Can corporates be good citizens? 

For 30 years, the thrust of global capitalism has been to make life easier for Wall Street, the City of London, and big business. Britain’s new Prime Minister and Chancellor seem to have missed the turning of the tide. Their proposal to reduce taxes on the wealthy and corporations has backfired. Citizens have lost trust in governments that pander to the needs of financial investors rather than the common man.

The World Economic Forum has been pointing out, since the start of the millennium, that trust in business institutions is declining as also in governments. Since trust in governments was even lower, the solutions of business leaders became less government and more business. Meanwhile, their strategy to shore up trust in business was more philanthropy, more charity, and more money for ‘CSR’.

The amounts given to philanthropy and CSR are always a small percentage of overall profits (for example, only 2 per cent of profit to CSR under the Indian law). Their marketing message is, ‘Look at all the charitable work we do with the profits we make, so regulate us less so that we can make more money. Moreover, please tax us less so that we have a greater incentive to make more profits’.

A fundamental principle for good business management is to sell customers what they want. ‘Design thinking’ is a powerful tool to get inside a customer’s mind to find unmet needs. Entrepreneurs use it to create innovative products and open new markets. They also create wealth in stock markets. Some give a bit back in philanthropy with great fanfare. However, the strategy of more philanthropy and CSR has not worked. Trust in business continues to decline.

Business responsibility cannot be limited to production of innovative products for customers. Businesses have responsibility for the impacts their products and services have on human lives. Products that sell well can harm human beings. Therefore, governments must intervene on behalf of citizens to curb use of products sold by some of the most valuable companies in stock markets — fossil fuels, junk food, tobacco, unsafe cars, pornography, false news, etc. Moreover, production processes can pollute the atmosphere, water bodies, and the land, which are ‘commons’ everyone needs. Citizens want to know how the profit was made in the first place; not how much was given in philanthropy and CSR.

The ideology that the “business of business must be only business” has ruled the capitalist world since the 1980s. Maximisation of ‘shareholder value’ has become the sole legal responsibility of boards and corporate managers. Performance of business corporations, whether in the private or public sectors, is compared by the metric of shareholder value. Deviations from the corporate purpose of producing higher returns for shareholders are shamed as a drift back to socialism. There is pressure to privatise public sector banks to improve value extraction for shareholders, regardless of the wider societal benefits these banks have provided for years.

The capitalist business corporation is a legal fiction. It is an unnatural citizen given the rights of natural citizens — the right to own property, the right to free speech, the right to sue other citizens. Whereas natural citizens have duties along with their rights, the duties and liabilities of corporations are limited by law.

Corporations have legal duties to increase the wealth of their shareholders, but limited liabilities for the external harms they may do to the environment and society. Societal pressures to make corporations account for the use of the environmental and social commons to all stakeholders are resisted as distractions from the purpose of the corporation which is to make profits for its shareholders.

All citizens are supposed to be equal in the law. But corporations, like the pigs in George Orwell’s Animal Farm, are more equal than others. They have much more money to engage lawyers to sue common citizens and to defend themselves if sued. They have more money to lobby politicians for regulations in their favour.

Citizens trust other citizens who will not harm them and stand up for them when they need support. Good citizens stand up for the rights of those with the least power in society when they are oppressed by the government. Corporations speak up only when their own interests are affected. They do not want to offend any government whether it is democratic or authoritarian.

Money can’t buy trust

Corporate leaders cannot buy trust with money given to CSR and philanthropy. Corporations must learn to win a greater share of the “heart of common citizens”, not just more “share of wallet”. When they survey citizens, marketers should listen for their deepest aspirations for justice and a compassionate society, and not just for their needs for innovative products and services.

Humanity progresses by reinventing institutions to fulfil its rising aspirations. The concept of the limited liability corporation, which formed around the time of the East India Company, must be changed. The East India Company plundered India, economically and socially, to produce wealth for investors in the City of London who were not accountable to Indian citizens.

The time has come to redefine the purpose of the business corporation and change laws. Corporations must become good citizens of society, not just money-making machines for shareholders. The law of limited liability must be broadened to require that corporations account to all stakeholders for the use of the collective commons, not just to shareholders.

They must compensate for use of ‘the commons’ — water, land, carbon space in the atmosphere, citizens’ data, etc. — by paying to a ‘Citizens Fund’ from which all citizens will get an equal dividend, an idea to develop further.

The writer is the author of ‘Transforming Capitalism: Business Leadership to Improve the World for Everyone’. Through The Billion Press

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