Business & Society and Business Ethics: Two Distinct Fields of Business

As a field of business, business and society (which includes the topic of corporate social responsibility (CSR)) can be viewed as falling within the rubric of the environment of business. Business and government can as well. Indeed, the environment goes beyond stakeholders. Although sometimes deemed as falling within this rubric, business ethics actually does not, as it is internal to a business even as unethical policies and decisions can impact stakeholders. In fact, business ethics and business and society are two distinct fields, even though they share a common border and are often fused as if they were one seamless country.

That some of the CSR literature applies ethical principles to CSR does not mean that describing or analyzing differences between the norms, values, and cultural attitudes and practices of a culture and those of a business involves ethical reasoning from ethical principles. As David Hume pointed out, you can’t get should from is. Going from a current state of affairs to what should be involves ethical reasoning. To obviate such reasoning based on ethical principles and simply say that something that exists should exist is to fall prey to the naturalistic fallacy.

So to claim that a corporation’s culture should be more in line with the society’s overall culture requires more than describing the two cultures and how they differ, as well as analyzing how the differences impact business as well as the wider society and providing suggestions as to how a corporation can move closer to societal norms, values, and mores. To go on to how things should be, reasoning a priori from ethical principles is necessary. That is, once the question of whether an extant, descriptive difference should exist is brought up, the business field of business & society is left behind and the philosophy field of ethics and the business field of business ethics are entered. 

Specifically, the philosophical field applies to ethical questions that go beyond the business side of the equation, whereas business ethics applies to whether a management or corporation should change to be more in line with societal norms, values, and/or mores. This question lies beyond the field of business and society because ethical principles rather than sociological, anthropological, or management theory are necessary. Organizational and societal norms, values and mores fall within the basic (not applied) disciplines and sociology and anthropology. Ethical principles and ethical reasoning fall within philosophy. Sociology and anthropology are social sciences, whereas philosophy is in the humanities. Treating the field of business and society as if it were synonymous with business ethics conflates two social sciences with a field in the humanities.

Authentic Corporate Social Responsibility during a Pandemic

"We’re doing a lot of social distancing,” U.S. President Trump claimed during his press conference on Coronavirus on March 23, 2020. The day before, he had said he is proud of the American people for voluntarily taking precautions. March 21st, I had been in a Target store to buy some necessary items. No one was "social distancing," including employees. A more accurate, and better understood term would be physical distancing, as it is more broadly applicable than socializing and the latter can be done at a distance, especially via telephone and the internet.[1] A day before, I had been in two grocery stores—two because one—a Safeway [Albertsons]—was missing so many hoarded items. I found no physical distancing at Safeway and Sprouts. The former was not that safe after all, and the latter's healthy-food was not being sold in a healthy way. It was as if the employees, customers, and managements were oblivious to the obvious risks, but the explanation may be more complex. I contend that it applies to corporate social responsibility too, for I also found that none of the store managers was making announcements or had signage to remind people to keep a distance from other people in the respective stores. On March 26, 2020, I again saw no physical distancing by employees and customers at a Safeway store; the store manager told me he would have a store meeting on the issue. In the meantime, not even periodic announcements would be made. This is known as erroneously applying status-quo management procedures in a state of emergency. Also, Safeway's store management had not acted proactively to ration products such as toilet paper and cleaning products that had been voraciously grabbed off the shelves by herd-exuberant customers in a panic mode. In short, I submit that the unique business conditions of the Coronavirus pandemic can be used to assess whether corporate social responsibility is real or merely a marketing tool.

(This is not the Safeway store where I found the deliquencies.) 

I begin with the matters of relinquishing old habits and starting new ones, for both are important to being proactive both at the individual and store levels during a pandemic. Plato’s dictum, to know the good is to do the good, relies on the human proclivity to create and maintain habits. In other words, habitually doing the good, which presupposes knowing what the good is, plays a vital role in doing the good. It gets easier once a good habit has been established and practiced. We are indeed very habitual animals. We tend to take the same route to work, sit in the same seat where seating is open, and even eat the same foods at breakfast as if in a rut. So Plato’s emphasis on habit is wise. If staying at home and keeping at a physical distance from other people are good habits during a pandemic, then the emphasis should be on establishing these habits and attending to them until the new habits become easy, even automatic. Unfortunately, this is easier said than done.

A good habit faces two hurdles. Firstly, contravening habits must be resisted. When the Coronavirus just getting started in the U.S., I literally had to pull back my arm so I would not shake someone’s hand. “I don’t think it’s a good idea to shake hands now,” I told the other person, who was stunned. My habit of shaking hands had become so ingrained in my mind that it sent my left arm out even though I had decided not to shake hands. Pulling my arm back felt so unnatural that actually doing it felt difficult, as if I were fighting against horizontal gravity; it was as if I had to drag my arm back.

Furthermore, that the other person was stunned even though he knew the reason was reasonable stunned me. Why the apparent affront in the face of a pandemic already present locally? I suspect that the man’s reasoning was not controlling his passions (emotions). In The Republic, Plato writes that such a psyche is unjust. So too, by the way, is the polis (i.e., a political geographical area) that has passions unrestrained or checked by reason via individuals or a government. A government has a responsibility, for example, to see that the passions that would otherwise thwart reason’s conclusions do not. So, many governments were urging or ordering people to stay at home (i.e., self-quarantine) and maintain physical distance in public during the Coronavirus pandemic. That government, acting justly, had to contend with preexisting habits such as shaking hands and walking or standing at a close distance to other people. From the standpoint of those habits, the government’s position may have seemed unjust, perhaps as invasive or overreactions. In short, ongoing habits die hard.

