Returns, Jobs or Charity – What is a Corporation’s Responsibility
The recent debate around Mitt Romney and the role of Bain Capital in job losses has created an important line in the sand for corporate responsibility. Steve Rattner, former ‘Car Czar’ for the Obama Administration, defended Romney in an important statement on TV. He said,
“Bain Capital’s responsibility was not to create 100,000 jobs or some other number, it was to make profits for its investors, most of whom were pension funds, endowments and foundations and it did it superbly well, acting within the rules, acting very responsibly and was a leading firm”
The important argument that Rattner makes here is that the responsibility of a company is (1) to make profit for its investors and (2) to act within the rules – which I interpret to mean law and regulation. I interpret the reference to “acting responsibly” to be an affirmation of the previous statement that Bain acted within the rules.
In stark contrast, but providing another equally valuable line in the sand, in the January/February issue of CR Magazine, David Ohreen, assistant professor of general education at Mount Royal University in Calgary Alberta, argues that companies should be giving a lot more money to charities to meet their ethical and moral obligations to society.
I disagree with both Rattner and Ohreen. I believe companies do have a duty to society (and the environment) beyond following the law and making a return to shareholders. And that is the case even if the shareholders are 100% pensions, endowments and foundations.
I don’t think the law provides a definition of good and bad. Being on the wrong side of a well written law certainly should define bad, but being on the right side of it does not always define good.
I believe that companies have a duty to provide an overall positive impact on society and the environment. This is incredibly hard to measure, but hard to measure doesn’t invalidate the intent. It may be delivered through a multitude of combinations and permutations of investment returns, jobs, taxes, philanthropy, product impact, operational impact, supply chain spend, advocacy, leadership and probably other aspects I have missed. But it is certainly not defined just by investment returns within the law and, I am afraid to say, it is not primarily delivered through philanthropy either.
It is the net impact of the sum total of all these activities that we should ultimately use to judge a company and the actions of its leadership. Taking any of these activities in isolation proves nothing.