The Corporate Obligations Debate

How should businesses balance shareholder interests with obligations to their workers, communities, and nation?

Jul 08, 2020

Patrick Deneen @PatrickDeneen

Patrick J. Deneen is the David A. Potenziani Memorial College Chair of Constitutional Studies and a professor at the University of Notre Dame. He is the author of Why Liberalism Failed.

Andy Puzder @AndyPuzder

Andy Puzder is the former CEO of CKE Restaurants, Senior Fellow at the Pepperdine University School of Public Policy, and the author of The Trump Boom: America’s Soaring Economy and the Left’s Plot to Stop It.

Entries in the Series

Corporations in the Community of Communities

I am delighted at the invitation to reflect on the social obligations of corporations, in particular through a dialogue – perhaps debate – with Andy Puzder. Without knowing in advance where the discussion will take us, I hope we will focus not on whether corporations have any broader social obligations. That point seems obvious, even if we might disagree extensively on the particulars.

Stipulating we will agree on the existence of at least some social obligations, our discussion will likely center on three main questions: 1. Why do corporations have obligations beyond the profit interest of their shareholders? 2. What are those obligations? 3. How can they be pursued or even enforced?

The Why — Corporations as Part of the Body Politic

The word “corporation,” of course, derives from the Latin corporare, meaning “to make or fashion into a body,” and corpus, “a whole composed of unified parts, a structure, system, community, corporation, political body, guild.”  The word “corporation” was used widely to describe any kind of a “body” or collectivity of people, a usage that continues even today. In my city, the school system is called, “The South Bend Community School Corporation.” This usage reflects the longstanding understanding that a “corporation” is not – as current usage assumes – a for-profit, private business undertaking, but a defined collection of people who for some distinct purpose establish an ongoing relationship over time.

Individual corporations, in turn, have long been understood to compose a broader corporation or “body”—the “body politic.” The early-modern pluralist J. N. Figgis, for instance, described the State as a communitas communitatum, or “a community of communities.” A reciprocal relationship existed between constitutive bodies and the comprehensive body of the State: the various “corporations” constituted the State – and thus, in addition to their particular purpose, also participated in the public weal of the whole; while the State, in turn, could not merely dictate the purposes to these groups, yet was invested with the power to remind and correct particular “corporations” when any such “body” became destructive of or indifferent to the body as a whole.

The classical understanding of the human order as a “community of communities” lingers in the very word “corporation,” but that meaning is now a palimpsest whose origin was overwritten most dramatically by Thomas Hobbes in Leviathan. The famous frontispiece of that work portrays a revolutionary recasting of the nature of the human order: the body of the Sovereign is comprised by individual bodies – not “corporations” – each person acting solely upon the calculation of utility and self-interest animated by the desire to increase pleasure and avoid pain.

The philosophical revolution represented by this image altered the understanding of the public order. The State was the creation of aggregate individual interest, and came into existence to protect private concerns. “Corporations” over time were similarly conceived: voluntaristic vehicles for private interest, rather than strands of an interwoven fabric oriented toward the public weal. By this Hobbesian conception, it becomes increasingly inconceivable for a corporation to act on behalf of the public weal. Thus, in this Hobbesian spirit – and contrary to the original and fuller meaning of “corporation” – Milton Friedman would write in 1970, “There are not values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.”

We should recognize that this understanding of “corporation,” and more broadly, economy, is a comparatively recent invention, a truncation of the idea and ideal of “corporation” in the fullest sense. The distinction is not philosophical: The coherence and sustainability of any community rely upon its constituent members understanding and fulfilling their mutual obligations. Viewing today the widespread social damage that has been wreaked as a consequence of the privatistic conception, a refashioning of the older meaning and conception of “corporation” is essential.

What Is To Be Done?

Drawing on this original and social understanding of “corporation,” we can begin to outline some of the practical steps that could reorient modern corporations toward the more embedded social positions that they must necessarily occupy.  Many would derive not from “authoritarian” impositions of a state order upon a Hobbesian-constituted body, but rather, from returning to a pluralist and social understanding of the very concept of “corporation,” and thus, from the internal logic of the organization.  Some changes in this direction would doubtless require political and legal action, ideally to support the ideal of a “community of communities” rather than simply intrude on the more individualist contemporary conception. We might begin by applying the idea of “community of communities” to the corporation itself, understanding that it is – or ought to be – composed of interlocking communities defined by mutual obligation.

Management

In the main, contemporary management reflects the deep and visible flaws of the current elite that runs most major institutions in the developed world, marked by deficient historical memory, short-term thinking, deracinated relationship to place and its people, and little commitment to one’s nation in preference to an abstract “cosmopolitanism.” Management must be encouraged to pursue long-term gains through slow but organic growth rather than ginned up returns that inflate stock prices. Management should be solicitous not only to shareholders, but also to workers, customers, and the broader local community – a logic that would follow from a reconceptualization of the corporation, but could be imposed by legal means if necessary. Realizing the conceptual change will require a new cultural and educational approach to formation of the American and global elite.