The second hurdle that a good habit must overcome to be sustained is the person going beyond the decisions and actually engage the new behaviors enough such that they stick. It is one thing to decide to do something different, and quite another thing to change behavior. This goes beyond stopping previous habits, such as shaking hands and standing close to other people; new behaviors must be done enough to gain traction. Simply having made the decision to change is not enough. Yet implementing a new choice is difficult because the conduct is not aided by the force of habit until the conduct is done enough times to become habitual. Hence Plato’s dictum that doing something good enough for it to become a habit is important. This applies to corporate social responsibility at the managerial level (especially at the store level).

In the grocery stores (and the Target store) that I went to when it was reasonable to assume that most Arizonans would be aware of the need to keep a certain distance from others, I found that few if any people were engaged in the practice. Even if they had made the decisions to engage in the practice, which was in line with the core human motive of self-preservation, they had not resisted old, antithetical practices and put the new behaviors into practice enough for them to become habitual, and thus easier.

Rationally, a human being would tend to be motivated based on self-preservation to form new conducive habits. In other words, a law should not be necessary. Perhaps the force of old habits is powerful enough to eclipse even the motive for self-preservation, or maybe the problem lies in too many people not making even rather obvious connections between, say, staying at a distance and not catching the virus. Arizona was at the time 49th out of the 50 American States in primary and secondary education (i.e., before college). 

Corporate social responsibility could have bridged the gap, such as by a store manager making regular announcements that everyone in the store should maintain a certain physical distance from everyone else. I suggested this to the store manager on duty at Sprouts grocery store as I was leaving, but he demurred even though the chain was touting its social responsibility in providing healthy produce to customers. He looked at me as though I were from France. C'est drole, n-est-pas? 

Perhaps that manager feared that some customers in the store would overreact out of fear and immediately leave the store, beginning an unprofitable stampede. The bad education system locally may also have been a factor, for he presumably could have made the announcement in a calming, friendly way. "Hey, thanks for shopping with us today. Just a reminder that the government recommends that we all keep a distance of at least ... from each other. Nothing to worry about; just a precaution." The informal, friendly tone, the use of "government" rather than "public health agencies," the use of "recommends" rather than "orders," the "nothing to worry about," and the sense that the manager and employees were included would likely have been sufficient to stifle any herd-animal stampede, even in Arizona. However, at the end of March, 2020, while I was in a Target store, a simple, "Please keep a distance of six feet between you and others" announcement played every half-hour and did not trigger any stampedes. Even then, neither Sprouts nor Safeway were making announcements in their respective stores even though from my visits I could see a lot of non-distancing, even by employees. 

Perhaps the manager at the Sprouts store was so ingrained in old thinking habits that my suggestion did not even register such that he did not even make a decision. Both hurdles to beginning a new habit (i.e., making the announcement periodically) may have been too high for the man, yet it is curious that the company did not have a policy of making announcements as of the end of March.

Similarly, the manager of the Safeway store was in a meeting-rut when on March 26th he told me he would have to have a store meeting in the future rather than make announcement to employees and customers alike to please keep a distance of 6 feet/1.8 meters in keeping with the government's recommendation of distancing. Ironically, when his employee charged with sanatizing the shelves had walked very close to me and I reminded him of the distancing, his response was essentially to blame me. "Just relax," he said twice (he was obviously not). Interestingly, although the cashiers had a new protective clear-plastic sheet separating them from customers, at least one young cashier couldn't hear the customers because of the screen so she would lean sideways to speak at close range without any barrier face to face at close range. More than one office meeting would be needed at that store.

On a positive note, Sprouts's shelves were well stocked, whereas Safeway's were not. Safeway's managers may have been in too much of a mental and behavioral rut to catch the drasically increasing sales figures on items like toilet paper and ration them. Of course, the resistance to rationing may have been from the profit-motive, in which case we could conclude that the company's CSR programs paled in comparison to authentic corporate social responsibility within the business (i.e., closer to the core business functioning, or operative business model). Safeway managers may have discounted the point that rationing may even have an overall good financial effect as fewer customers face empty shelves and thus a bad experience.

I do contend that the store managements had a social responsibility to see that their employees and customers were as safe as possible from catching the illness while in the stores. It cannot be said that the managements were pro-active; even their reactivity was laggard or incomplete. Besides making simple announcements on distancing especially at the cashier area, responsibility extended to picking up on, and acting upon, abrupt trends in product sales in enough time to ration items even if rationing is not in the short-term financial interest of the companies. The companies' respective charters undoubtedly give those companies the right to make food available to paying customers. With that right comes a responsibility that becomes particularly active not only when too many customers and employees are not keeping a distance, but also when some customers are hoarding a product to such an extent that the stores cannot provide that product to other customers in a reasonable period of time. Rather than pointing here to CSR programs whereby a company sponsors a baseball team or food bank, I am referring to authentic social responsibility, which lies in managers and employees taking responsibility in the conduct of business, directly with people rather than through an institutional program. In other words, the authentic sort tends to a bottom-up phenomenon, at least at first, though proactive companies can issue companywide policies that are consistent with the measures taken in some stores in a timely manner. I contend this sort of responsibility is most likely to be enacted in strong companies, whereas the weak are too focused on entrails—too easily held back by preexisting choices and habits to venture new choices and implement new policies. Perhaps this case study comes down to this: Why in the world would a store manager NOT make a store announcement after a customer recommends doing so because people, including employees, are not keeping a distance to each other? It is reasonable to expect that the manager would not only make an announcement, but also call his superior other store managers can do likewise. Perhaps the rare situation of a pandemic reveals that the typical mentality in retail management is excessively rigid, even if being so is not really being cautious after all, but impedes caution being actualized at the store level. 

