Corporations: beyond the sense of infallibility

Citation

Ali, A.J. (2010), "Corporations: beyond the sense of infallibility", International Journal of Commerce and Management, Vol. 20 No. 4. https://doi.org/10.1108/ijcoma.2010.34820daa.001

Corporations: beyond the sense of infallibility

Article Type: Editorial From: International Journal of Commerce and Management, Volume 20, Issue 4

Whether or not we agree with critics or proponents of corporations, the fact remains that corporations serve an inescapable role in society and, subsequently, they have their virtues and their ills. That is, it is inaccurate to brand corporations as saints or devils. Like any actor, corporations are influenced in their conduct by multiple factors. Chief among them are senior executives, economic conditions, legal system, and the prevailing societal norms.

The interplay of these factors shapes corporations’ roles in and the nature of their contributions to society. Across history, corporations within the same country or industry may play varying roles making generalizations unwarranted if not illogical. Corporations are human made and naturally are susceptible to temptations, blunders, and disastrous engagements. Those corporations which have difficulties in taking note of societal trends and ethos often face similar fates to that of Enron, Lehman Brothers, and Merrill Lynch.

Back in 1898, Charles Dutton (New York Times, 1898), at the Waldorf-Astoria, defended corporations and claimed that corporations were commonly attacked stating that “No one these days says a good word for corporations.” He further stated that corporations are not a forced product as they:

[…] have grown spontaneously; they have arisen naturally out of economic conditions and are a necessity […]. The true position of the business community is to recognize the principles governing corporations as an important factor in the evolution of commercialism, and to contend only against abuses.

In recent months, the depth of the financial crisis and the oil spill in the Gulf of Mexico has reactivated the debate of the role of corporations in society. Voices defending or vilifying corporations have been energized with each camp ignoring the other point of view and sticking to its preconceived view. Writing in the Forward, Michaelson (2010) argues that corporations:

[…] have only one motive: […] the ‘evil’ inclination, the part of each of us that is entirely selfish, that wants only to get as much stuff as possible. Again, this isn’t because of who runs corporations, or because of the decency of those of us who work for them […] this is the law.

Similarly, Struck (2010) argues that:

Corporations are created to make money. The sole measure of a corporation is the profit at the bottom of its P&L statement, the dividends and gains they return to the people who own their stocks […]. There is nothing in the corporate goals requiring a corporation to act in a way that helps society.

On the other side of the debate are those who celebrate corporate contributions and unbridled freedom to act for CEOs. This camp includes those who espouse Milton Friedman’s or Ayn Rand’s philosophies. Friedman believes that the social responsibility of business is to maximize profit; any other involvement naturally constrains the freedom to act. Ayn Rand advocates the morality of selfishness. In either case, corporations should be left to decide what is best for the stockholders and their executives are free to determine the appropriate course of action that maximizes benefits to shareholders.

Feehery (2010), in his defense of corporations, stated that without “corporations, we would live in the splendor of Soviet Russia” and that corporations’ profits help shareholders, and corporations “help us to wake up with coffee in the morning, and they make the beds that we sleep in at night.” Likewise, Sowell (2008) argues that corporations have the right to determine what course of action should be followed and that no one should decide or interfere in CEO’s compensation packages stating, “The money that can be saved by limiting CEO pay is chump change compared to the money that can be lost because you cannot attract top-notch talent.” These authors like Richards (2010) confine executives’ duties to shareholders but not to employees, customers, and the society.

Both those who blame or vilify corporations and those who view them as a source of good deeds are shortsighted at best. The notion that the evilness of corporations is not a possibility but a given inevitability is impossible to validate. It ignores corporations’ contributions to civilization and the progress of mankind. More importantly, it overlooks the fact that corporate engagement in a wrong doing does not take place independent of those who manage the organization. The latter, in turn, are influenced by surrounding circumstances and conditions, thereby making it possible for corporations to commit one act instead of another.

Likewise, confining corporate responsibility only to shareholders imposes a limit on the meaning and role of corporations. In fact, the notion that corporations are created solely to serve the interests of shareholders is an outdated concept that is no longer relevant in a world where corporate activities span borders and nations and where both employees’ and customers’ interests are interwoven and are characteristically linked to development in the global marketplace. The notion is about the past not the future. To claim the future, corporations have to rethink themselves and reinvent their societal role.

In recent years, it has become increasingly difficult for executives to perform their duties without relying on, deploying, and energizing employees, and providing them with an environment conducive for growth, creativity, and productive involvement. Furthermore, corporations do not exist independent of society and have increasingly become essential social and political actors, thereby adding value and meaning to their economic role.

Long before the Enron scandal, enlightened business executives took note of changing corporate roles in a connected and integrated world where knowledge is instrumental in driving performance and strengthening firm’s competitiveness. In today’s connected world, corporations no longer look blindly at the past but aim to reshape the future by deepening their societal commitment while continuously pursuing new discoveries and creating opportunities and wealth for citizens across the globe.

This, however, cannot be taken for granted. Executives have their own blind spots and some have difficulties in shunning temptation and greed. Certainly, there are executives who are sensitive to their roles inside and outside the organization and are driven to serve their community and society. That is, it is impossible to deny that there are executives who lead their corporations in alleviating societal hardships and energizing employees while optimally serving customers. Furthermore, there are executives, like Ted Turner, who make it a priority to minimize threats to the environment and to human lives.

However, one should not minimize the tendencies on the part of some executives to lead their corporations, knowingly or unknowingly, into minefields. These executives ignore their responsibilities to their organizations, shareholders, employees, and customers and in the process they endanger their future and society at large. This is where civic organizations and employees and customers should be active in pressing their concerns and highlighting deficiencies and questionable practices. Government regulations might be necessary since greed and indifference often lead executives and their corporations to manipulate situations in the pursuit of their dirty games. However, recently, the New York Times (Bilton, 2010) reported that, despite the fact that many countries signed on guidelines to stop the dumping of toxic waste in poor countries, there are some who manipulate the rules as the waste arrives as a gift.

Corporations are destined to err. Those which learn from their misadventures are the ones which are capable of shaping the future and creating wealth. However, the ones that err will not be around. Corporations which are committed to change and discovery have multiple possibilities; though this does not ensure infallibility. Blunders abound. But certainly corporations guided by a sense of history and direction will fare well during the ebb and flow.

Abbas J. Ali