Monday, June 14, 2010

The Corporation and Ethical Responsibility

Wow, its been a while since I have posted, but I have been thinking about what I was going to write about. Though many issues are coming up that I am sure I will be following (prop 8 final arguments, Arizona immigration law issues, energy bill, etc.), I felt that the following blog is one that needed more time to settle into my brain if you will. Me being the former conservative that I am, have been thinking long and hard about what I would like to deem "corporate responsibility". This is a term that has been thrown around for years, but something that I am just coming to terms with. Hence, this post will not have my traditional news link and instead will be more a development of how I feel about this, and I probably wont stop here, but will continue on it in the future.

The Oil disaster in the Gulf and British Petroleums' reaction to it has made me think about the nature of the corporation. Are they just pure profit maximizers like we learn in economics, or should they bear responsibility for their actions. Foundational economists like Adam Smith and David Ricardo would agree with the former, that corporations are not concerned with the externalities that they inflict upon society and instead are driven purely by profit. I for one would agree with Smith and Ricardo up to this point, for then I would diverge from their ideas. In their mind this profit maximization is completely acceptable, for we should not expect a corporation to have a moral compass and care about the impact that they are having on society. Yet is this the best philosophy to take?

Modern economics still upholds the profit maximization goal of the corporation yet recognizes the externalities that come with unfettered profit. Thus, regulations are introduced by a third party - such as government - in order to mitigate these externalities. But what does this do? Does this actually address the pure profit maximization mentality of the corporation? Not in any way, in fact I would argue that regulation assures the corporation that it needs to do nothing else, because they are "paying" their part already.

Thus we get a situation like we have in the Gulf of Mexico. Yet let us not isolate just BP, for we could say the same thing about the Oil Sands of Alberta, or the coal mines in West Virginia, or Exxon on the North Slope of Alaska. What do they all have in common? "Regulations" are all paid up, so therefore the corporation does not have to care about the negative aspects of their business. They do not have to worry about the tonnes of pollution that they are spewing in the atmosphere, nor the health effects on average people the world over, or the geopolitical implications of their actions. The corporation has paid their debt to society by having to acquiesce to the many regulations that 3rd parties put on them.

So what is corporate responsibility? I don't think its increased regulation, because as I have stated, regulation gives us a false sense that the corporation is truly paying for all its negative damage. No, what must happen is a change within the corporation. No longer should it be content to just slide by, because they are only profit maximizers. But instead it should recognize that it is an integral part of society and therefore must contribute positively to it. Instead of BP wanting to always go and drill drill drill, just as an example, the company should want to develop better Hydrogen Fuel Cell technology. This should not be government mandated though, but instead should just be a part of the business model. Call me crazy, but a good business model - in my opinion - is not one that is profit driven, but is instead ethically driven.

The corporation must recognize that it exists within society, and if society fails...so does the corporation.

There will probably be more to come, as I become more coherent on this topic. Please Comment :)

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