1. "It is important for us all to realize that when they recommend 'social distancing' . . . what health experts are really promoting are practices that temporarily increase our physical distance from one another in order to slow the spread of the virus." Cecilia Menjivar, Jacob Foster, and Jennie Brand, "Don't call it 'social distancing'," CNN.com, March 21, 2020 (accessed April 4, 2020). 

On the Social Psychology of Rising Credit-Card Debt: A Reflection of American Society?

It is perhaps too easy to point to economic reasons for an increase in debt within a society. The Wall Street Journal reported during the first quarter of 2020 that credit-card debt in the U.S. “rose to a record in the final quarter of 2019 as Americans spent aggressively amid a strong economy and job market, and the proportion of people seriously behind on their payments increased.”[1] The record $930 billion, according to the Federal Reserve Bank of New York, was “well above the previous peak seen before the 2008 financial crisis.”[2] After critiquing the economic explanation, I will suggest that a social-psychological mentality or attitude may be behind not only the rising debt, but also other disappointing manifestations in the contemporaneous American society more broadly speaking.

The U.S. economy between 2001 and the third quarter of 2007 had been “weaker, overall, than its performance in the equivalent years of the 1990s.”[3] So if spending aggressively (a rather strange expression) amid a strong economy and job market in 2019 led to the record in credit-card debt, why was the debt level higher in the 2001-2007 period than during the 1990s? Furthermore, why wouldn’t a weaker economy result in more buying on credit and a jump particularly in serious credit delinquencies? In actuality, the fourth quarter of 2019 saw only moderate growth of 2.1 percent, a full percentage point below the comparable figure from the year’s first quarter. The softening of domestic consumer spending and the low unemployment rate of 3.5% should result in more credit-card debt being paid off rather than added. Going on economic factors alone takes on the look of a twisted pretzel.

I submit that a creeping pathological mentality in the some segments of American society, or perhaps outside of society, may be another, steadier trending factor. Specifically an attitude toward money and personal responsibility may have been spreading during the 2010s among the working poor. I cannot offer any empirical evidence, so my theorizing can only be considered as an initial sketch. Even so, the rough sketches of the attitude itself can be revealing with respect to personal responsibility and other people.

The attitude, which I have observed on number of occasions, includes the decision not to utilize self-discipline in the face of instant-gratification, which in turn may be felt as coming all-at-once as if overwhelming once a paycheck is received. Self-discipline may simply be dismissed as if it were an exogenous bad odor. In actuality, that odor comes from the attitude itself. The ensuing behavior is to spend too much of the paycheck without concern for money that will be needed before the next paycheck arrives (not to mention any concern to put some money aside in case of unemployment or an emergency).

In 2019, I listened more to the jobless poor who received government checks. I found that in many cases, they most or almost all of a check all at once. In many cases, they would turn to selling drugs and going to food-banks (and selling food stamps) to have money well into the month. That the mentality in spending virtually all of a check can point to an underlying mental illness suggests just how problematic the underlying mentality is. In retrospect, the consequent increase in serious delinquencies of credit-card debt can be viewed as a symptom rather than as the problem. Another “red flag” concerning the seriousness of the mentality occurred to me when I realized that the non-working poor are so very poor they are the most vulnerable financially, and a significant number, at least from my observations, displayed such flawed judgment in spending recklessly, as if they could offer no resistance to the instinct for immediate gratification. The mentality may thus be oblivious to external context and even the internal context of the mentality’s own bad judgment.

Regarding the working poor, people who display a failure of judgment concerning how much credit-card debt to add or have given the amount of the pay may also 1) have an implicit assumption that money is rightly for free (the extreme being conducive to theft), 2) believe that society owes them so they can rightly assume debt without any intent to pay it back, and 3) feel little or no responsibility to people they don’t know, including the owners of the credit-card companies and others. This extremely narcissistic attitude is entirely comfortable in violating Kant’s ethical notion of the Kingdom of Ends, by which other people are to be treated not only as a person’s means, but also as ends in themselves. Accumulating credit-card debt as if the companies’ concerns were of no significance turns the rational beings running and owning the companies into mere means to the person’s flawed decision that such money is and should be free, without obligation on the person’s part. If the counterparty is hurt, it is easily dismissible as “not my concern.” The mentality is thus not conformable to society and its implicit social contract.

I submit that the impact of the sordid mentality is evinced in not only the taking on of credit-card debt either recklessly or without any intention of repaying it, but also the increase in prison populations and drug use, and the general declining trend of civility toward strangers in public. In other words, the records in credit-card debt may be a few data points that together with other data may suggest the underlying mentality whose baleful manifestations running through American society are broader than generally thought.

