Has the era of the ethical corporation arrived?

18 January 2020
Article

The corporate world’s embrace of 'purpose' may seem commendable. But without any enforcement mechanisms, the profit-motive will always win out.

 

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Profit is apparently no longer the goal for corporations. Now, it’s all about ‘purpose’.

This week, the corporate-led World Economic Forum (WEF) proudly published its Davos Manifesto in the Financial Times and Wall Street Journal asserting a vision of ‘the universal purpose of a company’. WEF’s founder Klaus Schwab said the manifesto offers ‘the best response to today’s social and environmental challenges.’ The question that must be asked though is: whose purpose is really served? Will it mean a transformation of the corporation as we know it, or might it instead be a strategy for increased corporate control of policy and politics?

On the surface, the Davos Manifesto looks commendable. It calls for corporations to treat customers with dignity and respect, to respect human rights throughout their supply chains, to act as a steward of the environment for future generations and, most significantly, to measure performance ‘not only on the return to shareholders, but also on how it achieves its environmental, social and good governance objectives.’ In this respect, the Davos Manifesto is an advance on the ‘Statement on the Purpose of a Corporation’ issued in August by 181 CEOs in the US Business Roundtable that made a vaguer commitment to generating ‘long term value’ and acting ethically and sustainably.

The catch is that nowhere in either statement is there a mention of enforcement mechanisms, legislation or regulation to ensure companies abide by their commitments. It is an entirely voluntary process that is completely dependent on self-regulation, which does not challenge the overriding profit-making purpose of corporations. In this respect, it is an extension of the corporate social responsibility trend, in which every Fortune 500 company issues glowing reports where the PR is far better than the practice. Time and time again, the profit-motive wins out when it conflicts with any aspirational social or environmental target. It could be seen when Volkswagen was launching a ‘ThinkBlue’ campaign to “encourage eco-friendly mobility” at the same time as paying its engineers to deliberately trick California’s emissions testing system. Or where Apple says it ‘care(s) deeply about the people who build our products, and the planet we all share’ yet for years has fought paying its taxes in Europe and makes phones that are notoriously hard to repair.

However, it would be wrong to dismiss these statements as merely another example of hypocritical corporate propaganda, because the Davos Manifesto also proposes a strong ‘quid pro quo’ for companies committing to social responsibility, saying that companies must become ‘stakeholder(s) – together with governments and civil society – of our global future.’ In other words, they argue that corporations as ‘global citizens’ should be given a bigger role in global governance – in taking decisions that used to be the remit of governments and people.

This is not just conjecture. In 2010, WEF finalized their ambitious project called the Global Redesign Initiative, (GRI), which proposed a transition away from intergovernmental decision-making towards a system of multistakeholder governance. This proposes that issues of global importance should be resolved by governments forming partnerships with corporations and a few carefully selected civil society representatives. As University of Massachusetts Senior Fellow Harris Gleckman notes, it is attractive to corporations because it expands the arenas where they can not just exert influence but directly develop policy. And it is based entirely on an opt-in, voluntaristic approach, avoiding any international binding standards and regulations that might constrain profits. Most importantly, it allows corporations to set the parameters of the debate and to fend off the dangers of regulatory policies proposed by politicians like Sanders, Warren and Corbyn.

The multistakeholder model is already infiltrating various arenas of global governance, such as Scaling Up Nutrition (SUN) or the Global Alliance on Vaccines. In August 2019, however, it received a major boost with a little known partnership agreement signed by the UN Secretary General and the World Economic Forum. This allows unprecedented access to WEF staff to UN programmes, funds, and agencies, who in turn commit to participate in WEF meetings. In the process, it also distorts intergovernmentally negotiated and agreed goals to fit with the business interests of WEF members. So under financing, the agreement calls only for ‘build[ing] a shared understanding of sustainable investing’ but not for reducing banking induced instabilities and tax avoidance. Worst of all, the partnership was not even discussed or agreed with UN’s member states. A letter protesting the partnership by 500 civil society groups has gone unanswered.

In the meantime, Klaus Schwab in announcing the Davos Manifesto in advance of their 2020 summit says that corporations need to “seize this moment to ensure that stakeholder capitalism remains the new dominant model”.

At a time when reactionary politicians are promoting isolationist nationalist and reactionary measures, any statement talking about global cooperation and more ethical corporate conduct can sound attractive. However, if it consolidates a model in which corporations exert more power and influence and which further undermines popular democracy, it will not resolve but rather fuel today’s social and environmental crises.

Corporate power – whether it is the fossil fuel firms driving the climate crisis or the tech firms appropriating our data or the banks fuelling the financial crisis – are the reasons for today’s ‘social and environmental challenges’. Turning to corporations for solutions would serve little purpose than to support their unchanged desire for profit.