Response on Social Responsibilities of Corporations-BECKER

A large number of mainly interesting comments. I shall try to respond and clarify my position. I believe corporations have as much right to lobby for laws as other interest groups, and should not be under any obligation to ignore the laws that are passed, even those that favor them. To take an example from the non-corporate world, the most powerful interest group in the United States is probably the AARP, the association of older, and mainly retired, men and women. They have managed to pass many laws dealing with social security and medicare that are too generous to richer retirees, and are on balance harmful to the general welfare. But I do not hear many people argue that rich persons should refuse the social security checks that they receive because in a better system that money and perhaps still more resources would go to poorer persons. Some of the comments claim that since stockholders often cannot get rid of their top management, they cannot get their views known other than by selling their stock. I dealt with that case in my comment. The market for top management is indeed not perfect, and that means entrenched management gets greater compensation then they would receive in a more competitive market for managers. Entrenched managers do not have to fully consider stockholder interests in their decisions, and can take higher compensation, and have the corporations they manage engage in various actions. Perhaps they will be “socially responsible”, but surely we do not want to rely on entrenched management to set the standards for corporate behavior? Entrenched and powerful management was the heart of the problem with World Com, Enron, and most other companies that had corrupt leadership. I said several times in my entry that if stockholders of a company are willing to pay for various “socially responsible “ non-profit maximizing actions of the company, then the company should indeed deviate from pure profit maximizing behavior to cater to the stockholder interests. But such a company would still be maximizing stockholder value, including the values of stockholders about pollution behavior, employee compensation, and charitable giving of the corporation. But we know from the relatively small number of funds that claim to invest only in socially responsible companies that the vast majority of owners of stock do not want their companies to deviate much from profit and value maximization. Of course, if corporations can find charities better than stockholders can, then my criteria imply that corporation should do that. I even gave the example of fair trade coffee. But that is hardly the most common situation. Some hard questions were raised about whether corporations should knowingly pollute, encourage use of unhealthy milk formula, and the like. Some of these cases would be consistent with my criteria because corporations might be sued if they knowingly encouraged behavior that would poison water, or stockholders would not hold stock in companies that they knew used slave labor, and so forth. However, I do not believe corporations have the obligation in the pollution case to go beyond their legal and contractual requirements. For example, corporations should not follow the Kyoto Agreement with regard to their production in the United States. I take this position because it is impossible to know where to draw the line. Why stop at the reduction in emissions called for by Kyoto? After all, many environmentalists believe Kyoto is far too limited. Pollution standards should be set by legislation and judicial decisions. Corporations should obey those standards, not lie about what they are doing, and follow the environmental wishes of their stockholders, but not try to be substitutes for voters and legislators. Someone remarked on the death of Jack Hirshleifer. Not directly relevant to our subject, but he was an outstanding and creative economist, and a good friend since my graduate student days. I believe he would have adopted a position on this subject similar to mine; perhaps he has written on corporate goals.

Comments

[Jorge Moya]

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[Jim S]

But it's moved past corporations simply lobbying the government. Is there anyone who doesn't know that with this congress and this administration the corporate lobbyists are actually writing the legislation. It's been well documented. Is there really anyone who doesn't know this? What's the percentage of corporate bills that get passed versus what the average citizen needs?

An example if you go under the federal level to the state level is what has happened in Missouri. Our current Governor and his rubber stamp Republican legislature passed bills that have removed over 20,000 people from the Medicaid rolls immediately and will take over 90,000 people off in the near future. They have already passed the legislation that will eliminate Medicaid by 2008. They have established a commission that is supposed to come up with a program to replace it by 2006. Of course the way the legislation is written Medicaid will be eliminated even if the commission comes up with nothing to replace it. In the meanwhile every piece of legislation wanted by corporations and other big money interests has passed with only one exception.

[Jim S]

Oh, and another point about the success of the Blunt administration. He is currently the fourth least popular governor in the nation. Yet thanks to the nature of the people whose true representative he is his campaign fund is over double the size of any recent governor at the same point in time during their administrations.

[james]

May I ask a single question?

The "modern" concept of human rights was a reaction to the horrors caused by excessive state power, however few would argue against the assertion that multinationals have become more powerful, both economically as well as politically, than many states. Do you believe that this power must necessarily entail a corresponding responsibility?

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