Reassessing Corporate Social Responsibility

Should corporate social responsibility be voluntary or be mandated through federal chartering of large, public-held corporations? A recent statement by the Business Roundtable, "The Purpose of a Corporation," argues the former; legislative proposals by Senators Warren and Sanders advocate the latter. The visibility of these competing ideas indicates the question may be "how," not "if."

This essay argues that neither proposal serves the public as well as prohibiting corporate political contributions through a Constitutional Amendment overruling the Supreme Court decision, Citizens United.

First, consider the case for voluntary corporate social responsibility. In contrast to the idea of maximizing shareholder value, the Business Roundtable statement, signed by 181 CEOs of the country's largest corporations, asserts that corporations also have "fundamental commitments" to customers, employees, suppliers, and the communities in which they operate. Marc Benioff, founder and CEO of Salesforce, for example, puts this principle into action by pointing to that company's generous investments in public education, homelessness, internal pay equity, and carbon emissions reductions.

Inarguably, voluntary investments by individual firms create social value; yet, a voluntary social responsibility system for business as a whole falls short for several reasons. First, large companies in nearly every industry are privileged in some way--gun manufacturers receive immunity from product injury common law, fossil fuel manufacturers enjoy accelerated investment write-offs, drug companies are protected from Medicaid and Medicare price negotiations. Although challenging others' privileges may be socially responsible and would favor a wide array of stakeholders, companies are reluctant to project a sense of social responsibility onto other firms.

A second problem with volunteerism is that it is...voluntary. For every Salesforce there is a Purdue Pharma; for every public-spirited company that contributes a percentage of profit to charity, there is an Enron that falsifies financial statements to boost stock price and executive compensation or a Volkswagen that falsifies emission data in order to sell more cars; for every honest corporate or family foundation there can be a sham "charitable" organization managed solely for the financial benefit of its founders. Bad actors too easily offset the contributions of socially responsible corporations and companies that at least play by the rules.

Most important, a large company's employees, customers, suppliers, community members rarely hold a unified viewpoint on social issues, such as gun regulation, immigration regularization, or climate change. Corporate executives naturally have personal preferences on controversial issues, but their views can hardly be said to represent diverse stakeholders.

This point is important because a majority of the U.S. Supreme Court justices in Citizens United said a corporation is a "speaker" with the same freedom of speech rights as living, breathing persons. Based on a contrived notion of corporations as "citizens," the Court authorized executives' use of corporate funds to make independent expenditures in political campaigns.

Corporations are hierarchies in which executives and corporate boards, often management-controlled, have authority to allocate corporate funds as they see fit. Company executives enjoy virtually a free hand to make decisions about allocating funds for political purposes and those purposes are naturally guided by the executives' own political preferences.

Aside from a myriad of practical complications, mandating worker membership on boards of directors through federal chartering adopts the Court's strained premise that corporations are citizens in the same sense that you and I are citizens. Apparently endorsing this reasoning, Senator Warren's proposal for federal chartering of large corporations requires companies to be "good" citizens. Unfortunately, this solution would bake an erroneous understanding of the "corporate citizen" into public policy, law, and corporate governance.

A more effective approach to dealing with the strained premise of the "corporate citizen" is to insist that "citizen" means person-citizen and overrule the Court's flawed reasoning, as a number of citizen activists are seeking to do in proposing a 28th Amendment. We need to take corporate funds completely out of political campaigns and return campaign finance to genuine people.

Voluntary corporate social responsibility can go far, but only so far, in reconciling business actions and society's needs, and mandated social responsibility in the political arena compounds a judicial misconception about corporations as unitary "citizen speakers." Neither voluntary nor mandatory social responsibility can substitute for public policies, including business regulation, formulated by representatives whose campaigns are financed by true citizens. Clarifying the debate about corporate social responsibility is a significant piece of the challenge of returning our democracy to the intended foundation: "We, the People."