Taming the Corporation

__"The New Meaning of Corporate Social Responsibility" by Robert B. Reich, in California Management Review (Winter 1998), Univ. of California, 5549 Haas School of Business #1900, Berkeley, Calif. 94720–1900.__

Back in the 1950s, it was a commonplace to say that major corporations ought to treat employees like family members and to function as good citizens in their communities. But times have changed, notes Reich, a professor of economic and social policy at Brandeis University and former U.S. secretary of labor. Today, he argues, government needs to step in and define corporations’ social obligations.

The current conventional wisdom, Reich observes, is that publicly held corporations have only one responsibility: to maximize the value of investors’ shares. And if doing that means laying off large numbers of workers, or getting 13-year-olds in Latin America to work 12-hour days for a pittance, so be it. After all, by helping to see that society’s productive assets are arrayed most efficiently, corporations not only benefit investors but promote economic growth and the creation of jobs. True, says Reich, but society still may want the artificial creatures of law known as corporations to take into account other considerations, such as the welfare of workers and communities.

Once, in the era after World War II, the top executives of America’s major corporations envisioned management’s job, as Frank Abrams, then chairman of Standard Oil of New Jersey, did in a 1951 address: "to maintain an equitable and working balance among the claims of the various directly interested groups... stockholders, employees, customers, and the public at large." With investors quiescent and boards often docile, Reich writes, managers then could refrain from laying off employees, even though that might run counter to the best interest of the shareholders. But even in that era, he notes, corporations could take a minimalist view of their social responsibilities, as textile manufacturers did, for instance, when they abandoned the Northeast in search of cheap labor elsewhere.

Government does already "impose, by law, procedures by which stakeholders other than investors can participate directly in corporate decisions," Reich observes. Collective bargaining, as spelled out in the National Labor Relations Act, is an example. But further expanding participation in this way, he points out, would only "prolong and complicate" corporate decision making, and promote inefficiency.

Reich believes that Washington must define corporate social responsibilities on "major questions": should they contract with "sweatshops" in Asia and Latin America? Should profitable companies lay off unneeded employees or retrain them for new jobs? These are not only ethical questions, Reich maintains, but issues of public policy, involving the weighing of competing social costs.

But corporations must not be allowed to subvert the process by political means— through lobbying, campaign contributions, and advertising. "It is not possible to have it both ways," Reich maintains. "The modern corporation cannot simultaneously claim, as a matter of public morality and public policy, that its only legitimate societal mission is to maximize shareholder returns, while at the same time actively seek to influence social policies intended to achieve all the other things a society may wish to do."