On Corporate Responsibility

By Peter Van Schaik

The argument persists: Should a corporation’s policies be designed for the primary benefit of the stockholders or management? Or should the welfare of the employees be the main concern in corporate decisions? How about none of the above? There is another group that seems to be forgotten in all the noise surrounding the issue. That group is the general public: The salt of the earth; the huddled masses yearning to just provide for their families and get on with their lives. In reality it is this group whose consideration should be first and foremost in all corporate operations and decisions.

Nearly everyone agrees with Abraham Lincoln’s famous words, “…a government by the people, of the people, and for the people.” But a solid argument can be made that the quote could just as easily be, and definitely should be, “…corporations by the people, of the people, and for the people…” with an emphasis on “for the people.” For support in this argument we don’t have to turn to wild-eyed radicals or communists bent on depriving the masses of all private property. We can simply read the words of the patron saint of most economists and capitalists, Adam Smith.

Smith is best known for writing the Capitalist Bible, Wealth of Nations, published in 1776, but he also wrote The Theory of Moral Sentiments, published in 1759. To get an accurate picture of Smith’s beliefs concerning economic systems, the business world, and individuals, and their respective roles and responsibilities in society, you must read both books. To read only one is a major injustice to the genius of Smith.

Smith made his position clear when he wrote

…he is certainly not a good citizen who does not wish to promote, by every means in his power, the welfare of the whole society of his fellow citizens,” (1)

It doesn’t take a lot of imagination to grasp Smith’s basic point: If we want to be good citizens, good patriotic citizens, we will work to promote the welfare of all our fellow citizens by every possible means at our disposal. That is, we will work to enhance the lives of our entire society by our actions in business, government, and as individuals in our private lives. Smith’s point was business isn’t about making a quick buck for ourselves. Business is about improving the lives of others, whether they are wealthy or living in poverty, to the best of our abilities. Smith knew when we improve the lives of our fellow citizens we simultaneously strengthen our nation.

The strength of the nation was also of importance to Smith and he realized the good of the whole took precedence over the good of the individual when he wrote

The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order or society. He is at all times willing, too, that the interest of this order or society be sacrificed to the greater interest of the state… of which he is only a subordinate part. (2)

Our own selfish interests should give way to the best interests of our businesses, places of employment, and communities. And the best interests of our businesses, places of employment, and communities should give way to the best interests of our nation. That is, at least, if we desire to be wise and virtuous in the eyes of Adam Smith.

And the best interests of our nation are served when we improve the lives of the poorest and neediest members of our society. Smith dealt with this reality when he wrote

Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? …what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who food, clothe, and lodge the whole body of people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged. (3)

If we are “…to promote, by every means in (our) power, the welfare of the whole society of (our) fellow citizens…” it follows logically that we must also use our corporate power to benefit the whole society, not just the fortunate few.

The corporation, like the individual, is a legal entity which is protected by the laws and strength of the nation. There is, however, a crucial difference. The individual exists with or without a nation. The individual existed long before the concept of a nation was even a single thought within the mind of a single individual. The individual is a natural entity. A corporation is not.

The corporate structure, with its limited liability and status as an individual, was conceived by the minds of humans and exists only through the laws of a nation and the support of the government. Without the nation to create and enforce the law, there will be no corporation. As a creation of society the corporation has an even greater responsibility to the nation than the individual for the corporation’s basic existence depends upon the laws and support of the nation. Corporations exist only because of the state and the state exists only with the permission of the individuals therefore the state and the corporations exist to serve the needs of the individuals that comprise the state.

A corporation’s management, if the corporation is to be a good citizen and if it is to be a wise and virtuous entity, must put its own interests aside for the benefit of the shareholders who are, after all, the owners of the corporation. The owners, in turn, must put their interests behind the interests of the employees. The employees then must put their own interests aside for the benefit of the entire body of the citizens of the nation. The interests of the “poor and miserable” being more important than the needs of the wealthy and well off until the poor at least have all their basic needs met, including food, clothing, shelter, and health care. And the nation does not have to be limited to the political boundaries drawn in the past by the powerful: The nation can, in Smith’s opinion, be viewed as the entire earth and all humankind.

A corporation does not exist to enrich the few. The corporation exists to benefit and enrich the lives of all. If it fails in this regard it forfeits its right to live as a legal entity protected by the laws and strength of the nation. Kingdoms have been eliminated and democracies have flourished because the masses realized they don’t exist for the government, the government exists for the masses. The same can be said for the corporate world. The workers and consumers of the world don’t exist for the corporation, the corporation exists for the workers and consumers of the world. The corporation exists at the pleasure of the people.

(1) The Theory of Moral Sentiments; Part VI, Chapter II

(2) The Theory of Moral Sentiments; Part VI, Chapter III

(3) Wealth of Nations; Book I, Chapter 8

Copyright 2011 – Peter Van Schaik