Over at Bloomberg, Adrian Wooldridge, former Washington bureau chief of The Economist, takes a contrarian take on the social purpose of business. I post this here, not because I necessarily endorse the ideas in this column, but because it creates food for thought. Wooldridge argues that attempts to enshrine the social purpose of business in corporate law are risky because they will drag corporations into politics. Of course, if you like the current administration's policy stances, you will applaud that. But what if the government changes, and insists that corporations follow social and political goals that differ from yours? Making corporations follow political goals set by politicians goes both ways: it can imply seemingly virtuous goals, but it can also imply repugnant ones. What is virtuous and what is repugnant of course depends on where you stand along the political spectrum.
The column is useful I think because it draws a distinction between the corporate social responsibility (CSR) movement, which broadened the set of stakeholders toward whom corporations have a duty, and the current social purpose movement, which seeks to enshrine social goals into corporate law. The former was a voluntary movement. It is not recent, and dates back at least to the 1970s, with the first statements on corporate social responsibility from the Business Roundtable (the latest was in 2019). Why did CSR rise to the fore then? In my view, it did because technology (especially media technology, the rise of consumer advocacy groups, etc.) made it easier to shed light publicly on the environmental and social actions of corporations. So employees, customers and the broader public could more easily monitor corporate behavior, and punish or boycott those who deviated from ethical norms. As a result, it became more profitable to embrace CSR. The greater alignment between social objectives and corporate objectives is one of the most wonderful developments of the last half century (though this alignment is by no means complete or perfect).
In contrast, enshrining social goals in corporate law begs the question of who gets to define these social goals. The answer, of course, is the government broadly construed - i.e. both legislators and regulators who write the rules by which corporations must abide. You will say that corporations are already subject to such rules and you would be right. But when it comes to limited liability companies, there is currently no requirement to enunciate any social goals in order to incorporate. Instead, laws and regulation guide and constrain what corporations can and cannot do according to public policy objectives formulated and pursued by democratically elected governments - without otherwise dictating that said corporations pursue specific social goals (beyond their fiduciary duty to shareholders).
I'll let you judge whether this is a distinction without a difference. It is, at any rate, a very interesting and central debate, to which we will return in Module 8 of Global Trends.