corporate social responsibility

To conduct business, humans have invented virtual entities known as "corporations." The word corporation derives from the Latin corpus or body. These entities are in effect legal bodies or to put it more poetically, imaginary people. They have certain legal rights and obligations. They have legal responsibilities. They can own items and make a profit. They can be sued if they misbehave. And they are responsible to their owners, known as shareholders.

In short, we have created legal persons. The brains of those legal persons are entrusted to a group of people known as the officers of the company, led by the Chief Executive Officer or CEO. To provide some oversight the company also has a board of directors. All of this is to make sure that the corporation behaves properly and that nobody cheats or steals from it, or uses it in any fraudulent manner or to conduct a crime.

In general, corporations are led by honest, hard-working people, who are well respected in their communities. These people are driven by a variety of motivations and making a profit is surely one of them. But many also desire to make a difference in their communities or the world. Yet, however well-adjusted these people are, the law is asking them to behave in a distinctly anti-social, and some have said psychopathic manner.

Just to make things clear, a psychopath is a person has no conscience. They lack of remorse or guilt and are immoral and antisocial. They have no regard for the well-being of others and only think of themselves. They do not feel empathy for their fellow man. Often they are charming, cunning and manipulative. So how does this relate to a corporation?

Corporations have to act with the sole purpose of making money for their shareholders. If that means laying off people, taking away their benefits, or unsettling entire communities so be it. If it means destroying the environment, ditto. Corporations can only think about profit and all else has to submit to this prime motive. Even if the officers and directors disagree or find such behavior distasteful, they are bound by fiduciary duty to uphold it.

A corporation has to act as an antisocial, immoral, egotistical person. Investors can sue a corporation and its officers if it deviates from this premise for whatever reason. Even if that deviation is done for social or humanitarian reasons. The corporation has a ruthless profit motive and if it has to harm people to get there, so be it. As long as no crime is committed, we expect corporations to behave in whatever manner ensures maximal profit.

It is quite surprising that smart and well-meaning humans have come up with such a legal structure. I have discussed this topic before on March 22 and suggested that shareholders revolt and demand a legal structure that is more in line with normal human behavior. If we create artificial people, should they not behave like normal people do? No society tolerates psychopaths in their middle and no society should tolerate psychopathic behavior from virtual people either.

The posting provoked quite a few comments stating how it was impractical or impossible to legalize moral behavior. Clearly that is not the case, and ordinary humans are held to such standards and promptly punished if they don't act this way.

So why treat our virtual people any differently?

It turns out others have thought along the same lines, and a movement has started to form around a new entity called the B corporation. It was started by a successful Stanford graduate, called Coen Gilbert, according to the San Francisco Chronicle. A B corporation can have values that go beyond profit. Right now, B corporations are more the exception than the rule. The story listed 23 B corporations based in the Bay Area. It is a start.

However, B corporations have no special tax status. It is also unclear how much legal protection they would enjoy if shareholders sued them for leaving profits on the table. The situation is quite complex. Some states have laws allowing companies to consider the interest of constituencies other than shareholders, but California is not one of these. However, a bill has been introduced in California by Assemblyman Mark Leno (D-SF) to do just that.

Don't hold your breath. I am sure there are many powerful opponents here. Furthermore, many sensible ideas never make it in the real world. This one however, should be welcomed by all. It is correcting a mistake we made earlier. That much is just plain common sense.