Workers

The Hobbesian corporate employee is largely considered to be an individual who contracts individually for a set income – end of story. Yet, if one’s participation in a corporation is considered as part of a “community of communities,” one’s work ought to be inspired by ideals of vocation – a craft that contributes to the livelihood not only of oneself (surely, of great importance), but of the organization as a whole and the connected organizations of which it is a part – suppliers and customers, family and community, and the nation. This calls for formal partnership and even literal ownership, through structures such as co-operatives or (for public corporations) Employee Stock Ownership Plans. Workers should be invited (or, if necessary, required) to have a seat at the table—to bargain collectively and contribute to operational decisionmaking. The German model of Arbeitsraete – “Works Councils” – would be one avenue for significant participation in the life of a corporation.

Shareholders

Watch any five-minute segment on CNBC and count how many times you hear the word “investor,” juxtaposed with numerous recommendations of which stocks to buy or sell. The complete abuse and misuse of the word “investor” to describe a “speculator” is yet another corruption of language that masks a philosophical shift. Only when the “owners” of a publicly-traded company are actually investors, with their own identities tied to the corporation’s practices, will management in turn adopt longer-term, responsible practices of growth rather than financial chicanery and ill-considered corporate acquiring, re-ordering, and divesting. One legal avenue here would be to significantly advantage actual investors – long-term owners – while significantly discouraging speculators – for instance, through punitive taxation of short- and even medium-term capital gains.

Customers

Today, there is a growing commitment to spending one’s money in a socially responsible manner. People seek out shortened supply chains, environmental stewardship, and fair-labor practices. Such demands for socially-responsible production and treatment of workers, animals, and places are essential to making vivid and present the social embeddedness of corporations, participants in the whole as a “community of communities.” Yet what might once have been easily knowable about a product in a relatively local setting now becomes exceedingly difficult to discern – indeed, is purposefully obscured – due to the complexity, distances, and arms-length transactions that are hallmarks of the modern economy. Here, government as well as a variety of civic, social, and religious actors can make publicity a significant part of any economic undertaking.

Community

In a not-distant past, norms governed corporations to act as stewards and benefactors to their communities. These kinds of activities were condemned by the likes of Milton Friedman as “unadulterated socialism” – a stunningly obtuse claim – when they are deeply republican. It is incredibly short-sighted to view such acts of public stewardship and philanthropy as contrary to the corporate mission, rather than essential contributions and even forms of gratitude to the communities and the nation that provide the arena for the flourishing of a free economy of free people. One need only observe the consequences of intensifying corporate and speculator wealth concentrated in a narrowing number of “creative cities,” juxtaposed with the decimation of much of the working class and the obliteration of prospects for an indebted and embittered younger generation, to see first-hand the deeper costs arising from corporate indifference.

A rethinking of the place of corporations in their places is essential to a reconceived idea of corporate obligation. Through the joint actions of management, workers, investors, customers, and the broader community, prevailing norms should promote stability, commitment to places, and local philanthropy. There should be efforts to advantage and advance the prospects of local students and graduates rather than sending them away or simply importing Ivy League talent. Basic thought to how corporations contribute to civic health should become second nature, including: requiring certain essential industries to produce their products in the United States (e.g., medical, defense, basic materials); pursuing industrial policy that benefits workers in a variety of geographic locations within the nation; and requiring ongoing fees to cover the cost of departure including demolition, cleanup, and beautification of old corporate office buildings, industrial parks, etc. (e.g., refurbishing, rebuilding, or converting to parkland), in many cases altering the calculus to the point that it becomes cheaper to stay.  An accompanying national policy should prevent “venue shopping” that pits localities against each other (e.g., Amazon’s shameful “HQ2” competition that reveled in forcing great American cities to grovel for jobs, and then rejected them all in favor of New York and Washington anyway).

How We Get There

If we agree that corporations have social obligations, then we must embark on a serious and sustained program to encourage all these actors jointly to steer the modern corporation in this direction. Here, I hope that Andy will offer constructive suggestions from the management perspective.

I have alluded already to the need for government legislation to change some corporate behaviors.  In many instances, corporate leaders agree in theory that better behaviors would be desirable but lament collective action problems that would leave them to fall on their proverbial swords while bad actors make bank. Insofar as that’s true, we should expect those leaders to work in favor of crafting legislation that would force all to behave better together, rather than simply abandon the field to anti-corporate activists. In other instances, simple changes could profoundly alter the trajectory of corporate culture and assumptions, for instance, mandating “Works Councils” or undertaking a widespread effort to publicize various measures of corporate responsibility.

However, any civic and public undertakings of this sort need to be accompanied by a widespread change of ethos. Today, a gathering number of voices are calling for a revival of socialism as a cure to corporate greed and irresponsibility. In this case, socialism means just that – a state-controlled economy or punitive redistribution – and not, in Friedman’s perverse sense, contributions to a public park or scholarship fund. This would be a calamity.

Through a reconceptualization of corporations as themselves a “community of communities” within a broader social web of communitas communitatum, corporations can thrive in a robust and healthy social environment of which they are a part, rather than gamble that they can float above their societies and emit heartfelt tweets while a growing mass of the dispossessed, impoverished, and desperate direct their anger at statues. That strategy seems, at best, a short-term wager bound to fail.