Corporate responsibility and accountability

Published in The Observer, in April 2003.

Vultures are ugly birds. A powerful evolutionary logic seems to have ensured that form followed function with an uncanny precision. The sight of a large number of British and American companies squabbling over who will get the choicest pickings from the not quite dead corpse of Saddam Hussein’s Iraq will confirm the increasingly widely held view that the business world will stop at nothing in the pursuit of profit.

Both the political leaders responsible for launching the dismemberment of the Iraqi regime that provoked this feeding frenzy are already thought to be too business friendly. It is not just in the Middle East that there is a suspicion that the primary rationale for this war was to protect the long term interests of corporate America, with a few crumbs for their British friends. As the memory of the immediate violence fades this will inevitably lead to a sharp increase in the volume of calls for more corporate responsibility and accountability.

This debate already has considerable momentum. An increasingly affluent, better educated and more informed public has rising expectations of everything, including corporate behaviour, as demonstrated by the growth in socially responsible investment. These expectations were brutally confronted by the avalanche of corporate greed revealed in the aftermath of the Enron collapse. This has swelled the trickles of public concern emerging from the ‘fat-cat ‘ scandals that accompanied privatisation, the anxieties over the rapid pace of globalisation and the deepening sense of living in a less equitable society into a fast flowing stream, if not yet a raging river.

But if the momentum of the debate is growing, the same cannot be said for the mutual comprehension of the protagonists. At one pole of the argument are the non-governmental organisations. They see no alternative to global legislation to compel companies to be accountable and behave responsibly. Corporations are immoral profit maximisers that cannot be trusted to contribute to the public interest. At the other are the free market ideologues for whom the self-evidence of the truth that the public interest is simply the sum of all private interests is the bedrock of their faith. Public intervention in corporate behaviour is an unwarranted and immoral interference in the sacred duty of a corporate management to its shareholders.

The passion with which these views are held adds nothing to their clarity. The complexities of the real world relationship between corporations and society are not readily managed by tools constructed from a pair of mutually reinforcing prejudices. The emergence of a powerful and well resourced non-governmental community on to the stage of public policy is an expression of the rising expectations of the public. They are no less necessary to the well being of citizens in the modern world than the corporate providers of goods and services are themselves. What is in the public interest is a better informed, more focussed and less attention seeking dialogue between business and the non-governmental community. This will require much patience and a lot of learning on both sides.

The business world must understand that it should explain more and assume less about its contribution to meeting society’s aspirations. The prime social case for business in the 20th.Century was that what it did was legal and profitable. In the 21st. Century the minimum social case is that what business does is legal and profitable and socially and environmentally responsible. Since business cannot decide for itself what is responsible this means that it must engage with a wide range of social partners in order to do so.

Limited liability is a privilege granted to corporate beings by society without which it is hard to imagine how it could possibly play the beneficial part it plays in all our lives. But the terms of that privilege are re-negotiable as circumstances change. Most people have now learnt that the companies that bring you jobs today can take them away tomorrow. A company’s contribution to the vitality of the economy as a whole remains a necessary, but it is no longer a sufficient , reason for granting it a license to operate.

The non-governmental community makes much of the claim that corporations must be accountable. And they are right, so far as they go. But less is said about to whom and for what. Corporations are already formally accountable to many groups for different aspects of their behaviour – to shareholders, to employees, to customers, to regulators. An undifferentiated call for greater accountability offers no aiming point and therefore no test of whether or not it has been heeded.

All responsibilities are bounded sets. They are defined by the nature of the bearer of those responsibilities and the circumstances in which they must be discharged. Those calling for greater corporate responsibility need to be much clearer about where those boundaries are, how they are to be drawn and what part they are themselves willing to play in the high resolution task of defining them in practice.

They must also recognise there is no such entity as the corporate sector. There are many different kinds of corporations operating in a vast variety of circumstances. Portfolio investors have a very different set of responsibilities from those who invest in creating real assets and they are both different from traders who buy out of or sell into communities. The responsibilities of companies operating in OECD countries are already highly defined by public policy but the same is not the case in many other parts of the world. There will be no single test of responsible corporate behaviour.

A high decibel debate between the defenders of business and the non-governmental organisations might make for good headlines but it alters few outcomes. Both communities require social and political stability in order to achieve their primary purposes. You can no more alleviate poverty or protect the environment in an unstable world than you can find good business opportunities. At a time when the pace of world events threatens to undermine that stability everywhere, the public has much to gain from the debate about corporate social responsibility but only if the protagonists can reach a level of public discourse somewhat more reasoned than that which brought us to war in Iraq.