Tuesday, February 8, 2011

Are companies moral beings?

Excellent quote from Vodafone on Saturday, explaining why they shut down their Egyptian mobile phone network on Mubarak's orders: “We didn't have any option as the government was within its rights under emergency powers that it invoked after the outbreak of demonstrations.”

Great stuff, Vodafone – interesting use of the phrase 'within its rights', there, I thought. I had a brief vision of somebody standing in the dock at Nuremberg saying, “I didn't have any option as the government was within its rights under emergency powers that it invoked after the Reichstag Fire.” Now, of course I'm not equating cutting off someone's mobile phone supply with complicity in genocide. The point of that slightly dubious comparison is that when an authoritarian government gives itself arbitrary and unjust 'rights', in a move that will clearly be regarded by history as illegitimate, the mere existence of those rights doesn't begin and end the question of whether you were justified in complying.

We don't expect individuals to roll over and comply with unjust orders from despotic regimes. We don't automatically exonerate those who were complicit in atrocities or acts of oppression simply because they were acting within the law. Being told to do something by a government, however illegitimate that government may be, is not a moral defence.

But for companies, it almost seems that the opposite is true. Sure, public opinion makes the distinction between what's acceptable corporate behaviour and what is legally permitted (eg tax dodging) or legally demanded (eg Yahoo giving the Chinese government information about dissidents). But there's a strong school of thought that doesn't make this distinction – as Milton Friedman famously put it, 'the business of business is business', and anything else is irrelevant.

And that school of thought still seems to be the one that holds sway in UK and US corporate governance frameworks. Much has been made of recent changes to UK law which require directors to 'have regard' to factors like their social and environmental impacts. But these changes are based on the notion of 'enlightened shareholder value'. In a nutshell, they encourage companies to think about their wider impacts on the basis that these wider impacts may ultimately affect their bottom line. It's progress, but it doesn't change the basic principle that anything which doesn't affect their bottom line is not truly their concern.

At a seminar I attended for work recently, someone suggested that the role of the law in relation to legal persons (like companies) should be to replace the role of virtue for natural persons (ie. individuals). Yet in some ways the law seems to have the opposite effect: companies exist to make a profit, and have no obligations to anyone but their shareholders. Investors exist to make money for their underlying owners, and will often loudly proclaim that their 'fiduciary duty' to do so absolutely prevents them from considering the rights and wrongs of what they're doing. The law not only doesn't require them to be virtuous: it actively reassures them that being virtuous is none of their business.

This is especially worrying when you think about the lessons of social psychology: people feel less responsible for their actions when they're cogs in a huge machine. It makes even less sense to rely on the 'virtue' of individuals within big organisations to make them do the right thing than it does for individuals acting on their own behalf. If we refuse to attach moral responsibility to those organisations, there's a danger we're left with a moral vacuum.

So what's the answer? How can moral responsibility be transferred from individuals to massive legal entities? I have a vague feeling I might be indulging in some slightly woolly thinking here, although I can't quite pin down how, so feel free to rip this to bits in the comments...

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