I was fortunate recently to attend the launch of James Featherby's book, "Of Markets and Men: reshaping finance for a new season". During the seminar hosted by Tomorrow's Company at PwC's Charing Cross offices James sketched out the four 'big ideas' he has developed in his book - which I look foward to reading with interest. The first of these I found particularly intriguing. James talked about "re-setting the social contract" between corporations and the rest of society. He proposed that the 'public duty' role of business should be affirmed, perhaps by changes to Company Law to allow the purpose of a company to be formally re-defined.
James Featherby's arguments are important. They ask a fundamental question: what are corporations for? In one sense they are just legal constructs subject to laws that codify the duties and obligations society expect companies to observe. Corporations, as legal entities, are persons in the eyes of the law and some argue that, like real people, they are also moral agents. But what of their 'purpose'? To talk of a corporation's 'purpose' is to refer to its goals, its 'ends'. Neo-liberal idealogues would say the sole fiduciary duty of a company is to create shareholder value. In pursuing this version 'self-interest' it serves wider society by creating jobs and wealth. This is undoubtedly true. But today's advocates of Corporate Social Responsibility (CSR) argue that companies have a wider set of obligations and duties to all its stakeholders. Theirs is an argument for a more 'enlightened' self-interest.
These arguments have more recently been recast by the concept of sustainability in a new model of 'sustainable business' pursuing a triple-bottom line. It offers a framework in which companies can pursue economic, social and environmental goals. The means of achieving 'sustainability' can be found in an expanding CSR management and governance toolkit: strategy, branding, design, systems, stakeholder engagement, and transparency. Standards, assurance, accounting and reporting are just some of the nuts and bolts of sustainable business practice. The history of corporate responsibility is a widening of business goals in response to a revised view of its duties and obligations to society. This has largely been a voluntary undertaking, even if directors are required by law (in the UK) to 'have regard to' social and environmental considerations. The corporate world has been adjusting slowly to socio-cultural change. It is about time, one could argue, that the law catches up with society.
Is a formal redefinition of corporate purpose the answer? Is is certainly part of it, I think. It is necessary but probably not sufficient. These broader goals may still conflict and must be weighed and balanced. How? If Featherby's intention is to institutionalise the social and environmental counterweights to a purely financial aim there is no ready answer as to how these competing goals should be achieved. There will inevitably be difficult trade-offs to make. Do we leave them in the hands of a company's management, to the market mechanism, or to some other civic institution? Featherby calls for a more Aristotelian understanding of business life. I wonder though whether a strictly goal-driven approach, however widely defined, separates ends and means in a way that a more classical (in a philosopical sense) understanding does not. Aristotle would surely answer the question, "what is a corporation for?" by referring to its telos, a richer but carefully nuanced understanding of the purpose - or essential nature - of a thing. He might re-phrase the question: what are the goods it advances? What it does and how it does it in Aristotle's way of thinking are closely related. Put another way, a 'good' company is one that performs its purpose well, realising its full potential as a 'flourishing' business.
In Aristotle's ethical theory, a moral agent's practical deliberation specifies the actions necessary to attain its telos, a life-long quest for the highest good (eudaimonia). Can the moral quest for the 'good life' be extended from individual citizens to the corporate citizen? If so, how can we describe the telos, or essential nature, of a corporation? Perhaps it depends fundamentally on whether in fact we regard a corporation as a moral agent or as a value-neutral money-making machine? If society does confer on corporations the status of moral agent, then its telos or goal might be considered 'a business life well lived'. But I'm not sure it does, really. Not quite. And perhaps that is where Featherby's big idea comes in.Dualism at the heart of the problem?
He is right to be concerned that the strictly utilitarian and reductionist thinking that dominates business, finance and economics is myopic and may hinder progress toward a more just and sustainable world. Such thinking is a emblematic of post-Enlightenment modernity, the turn inward by autonomous reasoning man standing above and apart from nature in a new confident scientific and technological age. Modern economics was birthed in a new era of practical reasoning that conceived an economy as a giant machine under the influence of new advances in physics. The modern corporation emerged as its vital components, directed by market 'forces' acting according to 'laws' discovered by JS Mill and Adam Smith. In idealised free markets human welfare is maximised through the aggregation and efficient satisfaction of individual wants. In markets preferences are revealed and ranked by a price mechanism which expresses the intensity of our desires. Market economics is thus value-free in the sense that all wants or preferences are equally worthy of satisfaction. This was - and still is - the basic utilitarian logic of free market capitalism.
