This introductory chapter signposts the rationale, framework and case study contents of the book. First, we offer an overview of the need for new more progressive business models than the mainstream which exists at present, identifying the current challenges facing business in Europe and beyond in its international ramifications. To remedy these challenges, we present our alternative vision of progressive business functioning, whose basic criteria comprise ecological sustainability, respect for future generations, and pro-socialness. Then, synopses of our case examples follow.
1 The Issues of Big Business and the Deterioration of the Earth System
All the important indicators show that the state of the Earth (the sum of our planet’s interacting human, social, physical, chemical, and biological processes) has deteriorated in the last 50–60 years. A set of global indicators studied by the Stockholm Resilience Center shows adverse socioeconomic trends (such as increases in population, real GDP, foreign direct investment, urban population, primary energy use, fertilizer consumption, water use, paper production, transportation, telecommunications, and international tourism). Convergently, we observe harmful rising levels in Earth System toxins (such as carbon dioxide, nitrous oxide, methane, surface temperature, ocean acidification, tropical forest loss, domesticated land, and terrestrial biosphere degradation) since 1950 (IGBP 2015).
This severe deterioration of the Earth can be attributed largely to current patterns of production and consumption, as business activities have come to dominate nearly all the life spheres almost everywhere in the world. The issues of big business, especially global corporations play a crucial role in ecological degradation and human malfunctioning.
The market economy as a whole can be deemed to be disembedded from society and nature (Polanyi 1944). In parallel, many modern business organizations, especially global corporations, are disembedded from the environmental and social context in which they operate, as they are rootless in ecological and social senses, displaying no real interest in the places they happen to function.
Inherent features of today’s globalized business inhibit business enterprises from becoming environmentally sustainable and socially responsible (Boda and Zsolnai 2016).
The core of the problem can be seen to lie in the corporation itself (Bakan 2003; Mayer 2013; Stout 2012). The modern corporation as a legal entity was an institutional innovation in the early capitalist era. While it has considerable merits, such as serving as a means to collect and unite into one organization the small investments of many individuals, it has also had the awkward side effect of dispersing and, ultimately, mitigating responsibility and accountability. As a limited liability company, the corporation can allow its owners to limit their obligations for their business activities to the amount of capital subscribed to it. Limited liability means also limited moral liability. “The situation may be contrasted with the case of unincorporated businesses, where unlimited liability also means unlimited moral liability. No distinction can be made by the business and the person(s) conducting it because the reputation of the one is the same as the reputation of the other” (Róna 2014: 10). By nature, corporations and their owners have only limited responsibility.
Individual shareholders do not necessarily have the power or interest to control the corporation, influence decisions, and hold the management accountable. They are interested primarily in the dividend or capital appreciation, that is, the return on their investment. Dispersed ownership also means a limited commitment to the future of the company and aggravates the dangers of a hostile takeover (Mayer 2013). Moreover, takeovers may actually be encouraged when a corporation makes long-term investments into the future, thereby, undermining its short-term profitability, so driving down share prices. In turn, falling or stagnating share prices provoke owners to dump their shares.
The reality of corporations puts the “shareholder value” idea above anything else. Lynn Stout calls this the “shareholder value myth” (Stout 2012) which has a profound effect on how corporations are managed, governed, conceived, and interpreted. She argues that there are neither compelling legal, nor economic arguments to support the shareholder myth. Contrary to what many believe, the corporate law does not impose any legal duty on corporate executives to maximize profits or share price. And there is no persuasive empirical evidence demonstrating that individual corporations run according to the principles of shareholder value maximization perform better over time than those that are not (Stout 2012). Nonetheless, the shareholder myth determines how we conceive corporations, and how they are managed. Further, this myth is perpetrated by what is taught in business schools, notwithstanding evidence of its often devastating effects on the social and environmental performance of businesses (Tencati and Zsolnai 2009).
Today’s extremely complex financial system makes ownership and accountability even more blurred and impersonal. Nowadays, institutional investors, investment funds, and pension funds hold the large majority of corporate shares. Those funds—generally corporations also—are themselves managed to look for increasing profits at any cost. Moreover, there are multiple mediators between individuals and companies they own through portfolios run by fund managers, and involving brokers, advisors, etc., many with conflicts of interest, whereby, complicated financial services distance investors from the companies they are putting money into. The financial crisis of 2008 revealed how derivatives and other complicated financial products are indeed able to hide reality away from the eyes of even experts. Nowadays, investors choose between investment portfolios offered by their banks or agents, and are rarely knowledgeable about how their money works and what it does (Kay 2015).
The financial system also acts as a principal evaluator of corporate performance. Shareholder value is constructed by the financial market and its institutions: rating agencies, consulting firms, auditors, and finally the stock market itself, a complex institutional infrastructure that promises to evaluate corporate performance and that forces companies into an arms race for profit. Without a constant effort to increase profits and save on costs, companies are threatened with losing shareholder value and finally being discredited. One of the most effective ways to save on costs is to externalize them, by making nature, society, and future generations pay for them.
Corporations face the consequences of globalization that separates corporate decisions and stakeholders, owners and workers, consumers and the places of production. This facilitates the externalization of costs (that is, causing social and environmental problems and damages). Shareholder value myth and competitive pressures are the guiding principles of decisions throughout the supply chain. Globalization, therefore, contributes to a shading of business activities and the externalization of production costs (Princen).
Externalization is enabled by growing corporate power vis-à-vis society, especially in developing countries. Globalization opens up new corridors of power (Jensen and Sandsröm 2011). The effect of companies on softening labor and environmental regulation, that is, the ‘race to the bottom’ is obvious (Drezner 2001; Vogel 1995; Diamond 2003). The institutional setting of today’s mainstream business helps to dilute responsibility. It is a system in which the pursuit of profits is the only ultimate goal and where the externalization of costs upon society, future generations, and nature is not an unfortunate exception, but the rule (Sethi 2013).
The perverse nature of the decisions made by modern business organizations that ignore environmental and social consequences is visible in such phenomena as decision-making under risk and discounting in space and time. Modern business organizations likely engage themselves in “here” and “now” positive options for them. Correspondingly, modern business organizations likely disengage themselves in “far” and “later” negative options from them. The self-centered orientation of many modern business organizations produces environmentally and socially disengaged functioning. These organizations disregard the environmental and social consequences of their functioning in a self-reinforcing cycle (Shrivastava and Zsolnai 2014).
2 The Failure of Business Ethics and CSR
There are powerful mechanisms which may make the ethical efforts of corporations ineffective or even counterproductive. One mechanism is the ethics management paradox while the other is the use of moral disengagement strategies. “Business ethics” aimed at teaching corporations to behave in a civilized manner. Most of the corporations tried to accept ethical advices to some degree but they did not become ethical and responsible at all.
Bouckaert (2006) warns that by reducing ethics to a functional and instrumental management concept we lose something vital. This is the core of the so-called ethics management paradox. We are crowding out genuine moral feelings and genuine moral commitment, by substituting them for rational and technocratic management tools instead. This substitution fails, as ethics management has failed to overcome the emergence of new, more sophisticated and hidden forms of opportunism in business.
According to Bouckaert (2006), the paradox is the following: By creating new regulations to temper opportunistic behavior in and among organizations, we may temper t...