Peace through Commerce

Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact

Oliver F. Williams, Oliver F. Williams C.S.C.

• Publisher: University of Notre Dame Press
• Year: 2008
• Print ISBN: 9780268044145
• eBook ISBN: 9780268096854
• Topic: Economics
• Subtopic: Business Ethics
• Index: Economics

Peace through Commerce: Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact contains a foreword, introduction, and twenty-one chapters by major business leaders and scholars who discuss the issues set out by the UN Global Compact. The chapters address the purpose of the corporation; the influence of legal and peace studies; the experience of career NGO officials and of business leaders; how commerce can help promote peace; and how we might envision the future. Ten case studies document the efforts of individual businesses, including IBM, Chevron, Bristol-Myers-Squibb, General Electric, Nestle, and Ford, to successfully serve society's interests as well as their own. Peace through Commerce will lay the groundwork for courses in business schools on corporate social responsibility, corporate citizenship, and global environment of business.

Contributors: Mark Moody-Stuart, Oliver F. Williams, C.S.C., Marilise Smurthwaite, Timothy L. Fort , Michelle Westermann-Behaylo, Douglass Cassel, Sean O'Brien, John Paul Lederach, Willie Esterhuyse, Mary Anderson, David B. Lowry, Donal A. O'Neill, Klaus M. Leisinger, Ofelia C. Eugenio, Brigitte Hélène Scherrer, Samery Abdelnour, Babiker Badri, Oana Branzei, Susan McGrath, David Wheeler, Gerald F. Cavanagh, S.J., Mary Ann Hazen, Brad Simmons, David Berdish, John Bee, Lisa Newton, Stanley Litow, Marshall Greenhut, Bob Corcoran, Daniel Malan, Alexandra Guáqueta, Thomas Costa, Lee Tavis, and Carolyn Y. Woo.

PART I

The Emerging Purpose of the Corporation

CHAPTER 1

The Purpose of the Corporation

Marilise Smurthwaite

The purpose of the corporation has been much discussed both in the academic literature and in business circles. This chapter will examine the notion of corporate purpose as presented in the academic literature, as well as that suggested by Catholic Social Thought. To fully comprehend this purpose and its implications, it is necessary to understand the debate surrounding other notions about the corporation, most notably its nature, its moral agency, and its role in, relationship with, and responsibilities to society. The way we conceive of the corporation’s nature and moral agency has a direct bearing on the way we will view its purpose. The latter, in turn, is fulfilled by means of its relationship with society and its role and responsibilities in society. Mindful of the oversimplification that can result from such an endeavor, it might be helpful to summarize the focal issues in the debates concerning the above-mentioned aspects of the corporation:

The nature of the “corporation”: the debate on the nature of the corporation turns on whether the corporation is merely a legal entity or legal fiction; or whether it is viewed as a community of some sort, as a citizen, or as a group loosely bound or contracted together to further its own interests; or whether it is the equivalent of an individual person or some combination of these.

Corporate moral agency: this debate turns on whether a corporation can be seen as a moral agent, and, therefore, whether it can be seen to have any moral responsibility. If the latter is true, the issue then becomes the nature of the moral responsibility and the accountability that the corporation can be said to bear—that is, who bears this moral responsibility and to what extent? Is the corporation to be treated as a person with respect of moral issues, as a group, or as a legal entity?

The purpose of the corporation: this debate revolves around whether the purpose of the corporation is only to make a profit (for owners or shareholders) or whether, in addition to making a profit, its purpose is a broader one—for example, to contribute to society in some way (for example, socially and ecologically), to contribute to the common good, or to develop human virtue. If it does indeed have a broader purpose, the question revolves around what form this purpose should take or by what criteria it should be determined or measured.

The role of the corporation, its relationship with society, and its responsibilities: the corporation’s role and its relationship with society usually correlate to the way its nature, moral agency, and purpose are explained. Debate largely centers on conceptualizing the nature of the role and relationship of the corporation with society and on defining what responsibilities, moral or otherwise, the corporation has toward society. Various theoretical models explain what this role and relationship are or suggest how they should be conceived. Within the various approaches differing priorities are given to the responsibilities/obligations/duties that are said to derive from the corporation’s role in and relationship with society. In its simplest form, the debate could be summarized as being between those who view the corporation’s purpose as “profit only” versus those who view it as “profit-plus-extras.” Given the latter dichotomy, the issue seems to be what the corporation’s responsibilities are, and, flowing from this, the model that best reflects or represents the corporation’s responsibilities and relationship with society.¹ At issue in all of these debates are questions about what responsibilities corporations have, to whom they owe these responsibilities, and by whom they are owed (that is, directors, all members of the corporation, etc.).

