To work, for the most part, is to perform a task or manufacture a good that has a monetary value that can be sold for profit. For some, their skills are so valued that it became necessary to work with others to sell a combined service offering. As an example, a blacksmith could see his workload triple as his reputation for quality spreads, and he may need to hire additional blacksmiths to manage increased demand. The original blacksmith, new in his role as manager, could seek to protect himself and his workers from potential litigation from customers. He may also be searching for opportunities to pay less of his earnings in taxes to his feudal lords (or local municipal government). The standard option for someone wishing to develop a structure that separates individual workers from their offerings is to incorporate a separate legal entity – that way, a consumer can purchase the services of the firm instead of the individual worker, and workers can work within a set structure for greater stability and predictability.
But there’s a catch. The newly incorporated Blacksmith Inc. has come under fire from local environmentalists, who claim that the garbage and refuse the company creates is degrading the quality of a nearby river where all the townsfolk of the neighbouring village get their water. They demand that the Blacksmith acts to fix this, as they deem him responsible for the medical bills incurred by drinking contaminated water. The Blacksmith is outraged – in his eyes, his company exists to make enough money so he can feed his family and his employees. It is not his responsibility to pay for expenses for people he has never met. But he also understands that his actions may have inadvertently lead to harm, and wishes to avoid that happening in the future. How can he, a simple business owner, balance his freedoms as an individual and his ability to feed his family with the larger collective good?
Capitalism, the backbone of the market system that allows tradesman such as Blacksmiths to earn a living, has long viewed such questions of common resources as frivolous externalities – companies may generate pollution, contribute to societal inequality and have economic impacts that see people lose their jobs, but their obligation is not to the world at large – it is to themselves and their margins. This traditional abdication of responsibility has become thoroughly un-trendy as of late. Consumers and governments have begun to place pressure on business to evolve their social and environmental practices, and to take an interest in practices in wider issues that have no direct impact on profit margins but may impact the people who work within the organisation. The hope is to promote the more responsible model of what it means to be a corporate citizen.
The key word here is “corporate citizen”: a corporation is, by definition, a separately incorporated personality not associated with a single person, and therefore is not a person. While corporations can, in certain countries, be legally treated as individuals (a corporation may enter contracts, own property, sue and be sued), the entire point is that they are independently managed through a centralised structure. Moreover, the Economist Milton Friedman’s famous quip “a corporations responsibility is to make as much money for the shareholders as possible” is actually entirely legally legitimate. If the actions of a corporation serve to reduce profitability or negatively impacts public perception, it directly impacts a company’s ability to keep their lights on and pay their employees. After all, a closing factory is rarely lauded for all of the carbon emissions they will now not be contributing to the atmospheric total. Instead, they are penalised for their failures to achieve their core mandate: make profits and make jobs.
Critics of modern CSR have long stated that a more efficient system is to pass profits onto employees and shareholders and allow them to take their own actions as they see fit. Laws have been passed in dozens of nations to take it one step further, making changes in the tax code to allow corporations to deduct charitable donations from income tax, thereby incentivizing direct giving. But to claim the impact of an individual can have the same significance as that of a corporation is naive. 71% of global carbon emissions come from just 100 companies – it is silly to believe that everyone turning their lights off will have the same effect as generating action within those corporate entities themselves. Additionally, more and more companies are responding to public pressure and consumers demanding they take action, seeing a business case for themselves in shifting their own operations to be less resource-intensive or more active in supporting members of their community. Ultimately, the business case for these actions does correctly fit their core mandate – to increase profitability by reducing expenses, and to generate revenue and sales through increased brand awareness.
But the issue surrounding corporate responsibility has never been one of what is correct, but what is right. One of Friedman’s lesser known claims was that “In a free economy, there is one social responsibility of business – to use resources and engage in activities designed to increase profits so long as it stays within the rules of the game.” It is not the responsibility of the corporation to act benevolently as a player, but the responsibility of the environment in which it operates to ensure the rules of the game help players. This can be accomplished by aligning long-term objectives and encourage firms to behave in a responsible manner for the long-term success of all parties. This is done through the framework of law – legislation and regulation incentivizing behaviour we deem positive and penalising behaviour we deem detrimental – but also through the components of the corporation itself: any corporate entity is staffed by people, whether they be blacksmiths or otherwise. If businesses are confused as to what exactly their broadened mandate may entail, they need only look to the people within them to set priorities. It is not entities who push change as an agenda, it is people who create it through a mandate.
In our story, Blacksmith Inc. opted to implement strategies to recycle waste and reduce impact, which meant a slightly higher cost incurred in sorting waste. But the towns people were so grateful for his idealism that all of the neighbouring towns now came to him for work as well, meaning his business was positively impacted by his actions. In the real world, things are rarely so simple – but individuals who look at more than profit and are driven to make change maintain the capacity to drive it forward.
We all have an impact. And we are also the only ones who can help make it a meaningful one.