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Why Corporations Put Profit Above Smart Social Responsibility... It's the LAW!

Compliance with corporate law mandates that corporations have ONE SOLE MISSION: profit. That needs to change to meet modern understanding of systemic responsibility.

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Not being a lawyer, I've always wondered why corporations don't see that they are the "productive" function of society. Instead, they have insisted that their sole function is profit. Until recently.

This recent article clarified the situation -- it's the law!

Robert Hinkley is a lawyer, and he has a problem with that sole "profit mandate" for corporations. Like me. He's working to educate the public about why social responsibility is such a hard sell to corporations. This requires state and federal change in corporate law -- and that won't be easy.

My goal is to build consensus to change the law so it encourages good corporate citizenship, rather than inhibiting it.

The provision in the law I am talking about is the one that says the purpose of the corporation is simply to make money for shareholders. Every jurisdiction where corporations operate has its own law of corporate governance. But remarkably, the corporate design contained in hundreds of corporate laws throughout the world is nearly identical. That design creates a governing body to manage the corporation-usually a board of directors-and dictates the duties of those directors. In short, the law creates corporate purpose. That purpose is to operate in the interests of shareholders. In Maine, where I live, this duty of directors is in Section 716 of the business corporation act, which reads:

...the directors and officers of a corporation shall exercise their powers and discharge their duties with a view to the interests of the corporation and of the shareholders....

Although the wording of this provision differs from jurisdiction to jurisdiction, its legal effect does not. This provision is the motive behind all corporate actions everywhere in the world. Distilled to its essence, it says that the people who run corporations have a legal duty to shareholders, and that duty is to make money. Failing this duty can leave directors and officers open to being sued by shareholders.

Section 716 dedicates the corporation to the pursuit of its own self-interest (and equates corporate self-interest with shareholder self-interest). No mention is made of responsibility to the public interest. Section 716 and its counterparts explain two things. First, they explain why corporations find social issues like human rights irrelevant--because they fall outside the corporation's legal mandate. Second, these provisions explain why executives behave differently than they might as individual citizens, because the law says their only obligation in business is to make money.

SOURCE: The New Green Economy.
ORIGINALLY: January/February 2002 issue of Business Ethics: Corporate Social Responsibility Report

This is the financial battle for the next century. Corporations are the "green collar" workers for people that trees, oceans and birds are for nature. They need to have an "organic" role defined that supports sustainable communities and a sustainable earth.

Without our resources being mandated to be responsible in the ecosystem in which they operate... and mandated to serve only one stakeholder -- owners, we're up a creek without a paddle. The catastrophic oil spill we're witnessing is just one example of focus on profitability over risk management, systemic responsibility and balanced growth.

Your voice is needed about this issue.

Edited by Carolyn Allen
| corporate responsibility | social responsibility | governance | corporate law | compliance |


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