We will examine each of these issues by means of a brief literature survey² and in so doing will clarify the perspective of this chapter—that is, that of Catholic Social Thought—while acknowledging that the chosen paradigm is not the only available option.

THE NATURE OF THE CORPORATION: THE MEANING OF THE TERM CORPORATION

The first step in understanding the purpose of the corporation is to define corporation itself. The academic literature contains a few purely descriptive definitions. More frequently, the corporation is prescriptively defined, and the definition or explanation of what the corporation is actually indicates what the corporation ought to be or do. In addition, each discipline tends to have its own version of what the corporation is, but such versions do not provide a holistic view: “For ethicists the corporation is (or perhaps is not) a moral agent; for economists it is a set of relationships designed to optimize efficiency; for social scientists it is a social arrangement with its own culture, both like and unlike families and civil societies.”³ Even the law fails to provide a holistic perspective because its definition of the corporation is based on the problems it wishes to solve and varies according to particular problems.⁴

Broadly speaking, descriptions of the nature of the corporation seem to fall into one of two categories: (1) the corporation as legal entity only; and (2) the corporation as legal entity (stated or assumed) as well as something else, for example, citizen, community, etc. Phillips goes some way toward outlining the main conceptions of corporations in twentieth-century legal theory⁵ as follows:

concession theory, which views the corporation as an artificial person created by the state; it has no real existence other than according to the view of the law

aggregate theory, which views the corporation as a collection of smaller basic units⁶

real entity theory, which views the corporation as a real entity in the sense that it really exists, rather than being just an artificial creation of the law; such entities have qualities over and above those of the individual constituents.

Like the legal concession theorists, Samuelson and Nordhaus define a corporation as a legal entity owned by shareholders who have limited liability. It is an entity that can be sued and can function as a “good” means for raising capital or a “convenient” way to do “good” and “efficient” business without which the market economy would be less efficient.⁷ This view, typical of the neoclassical/neoliberal economic paradigm, is clearly normative rather than descriptive and emphasizes the corporation as a legal entity rather than as a human enterprise or human endeavor. A similar explanation of the term corporation is given by Robbins: “Technically a corporation is a social invention of the state; the corporate charter granted by the state ideally permits private financial resources to be used for a public purpose.” However, he adds that “at another level, it allows one or more individuals to apply massive economic and political power to accumulate private wealth while protected from legal liability for the public consequences.”⁸ Interestingly, Lutz notes that even though there could be “overpowering reasons to believe that the modern investor-owned corporation ought not to exist,” economics, in line with its approach toward all “existing social institutions,” accepts the corporation as an “unquestionable given.”⁹

A very different view is taken by those who see the corporation as a community and/or as part of a community. This view is taken by adherents to Catholic Social Thought, among others:¹⁰ “The challenge of Catholic social thought to our understanding of the role and place of business in modern capitalism goes to the heart of how we explain, legitimate and understand the economy, because it goes to the underlying values upon which both our economy and our understanding of the economy are based.”¹¹ Catholic Social Thought differs from the neoclassical idea of the “firm,” company, or corporation. The latter is based on a view of human nature and society rooted in “the marginal utility theory of value … which leads to the ultimate conclusion that the ultimate good in society is the consumption of utility achieved through market exchange.”¹² On the other hand, in Catholic Social Thought, the firm is defined as a “community of persons.”¹³ It was Pope Pius XII who first expressed the idea that business was comprised of “persons who are partners … who together seek a common purpose” rather than being constituted by a group of shareholders only.¹⁴ Furthermore, it was also Pius XII who stressed that those who work in such enterprises were “subjects” not “factors”—the latter being a “neutral” term used in economics.¹⁵ It is significant that