On closer inspection economics is not really a value-neutral science at all. Rather, it has forced a separation of economics from culture. Economic and socio-cultural values have been banished into separate realms - at least in our utilitarian minds. We have dis-integrated societal values by a form of intellectual apartheid in which 'non-economic' cultural values are relegated in status by rational homo economicus. Only economic values matter and since others don't fit easily into the economistic worldview we leave them out of the picture.
Corporate responsibility is the alter-ego of utilitarian and reductionist free market enterprise: a conscience to the abstract reasoning of the market economy. It recognises a moral duty to respect the autonomy and rights of individuals in a wider moral community. To some it even extends moral considerability to the non-human, natural world. Sustainability paints for us a richer picture of social and economic life, a more faithful representation of our human reality in which a plurality of goods, interests and values exist. We might say responsible businesses are pulling economic, social and environmental values back together - re-integrating them. But are we changing the the way we think about them? We now recognise the social and environmental goods necessary for a sustainable future but we fear they will never really count unless we treat them as if they were economic goods. And we might be right. The utilitarian instinct is to reduce competing goods to a common scale upon which values can be ranked and compared directly in monetary terms. It is an implicit admission of the inherent difficulties decision-makers face in making value judgements that can arbitrate between non-fungible goods. We employ utilitarian thinking to resolve a deontological dilemma - and let the market decide. It risks making a category mistake of confusing preferences and wants with values and beliefs (Sagoff 1988). But the quantification of incommensurable values in price terms lets the market mechanism make the difficult trade-offs on our behalf. It casts individuals always as consumers, never as citizens who might come together to discover and express shared values or a common good. In the name of 'incentives' and 'materialty' we allow economic values to hold sway over our sustainable future in a bleak vision of an enlightened but still self-interested world.
Corporations as social institutions
Such a view can be defended. In Haywood's (1998) version, enlightened self-interest lies in the pursuit of human self-development (the goods of self-respect and integrity), constituent of both one's own interests as well as those of others. These include 'higher' interests over and above narrow economic interests. This, he says, can be the basis of solidarity when enlightened interests include a social dimension: 'interdependence' and an interest in co-operation.
The management guru, Henry Mitzberg, offers us a different lens through which to examine the corporations. They are, he says, social institutions and "if they don't serve society, they have no business existing." (Minzberg 2001). This view is of course contested. Some would argue that a company has goals - and they are purely economic. Undeterred, Minzberg says "we should treat the enterprise as a community of engaged members, not a collection of free agents. [They] function best when human beings (not human 'resources') collaborate in relationships based on trust and respect." In the wake of the 2008 financial crisis he went on to suggest that companies must remake themselves into "places of engagement", where "people are committed to one another and the enterprise" (Minzberg 2009). He offers a leadership model of "communityship" dedicated to building the internal community but which finds its expression externally as its members "reach out in socially active, responsible, and mutually beneficial ways". He concludes that the ultimate test of whether a company has become a true community is whether its people see themselves as responsible citizens of the broader community.
Viewed not as sub-unit of a larger economic system but as part of a social network we can define business relations by the type, quality and content of social ties. In these 'internal' or 'external' ties we see social capital: bonding, bridging, and linking ties in concentric circles of social relations spanning an arbitrary corporate boundary. The business social network might be consitutive of the sources and effects of 'social capital' (Adler & Kwon 2002): trust, shared values; common goals and mutual obligation. These are the social goods necessary for joint human endeavour.
Thinking of corporations as social institutions has the advanatge of helping us to conceive of alternative institutional forms. It takes us beyond traditional stakeholder theory and its 'them' and 'us' cataloging of power and influence. Instead we can see corporations as embedded in the wider system of human relations we call 'society'. The type, content and quality of those relations, both within and without is the social glue in all such relationships, including economic ones. The extent to which social capital is or isn't built and mobilised provides an alternative, but difficult to quantify, definition of business success. It is the production of a social good - or bad - a positive or negative externality which accompanies market activity. The social goods produced by a flourishing business represent the positive contribution it can make to human society apart from profit. It is an unpriced, public good. An input and an output of enterprise. Few businesses can survive in the long term by running down its 'stock' of social capital. As Minzberg says, "destroy this and the whole institution of business collapses." Engagement can build social capital if it extends beyond mere accountability in the name of good corporate governance. It requires talking and listening in an atmosphere of mutual respect and inter-dependence. Genuine partnership, rather than mere participation, requires an equalisation of power relations. Thus, empowerment and capacity-building need to become a normal part of a businesses engagement with local communities and other stakeholders.
Goal-driven or values-based?