---

1. Yuka Hayashi, “Credit-Card Debt in U.S. Rises to Record $930 Billion,” The Wall Street Journal, February 11, 2020.

2. Ibid.

3. Aviva Aron-Dine, Richard Kogan, and Chad Stone, “How Robust Was the 2001-2007 Economic Expansion?,” Center on Budget and Policy Priorities, August 29, 2008. (accessed February 11, 2020)

Tension between Wall Street and Main Street: A Case beyond the Reach of Corporate Social Responsibility

In October 2011, Gerald Seib wrote that political and economic pressures in the wake of the financial crisis were “pushing business leaders into the public cross hairs.”[1] I submit that the very existence of the largest American banks was becoming an issue. In such a case in which a gulf between business and society is so fundamental or deep, corporate social responsibility programs do not suffice and may even backfire. While it is normal for the norms and values of a business sector to differ from those of the wider whole (i.e., society), it is uncommon for a rupture to be so deep that corporate marketing and CSR are not sufficient business responses. I submit that in such cases and where corporations have a lot of power over government officials, CEOs extend their toolset to government to fill in the trench. The "Occupy Wall Street" protests is a case in point. 

From the corporate standpoint, the time was ripe for the field of business and society, whose topics include corporate social responsibility, corporate citizenship, and stakeholder management. The fundamental matter to be “managed,” or assuaged, in that field of business concerns divergent norms as well as values between the individual corporations or the business sector and the wider society. Tension is not always or invariably present, but the fact that a corporation and even the business sector is a part of a wider whole (i.e., a society) suggests that the respective interests, perspectives, norms, and values are likely to differ. Generally speaking, the interests of a part are not identical to the interests of the whole of which the part is a subunit or part. An externality such as from dumping chemicals in a river or polluting the air means that a company's interest, norms, and values can differ from those of a society. 

Self-interest can obviously affect norms and values. A powerful corporation's executives and board may believe that the company's power over members of the U.S. Congress is normal and right because such dominance is in the corporation's financial interest. Meanwhile, voters may feel that such a distended dominance by the moneyed interest harms democracy and is thus a norm that should not exist. 

According to Seib, societal populists and corporate executives were not on the same page in 2011. In as much as the executives were utilizing corporate social responsibility to create the impression that the corporate norms and values being espoused were in line with societal norms and values, the field of business and society may not have been equipped to deal with divergent talking points that are grounded in antipodal, or antithetical, social realities. In short, corporate social responsibility as marketing or "window-dressing" can be detected as fake, thereby increasing the rift rather than reducing it. Indeed, it can be said that the topic began as an ideal  to bridge the gap between corporations and societies only to end up in marketing.[2] Foisting the illusion of convergent corporate and societal values can backfire by illuminating boardrooms as places where only a narrow perspective of short-term profit pervades.

In the context of the “Occupy Wall Street” protests spreading across the U.S. during the Fall of 2011, Seib pointed to the existence of “a radical disconnect between the picture populist critics paint from the outside, and the one business leaders describe from inside.”[3] This disconnect had gone back to September 2008, when bankers viewed the collapse of the housing market (and those of related financial products, such as CDOs) as a result of over-reaching, dishonest and languid mortgage borrowers. 

Meanwhile, the wider society saw greedy and fraudulent mortgage originators and investment bankers behind the adjustable-arm steep mortgages and the "crap" bonds that were based on those risky mortgages. This disconnect infuriated the general public, especially because contrition would not come from Wall Street. Greed refuses any constraint, including even acknowledging even some responsibility. Banks would engage in mass foreclosures without a hint of guilt for having misled people into going for oversized houses. The mortgage producers at Countrywide and other companies conveniently made the bad assumption that a few years of mortgage payments would enable the mortgage borrowers to shift from step-wise increasing-rate to fixed 20-year mortgages so as to avoid the higher interest payments. This flawed assumption was no doubt helped out by the fact that more mortgages would be sold, and thus higher bonues received. The interest of the economy, not to mention society as a whole, was of lesser concern. Hence the clash in norms and values between the part and the whole. 

In the populist protests, the crowd also saw American companies with enough profit and cash to create jobs domestically yet without the will to do so. In the first decade of the twenty-first century, American corporations had cut their work forces in the U.S. by nearly 3 million, while increasing employment abroad by almost 2.5 million. In the fall of 2011, Standard & Poor predicted corporate earnings growth of 13.5% for the third quarter, which, according to Seib, suggested “to Wall Street protesters that companies were hoarding profits without creating work.”[3] Saving money by moving factories "off shore" fits the business value of efficiency, and even the maxim in trade that goods should be produced where doing so is cheapest (e.g., where the goods are most plentiful). The cost of such a norm of and value on going abroad is externalized to the host country, which is left with the impaired social contract between a large corporation and the society. 

Generally speaking, a government says, in effect, to a company: We'll let you incorporate and even expand into multinational corporations but we expect you to provide jobs in addition to benefiting your customers with goods and services. This version of the social contract that includes the obligation to provide as many jobs as possible (i.e., while still allowing for a reasonable profit, and thus dividends) is controversial, however, because CEOs could retort that providing goods and services that reduce suffering and increase happiness is sufficient. From a utilitarian standpoint, therefore, such CEO's could even claim an ethical justification. Such a justification would likely merely be marketing to craw back some of the lost reputational capital, a long-term intangible asset. 