John Paul II’s idea of business as a community of work does not suppose a disembodied community disconnected from the economic pressures of profit, risk, competition, and productivity. Rather, he sees that only through a community of work can these economic values be properly ordered within a business so that they serve to develop people and society. Because of the nature of business, profit and productivity are necessary and critical dimensions; but unless a community develops within a business to provide a proper ordering of these economic dimensions, the possibility of the business becoming a place where people can develop evaporates.¹⁶

Thus, Melé and Fontradana state that businesses ought to be seen as authentic communities: they have goals and a mission, and they perform a task together that has an effect on society.¹⁷

Examples of “secular” writers inclining toward this view of business as a community include Solomon, an advocate of the virtue ethics approach to business ethics; Bowie, writing from a Kantian perspective; and Kelly. Solomon refers to business as a “human and social enterprise”; he believes the corporation is the “unit” of commerce in our time and that businesses are defined in terms of their roles and responsibilities in the community outside of their own internal setting.¹⁸ They are both part of the community and comprised of individuals who in turn make up a community. For Solomon, “corporations are neither legal fictions nor financial juggernauts but communities, people working together for common goals.”¹⁹ Bowie argues that “A Kantian views an organization as a moral community,”²⁰ and Kelly also argues that the corporation is a community (not merely a group of stockholders) and cannot be seen as an individual or person as it is both larger than a person and is “immortal.”²¹

On the other hand, a number of views cluster around the notion of the corporation somehow being a part of the community. Goodpaster and Matthews argue that business is part of the community, and, like the individual person, is a “juristic person” and therefore can be seen as a citizen with both “functional” and other roles.²² Waddock holds a similar view.²³ King also seems to see the corporation as a citizen, while at the same time recognizing that it is created by statute and is part of the community.²⁴ Koehn argues that corporations belong to communities “in which they are bound to one another by ties of justice and trust,”²⁵ while Verstraeten argues that businesses are social institutions, not private organizations, and form part of the wider society. They incur their legitimacy by contributing to the community of which they are part.²⁶

Those who believe the corporation is not a community, but rather a group of individuals united “by chance” or for particular purposes, include Keeley,²⁷ who sees the corporation as merely a group of individuals who have found certain relations between themselves to be of mutual benefit, and Van Gerwen, who, writing about business ethics from a social contract perspective, defines the corporation as a group that unites members by chance in their following of their individual interests.²⁸ Van Gerwen argues that few corporations will become communities because the latter offer “an all-embracing context for the socialization and interaction of their members. Social restraints of functional differentiation and of respect for the private life projects of the participants will preclude the occurrence of this type of process in most companies.”²⁹

In addition, a community does not merely unite its members by chance, as does a corporation. At the same time, those who view the corporation as the private property of individuals to be bought or sold at a profitable time have an incomplete picture of the corporation because it combines human capital (expertise) and contracts, is both a profit-making and a social group with history and expertise, and has a purpose as well as operating and decision-making structures.³⁰ Yet Donaldson, a leading advocate of the social contract perspective, differs from others advocating social contract theory and conceives of the corporation in terms of a contract between society and business, in which society sees the corporation as a single legal agent and grants it permission to use land and resources and hire labor.³¹ However, what the corporation recognizes as “society” is more complicated because it includes consumers’ and employees’ interests in the contract agreement.

Velasquez, also a business ethicist, defines the corporation by citing its development from a “joint stock company” in the sixteenth century to its modern form, where the law “treats [them] as immortal fictitious ‘persons’ who have the right to sue and be sued, own and sell property, and enter into contracts, all in their own name.” However, the corporation is also made up of shareholders, directors and officers, and employees who are coordinated and controlled by “bureaucratic systems of rules.”³² While he recognizes both legal and human aspects of the corporation, Velasquez does not go so far as to recognize that the corporation could be a community. Were he a legal theorist, we might say he combines the perspectives of concession theory and aggregate theory. Perhaps, from a business ethics perspective, he is best placed alongsid...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Foreword
• Introduction
• Part I: The Emerging Purpose of the Corporation
• Part II: Influences From the Disciplines of Law and Peace Studies
• Part III: Some Lessons From the Experience of Seasoned Professionals
• Part IV: Ensuring the Success of Peace Through Commerce
• Part V: Some Case Studies
• Part VI: Some Conclusions and a Vision for the Future
• Appendices
• Contributors
• Index