The purpose of the Corporation

1. The purpose of the Corporation Dr M. E. Smurthwaite St Augustine College 2006

2. Introduction • The purpose of the corporation • Other notions : • Its nature • Its moral agency • Role in, relationship with society and responsibilities: moral or not Dr M. E. Smurthwaite St Augustine College 2006

3. Nature • ‘Legal entity’ or legal fiction • Community • Citizen • Loosely bound group or individual person? • Combination? Dr M. E. Smurthwaite St Augustine College 2006

4. Corporate Moral Agency • Moral agent or not? Moral Responsibility? • Who bears moral responsibility? To what extent? • Treatment? Person/group/legal entity? Dr M. E. Smurthwaite St Augustine College 2006

5. Purpose • Only profit or broader purpose? • Broader purpose • To contribute to society (ecologically? Socially?) • To contribute to the common good? • To develop human virtue? • To be a good citizen? • AND THEN • Form of contribution? • Criteria to determine and measure contribution? Dr M. E. Smurthwaite St Augustine College 2006

6. Relationship, Role Responsibilities • Nature of role and relationship? • Responsibilities: Moral? or not? • What responsibilities? To whom? by whom? • Model reflecting responsibilities and relationship Dr M. E. Smurthwaite St Augustine College 2006

7. Nature of the corporation • Few descriptive definitions, mostly prescriptive: what the corporation ought to be or do. • No holistic view • Definitions : two types • Corporation as legal entity • Corporation as legal entity (stated or assumed) as well as something else • Community (CST, Solomon, Bowie etc) • Part of a community (Goodpaster) • Juristic person and Citizen (Goodpaster, Waddock, King etc) • Social institutions (Verstraeten, Novak) • Not a community (Van Gerwen) • Chance group (Keely) • Part of a contract (Donaldson) Dr M. E. Smurthwaite St Augustine College 2006

8. Corporate moral agency 1 • Not a moral agent • Not capable of acting morally • No moral responsibilities • Only legal responsibility and accountability • Only accountable for practices/behaviours defined in law, moral or not • E.g. Ladd, Keeley, Friedman, Galbraith, Sternberg Dr M. E. Smurthwaite St Augustine College 2006

9. Corporate moral agency 2 • Moral agency does not reside in the “corporation” but in individuals personally and as a community • Is not equivalent of human person for moral purposes: can’t be morally responsible • Responsibility rests with the person, but includes responsibility carried out with others: collective responsibility • e.g. CST, Solomon, Bowie, Goodpaster, etc. Dr M. E. Smurthwaite St Augustine College 2006

10. Corporate moral agency 3 • Corporation is a moral agent • E.g. French: It is a moral person, with intentionality and corporate moral agency • E.g., Van Gerwen, Elfstrom, Donaldson, Brown, Kaptein and Wempe, Morse, Corlett etc. • Who is accountable? Dr M. E. Smurthwaite St Augustine College 2006

11. Purpose of the corporation • Origins :A. A. Berle and G.C. Means (1932) The Modern Corporation and Private Property • To serve all society • Not a unanimous view • Profit Only? • Profit plus “extras”? • WHAT Extras? Dr M. E. Smurthwaite St Augustine College 2006

12. Purpose: Profit only • Classical liberal economic paradigm • Roots: Smith, Ricardo, Bentham, Hayek and Galbraith • Friedman (1970):to increase profits • Soros (2000): to make money • Sternberg (2000): maximise owner value NOT to promote common good, create jobs, etc. These are side-products Dr M. E. Smurthwaite St Augustine College 2006

13. PURPOSE: PROFIT PLUS EXTRAS • VARIOUS APPROACHES • Catholic Social Thought • Pope John Paul II (CA):links purpose and nature: service of the whole society • Clark (2002): social function; ‘facilitate a wider sense of community’ Dr M. E. Smurthwaite St Augustine College 2006

14. PROFIT PLUS ‘EXTRAS’ • Cst (CONT) • Abrahams (2003): to serve the common good • Alford and Naughton (2002): to contribute to the common good of the business and of the wider society • Riordan (1997): to contribute to ultimate human good • Zadek (2004), Koslowski (2002) Dr M. E. Smurthwaite St Augustine College 2006

