Responsible management and corporate responsibility

In the context of the centennary of HEC Lausanne, yesterday a distinguished panel debated on responsible management (see link below). The first question the moderator asked the panelists was: “what is the responsibility of corporations?”. In addition to Professor Duffie’s classical response about the fiduciary (legal) responsibility of corporations and thus of their managers to shareholders, Mr. Schwab and Mrs. Ghillani made different proposals.

Mr. Schwab referred to Porter and Kramer’s (2006) proposal to move to “shared value” and also mentioned that corporations should create jobs. Mrs. Ghillani said that corporations should generate and commercialize responsible products, i.e. products which serve the needs of customers and the environment.

I concur with one member of the audience who disagreed with corporations’ responsibility being job creation. I believe corporations’ purpose is to offer a “good” (a useful service or product) to clients in order to obtain a profit which guarantees the economic sustainability of the corporation (and its employees), while being perceived legitimate enough to guarantee its existence (“licence to operate”). Employment is thus a by-product. (I will later write about shared value.)

The concept of responsibility is closely linked to the accountability notion. To be responsible for in/action entails having to give an account (explanations) to someone and to be held accountable might entail being rewarded or penalized by those to whom we are accountable or responsible to.

Thus, corporations are accountable to their owners, the shareholders, as the fiduciary responsibility principle states, given that shareholders accept to take a risk by virtue of their investment as residual claimants (the last to partake on corporate rents, that is, when all other contracting agents have been remunerated, including public administrations through taxes).

But in commercializing certain goods to clients by promising a certain utility or function, corporations are also accountable to clients for such performance. And consumer law has developed in many countries to guarantee such accountability, i.e., that corporations effectively deliver on their promises to customers. In that regard, I’d partly join Mrs. Ghillani. That said, as I already mentioned in one of my posts on CSR, I believe a fundamental challenge lies in the information corporations provide about the content and possible consequences of (the use of) their goods. Without sufficient information and education, customers cannot make informed and responsible decisions for themselves (their own health, for instance) and the environment, for example.

Corporations are also accountable to other actors that they contract with: employees and other resource suppliers (such as other corporations like banks, suppliers and distributors). Contracts entail legal responsibilities; they have to be enforced and courts (are supposed to) provide an ultimate guarantee of enforcement.

However, there several issues which still need to be addressed. First, whether the law – national and inter or supranational – reflects the societal consensus on corporate responsibilities, i.e. whether it is the result of a democratic process. Second, there is the more difficult question of whether societal consensus reflected in law is always equivalent to moral obligations, in other words, whether there are responsibilities which go beyond democratically formulated contractual or legal obligations – with contracting agents or particularly with no-contracting “actors” like the environment. And there is also the issue of what is legitimate to do when political systems are not democratic and when morality casts wider corporate obligations than law. The obvious historical answer is institutional or political entrepreneurship, i.e. individuals’ attempt to collectively change political and legal systems (North, 1990).

North, D. 1990. Institutions, institutional change and economic performance. Cambridge University Press.

Porter, M. & Kramer, M. 2006. Strategy and society. Harvard Business Review, 78-82.

Leave a Reply

Leave a Reply