According to Seib, business leaders cited more practical factors that more easily fit into the traditional business calculus. From the business perspective, third-quarter expectations were less than expected. The managers pointed to the benefits of an artificially weak dollar that had already strengthened at the expense of exports. More broadly, businesses were looking at weak consumer demand and increasing costs with government regulations, which make augmenting the domestic work force more costly. Seib juxtaposes this business view of a hostile business environment with the societal view that looked angrily at unpatriotic and greedy corporate chieftains. 

I submit that when a divide is so gaping, depating the factors in the business environment doesn't fit. Corporate social responsibility programs, such as having employees volunteer at soup kitchens, are not restorative. Firstly, the benefit from such programs would not come close to the original costs borne by society from the reckless and even fraudulent banking practices. Secondly, the people hurt from those practices are not necessarily helped by a program. This is especially true if the "restorative" program in oriented to another society problem, such a disease. Thirdly, corporations benefit from the good public relations from a CSR program. An angry populist is not likely to be pleased that one of the selfish, reckless banks is actually benefiting as it makes contrition. Fourthly, the gap between the business sector (or an industry, but not likely an individual company) and a society can be so deep enough that capitalism itself is severely questioned at large. Filling in such a deep trench goes beyond what CSR can do; a bulldozer rather than some shovels are needed in such cases. I contend that the "Occupy Wall Street" protests that took place three years after the financial crisis deepened or perhaps only exposed such a trench. I suspect this is why the U.S. Government, which was refusing to hold mortgage producers and investment bankers criminally accountable for the fraud--protecting the powerful financial sector--took an active role in stopping the protests. To have the very legitimacy of corporate America, or even just the banking sector, even questioned in such a public way was likely too much for a government whose elected officials could receive unlimited campaign contributions. 

1. Gerald F. Seib, “Populist Anger Over Economy Carries Risks for Big Business,” The Wall Street Journal, October 11, 2011. More generally, see Skip Worden, Essays on the Financial Crisis.

2. William C. Frederick, my doctoral professor in the field of Business & Society, came to this conclusion, as did I. When upon retirement from teaching he turned to the application of the natural sciences to economizing and power-aggrandizement in relation to societal "ecologizing" forces, and then to management, I truly became one of his students (for twenty years). I gave a conference paper, for example, on how a company could be run on ecologizing rather than profit-maximizing principles. The field of Business & Society is indeed wider and more abstract than the CSR topic. 

3. Seib, “Populist Anger Over Economy Carries Risks for Big Business.”

CSR and Corporate Governance Reform: An Opporunity for BlackRock as an Activist Shareholder

In 2019, BlackRock’s management and board publically fired two executives in the Hong Kong office for breaching company rules on dating subordinates. The firings demonstrated to employees that the company would enforce its employee policies and sent the message that employees would be “free to point out problems in the workplace.”[1] This would not be so extraordinarily significant but for the fact that BlackRock is the “world’s largest money manager with $7.4 trillion under management,” which enables the company, through the funds it runs, to be “one of the five largest shareholders in nearly every corporation in the S&P 500.”[2] So BlackRock “can cast votes and pressure boardrooms to effect change.”[3] The company would be hypocritical in using its power as a major stockholder to get managements to have and enforce good workplace policies if the company were not doing so itself. From the standpoint of self-regulatory capitalism in society, BlackRock could make a significant contribution far beyond improving workplace policies.

In January 2020, BlackRock’s management announced that it “would take a tougher stance against corporations that aren’t providing a full accounting of environmental risks.”[4] This was “part of a slew of moves by the investment giant to show it is doing more to address investment challenges posed by climate change.”[5] BlackRock CEO Laurence Fink wrote, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”[6] The long-term viability of companies is a salient variable in recalculations.

As much as issue-specific stockholder activism narrows the gap between the values and priorities held by business and society, the matter of corporate governance is also important. In particular, companies whose managements control their respective boards of directors suffer from a deficit of accountability in their governance system. Board members could be influenced on issue-specific stockholder activism and yet a CEO could ignore any pressure from members if he or she controls the board, whose functions include holding the CEO accountable. BlackRock had the power as of 2020 to pressure boards to break up the conflict of interest when a CEO is also the chair of the board of directors at a company. Because of BlackRock’s reach in overseeing so many companies, corporate governance could effectively get a remake such that greater accountability would be part of the governance systems. Because outside directors would theoretically have more sway over a company’s management, wider issue-specific stockholder activism could have greater resonance with management. The gap between corporate and societal values and norms could thus be narrowed. Indeed, the capitalist system within a society would be more self-regulated in terms of corporate governance.

In short, BlackRock could improve the business sector significantly beyond responding to particular issues. Perhaps business itself is vulnerable to missing the big picture at the scale of governance systems, and thus opportunities to improve them. Even though the focus on quarterly earnings and, moreover, on profit-seeking may play a role, I submit that even CEOs do not typically cast a wide enough eye such that governance systems (not only in business, but also government!) are entirely in view as systems. Focusing on particular stockholder issues is closer to the focus on profitability, and thus primary.

---

[1] Dawn Lim, Steven Russolillo, and Jing Yang, “At BlackRock, Public Firings, Overseas Probe Send Message About Office Misbehavior,” The Wall Street Journal, February 3, 2020.

[2] Ibid.

[3] Ibid.

[4] Dawn Lim and Julie Steinberg, “BlackRock to Hold Companies and Itself to Higher Standards on Climate Risk,” The Wall Street Journal, January 14, 2020.

[5] Ibid.

