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Ethan Bauer
Guest
“Do large corporations have responsibility just to their shareholders,or do they have a responsibility toward all the stakeholders?” asks Angela Wentz Faulconer, an adjunct professor of philosophy at BYU.
SALT LAKE CITY — In times of crisis, the traditional thinking goes, Americans of all ethnicities, classes, ideologies and careers are supposed to join together for the greater good. And the federal government appears to be doing its part.
The record-setting $2.2 trillion virus-combating legislation that passed Friday includes — in addition to direct payments to taxpayers, expanded unemployment benefits and emergency small-business loans — $500 billion in corporate bailout funds. Which raises a question: The government pitched in. People are pitching in. Should corporations and companies pitch in too?
Some already have. Like Rocky Mountain Power, which is temporarily suspending electricity disconnections, or Goldman Sachs, which is allowing Apple credit card holders to skip their March bill, interest free, or the Miller family, owners of the Utah Jazz, who are providing temporary financial assistance and employment opportunities for Vivint Arena workers. But should they be obligated to?
More directly: How do businesses fit into a crisis, and what, if anything, do they owe people?
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222 Main Street building (center) in Salt Lake City, pictured with Goldman Sachs as its newest expected tenant on Thursday, March 18, 2010. The company was expected to occupy the space in March 2011.
Some very quick history
Answering the question requires framing it in the proper context, which starts by journeying back to the financial crisis of 2008.
“The true cause of the 2008 financial crisis is highly complex,” according to educational website Binance Academy, “but it was America’s housing market that initiated a chain reaction — one that would expose cracks in the financial system.”
Those cracks quickly resulted in the Great Recession, America’s longest and steepest economic downturn since the Great Depression. Stock prices plummeted, homes were seized and unemployment ballooned to nearly 10%. For our purposes, its causes aren’t as relevant as the chosen remedy: Bailouts.
Former President George W. Bush first popularized the term “too big to fail” to describe banks whose collapses would be catastrophic for the economy, requiring the government to stabilize them. The term eventually also applied to American auto companies, with Bush initiating and the Obama administration continuing an auto-industry bailout. The bailouts wrangled a “curious coalition” of opposition at the time, but they largely worked as intended. Employment opportunities grew, and the economy recovered. Yet, as one New York Times retrospective put it, “The policymakers saved the financial system. And America never forgave them.”
From President Trump to Sen. Bernie Sanders to Sen. Elizabeth Warren, prominent politicians of the past decade have found an interested audience when railing against the financial systems that caused the Great Recession. For Trump, that’s meant his “America first” approach to globalization and the interconnectedness of financial markets. For Sanders and Warren, it’s meant blaming much of American society’s ills on greedy Wall Street billionaires. Both are capitalizing on underlying resentment following a recovery that was concentrated at the top, with companies imposing barriers to entry and replacing labor with machines. As Annie Lowrey observed for The Atlantic in 2017:
“These changes in the demand for work and the jobs available have caused income inequality to be worse now than it would have been otherwise. Indeed, the rich have rebounded completely from the recession in terms of unemployment, earnings, and total job count — they did so quickly, in fact, and have flourished through much of the recovery. It is the middle class and lower-income workers who have not.”
Combine that resentment with the 2010 Supreme Court ruling in Citizens United v. Federal Election Commission, which allowed unlimited campaign contributions by corporations, and the result is widespread questions — and, in some cases, concern — about corporate influence over daily life in America.
“It turns out,” wrote New York Times reporter Neil Irwin, “when you throw trillions of dollars at rescuing a system that most people don’t like very much in the first place, the result isn’t relief.
“It’s anger.”
Amid this backdrop of anger — at corporations, at government waste, at an economy that can function at the expense of those not near the top — the question remains, what do businesses owe their workforce during a pandemic?
The economic perspective
Much of big business in America is organized around the “Friedman Doctrine,” also known as shareholder theory. Developed by American economist Milton Friedman, it teaches that a company’s main objective is to satisfy its shareholders. “There has been a lot of fraying of and discussion about that recently,” Sir Angus Deaton, a Nobel Prize-winning economist and senior scholar at Princeton’s Woodrow Wilson School of Public and International Affairs, wrote in an email. But no new conclusions. Taken from this perspective, then, the question of what private companies owe the workforce is a non-starter.
But Jim Cramer, host of CNBC’s “Mad Money,” argued last week that there’s plenty more businesses could be doing, if the government wants to get them involved. He highlighted a few examples of businesses already pitching in, like Facebook’s small business grants program. Some distilleries, too, have taken to manufacturing hand sanitizer. President Trump invoked the Defense Production Act to compel General Motors to manufacture ventilators. He’d previously applied the seldom-used law in name only, arguing that voluntary contributions from the private sector had been sufficient. And while GM is now compelled to contribute, most corporations and businesses remain on their own to decide what they owe the public.
And then there is this question:
“I am not sure where you draw the line between credit card companies forgiving interest, or internet or utility companies not cutting people off, and grocery stores giving away free food,” Deaton said. “Clearly, they do not have an obligation to put themselves out of existence.”
