- Robert Hinkley
Changing the Golden Rule of Business
“Do unto others as you would have them do unto you.”—The Golden Rule
Business is no longer just about profits. Many big companies are starting to follow the Golden Rule, treating the environment, their employees and the public with the respect with which they would like to be treated.
CEOs of some of America’s largest companies now say they will run their companies in a manner that takes into account protecting the environment, employees, their customers and the communities in which they operate. Investors claim they now have more than $30 trillion invested in companies and projects with a social conscience. Corporate social responsibility is now taught in universities and business schools all over the world. ESG, an acronym for improved environmental, societal and governance practices, has become a business discipline alongside manufacturing, marketing, finance and accounting.
Despite the shift, the companies that exhibit the most anti-social behaviour aren’t changing. The not so “golden rule” they follow is that their company’s interests come first. Today, more harm is being done by these companies than ever before.
Some of these companies continue to emit greenhouse gases (GHGs) and produce and distribute products which kill millions of people each year. Others continue to use third world sweatshops in their supply chains. Some continue to employ business models which set people against each other destroying community rather than building it.
It’s only a relatively few large companies that are causing these problems, but the destruction they expect mankind to endure is extreme. The very existence of life on the planet is now under threat. Yet, governments seem powerless to stop it. Allow me to explain why.
Companies don’t usually start out with the intention of causing harm. They discover it only after they become successful and have large amounts of shareholder money at risk. A good example is the emission of GHGs. In the beginning, these emissions weren’t perceived as a problem. As more and more companies emitted more and more carbon, scientists figured out that it was a major cause of global warming and climate change. By that time, huge industries had formed with business models that depended on GHG emissions. A similar example is the tobacco industry. It had billions of dollars invested before it was revealed that cigarettes kill smokers.
All over the world the corporate law tells directors they must simply act in their company’s best interests, i.e., to make money for shareholders and preserve the company’s assets. For companies with huge profitable investments in technology, products and facilities which are harming the public interest, this law discourages them from stopping. How can stopping a profitable and legal business be in the best interests of the company?
The recent trend towards voluntary corporate social responsibility isn’t the answer. While welcome, it invariably involves companies making small changes that are relatively inexpensive. These changes are classic win-win solutions. The company spends a little money and boasts that it is behaving more responsibly. The media picks up the story because it is unusual and hopeful. The company’s public image improves. The public interest suffers less damage.
On the other hand, voluntary change doesn’t occur when the cost of stopping the abuse is higher, especially when it threatens the company’s survival. In those cases, the destruction continues.
The fossil fuel, power generation and automotive industries are good examples. They are all dependent on the emission of GHGs. Trillions are invested by these companies in facilities and products that emit dangerous quantities of GHSs. If the facilities were shut or the products discontinued, the companies’ major source of revenue would disappear. Without a change in technology, they could become insolvent and their ability to survive threatened. How can that be in the best interests of a company and its shareholders? How can the directors agree to stop?
So long as the law requires directors “to act in the best interests of the company,” companies in these industries will not voluntarily stop. They will lobby against proposed legislation that tries to make them stop. This strategy is much cheaper and less risky than changing the way they do business. It has also proved highly effective. As a consequence, the emission of GHGs continues and the globe continues to heat up.
The point is that, despite all the talk these days about more socially responsible companies, the most anti-social companies aren’t changing in any meaningful, necessary way. So far, the manner in which we address their behaviour isn’t working. We need to understand why and try something else.
The problem in a nutshell, is that the law leaves it up to companies to choose whether they will be socially responsible or not. Whenever becoming responsible threatens their pocketbooks and survival, they choose to continue their destructive behaviour. Worse still, existing law justifies this decision.
To solve the problem of extreme corporate abuse of the public interest, this needs to change. Rather than give directors the choice of whether their company will be socially responsible, every company must be required to be socially responsible from the moment it is organized. When a big company is discovered to be doing extreme harm to the environment or another element of the public interest, directors should be required to stop it. If they don’t, the law should close them down.
This may seem draconian, but it is not. Government can’t police everything. It depends heavily on people and institutions treating their neighbours and fellow citizens with respect even though no law requires it. This self-control people impose on themselves every day (sometimes called citizenship, i.e., the Golden Rule), makes liberal democracy possible.
It’s odd that corporations, capable of doing many times more damage than individuals, are formed without any consideration for the environment or anyone else. Dedicated to acting only in their own interests, they have no built-in system of self-control. This shortcoming makes it nearly impossible for government to do its job (delivering security for all). It’s time for this to change.
Companies operate at the public’s pleasure. Without corporate laws providing for their organization and operation, corporations would not exist. The expectation of these laws (like any law) is that companies will serve the public interest—not destroy it. If later they are found to be destroying the public interest, the reason for their existence is undermined. The law should require directors to make it stop.
Directors tend to be good citizens. The law should be require them to make sure their companies are too. Imagine a world where business can be relied upon to be socially responsible rather than the opposite. Imagine a world where business builds and extends community rather than destroys it. The key to achieving such a world lies in changing the way corporations are organized.
This comes down to implanting a self-regulatory conscience in corporations from their inception. It should be the legally imposed duty of directors “to act in the best interests of shareholders, but not at the expense of the environment, human rights, public health and safety, dignity of employees or the welfare of the communities in which their company operates.”
This should be the new Golden Rule of business.*
*My next article will discuss how this rule can be implemented with as little disruption as possible and how it should be enforced thereafter.