Benjamin Bestgen: Moral companies?



Benjamin Bestgen

Benjamin Bestgen this week considers the moral obligations of companies. See his last jurisprudential primer here.

Lawyers often keep their views on the moral qualities of their clients or clients’ actions to themselves. Morality, many think, is subjective, particularly as differentiating neatly between rationally defensible moral points and personal aesthetic preferences may be hard. Sticking to legal issues can feel safer. Of course, good lawyers will flag reputational, practical or commercial risks to clients, which can include arguments about moral challenges: only because something is legally possible doesn’t mean it is morally palatable and may backfire on the client (and sometimes the lawyer). Most human clients can take a hint and may reconsider.

Corporate lawyers face challenges here. While various humans inside and outside a company may all influence corporate behaviour, the ultimate client is usually a legal person, a creature of laws and regulations. A body corporate has no conscience and cannot feel guilt, shame or a sense of obligation. In humans, the absence of such traits is of grave concern, in a company or other type of “business vehicle” with legal personality it’s normal.

Saying “business vehicle” instead of “legal person” masks the fact that bodies corporate enjoy many of the rights humans have: they can own property (including intellectual property), sue and be sued, employ humans, enter into contracts, pay taxes, make donations or borrow and lend money. Companies also give themselves values, commit crimes and torts, protect their brand and reputation, move into new countries and participate politically through lobbying.

And with rights come obligations, even for legal persons – but what kind?

Friedman Doctrine

Particularly in the Anglosphere, economist Milton Friedman’s view that the main, if not sole, purpose of a company is to make profits for its shareholders, remains widespread in interpretation and practice of company law. Morality and community obligations are seen legalistically: the entity should adhere to the laws and customs of the jurisdiction it operates in, nothing more. Over time Friedman’s Doctrine has attracted varied criticism, too much for discussion here.

One example objection is that making profits may be the motive of a company’s founders but many bodies corporate are also established for investment purposes or social, political, administrative and beneficial causes. Focussing on profit-making bodies is too narrow a view on legal persons.

Secondly, reasons why society allows corporations to exist include: the fact they provide goods and services to people in ways or scales individuals couldn’t; because some offer meaningful work; promote workers’ autonomy; provide people with good income or embrace values and business practices people deem desirable for their community. Such things are all corporate purposes besides seeking shareholder benefits.

Thirdly, bodies corporate don’t exist in a moral vacuum. Society is bigger than its body of laws. Laws can be moral or immoral themselves. People are interested whether a corporation also contributes to social purposes, i.e. offers or does things which contribute to or advance societal goals. People are likewise legitimately interested in any harm corporations cause, be it environmental, political or otherwise.

Reciprocity

Humans have a fundamental claim to rights and resources because they are needed for a free life. But corporations have no intrinsic value and no fundamental claim to rights or resources – legal persons are fictions developed to better coordinate human actions and achieve certain goals.

That being so, economist and business ethicist Nien-Hê Hsieh and colleagues (2018) note that bodies corporate:

  • rely on society’s legal system for adjudication and protection;
  • rely on access to scarce resources (raw materials, skilled people) which society could also deploy elsewhere;
  • are a source of constant social and economic disruption as they go about their business.

The principle of reciprocity therefore suggests that bodies corporate have obligations to society beyond mere legal compliance. That is particularly so because corporate innovations, failures and novel practices constantly pose fresh challenges to society law isn’t always able to address.

Purpose

Hsieh and colleagues propose that when thinking about the moral obligations of corporations, we require more detailed thought on how to determine and measure valuable social and corporate purposes. There is varied and robust debate on how Amazon should treat its workers, what Facebook should do to protect users’ privacy or curb the spread of political misinformation or what environmental, societal and governance goals investment funds or banks should incorporate into their business practices.
Companies themselves may not be best placed to determine these purposes alone:

  • The motivations and incentives dominating competitive market economies do not lend themselves to dispassionate, balanced weighing of interests.
  • Corporations will lack sufficient information to fully understand and balance shareholder, employee and customer interests.
  • Determining the social responsibilities of a body corporate has to involve the societal and political structure the entity is part of. The burden of such a complex, costly analysis should not solely rest with the corporation.

Lastly, many companies operate wholly or partially in the public sphere – giants like Google, Amazon, Newscorp or Facebook arguably influence the public sphere more than elected officials. A company pursuing a corporate purpose (e.g. “Bringing the world closer together” – Facebook) may have political consequences the company’s management is not legitimised to make. As Hsieh notes: “What is the social, economic and political legitimacy of a manager to choose? Who oversees and legitimates these choices?”
Therefore, corporates, regulators, politicians, but most importantly, society at large can join in defining the purpose, rights and obligations of corporations, including changes in company law, where appropriate. And corporate lawyers, being very close to their clients, are in a good position to contribute.

Benjamin Bestgen is a solicitor and notary public (qualified in Scotland). He also holds a Master of Arts degree in philosophy and tutored in practical philosophy and jurisprudence at the Goethe Universität Frankfurt am Main and the University of Edinburgh.



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