The question of where to draw the line is one that could be — perhaps must be — addressed by both economists and ethicists; an economic perspective alone, Deaton acknowledged, is insufficient. And while he urged wariness because ethicists “are sometimes too keen to assume that what they want to happen, will happen,” they might have more to say about the Friedman Doctrine, and about the role of big business in crisis.
The philosophical perspective
Angela Wentz Faulconer, an adjunct professor of philosophy at BYU, echoed Deaton: Debate rages about the Friedman Doctrine. But she added a convenient way to parse the question: “Do large corporations have responsibility just to their shareholders,” she said, “or do they have a responsibility toward all the stakeholders?” Like their employees and customers.
Approaching the question with her phrasing in mind might be helpful since it defines the “us.” She first echoed the traditional economic perspective that businesses owe us nothing.
“If you think about why people start a business, it’s to make a living,” she said. “So it’s all about profit, and they should do what is utilitarian in any given situation.”
But many people don’t start businesses with this as their main goal. Some businesses view serving the community and employees as part of their mission. “And certainly if you see the role of your business that way,” she said, “it suggests greater responsibilities or, on the flip side, greater opportunities in a situation like this pandemic.”
She shied away from saying businesses are obligated to help. But if they believe their companies exist to do more than profit, then now is the time to show it. Although that becomes a more complicated calculus when factoring in company size.
Smaller companies that believe in a role larger than money making — cafes that donate a percentage of profits, for example — are getting hammered as much as any individuals. Large companies, too, are facing big losses by the growing economic firestorm, but one could argue they have more resources to help out. And amid the government bailout of various industries, questions about how the injection of funds ought to be spent and spread out is at the forefront of any ethical discussion.
“It is going to hit pieces of the private sector differently,” said Leslie Francis, a professor of philosophy and law at the University of Utah. “And basically we want — or at least, I want — that hit to be fair. I want the harm to be shared. So if large companies get help and small companies don’t, there’s a fairness question there.”
The inexact science of fairness
Questions of fairness, ethics and morality have occupied the forefront of philosophical inquiry for millennia. Aristotle taught that ethical virtue could be achieved by way of a “golden mean” between states of excess and deficiency. Immanuel Kant wrote of the “categorical imperative,” which promotes living in a way that would allow your actions to become universal law. Utilitarians preach that ethics involve calculation, maximizing the benefits for a majority at all costs. And Robert Nozick believed that political morality could be found in the sanctity of individual rights, while his contemporary John Rawls famously espoused political “justice as fairness.”
The point being, questions about what’s fair have trickled through generations with no consensus. So a question like, “Should businesses be doing more to fight a pandemic?” can lead to many potential approaches, angles and arguments. And even if an agreement is reached, or a company decides to act, many will complain that it did way too much, while others will decry that it didn’t do nearly enough.
For example, JPMorgan is “stepping up” for its front-line employees to confront the coronavirus, a CNN headline reads, offering them a one-time $1,000 bonus. Most comments, though, called the gesture some variation of useless, including “weak” and “pathetic” given the company’s assets total more than $2.5 trillion.
Such sentiments shouldn’t be surprising. Again, many industries haven’t inspired much long-term public confidence, as Deaton observed of pharmaceutical companies, which “seem to have lost their moral compass long ago,” along with airlines, which are asking for a bailout despite having used much of their profits “to goose their share price by buying back their stock.” So even if they can’t help much at the moment, one might argue, shouldn’t there be some conditions placed on them to ensure they’re better prepared to do so in the future?
Consider it from another point of view: Many people, Faulconer observed, have taken to patronizing their favorite local restaurants to help them weather the coronavirus storm. They can’t afford to go every day, but they go when they’re able. Large companies and individuals don’t have similar resources, but the principle remains.
“Could they be doing more?” she wondered. “Maybe, but” given the overall slowdown in economic activity, “it’s hard to say.”
Socially conscious corporations?
Even before this crisis, the Friedman Doctrine was losing ground. In August 2019, a panel of 181 CEOs said shareholder value is no longer their main objective, They’re taking a more holistic approach, even if doing so isn’t required. Not necessarily out of a sense of altruism, but in response to growing discontent about their role in society. Such logic might serve them well during the coronavirus pandemic.
“They don’t owe us anything,” said Joseph Price, a BYU economist. “But it might be in their best interest to be lenient right now.”
Suppose a bunch of people decide in unison to withdraw all their money from a bank, he explained. It’s completely within their rights to do so, but doing so might cause that bank to fail, which could hurt many people.
“So there are these interesting situations where if all of us show some restraint or more leniency than we need to,” he said, “we can avoid that run on the bank.”
In this case, roles are reversed. It’s the credit card companies, banks and lenders that might be well-served by backing off for a little while, even though it will damage their short-term earnings. Price argued that acting in the public interest as much as possible could help avoid a worse state for everyone.
Deaton agreed, but with a tad more cynicism, cautioning against thinking that helpful companies are guided by moral philosophy.
“I suspect most of what we see is companies protecting their public image, or keeping customers for the long term,” he said, “and so could be interpreted as profit maximizing, with no ethical element at all.”
Whether that counts as doing their part in America’s current struggle likely depends — as does much of the discussion surrounding corporate influence on society — on who you ask.
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