In his book, The Corporation: The Pathological Pursuit of Profit and Power, Joel Bakan paints a bleak and frightening picture of corporations’ impact on and exploitation of our world. He notes that by their nature corporations are amoral institutions that have “an unblinking commitment” to self-interest. Their only purpose, Bakan observes, is to create wealth for their shareholders. This core feature of corporations, he says, virtually compels the people who run them to act in a manner that causes significant harm to people and the environment.
In support of his thesis, Bakan cites a centuries-long list of corporate misdeeds, from inhumane sweatshops to environmental degradation to providing support for Nazi Germany’s extermination camps. Although Bakan’s long list of corporate malfeasance appears to be fact rather than fiction, it fails to tell the whole story regarding the corporation’s net impact as a social institution.
A more balanced view would take into account that corporations earn their profits by serving human needs. In so doing, a less one-sided accounting would enumerate the spectacular benefits humanity has derived as a consequence of this fundamental aspect of every incorporated business. Today, corporations feed and clothe the world, provide medicines and medical devices that save lives and reduce human suffering, provide energy, transportation, housing, labor-saving appliances and meaningful employment and income to billions of people. On the whole, I think it is fair to say that despite the many real adverse impacts corporations have visited upon us, humanity is much better off than it would be without them.
This marvel of the human imagination, which allows large and small investors alike to efficiently put their capital to work while limiting their liability, has enabled humanity to thrive as it never has before. In addition, when charting the history of corporate evolution, fairness demands that credit be given to corporations and those who have led them for the substantial improvements in working conditions and environmental performance that have occurred over the years. Just a few decades ago, pouring untreated industrial waste into rivers and lakes was a common practice. Today, at least in most industrialized countries, such practices are the rare exception rather than the rule. There have also been similar quantum leaps in improving the safety and civility of the workplace.
This is not to say that corporations have fully optimized their performance in taking into account and mitigating harm to non-shareholders. There is still much room for improvement, and today, as in the past, there are unscrupulous business owners and managers who deliberately engage in reprehensible acts of fraud, human exploitation and environmental degradation. Nevertheless, it is fair to say that improvement continues apace because of the work of governmental and non-governmental entities as well as conscientious professionals who seek to do business in a responsible and ethical manner.
To accelerate this progress, there are two things business leaders can and should do: Ask the right questions about their corporations’ impact on key stakeholders, and build and sustain information pipelines to ensure they have an accurate understanding of the character and magnitude of the impacts.
For instance, every responsible business leader should know the answer to the following fundamental questions:
- How safe is our workplace relative to industry safety standards?
- How safe and reliable are our products relative to industry standards and customer expectations?
- What is the character and magnitude of our operation’s impact on the environment?
- How reliable are the systems we have in preventing unintended environmental harm and unethical, fraudulent or illegal behavior?
- How satisfied are our employees about workplace fairness and civility?
Asking these questions and building the systems necessary to routinely provide accurate answers does not imply that business professionals who do so are duty-bound to reduce to zero all adverse impacts or risks associated with their operations. Nor does it mandate that they do all in their power to transform the workplace into Shangri-La. Instead, these key performance indicators give business leaders the information necessary to strike a principled balance between competing interests, mitigate enterprise risks and avoid unjustifiable harm to human health and the environment.
Such key indicators are not just nice, they are necessary. Researchers have demonstrated time and again that adopting a multi-stakeholder focus is the most enduring and profitable of all business models. These data are merely confirmation of the commonsensical notion that anyone can make a quick buck with a swindle, but unethical tactics are high-risk and ultimately degrade performance over time. Conversely, firms that invest in their people and genuinely care for their customers, suppliers and the communities in which they operate maximize their chances of thriving over the long term.
In addition, in the age of the Internet, reputational risks associated with corporate missteps have never been higher. Operating a business in the current environment without taking into account non-financial indicators like those outlined above is like flying an airplane without critical instrumentation; it greatly increases the likelihood of what is referred to in aviation circles as “controlled flight into terrain.”
So if you are a business leader who does not routinely ask or know the answers to the questions posed above, you may be blissfully ignorant, but you will find it difficult to convince others that you are running your business ethically.
Editor’s note: This article was first published in the Rochester Business Journal.