Organisations as well as individuals have obligations as well as rights and need to be held responsible for their impacts on others. For businesses to be self-determining they need an autonomous sense of identity and purpose, competencies to contribute to society, and relatedness to that external society, especially to customers they serve.
Businesses are dependent not only on customers and suppliers but on society’s institutions, rules of the game, physical, legal and social infrastructure and risk-shifting devices ranging from insurance companies to a public health and accident compensation system. They must also accept that governments have obligations to spend large sums of taxpayer money for such reasons as socio-economic stability. As Keynes observed, business people often object to governments taking massive punts on new technologies or counter-recessionary fiscal expansions yet think nothing of behaving in ways that trigger even more costly publicly-funded bailouts.
Businesses must also support social norms, cultures and civil society since these support the institutions that businesses and other organisations depend on for their contribution and therefore survival. These civil society norms and cultures can only be volunteered and cannot be autocratically commanded.
A Supreme Court decision in 1819 acknowledged Dartmouth College as a separate legal personality from people working in it, and this created a precedent. If businesses and other organisations have a legal personality, it suggests they have citizen’s rights and obligations. It implies even more, because large businesses, universities and other institutions have more social effects than an individual can have. For example, an academic institution can control people’s lives because recognised qualifications are needed for jobs above a basic wage level.
What obligations therefore do businesses and other organisations have beyond serving their customers and satisfying their owners?
Simply complying with the law is an important contribution businesses can make. There are some countries with poorly-developed tax systems where multi-nationals such as McDonalds pay a major part of the taxes that fund physical and social infrastructure and services. Businesses should obey the laws in the country they operate in, except in extreme cases where there are ethical human obligations to break them, for example when the anti-Semetic Nuremberg laws were enacted.
Businesses must deliver to customers and use their assets efficiently. In doing so, they create wealth and opportunity. By supporting market processes and avoiding rent-seeking, businesses help social mobility and new business entries and prevent rigid elitist class structures emerging. This has wider benefits. Successful businesses must respond to increasingly diverse and international markets. The more sealed off people are in narrow elites the more they will fail to do so, and therefore the less able they will be in servicing new emerging markets. When businesses and supporting institutions do not perform well, something will fill the gap. Mafia and criminal gangs may flourish and left and right wing extremists will form politically and threaten society if businesses and the economy do not perform.
Historically, it has often been private sector entrepreneurs, business leaders and companies themselves that have gone beyond their profit-making brief and acted to save wider society, including from capitalism’s failings. J.P. Morgan helped save the US from a financial crisis in 1907 and created much of the impetus for government to take a more proactive role in regulating financial markets. IBM committed to retaining employment in the depression years and this commitment to staff forced it to expand and find new markets to protect its employment.
In World War Two Walt Disney produced a cartoon film in Argentina to culturally sway Argentinian sentiments to the democratic world. In 1942 Disney produced a film, The New Spirit, in which Donald Duck argued the need to pay taxes to defend civilisation. Part of Disney’s success is films and cartoons that lack bad language, sex or extreme violence or churches, the things that divide people, allowing Disney to focus on universal entertainment that appeals across cultures.
Businesses can be powerful, and power requires a social, non-contractual mandate. Without such a mandate, in an autocracy business will either be subservient to the state or be ignored, while in a democracy a business will not be allowed to operate. Businesses must be responsive to society’s wider interests to retain a social “licence to operate”. For example, Fonterra is New Zealand’s biggest company and its milk processing dominance creates risks of arrogance. However since Fonterra was created it has become a generally good citizen in the markets it operates in and its milk tankers have modelled considerate driving on public roads.
It is important for businesses to respect competitors and their intellectual property and not to exploit vulnerabilities resulting from extreme events impacting on the environment in which businesses, including competitors, operate. New Zealand dairy companies did not exploit the orchestrated backlash Danish dairy businesses faced in the Middle Eastern market resulting from the 2005 “Danish cartoons” incident.
Business operations generate unintended consequences or externalities that do not show up in balance sheets. Private businesses still fulfil social functions and are part of society. Business people can sell their businesses, however society is left with the business and its impact on society, including any externalities. Businesses should be mindful of impacts on others, including dispersed, hidden, or difficult to trace effects and delayed consequences, including those persisting when the businesses themselves have ceased to operate.
Should a business have to mitigate or pay for negative externalities, and has it a right to be rewarded for beneficial ones? Many externalities are too minor or difficult to either punish or charge for. Others can be tolerated at one point on an environmental Kuznet’s curve but not beyond as societies grow richer and demand better environmental quality. Some business impacts are Janus-faced, meaning different things to those inside and outside a business. Vineyard managers plant roses as canaries in the mine, giving early warning of grape diseases. They are a plant health tool for the growers and an aesthetic gift to the public.
Farmers have a right to farm, and an obligation to address major negative externalities such as water pollution. They might also be socially rewarded for their positive externalities as well, whether aesthetic, cultural or recreational. Some New Zealand dairy farmers have been tardy in respecting others’ rights in water quality, even during profitable times. However, more farmers are now protecting biodiversity and putting conservation covenants on their land.
In environmental protection the problems are often generated by multiple actors, generate widely diffuse negative externalities difficult to link to individuals, the consequences are often distant in space and time, and they impact on generations yet unborn. In some cases managers must be responsible for long term consequences, and in other circumstances it may be regulators or society that have to address the consequences.
Businesses cannot solve most social equity problems. They should however act in ways consistent with their own employees’ long-term interest. This includes recognising that women taking time out of work for children are contributing as much or more to society as if they stayed working. Few if any employers can offer lifetime employment. However every employer should behave in ways consistent with lifetime employability and therefore support some generic on-the-job training.
Businesses have an interest in preventing extreme inequality that erodes social cohesion. George Orwell contended it is impossible to develop a close friendship with someone much wealthier. There are commercial as well as social cohesion reasons for businesses to oppose extreme inequalities and social stratification. A country’s journey through its history is like a wagon train moving through hostile territory. The wagons need to stay together for mutual support. If people drop off the wagon train they no longer feel part of the same country with a shared identity and future. They either perish in the wild or they turn and “attack the wagon train”, including businesses and the environment in which they operate.
Whatever challenges managers face, they should behave in ways that avoid having to defend a wagon train that is being attacked, including by the environment it is trying to survive in.