During the seminar that accompanied the launch of James Featherby's book, we were asked to reflect in small groups on his ideas. My group focused on the proposed re-setting of the 'social contract'. In the limited time available we reached a very partial conclusion: business values need to align with values in society. In this there were two embedded thoughts. Firstly that the values upheld by business aren't always aligned with those expressed by society. Secondly, that societal values need to change before we can expect business to play its part in delivering a sustainable future for us all. Neither of these were particularly remarkable, except it seemed to reflect a belief that values are prior to goals. Business goals should drop out from the values - or 'goods' - society wishes to advance. So - should companies be values-based rather than goal-driven?
Aristotle might have agreed with Michael Sandel that "to argue about the purpose of a social institution is to argue about the virtues it honours and rewards." In other words, these are arguments about goods (in a philosphical sense) or values (in an ethical sense). To talk of values is to enquire how and why people value things, whatever they are. In questions of politics and economics this is about justice which is "not only about the right way to distribute things, it is also about the right way to value things" (Sandel 2005).
A familiar issue arises in critiques of the free market approach to the distribution of goods is to ask whether all interests - or mere wants - are worthy of satisfaction? Should society uphold equal interests in the name of equal rights; or should some 'higher' interests - perhaps protected by fundamental rights - be given priority? The market doesn't know - or care. In the free market account interests and preferences are assumed to pre-exist and revealed in prices. For some, talk of 'values' is extremely discomfiting. During the seminar some expressed a concern that a "values-based" approach to defining corporate purpose is impractical and even dangerous. This resembles the liberal squeamishness that maintains that the 'right is prior to the good'. "Liberal political theory was born as an attempt to spare politics and law from becoming embroiled in moral and religious controversies." (Sandel). Values are deeply personal and individually held. Granted, we may we not all agree on what is most important, meaningful or significant in life. We live in a pluralistic society: we may have different conceptions of the good and should all be free to pursue whatever that is. According to liberal view we mustn't impose our values on others. In other words: keep personal values out of political life. By the same reasoning we should also banish values from business and finance.
Where does that leave Featherby's idea of corporations pursuing a 'public duty'. If we can't minimally agree on what constitutes the common good or the values by which business affairs should be conducted, in what do these duties consist? Actually, to suppress values is deeply undemocratic in a liberal democracy. It is 'liberal' in the sense that we defend personal liberty to pursue our own individual goals. But it is 'democratic' in the sense that, collectively, we seek agreement in matters of political aims and shared goals. As such, we are cast as actors in two roles: as private individuals and public citizens.
Should corporate life not be governed by the same democratic principles? Arguably, community is a meaningless concept without shared values and beliefs. Any social change is inconceivable without shifts in values for social movement to mobilise around. Human beings create and shape social institutions but these, in turn, create and shape our attitudes, beliefs and values. In the communitarian account, our identity as 'encumbered selves' is bound up with the narrative of our lives and the communities in which we belong. Corporations are in Alisdair Macintyre's terms 'communities of practice' within which we can find meaning and purpose. Communities are the essential backdrop against which we pursue our personal commitments and projects. In them we may perform multiple roles both as both citizens and consumers; employer and employee; parent and partner.
The market is a value-articulating institution. It is the best we have for efficiently satisfying many of our basis needs, wants and desires. But it isn't the only one open to us - or the most appropriate one for arbitrating on all the goods and interests that make life most worth living. There are alternative value-articulating institutions: deliberative processes, social audit, AI and other multi-stakeholder approaches do not assume that values are fixed but are formed by discourse, mutual learning and judgement in an atmosphere of mutual respect (Jacobs 1998). As Sandel reminds us: "in deciding how to define the rights and duties of citizens, it's not always possible to set aside the competing conceptions of the good life".
Finding purpose in values
A moderate moral pluralism (Wenz) is compatible with our own, individual deeply-held convictions. Common ground can be found in shared values upon which clear operative principles can be formed. It may require give-and-take, compromise and a search for consensus - and this means more democracy, not less. From a plurality of values can be found a set of shared values through reflection and debate. To ask what do we agree is important, significant, and meaningful to our lives is to learn to respect individual perspectives while discovering what we have in common. Such discourse can be cohesive not divisive.
Stakeholders can likewise define the rights and duties of a corporate citizen. To do so is to ask what virtues should this company honour? It is a discussion that starts with fundamental questions: "what is this company for; what is important to us; what is our vision of the future?..." It is to define the corporate identity and character, as well as to define the impact it seeks to make in both the public and private realms. In so doing they may also define the attitudes, dispositions, and habits it wishes to promote amongst those that are 'engaged' as leaders and employees in the company. This is a case for values-based recruitment in the search for 'fit'. No dualism need exist between the individual and the collective.
