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State should help foster socially responsible businesses

In the drive to please Wall Street investors, some corporations have shortchanged their customers and workers and polluted the air we breathe. Corporate scandals fill the news media.

Producing a good return on investment for business owners (shareholders) is an important function of any for-profit corporation. But society is ill served when we let profit trump fair treatment for the community.

It is unethical for businesses of our generation to use up natural resources at an unsustainable rate, destroying the planet we leave for our children. It is not OK for a business to make more money by paying its employees so little that the workers’ families end up in poverty. It is not acceptable for a business to profit from selling toys containing lead that poisons unsuspecting children. The public wants corporations to be responsible for more than just making money.

Unfortunately, in today’s political climate, profit usually wins out. Corporations have the lobbyists, campaign contributions, and the clout to block government from interfering in their drive to make more money. Reform of the political system so government serves the best interests of the people, not the best interests of powerful corporations, is urgently needed.

Corporate design needs to change
However, this is not a problem to be solved solely with government regulation and enforcement. Our corporate design needs to change too. Corporate laws should enable business owners to profit, but not to maximize profits regardless of the impact on others. Unfortunately, current law makes it difficult for corporate leaders to focus on the well being of the community.

There are business people who want to look out for the public interest, but who are concerned that their fiduciary responsibility to stockholders precludes them from paying better wages or protecting the environment if profit margins are affected.

To address this fundamental problem, we should give businesses the option of incorporating under an alternative structure that acknowledges their responsibility to the stockholders as well as to other “stakeholders.” Others who have a stake in a corporation’s actions include the employees, the customers, the suppliers, the communities they are in, as well as the general public interest such as public health, the environment, and public safety. One means of facilitating socially responsible corporations is spelled out in Senate File 1153, the Minnesota Responsible Business Corporation Act.

The main advantage of incorporating as a socially responsible business is that a corporation’s board and executives would be protected from lawsuits for failing to maximize stockholder profits as a result of their actions to protect the interests of other stakeholders. For businesspeople who want “to do the right thing,” this would enable them to do so without fear of being punished. In addition, the legislation would bring worker and public interest representation onto the corporate board, and would ensure that corporate leadership regularly considers its impact on the public.

At least a partial answer
This legislation is only a partial answer to the problem. It would assist people who want to create a “for-profit” corporation to produce goods or services for the purpose of making money, but who also have sincere concern for other stakeholders. It would assist corporate leaders who treat their employees and the environment well even if doing so might, in the short term, reduce their profits.

Most businesses would continue to use the traditional corporate structure, but some would choose to incorporate under the socially responsible option instead.

Being socially responsible does not mean being unprofitable. Traditional businesses often recognize that they can create “green” jobs in renewable energy. Many employers recognize that good compensation for their employees results in happier, more productive workers. Many businesses recognize that it is a very real asset to have a positive reputation, to have built public trust. It creates loyal customers.

Businesses cannot survive if they cannot make money. They need to generate a fair return for their shareholders, but they can do that without trampling on the rights and interests of the community.

Our current corporate structures were designed in an earlier era, captive to investors’ desire for short-term profits. In this new millennium, we need corporate structures that protect the environment, ensure public health and safety, and treat workers fairly. The Minnesota Responsible Business Corporation Act is a step in that direction.

State Sen. John Marty, DFL-Roseville, represents Minnesota Senate District 54. This article originally appeared in the To the Point! newsletter on the Apple Pie Alliance website.


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Comments (3)

  1. Submitted by John Olson on 06/24/2008 - 07:09 am.

    In an ideal world, Sen. Marty’s concept might be viable. In the real world, it isn’t.

  2. Submitted by Tom Poe on 06/24/2008 - 04:58 pm.

    Paul Newman’s company does just fine, thank you, without additional legislation. The assumption that there is a fiduciary duty to add additional liability exposure to a corporation by engaging in conduct that harms others, or the environment, is just plain silly. The more I think about this topic raised by the author, the more concerned I am about the “real” purpose of the bill as presented.

    Professor Yunus, of Grameen Bank, has a book that spells out how every corporation can become socially responsible, and it won’t require special legislation

  3. Submitted by Jeremy Hill on 06/24/2008 - 06:27 pm.

    Close, but not exactly true. Rather, it is not viable in any world; and in an ideal one, Mr. Marty’s (and I say Mr. as I believe that respect is something which must be earned) job would not even exist. But that is really beside the point, which is this: just who does he think he is?

    Mr. Marty, exactly where do you get the idea that you have the right to create and enforce such a policy? Because, you should realize that you have never had, nor will you ever have, any such right. You may indeed have the force to do so, but you do not even remotely have the right.

    In reading your words, one thing is crystal clear: you are nothing more than a simple-minded thug. You may not see it, but that is what you are and what you choose to be. On the other hand, if I don’t approve of what any of these companies or corporations do, I am completely free to abstain from associating with them – they do not inject themselves into my life. When we do business together, we do so based on the universal principle of contract.

    The situation is not the same with you. I have no contract with you, but if I chose not to associate with you and your government friends, your representatives will eventually show up at my front door, uninvited, and armed to the teeth. But I know that you try every day not to think of reality in such terms; it’s not a nice thing to think about oneself. Instead, you tune it out, hiding behind banners which loudly proclaim ‘Fairness!’ and ‘Democracy!’, and then proceed to use the theory of mob-rule to justify trampling on whomever you see fit to be trampled.

    In the end you are a common thug, and nothing more. The only right you were born with is the right to go home and mind your own business, rather than claiming to own a stake in anyone else’s.

    I suggest you do just that.

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