[6] Ibid.

Corporate Social Responsibility or Increased Market-Share: The Case of Juul Labs on Youth Vaping

If the beneficial consequences for a society or the world are what externally validate corporations being socially responsible, does it really matter whether or not such benefits serve as the validators within the corporations? In other words, how much does the motive matter if stuff is getting done such that society is benefitting? To be sure, the motive can influence how much is getting done and for how long, but if the societal results are the same, would the nature of the motive really matter? I lay to the side the perfectly valid point that providing goods and services of value to customers benefits a society because consumers are, after all, a part of society. The interesting cases tend to be those in which profits can be expected to be negatively impacted from a socially responsible policy or program. Of course, a corporate management may announce the expectation of reduced revenue even as the management has carefully calculated how acting responsibly will be likely to be a profit-oriented strategy in the long term (including the related enhancement of reputational capital from appearing to have been self-sacrificial. The case of Juul Labs, Inc., the vaping industry leader in 2019 with a market share of 64 percent, shows just how difficult it is to get to corporate motives, even though the beneficial consequences to a society are arguably more important.

In 2019, Juul “voluntarily pulled its sweet, fruity and mint-flavored refill pods from the U.S. market.”[1] The company’s CEO pointed out in a meeting at the White House that flavors can help adult cigarette smokers switch to a less harmful alternative, so the company “would defer to the science-based approach of the Food and Drug Administration.”[2] President Trump had announced his intention to ban all flavors except that of tobacco. In refusing to follow Juul’s lead, NJOY and Reynolds American, Inc., makers of the second and third most popular vapers, kept selling all of their respective flavors, including those especially popular with teenagers.

Joseph Fragnito, a manager at Reynolds, said at the meeting, “We believe we can market flavors responsibly.”[3] At that meeting, President Trump, fearful of banned flavors being sold on the street and thus unsafe, was coming to the same stance. So had Juul gone too far in having taking kid flavors off the shelves if even those flavors could be marketed responsibly? In other words, had Juul lost revenue when the company could have changed how it marketed the inflammatory flavors? On the other hand, can flavors so attractive to teenagers be marketed in such a way that teenagers do not vape? In such a case, responsibly market may be an oxymoron, especially given that NJOY and Reynolds supported raising the minimum vaping age to 21. U.S. Sen. Mitt Romney, also at the White House meeting, supported Juul’s ban on certain flavors. “Putting out cotton-candy flavor and what is it, unicorn poop flavor?,” he said in reference to Juul’s competitors. “Look, this is kid product,” he added. “We have to put the kids first.”[4] Therefore, I submit that Juul applied responsibility better in banning such “kid product” than NJOY and Reynolds did in applying the concept to marketing the kid flavors.

This does not, however, absolve Juul with respect to its motive. At the White House meeting, the company’s rivals claimed that Juul’s management had voluntarily pulled its flavored products because it could sit out and wait for authorization from the Federal Drug Administration (FDA) as smaller companies went out of business. Then Juul would be able to come back with even more market share. Juul’s CEO countered that the company had banned its flavored products to address the problem of youth use. Whether or not the company’s socially responsible action was ultimately designed to increase market share or reduce the youth use of vaping—that is, to increase profits in the long-term or reduce teen vapers—the question is: Does this make any difference if the benefit to society in terms of less youth vaping is the same? I contend that the difference is ethical in nature, except from a consequentialist standpoint. In other words, an ethical basis exists—that of consequentialism—that essentially treats the question of motive as a non-issue.

Of course, if the societal benefits differ according to motive, the motive would matter even from a consequentialist ethical basis. If the motive of Juul’s management was to increase market share rather than see fewer kids vaping, then should the market-share strategy become compromised or fail, the societal benefits could be expected to be less than had the company’s management been intending to reduce youth vaping, which in turn could be expected to result in less government intrusion and greater reputational capital.  

Regarding the market-share strategy, could not young Juul customers simply start buying the sweet flavors from the other companies? Although they would have to justify their flavors to the FDA, the president was inclined to allow the flavors to be sold because otherwise kids might get them on the street. Would not Juul eventually go back to competing in those flavors? The other companies would not have gone out of business because the FDA would have approved the flavors. Juul’s management had pulled its flavors when President Trump was inclined to ban them industrywide. The changed politics, likely influenced by industry pressure (and perhaps campaign contributions), may have taken the wind out of the market-share motive, in which case the societal benefit would be less than had the motive been that of reducing youth vaping.

In conclusion, motive can matter even from a consequentialist standpoint because the amount of benefit to society can differ. In cases in which such benefits are the same even if the motive is one thing or another, the motive does not matter from a consequentalist standpoint. Even so, we want to think it does, ethically speaking. We want to assume that a management acting in a socially responsible way values doing so, rather than merely using social responsibility to earn more profit even in the long term. The field of business and society looks at the degree of fit between societal and company values, norms, or policies (as the corporate values may not matter), whereas business ethics delves into the ethical basis of a management’s motive. For example, is it enough that society benefits? Shouldn’t a company’s management want that consequence even if it comes with some financial loss (or opportunity cost)? These two fields are typically conflated at this point of contact. To say that Juul’s motive was in line with societal values is not to say what the motive should be. More than description is needed to get to normativity: the matter of should. We want to believe that Juul’s motive was the right one, but this is an ethical point that may not be relevant from a consequentialist standpoint. In terms of the degree of fit between corporate policies and societal values, the extent to which a society benefits is the litmus test.