An effective stakeholder process should be one in which the 'personality' of the corporation is defined by its 'citizens' and written into a formal 'constitution' - a statement of values and beliefs which defines the 'purpose' of the company. In a sense, the corporation reflects the personality of its stakeholders, just as corporations inevitably mirrors the society which births them. It must therefore be a process that can express both private and citizen interests. A truly deliberative process is one which encourages personal change through engagement, empowerment, and learning. Corporate change is impossible without personal change.
But it can't stop there, as many codes of ethics do. Aspirational statements need to be translated into sufficiently detailed operational principles that can, as far as possible, resolve potential conflicts. At a minimum these principles must arbitrate when financial objectives conflict with social and environmental values. This might be achieved through the setting of specific objectives and targets within each impact area, with relative priorities defined where necessary. Indicators need to be defined and agreed upon that best represent the values and principles contained in the stakeholders constitution. These are likely to include both performance and process indicators: the way things are done may be just as important as the outcomes achieved. Values-based leadership & governance
In a stakeholder democracy, the role of the 'executive branch' is to serve the purpose of the company within the governing framework of principles and objectives laid down by the stakeholders. Compatible with the 'social institution' view of the corporation, a servanthood style of leadership would be expected to promote 'communityship' within the network of 'internal' relationships represented by the company, as well as its relations 'outside'. The building and mobilisation of social capital should therefore be a key management competence.
As the stakeholder's elected representatives, the board must reflect the values and beliefs of its constituents. Stakeholder participation on diverse boards are therefore a pre-requisite - and for practical purposes a strong case can be made for a split board. It is also up to the board to design and convene the participatory or deliberative processes in which the values and interests of stakeholders can be articulated and codified in principles and objectives. This is likely to be a complex a time-consuming exercise, at least initially. But having done so the performance of the company can be judged against its formal 'purpose' and not against a narrow definition of success.
From financial values to values in finance
So where does 'public' or 'civic' duty fit into a new picture of an ethical corporation fit for the post-crisis 21st century? We certainly can't leave values out of the picture. Rather we need to invite the full range of values - the things that society cares about - into the commercial and financial spheres of our community-bound lives. In a new economics, financial values do not trump other values important to our communal existence as both individuals and citizens. It can be done. Michael Porter appeals to a concept of shared value in a strategic approach to CSR: the pursuit of a win-win outcome in which economic value and social value is produced as a joint good. Leaders must be re-cast as stewards of the wider interests of society as a whole; stakeholders must be fully engaged and 'invested' in the fuller sense of the word; and boards must become truly representative of wider society. The fiduciary duty of the corporation should be to serve the common good, the expressed will of all its stakeholders and therefore of society itself. That is not to deny the profit-making, wealth-creating role of commercial enterprise. Rather, it is to place this on an even-footing with all the other goods and values that a truly flourishing business can contribute to a fully flourishing society.
Co-operatives, mutuals, social enterprises and benefit corporations are much closer to this kind of democratic values-based ideal. Where does this leave the shareholder-owned joint stock company? In a modern financial system stakeholders sit within a complex financial ecology. Responsibility for satisfying interests are distributed along the savings chain and 'engagement' takes place at potential points of tension. It pits 'principals' or 'agents' in a relationship of potential conflict over competing goods. A 'problem' - essentially that of trust - is resolved through greater transparency and accountability. The actors include beneficiaries and trustees; investment analysts and managers; company managers and board members; customers and neighbours. The 'food chain' starts and ends with individuals cast in the role of either 'saver' or 'consumer'. In reality of course they are 'situated selves' in a moral community performing different roles at different times. But we choose not to see it that way.
The governance model of corporate responsibility - of checks and balances - is itself an artifact of reductionist and utilitarian thinking. The notion that companies will become better corporate citizens if their owners can become better stewards is far-fetched. Since their fiduciary duty is to serve the interests of their beneficiaries or trustees, they are in no way obliged to balance their 'rights' with duties to wider society (or the environment) unless they coincide. Private and social costs can only be made (through policy and regulation) to converge wherever externalities can be priced and internalised. Those values that cannot be monetised inevitably fall out of the picture unless they can be written into a 'constitution' that carries moral and practical force.Shareholders are important stakeholders. Their financial interests are important. They may also have their own statements of social and environmental principles. But theirs is not the only voice - and they are not society's representatives. We must move beyond 'enlightened self-interest' in which companies seek social legitimacy but economic values, in practice, too easily trump all others. By discovering the values we share we can find the true telos of business directed towards the common good. But it will require a more radical re-engineering of the financial architecture that we have attempted thus far. It means formally rewriting what it means to be a corporation. But it also means re-writing what sort of society we want to be. The re-writing needs to be done by all of us.
