Ethics and the Corporation as a Social Contract

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Ethics and the Corporation as a Social Construct Richard De George (Prof essor of Philosophy and Co-Direct or of t he Int ernat ional Cent er f or Et hics in Business, Universit y of Kansas)

1. Corporat ions are a creat ion of societ y, and as such are made t o (or are recognized wit h t he caveat t hat t hey) serve t he common good. For-prof it corporat ions are made f or t he purpose of economic success. They are expect ed t o make a prof it and, over t he long run, are most successf ul in doing so, by serving t he common good. In t he t radit ional concept ion, corporat ions are grant ed limit ed f inancial liabilit y. Thus invest ors’ downside risk is limit ed t o t he amount invest ed, but t he upside is lef t wit hout limit . In ret urn t he corporat ion is expect ed t o provide societ y wit h goods of serviceable qualit y at a reasonable price and wit h j obs f or workers. Beyond t his basic implicit cont ract , t he nat ure and f orm of corporat ions depends on t he kind of sociopolit ical-economic syst em in which it is embedded. The responsibilit ies of corporat ions in t he Unit ed St at es are accordingly dif f erent f rom t hose in Germany or France or It aly or in ot her part s of t he world. Individual nat ions may require in one case t hat t he corporat ion pay f or part or all of a workers’ healt h insurance. In a count ry in which t he government provides and covers healt h benef it s t hrough t axat ion, t he payment of healt h insurance by corporat ions is not an issue. 2. Since a f unct ion of government is t o provide f or t he common good, it may ensure t hat it s members receive t he prot ect ion of t heir human right s in a variet y of ways. Thus, once again, what is expect ed of a given corporat ion may vary in dif f erent count ries. The same is t rue wit h respect t o what is commonly called t he Social Responsibilit y of Corporat ions, or Corporat e Cit izenship, or Triple Bot t om Line governance. There is a debat e about how t o reconcept ualize or redef ine t he corporat ion. The not ion of const ruing t he corporat ion as responsible t o st akeholders rat her t han t o shareholders has gained considerable at t ent ion. Similarly, some see t he not ion of Corporat e Social Responsibilit y as involving a change in t he concept ion of t he corporat ion, and ot hers see t he not ion of Corporat e Cit izenship as doing t he same. I shall argue neit her f or nor against any of t hese. Rat her my claim is t hat no mat t er how one conceives of t he corporat ion, or how it is st ruct ured legally and int ernally, or how it is relat ed t o t he economic and polit ical syst em of an individual count ry, t wo generalizat ions are possible, regardless of t he f act of t he dif f erences among corporat ions and t heir social set t ings. The f irst is t hat t o t he ext ent t hat one can describe t he act ions of corporat ions, corporat ions are bound by t he rules of moralit y j ust as individuals. The second is t hat as a social const ruct , corporat ions should be accept ed by societ y only t o t he ext ent t hat t hey f ulf ill t heir purpose and in so doing cont ribut e t o t he common good. 3. Et hical requirement s of business do not change depending on whet her t he corporat ion is def ined in one way rat her t han anot her. Ot herwise one could change one’ s responsibilit ies simply by redef ining t he corporat ion so as t o suit what one want ed t o do. 4. Social Responsibilit y, Triple Bot t om Line, Corporat e Cit izenship should not be conf used wit h et hics. They each serve a purpose and in various ways are init iat ives t o be applauded and support ed. But t hey are used by corporat ions and by t heir crit ics in a variet y of ways, some of t hem et hically quest ionable. Moreover, t hey are somet imes inappropriat ely used as subst it ut es f or et hical evaluat ion or as a means of def lect ing et hical scrut iny. 5. Corporat ions as global ent it ies raise special problems. In less developed count ries, where laws are less rest rict ive or poorly enf orced, et hics plays a great er rat her t han a lesser role in rest raining corporat ions. A proper quest ion in such cases is not what does necessit y demand but what does et hics eit her allow or f orbid? The ext ent t o which corporat ions are no longer clearly nat ional ent it ies but int ernat ional in not only reach but organizat ion complicat es t he social, not t he et hical rules, under which t hey are t o operat e. Take as one example a Swiss pharmaceut ical company. What is expect ed of it f rom t he perspect ive of social responsibilit y, but not f rom t he perspect ive of et hics, in Sudan is dif f erent f rom what is expect ed of it in t he Unit ed St at es, and is dif f erent f rom what is expect ed of it in t he European Union.

6. The UN Global Compact comes closest of exist ing codes, st ruct ures and inst it ut ions t o out lining t he int ernat ional dimension of t he et hical requirement s of global corporat ions. But it present ly lacks specif icit y, independent audit s, and any enf orcement mechanism—all of which are import ant component s. 7. Conclusion: When corporat ions are seen as social const ruct s a number of disput es concerning corporat ions, how t o concept ualize t hem, and what rules should govern t hem, can be resolved. Great er clarit y can t hen be achieved by discussing wit h some great er precision what can and should be legit imat ely demanded of corporat ions by societ y. Some of t he demands are appropriat ely relat ive t o given societ ies; some are general or universal in charact er.