---

1. Jennifer Maloney and Alex Leary, “Trump Warns of Dangers in Banning Vape Flavors,” The Wall Street Journal, November 22, 2019.

2. Ibid.

3. Ibid.

4. Ibid.

Managing Externalities in Business: Heliogen’s Breakthrough in Combatting Climate Change

A company’s values and norms can resonate to some extent with their societal counterparts by the company providing goods and services of value to customers resulting in a reduction of their suffering or increase in their happiness. Providing a net-value (the value to the customer less the price) to people can resonate with societal values and norms that esteem happiness and frown on suffering from want. Indeed, a utilitarian ethic can apply to the provision of as much value as possible in the form of goods and services that reduce the suffering or increase the happiness of as many people as possible. Legitimate wealth can “result from having provided a significant amount of value to a significant number of people.”[1] Even fortunes, according to this ethic, are justified by the provision of “a very unusual form of value to a very unusual number of people.”[2] Utilitarianism is popularly known from the expression, the greatest good to the greatest number (i.e., of people). Of course, an ethic justifies what should be, whereas the extent to which a company’s values and norms approach those of society is a descriptive matter. Describing the degree of fit is not to say that a company’s values and norms should (i.e., normatively) have that degree of fit, or even more. Ethical reasoning would be needed to supply the normative contention; such reasoning involves argumentation that the extant societal values and norms should be held generally speaking and specifically by companies. The fact that the values and norms of many German companies in the NAZI era resonated with societal values and norms is not to say that the managements should have sought to fit organizational values and norms with NAZI values and norms. The field of business & society, which is oriented to the degree of fit that exists descriptively between a company (or the business sector) and a society (or internationally-held values and norms), is thus distinct from business ethics, which is oriented to providing ethical justification for what managers and companies should do. With regard to the former field, companies can orient themselves even closer to societal values and norms than by providing value to customers and even taking other stakeholder interests into account by being primarily oriented to taking on a serious societal or global problem. In terms of business ethics, such an orientation can be said to be one that a company should have because an unusual number of people (even beyond customers and other stakeholders) could receive an unusual amount of value. Climate-change is such a problem, and Heliogen’s breakthrough exemplifies such an extraordinary mission.

Generally speaking, a mission that is primarily geared to solving a serious societal (or global) problem goes beyond providing value to customers and even taking into account the interests of other stakeholders. In such a mission, a society or even the species itself is the main recipient of the extraordinary value even though customers receive value too. Whereas the traditional business model is geared to profiting by selling value to customers, a company’s mission that is dominated by providing extraordinary value to a society or to humanity worldwide views profiting from sales to customers as a means. An opportunity cost thus exists in such a mission due to the profit forgone from customers due to the orientation being foremost to the macro problem.

Even though spending capital to solve a macro problem is not the same as paying externalized costs of the problem, an opportunity cost can arise if the net present value of the profits in the long-term is less than the R&D spending up-front. Even if the mission fits within the traditional business model (i.e., the net present value is more rather than less), the risk taken on because the substantial R&D outlays are not met with immediate profits can be said to be an opportunity cost in pursuing an intractable societal or global problem by coming up with a breakthrough. The opportunity cost can be viewed as paying such that future externalized costs of the problem will not occur. Of course, if a company solves the entire problem, rather than merely reducing that which has been making and would otherwise make the problem worse, most or all of the current externalized costs may disappear and thus not need to be paid. Such a company has in effect taken upon itself the relevant externalities (i.e., covering those costs otherwise left to society).

By externality, I mean a cost that under the traditional business model is borne by society (or humanity) rather than by a company or the business sector. For example, as of 2020, companies had not had to pay even a fraction of the costs of climate change even though the business sector had contributed to the problem by polluting. The default stance under the traditional profit model is typically defensive; a less common proactive stance is to reduce the company’s contribution of the problem, such as airlines did in using more efficient engines. An even less common stance is to be primarily oriented to reducing the contributions from other sources and even to solving the macro problem itself. As argued above, just the risk taken on can put this stance beyond the traditional business model. Such a stance, in being oriented beyond customers and even other stakeholders to focus on a societal problem, fits under another paradigm. This is not to say that it is based on corporate social responsibility, for a company does not have a responsibility to orient itself to reducing or solving a societal problem except as may happen as a result of providing value to customers. Indeed, a company’s founding investors and management may want to tackle a societal problem, rather than feeling obligated. In the case of climate change, the likely downside for the species already known in 2019 could be enough of a motivation even if the founding investors and management do not feel responsible for the problem.

Even though a responsibility may not pertain, the organizational values and norms of a company oriented to minimizing or solving a societal problem stand a good chance of approaching their societal counterparts—closer than from merely satisfying customers and even other stakeholders. That is to say, beyond stakeholder management, externalities management can be said to be oriented to societal (or macro) level problems. Such management had been rare, at least by 2020, because few companies had been principally oriented to societal or global problems without simply relegating them to a corporate social responsibility program as if out of a sense of responsibility. Whereas the literature on stakeholder management and CSR had been around for decades by 2020, not much was written on externalities management that subordinates profit-seeking to reducing or solving a societal problem. 

