwhile, abuses kept mounting, from unsafe factory conditions in Bangladesh to slave labor in mega-sporting, to show that ‘business as usual’ was leading to disastrous human consequences. The development of standards of appropriate business conduct, including the voluntary United Nations Guiding Principles on Business and Human Rights, were meant to catalyze the creation of rules that governments could enforce.
But this model of inducing government leadership through strong regulation and enforcement has not yet become a reality. Instead, there is a proliferation of such voluntary, often multi-stakeholder approaches that displace regulation.
Take, for example, efforts to address human rights and humanitarian law violations at the hands of private security providers. Instead of developing strong regulations and enhanced accountability, the governments that heavily rely on such services have banded together to create a multi-stakeholder approach to address the problem — the International Code of Conduct for Private Security Providers Association, which relies on external policing of company compliance with a code.
Set against this backdrop, civil society have tried to take matters into their own hands. One such effort is to force transparency of supply chains through the Apparel and Footwear Supply Chain Transparency Pledge. This campaign, spearheaded by a group of NGOs and labor organizations, targets more than 70 brands with a clear requirement for transparency of their supply chains. Disclosure of supply-chain information means that workers, civil society, and investors can better understand where goods are coming from, who is working to produce them, and under what conditions.
In the absence of regulation by government, such efforts civil society efforts will increasingly become the norm. One also can expect other stakeholders – employees, consumers, and investors — to emerge as advocates for accountability, using their leverage to exert pressure on companies for change.
There are, however, some nascent signs that business itself is realizing it needs to change. Business leaders are acknowledging that they must go beyond a mere ‘do no harm’ standard.
Early in the Trump Administration, numerous ‘policy committees’ were formed to assemble expertise from the corporate sector on issues relating to manufacturing, technology, jobs, and the economy. Such CEOs as Bob Iger of Disney and Elon Musk of Tesla joined President Trump’s Strategic and Policy Forum to voice their perspectives. What they could not escape, however, were the inconsistencies between the policies of the White House and those of their own organizations.
Slowly, these groups began to splinter, with the CEOs making public statements disassociating themselves from the Administration and actively resisting harmful policies that might impact their companies, consumers and employees.
Take Microsoft’s CEO, Brad Smith, who issued a public letter after the repeal of the Deferred Action for Childhood Arrivals (DACA), stating that Microsoft would provide pay the legal defense fees of any its employees impacted by the reversal. And Tim Cook, head of Apple, recently stated: “I think we have a moral responsibility to help grow the economy, to help grow jobs, to contribute to this country and to contribute to the other countries that we do business in.”
Importantly, however, such moral awakenings are occurring so far in only one realm of corporate concern – public policy. The larger question before them is: What must we do to make our entire business model socially responsible?
There are ways for those us outside of business to spur such change. First, we must move away from valuing a company based solely on return to shareholders and, instead, to account for its value to society more broadly. The good news is, there is ample research and work being done on this front by the Purpose of the Corporation Project, an initiative by Frank Bold, with leading academic partners. Their suggested reforms include clarifying the duties of directors to include consideration of social and economic impacts and modifying accounting methods and reporting procedures to account for non-financial factors. More acute, however, is the need to ensure that companies pay their fair share of taxes, not to take advantage of tax loopholes or exceptions, and to stop lobbying against laws and policies that are in the public interest.
In the end, moral responsibility must extend beyond the policy sphere and become a hallmark of the entire business. The growing distrust and frustration with corporate power will only increase until corporations realize they can contribute to a more just and equal society by becoming more responsible across their range of business practices. There are clear opportunities to stem the cynical tide, and they are found in ‘re-re-purposing’ the corporation to pursue private profit alongside — and not at the expense of — human rights.