In a market-based economy with private property and freedom of contract, businesses perform the economic function of producing goods and services for sale. The need to produce for consumption by people other than those involved in production results from specialization and division of labor, which increases productivity but creates interdependence in production and exchange.
The society that results from the division of labor poses significant problems for organizations in terms of coordination and motivation. To solve these problems, private companies perform overlapping technical, organizational, and governance functions that are both functions of a market-based pricing system and functions of coercive state power. It is also different. In the traditional division of responsibility between markets (price systems), businesses (organizations), and the state (power), the role of the state is to protect the public interest, dictate laws and regulations, collect taxes, and transfer income. It is to do. The need for the state as a form of collective action arises precisely from the theoretical and empirical understanding that markets are unable to reconcile private interests and social welfare (so-called market failure).
Attributing to corporations a social function beyond their economic function means assigning to them a responsibility for the common good that is normally reserved to the state (hence corporate social responsibility or CSR). (the term was coined).
Private enterprise and public interest
A growing global recognition of the failures of market economies, including environmental degradation, rising inequality and exclusion, and the recent stagnation of productivity, has led to a movement in favor of direct involvement of private enterprise in the pursuit of social goals. It’s appearing. The market economy (a system of production and exchange that feeds back into the global division of labor) is ultimately responsible for these outcomes, which are widely seen as unsatisfactory. However, according to the established division of responsibility, there is a real failure to meet the obligations to protect the natural environment, redistribute income and wealth, and foster competition that fosters innovation and material progress. It lies in a state that has not properly exercised its monopoly of power.
Proposals to attribute direct responsibility for achieving general interest objectives to corporations (organisations arising from and operating in accordance with private interests) will be evaluated alongside other alternatives on comparative efficiency and effectiveness. It should be. One such alternative is to reform and strengthen the regulatory capacity of states. Indeed, the limits of supranational institutions such as the United Nations, which coordinate national laws around the world, including laws that protect the environment, fundamental human rights, and public policies that support the accumulation of human capital essential to education and technological progress, are This was already evident at the beginning of this movement. Corporate social responsibility began at the turn of the century.
As economies globalize and companies expand their international operations, some companies export their polluting practices and undignified working conditions to other countries. These host countries do little to curb these activities, which are illegal in the country of origin. The United Nations has found itself powerless to achieve its fundamental objectives of protecting natural heritage and protecting rights. At the same time, negative externalities are becoming increasingly strong around the world, and governments are increasingly proving incompetent.
Given the difficulties faced by the United Nations in promoting cooperation between nations, UN Secretary-General Kofi Annan (1997-2006) urged businesses to act voluntarily in a socially responsible manner and respect human rights. and called for limits on environmental damage beyond what is required by law. (Mr. Annan wisely framed social responsibility as a way for companies to protect themselves from accusations of abuse and corruption from international organizations and civil society).
For more than 25 years, companies have operated to a greater or lesser extent beyond immediate profit motives.
Initially, this took the form of corporate social responsibility and simply required declaring compliance with the initiatives of the United Nations and other international organizations. Since then, companies have begun to disclose internally and externally the environmental, social, and governance (ESG) impacts of their business activities. Finally, companies can now qualify as B corporations or similar corporate forms, signifying a legal commitment to social purpose on an equal footing with private profits.
The overall results achieved through these measures are not satisfactory. While you could argue that results would have been worse without CSR and ESG, the truth is that environmental degradation and inequality have continued to worsen over the past 25 years. The damage caused by climate change is already fully visible due to externalities that were not fully internalized in the past. On the other hand, technological advances have created new social problems (lack of privacy, markets dominated by a small number of companies that have concentrated significant economic and political power). It is one thing to believe that a nation has done its best to protect the common good; it is another thing. It is quite another to realize that states have neglected their functions in the hope that corporations, of their own free will or under pressure from the market, will solve humanity’s greatest problems. It is about.
Many of the proposed initiatives for change and breakthrough reform begin with recognizing the limits of nation-states acting together. Instead, these reforms aim to transform businesses/legal entities into implementation forces for public purposes and policies. For example, Professor Colin Mayer from the University of Oxford, working with the British Academy, has proposed amending the Corporations Act to require all commercial companies, especially limited companies, to include a social purpose in their articles of association. This social purpose forms part of the directors’ fiduciary duty and gives them the legal power to take decisions to reduce the economic value of the company’s assets if the losses outweigh the benefits to society as a whole. Under current law, a shareholder is free to decide whether to certify her as a B Corporation or include a corporate purpose in her articles of incorporation. Under Mayer’s reforms, businesses operating through public limited companies will be required by law to include social objectives in their articles of association.
The second major initiative in the same vein is the so-called Due Diligence Directive currently being drafted by the European Parliament, which builds on similar directives such as the disclosure of non-financial information. If approved, the Due Diligence Directive will require EU-based companies of a certain size operating in certain sectors to enter into their value chains, whether they operate internally or externally. Companies will be required to assess their customers’ and suppliers’ compliance with international standards on human rights protection and environmental damage. EU. Although there is debate about what companies should do when they identify non-compliance, there are explicit and implicit pressures to terminate business relationships with non-compliant companies or to continue business relationships conditional on changes in behavior. It will take a while.
Limited liability companies are relatively easy to reform because they are the product of rules and laws that can be changed by legislators. The reforms should encourage more companies to commit to some social purpose, at least in Europe. However, private sector contributions alone will not be enough to achieve the ambitious collective goals currently required, especially if efforts are limited to his EU-based companies. In order for states to lead the process of change, it is essential not only to have international cooperation between states, but also to improve and strengthen the actions of states. A more sustainable, prosperous and inclusive world, because a regression to nationalism and trade only between “friendly” countries means recognizing that countries are not cooperating in solving humanity’s problems. This threatens progress towards the future.
This article has been translated from Spanish.