 

Management geared to externalities can be problematic, especially for publically-traded companies, whose managements are bound by fiduciary duty to look primarily at the short-term returns to stockholders. This duty is firmly grounded in property rights. Can such managements afford to put solving societal problems as foremost? Heavy R&D spending upfront with (admittedly healthy) profits only if and after a breakthrough has been invented and implemented by customers is not the typical way of attracting and retaining equity capital. Language in the charters would have to specify the primary purpose of the company as meaning that expedited profiting would be excluded or subordinated to reducing or solving a particular societal problem. A company’s default purpose is admittedly to make a profit, but property-rights give the owners (i.e., the stockholders) the right to set another purpose in place of the default, in which case investors have no reason to be upset when the purpose is pursued even at the expense of quarterly earnings and dividends.

By 2020, climate change had emerged as a major problem facing humanity with dire consequences being predicted to occur in decades rather than centuries. Heliogen, a start-up funded in part by Bill Gates, the founder of Microsoft, and at least one other billionaire, commenced as such a company oriented to inventing a product that, when sold to industrial customers, would significantly reduce carbon emissions and thus hopefully stave off the worst of the dire consequences. That is, Heliogen put its capital toward discovering a breakthrough that would reduce future externalizable costs even though the company’s high R&D costs would not be met with profits for some time. With a focus on achieving a breakthrough that would be of significant value to the world even beyond stakeholders, the company’s management must have known that profits would be long-term-oriented, rather than relatively short-term profits from incremental values sold to customers.

The secretive clean-energy company announced in November 2019 that artificial intelligence and a field of mirrors could be used together to significantly reduce greenhouse emissions by industry. The invention could generate extreme heat above 1,000 degrees Celsius—a temperature that is about a quarter of that which is on the surface of the Sun. “The breakthrough means that, for the first time, concentrated solar energy can be used to create the extreme heat required to make cement, steel, glass and other industrial processes. In other words, carbon-free sunlight can replace fossil fuels in a heavy carbon-emitting corner of the economy that has been untouched by the clean energy revolution.”[3] These industries were “responsible for more than a fifth of global emissions, according to the EPA.”[4] Accordingly, Soon-Shiong, who sat at the time on the Heliogen board, said, “The potential to humankind is enormous  . . . The potential to business is unfathomable.”[5]  Indeed, the company’s mission was of such scope, rather than merely to finding a better way to make cement and steel, that a breakthrough could result. Externalities management is geared to making an enormous contribution to humanity. Even having an unfathomable potential to other industries can be viewed as lying within the purview of such management, as distinct from stakeholder management. Of course, this is not to say that something of value would or could not be sold to customers for a profit, but the emphasis lying elsewhere makes both Heliogen and externalities management distinct.

Such a mission as does not prioritize the traditional business model can be attractive to investors who have already made their fortunes by prioritizing that model and have gone on to worry about problems facing humanity not currently being adequately addressed by business and government. Heliogen provided a way for Bill Gates and at least one other billionaire to put their wealth to use on a global problem that could even render the species itself extinct. Start-up companies can be vehicles for rich former titans to turn their attention to such serious problems with a feeling not of responsibility, but, rather, of satisfaction from having saved the species. In other words, having been satisfied by playing within the traditional business model, the aspirations of former titans can shift to the societal or global level even if without having given up profiting completely.

In the early twentieth century, Andrew Carnegie and John D. Rockefeller retired from business to turn to charities. Among other things, Carnegie sponsored a library in Pittsburgh and Rockefeller founded a university in Chicago. In fact, Rockefeller, through his foundation, gave away roughly half of his fortune.[6] Both men had been ruthless in business; whether their respective giving afterward justified their business conduct (e.g., Carnegie against labor and Rockefeller against competitors) is another question. Rockefeller went so far as to view both his monopoly and charitable giving in Christian terms. In God’s Gold, I untangle whether Rockefeller’s monopolistic tactics (i.e., his business ethic, or lack thereof) can be justified by his religious mission in business and giving. For my purposes here, it suffices to say that neither titan would have viewed his respective company and charitable giving as being oriented to making a breakthrough on a humungous global problem. Indeed, Rockefeller filtered requests for his charitable giving by how efficient the money would be used; he was primarily oriented to using his fortune to solve a hitherto intractable serious problem facing mankind as Bill Gates was. Gate’s orientation was doubtless on keeping climate change from being an existential threat to future generations.

Externalities management is admittedly not a good fit for the vast majority of companies, which are oriented to maximizing profits while minimizing risks, but not every company must be made to fit within the traditional business model. A company can be formed and utilized in a way that puts profit-making through the funnel of externalities management geared to reducing or solving macro problems. Such a raison d’etre is distinct from undertaking a social responsibility program or being motivated by a sense of responsibility because such a company is not likely to be responsible for the problem even if some of its investors, as former titans of industry, were in their “other life.” The priority in such a company is that of reducing the costs of, or solving outright, an intractable societal or global problem, rather than self-blame or blaming others. This priority is why profit-seeking is regarded as secondary.

---

1. Rod Burylo, The Wealthy Buddhist: Buddhist Ethics, Right Livelihood, and the Value of Money (Nepean, Canada: The Sumeru Press, 2018).

2. Ibid.

3. Matt Egan, “Secretive Energy Startup Backed by Bill Gates Achieves Solar Breakthrough,” CNN Business, November 19, 2019.

4. Ibid.

5. Ibid.

6. Skip Worden, God’s Gold: Shifting Sands of Christian Thought on Profit-Seeking and Wealth, available at Amazon.