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Corporations and the Public Interest
One of the great challenges of our times is how to encourage corporations to act in the public interest. A powerful obstacle is the myth of Adam Smith's "invisible hand" which suggests that if everyone -- corporations along with investors and consumers -- act solely in their own short-term self-interest, a greater good will inevitably be served. "What's good for General Motors is good for America" is an idea that may still dominate the landscape, but it is increasingly clear that, in Ira Gershwin's words, it "ain't necessarily so."Nowhere is this clearer than in Washington, D.C. Recent corporate corruption scandals have refocused the public's attention on the short-term, short-sighted pursuit of narrow self-interests being pursued in the halls of Congress. There are now 32,000 registered federal lobbyist, including the likes of Jack Abramoff. Spending on lobbying reached $2.4 billion in 2004. Adam Smith’s description of the businessmen of 230 years ago influencing the legislators of his time as "an overgrown standing army" who "have become formidable to the government, and upon many occasions intimidate the legislature" still rings true. Those who stood up to them then met with, in Smith’s words, "the insolent outrage of furious and disappointed monopolists."
Recent years have seen progress around the world in freeing political campaigns of the corroding influence of corporate funding. In the United Kingdom, as a result of the Political Parties, Elections, and Referendums Act of 2000, many companies have now adopted “no political contributions” policies. In 1995 in France, in the midst of a sweeping privatization of state-owned industries, while caught in a high-profile scandal involving corrupt dealings between business and government, legislation was passed making contributions to political parties a crime. In the United States, we seem to take two steps forward and one step back. Legislation such as the McCain-Feingold campaign finance reform act limits large corporate contributions to political campaigns, but American business continues to find new ways to assert its influence.
Socially conscious investors have begun to weigh in on these issues. Over the past three years, Domini Social Investments has joined with others in filing shareholder resolutions asking SBC, Verizon, Merck, and other corporations to disclose their political contributions. We applaud those few corporations who now publish this information, such as Pfizer, and who voluntarily prohibit or limit their campaign contributions.
But we haven’t begun to scratch the surface when it comes to lobbying. To rein in this multi-headed beast, government must start by acting through legislative fiat. While giving careful consideration to issues of free speech and the promotion of open and informed debate, we need a restricted, level playing field on which corporations can compete, but where excessive lobbying is clearly out of bounds. The problem, while difficult, is not unsolvable. Unfortunately, the very legislators who must see their way through to reasonable solutions are those already subject to excessive lobbying pressures. Let’s hope that they have not been totally paralyzed.
We as investors and consumers must act in the marketplace to reward corporate behavior that maximizes the creation of a healthy, wealthy, and just society. This means dismantling the powerful myth that what we always want is short-term returns, maximized profits, and lower prices -- at any cost. It means understanding that corporations can serve a larger public interest and finding ways to support those corporations that share this vision.
Corporations must realize that the narrow pursuit of self-interest is not always good for their own long-term interests. They must understand that their reputations for corporate social responsibility can easily be undermined by out-of-control trade associations on Capital Hill, and that, in the long run, just and sustainable societies offer increased benefits for all.
If we want to help redefine the role of corporations in politics, we must stop complaining about the current status quo and propose alternatives that work. This means reforming the system -- not simply curtailing lobbying for political positions that we don’t happen to agree with. It also means that the current belief in the sole pursuit of short-term self-interest as a sacred duty of corporate leaders needs to be modified -- its strengths preserved and its weaknesses strengthened.
These are difficult tasks certainly, but that should not slow us down. We should take heart from the efforts of the likes of our colleagues at Henderson Global Investors in the United Kingdom, who are raising the equally difficult and challenging question of what a corporation’s fair share of the tax burden should be. We currently see in Washington the logical outcome of businesses’ unquestioned pursuit of short-term self-interest. Let us demonstrate to the rest of the country the logical and far preferable outcomes of highlighting the long-term and directing corporations to that public interest.
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Steven D. Lydenberg is Chief Investment Officer of Domini Social Investments. A founder of KLD Research & Analytics, he was instrumental in the creation of the Domini Social Index, the first SRI index, launched in 1990. He has written widely on issues of corporate social responsibility including his most recent book, Corporations and the Public Interest (Berrett-Koehler, 2005).
Steven J. Schueth is president and chief marketing officer of First Affirmative Financial Network, LLC. An independent investment advisory firm registered with the SEC, First Affirmative specializes in serving socially conscious individual and institutional investors nationwide. A former director and spokesperson for the Social Investment Forum, Schueth lives in Boulder, Colo.
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