Business can be a big force for change. Especially corporations with large financial resources and access to cutting-edge technologies. Large corporations influence public policies because governments want to please them to attract their investments. Large corporations are role models for small businesses, and their CEOs are admired by young people as models of leadership.
Let’s admit it. Very few corporations are good corporate citizens who show care for society and the environment by consistent actions, not with grand statements and “CSR”. Sadly, the few who appear as leaders of change are pulled back by the market to put shareholders first.
The core, legal purpose of business corporations is to produce returns for their investors. For this they are given protection of limited liability. They can afford to consider people and planet as only resources for profits. Citizens are only customers or workers. More “share of wallet” from customers: more input/output efficiency from workers — pay them less, get more. More extraction “on scale” of natural resources at least cost to the business.
The science of management is to improve the productivity of all resources to increase business profits. In this culture, government regulations on wages and employment, and to protect natural resources, are considered impediments to ‘ease of doing business’.
Corporations do not feel pressure to be fully responsible citizens of society. They “give back” small portions of their profits as CSR and philanthropy. These are small fractions of the resources they take, or borrow, from society and nature for producing trillions of dollars of revenues.
Systemic solutions for improving people, planet and profit are described in Earth for All: A Survival Guide for Humanity. This guide was produced collaboratively by economists, ecologists, and social scientists. Unlike macro-economists, their model of an economy is not a closed system. Following the Club of Rome, their ‘whole system’ model includes feedback loops between the economy, the natural environment, and social systems. It incorporates empirical data from diverse sources.
The model projects outcomes if the present pattern of solutions continues. It compares them with an alternative approach to accelerate systemic change. The present path is called “Too Little Too Late”; the other, “Big Leap”. The model reveals the present path will lead to environmental and societal collapse later this century. Business as usual for present gains is making the world miserable for the next generation. The present approach is lots of “do-gooding” and “green washing” with insufficient systemic change.
“Too Little Too Late” preserves the present inequitable distribution of wealth and power. (The model forecasts that by 2050, on its present trajectory, India will be the most unequal society in the world). “Big Leap” evolves a more equitable distribution of economic wealth and social power; it avoids needs for disruptive political revolutions.
Three solutions for reconnecting corporations as citizens of society:
An innovative solution proposed in Earth for All is a “Citizens Fund”. Any citizen who uses the “commons” for private purposes must pay all other citizens rent for using their shared resources. Corporations as citizens must pay too.
Governments use taxes on corporations for their schemes for citizens’ welfare. Citizens worry that governments will not spend their money wisely and efficiently: therefore, they resist tax increases. However, payments into the Citizens Fund will not go into the government’s account. They will be paid as dividends directly and equally to all citizens to use as they will.
This is like universal basic income (UBI). The difference is a universal basic income is expected to be paid out of government revenues. Since wealthy citizens and corporations are reluctant to pay more taxes, UBI becomes unviable. Whereas payments into the Citizens Fund will be made only by those who use common resources which is easier to justify morally.
Different forms for implementing the concept of Citizens Fund can be developed. One variation is to pay the “rent” for using community resources to self-governing community organisations, rather than to individual citizens.
That way, the funds can be used for community purposes and can go back into the nurturing of common resources. The funds can go to village panchayats, for instance.
Other solutions to reconnect corporations with society are changes in their forms and accounting practices.
Corporations must become better citizens. They should account to all stakeholders for the impacts of their operations and products. Presently, they are legally required to account only to their shareholders and those who provide finance. Formats for reporting, requirements for independent audit, etc., are regulated for this purpose. Whereas corporate accounting to society for the use of society’s resources is voluntary.
There is some “good talking” and even less “do gooding”. Staying on this course, as Earth for All reveals, will be Too Little Too Late. Legally mandated changes are required for businesses to account for use of the commons.
Concepts of “social enterprises” are gaining some traction. Some are basically “more of the same”, only prettier. They remain conventional, limited liability companies; what makes them “social” is only their products are “greener”. Others, also legally “for profit” corporations, limit profit levels in their charters. However, the governance of these corporations remains largely controlled by investors.
The purpose of a societal enterprise is to be a trustee of the commons and to serve the community. A truly “societal enterprise” will be governed by all its principal stakeholders. The design of its governance must ensure that it will. It must account to all stakeholders to fulfil its duties as a responsible citizen.
The writer is the author of ‘Transforming Capitalism: Business Leadership to Improve the World for Everyone’. Through The Billion Press