15. Purpose: Profit plus ‘extras’ • Corporate Citizenship • Goodpaster (2001): To contribute to the common good and to be a good citizen • King (2001): To be a good citizen • Virtue Ethics • Morse (1999): to produce good human beings • Solomon (1992):to serve the demands of society, the public good and gain a reward for this Dr M. E. Smurthwaite St Augustine College 2006

16. Purpose: Profit plus ‘extras’ (cont) • Corporate Social Responsibility paradigm : generalised • E.g.Samuelson and Nordhaus (1985):profit, social responsibilities (e.g.good citizen), • Post (2000): multiple purposes, profit and contribute to stakeholders • Krueger (1997): generate wealth, serve common good, (ecological sustainability and relieve poverty) • Thompson (2003): relieve poverty Dr M. E. Smurthwaite St Augustine College 2006

17. Purpose: None • Keely (in Melé and Fontrodona 1997) Dr M. E. Smurthwaite St Augustine College 2006

18. Purpose: Summary • Make profit for shareholders/owners • Make a profit as well as develop individuals and serve the common good • Should be a good citizen • Should produce good human beings and contribute to community as whole • Should be socially responsible and make profit (e.g. relieve poverty) • Has no purpose Dr M. E. Smurthwaite St Augustine College 2006

19. Relationship, role, responsibilities: the field • Realisation and fulfilment of purpose • Shareholder versus stakeholder? • False dichotomy: must be profitable and take account of other responsibilities • Complex, prolific writing • Imprecise, variable terminology • Notion of moral responsibility: ‘slippery’ Dr M. E. Smurthwaite St Augustine College 2006

20. Relationship, role, responsibilities: overview • Danley (1994): Role and responsibilities: Classical versus Managerial perspectives • Classical: role and responsibility is economic competition, limited government role, make a profit for stockholders • Relationship: only with stockholders • Responsible: only to stockholders • Resistance to Moral responsibility • “Neutral” and value free economics Dr M. E. Smurthwaite St Augustine College 2006

21. Relationship, role, responsibilities:Danley (cont.) • Managerial perspective: Profit only: outdated and morally wrong • Includes most business ethics writers and researchers in social issues in management • Concepts: good citizen, social responsibility, stakeholders • Conceptually ‘amorphous’, vague definitions, high moral tone and little moral argument, ‘vacuous’ Dr M. E. Smurthwaite St Augustine College 2006

22. What approaches are included here? • Corporate Social Responsibility (and shift to social responsiveness) • Stakeholder approach • Corporate citizenship approach • Social contract approach • Corporate governance • CST Dr M. E. Smurthwaite St Augustine College 2006

23. Relationship, role, responsibilities: CSR • Corporate social responsibility • Origin: 20th century • Charity and stewardship • U. S. versus European versions • Grew 1960-1975 • Criticisms: Difficult to define and evaluate, no standards/criteria, costs, hides real ethical responsibilities, just means obeying the law. Dr M. E. Smurthwaite St Augustine College 2006

24. Relationship, role, responsibilities: • Shift: Corporate responsiveness • 1970s • Emphasis on response to social pressure not on moral responsibilities • Emphasis on action and activity, not on obligation or accountability • Controversy on HOW response is carried out Dr M. E. Smurthwaite St Augustine College 2006

25. Relationship, role, responsibilities: stakeholder approach • Attempt to clarify what corporate responsibility envisages • Origins: 1960s Rhenman, Ansoff and Ackhoff (management theorists) • Freeman: can’t solve all problems, can become a ‘truly human institution’ Dr M. E. Smurthwaite St Augustine College 2006

26. Relationship, role, responsibilities: stakeholder approach • Are not only legal and financial responsibilities • Take account of all stakeholder interests • Criticisms: What are the responsibilities?, goes ‘too far’, insufficient differentiation between fiduciary/non-fiduciary responsibilities, which stakeholder interests to prioritise and how? Dr M. E. Smurthwaite St Augustine College 2006

27. Relationship, role, responsibilities: CC • Corporate citizenship • 1990s • Goodpaster (2001), King (2001), Waddock (2002) • Be a good citizen: build collaborative partnerships with stakeholder groups • Fulfil ‘functional’ responsiblities and contribute to the common good • Ethical behaviour, good governance Dr M. E. Smurthwaite St Augustine College 2006

28. Relationship, role, responsibilities: Social Contract • Social Contract Approach • 1980s • Agreement on responsibilities owed by business and by society • Dunfee and Donaldson (1999, 2002) • New versus old contract (profit plus growth=fulfil social responsibilities • Emphasis: social and economic responsibilities (appropriate to economic entity) and redress of harm done Dr M. E. Smurthwaite St Augustine College 2006

29. Relationship, role, responsibilities: corporate governance • Corporate governance approach • Basis: social contract approach? Or corporate citizenship? • Aim: to define a moral framework for corporate conduct • Wanted greater stockholder rather that managerial control • Van Gerwen, King (citizenship, ‘triple bottom line’) Dr M. E. Smurthwaite St Augustine College 2006

30. Relationship, role, responsibilities: Virtue Ethics • Virtue ethics • Morse (1999), Solomon (2000) • Moral responsibility to help people flourish • Care about the less fortunate Dr M. E. Smurthwaite St Augustine College 2006

31. Relationship, role, responsibilities:CST • Catholic Social Thought • Basic reference point: Common good • Enable expression of freedom and talent • Opportunity to work: part of human dignity • Advances spirit of solidarity so enabling individual to contribute to others • Support common good of business itself and of society • Service to common good: many ways Dr M. E. Smurthwaite St Augustine College 2006

32. APPLICATION • CAN WE APPLY THIS FRAMEWORK IN ANALYSIS OF A CORPORATION? • CAN WE EXAMINE THE NOTIONS OF ‘NATURE’, ‘CORPORATE MORAL AGENCY’, ‘PURPOSE’ AND ‘RELATIONSHIP WITH, ROLE IN AND RESPONSIBILITY TO SOCIETY’ WITH REGARD TO A CORPORATION? Dr M. E. Smurthwaite St Augustine College 2006

33. Example: ABSA Bank: Nature • One of S. A’s largest financial institutions • Sees itself not only as a legal entity, but as part of the community • Customer-centric model • Corporate citizen • Emphasises collaborative partnerships and service to all stakeholders Dr M. E. Smurthwaite St Augustine College 2006

34. Purpose of ABSA • Profit plus ‘extras • Has a strongly financial, but also collaborative and service-oriented vision • Purpose could be divided into financial, social and environmental aims Dr M. E. Smurthwaite St Augustine College 2006

35. Purpose of ABSA • Financial goals: e.g. to make a profit, compete globally, grow market share, be efficient • Social goals: e.g. to be a good corporate citizen, to contribute community needs and provide resources to disadvantaged communities, to assist in sustainable development of communities, to help reconstruct South Africa etc. • Environmental goals: to help conserve S. A.’s heritage Dr M. E. Smurthwaite St Augustine College 2006

36. ABSA and corporate moral agency • Moral agency resides in individuals Dr M. E. Smurthwaite St Augustine College 2006

37. Relationship, role and responsibilities • Adheres to stakeholder approach, specifically corporate citizenship • Understands ‘relationship’ to mean collaboration, partnership, cooperation, building relationships and sound business practice • Responsibilities: those of a citizen, Absa believes it has a responsibility to contribute to wider society Dr M. E. Smurthwaite St Augustine College 2006

38. Relationship, role and responsibilities • Role: based on understanding of itself as a corporate citizen. • Role categories • Role as a business corporation in the South African and global contexts • Role as a bank in the context of banking in South Africa, Africa and international economy • Role in terms of stakeholder groups (shareholders, customers, community, employees, government and regulators) • Role in relation to environment • May play a financial, social or environmental role within each of above categories Dr M. E. Smurthwaite St Augustine College 2006

39. The end Dr M. E. Smurthwaite St Augustine College 2006