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What Theology Teaches About Corporate Responsibility

June 9, AD2016

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As business people, sometimes we forget just how connected the world of work is to the work of God in the world. Without question, individual business persons are moral agents. However, based upon the accepted conception of the corporation, there is often a lack of consistency in the view of the moral agency of the business entity itself. To understand the notion of corporate responsibility, there must be a clear understanding of its legal, moral, social and theological dimensions.

The legal dimension stems from corporate law, but also from constitutional law as it relates to the type of “person” (though that term is a metaphor and metaphysical fiction) that a corporation is.  The moral dimension stems from the approach taken to conceptualize what it means to be a corporation, as well as what criteria is used to assess moral responsibility.  And, the social responsibility is derived from an understanding of the collective action of man.

For people of faith, the most fundamental aspect of corporate responsibility rests squarely in what St. Paul describes as all of creation’s responsibilities to God.

The Legal Responsibility of Corporations

In considering the legal responsibilities of corporations, it is simple just to say that corporations should abide by the law. This is true for corporations, as it is true for each of us.  These are the demands of a civilized society governed by the rule of law.  The Catechism of the Catholic Church reiterates this idea by noting that “[l]aw is a rule of conduct enacted by competent authority for the sake of the common good.” (CCC 1951)

The challenge in understanding how civil laws conceptualize corporate responsibility lies in the way that the law understands the corporation itself. Michael Phillips explains in his article “Corporate Moral Personhood and Three Conceptions of the Corporation” published in Business Ethics Quarterly that each understanding of the corporation has its own implications for morality–and arguably for what it means for corporations to be responsible.

  1. Concession Theory: This theory holds that the corporation exists because a state says it exists. The concession theory concludes that because the state incorporates business entities, these entities have no “real” existence and should be regarded as artificial entities. This theory is at the heart of the Shareholder Value Theory enumerated by Nobel Prize-winning economist Milton Friedman when he famously proclaimed what has been dubbed the “Friedman Doctrine” that says that “The social responsibility of business is to increase its profits.” The argument is that under this conception of the corporation, there is only the consideration that the corporation is a non-physical entity, and that it can only act through its agents (owners/managers/employees). Christopher Stone in his book Where the Law Ends: The Social Control of Corporate Behavior perhaps encapsulates this theory best by referencing an unnamed English jurist who aptly concludes that this conceptualization of corporations rest on the fact that corporations have “no pants to kick or soul to damn.” Nevertheless, the concession theory is in itself unsatisfactory because by tying its view of the corporation to merely a state-sanctioned artificial entity, the concession theory fails to take into account all that a corporation is.
  2. Aggregate Theory. This theory dates back to the 1880s and draws the focus of the conceptualization of the corporation based upon being a product of a free, private agreement. Under this theory, the corporation begins to look like a collection of smaller basic units—namely, human beings. It follows then that corporate actions are viewed as being “the product of individual actors freely contracting according to their own utility calculations.” Corporate and legal economic theories refer to this ideas as the nexus-of-contracts. Again, like the concession theory, this conceptualization still does not get around the issue that the corporation is not a physical entity and does constitute a unique and rational entity. The aggregate theory clearly acknowledges legal corporate existence; however, it challenges the conferring of an ontological status to corporations.
  3. Real Entity Theory. Under this conceptualization, the corporation, particularly as it has grown large and complex and often global in nature, begins to be conceived as Phillips describes as “having properties separate from or exceeding those possessed by their summed human parts.” However, even if the corporation could be conceived of as a separate entity apart from its summed parts, it is still challenging to assign moral responsibility because to do so requires “an agent with genuine consciousness, not one whose activity merely is describable in intentional terms.”

Although each of these conceptualizations of the corporation show a dimension of what it means to be a corporation, none truly explains what often appears to be intuitive: that corporations should be not only be legally responsible but also morally responsible.

The Catechism reminds us that the “moral law presupposes the rational order, established among creatures for their good.” (CCC 1951) This, in the more secular sense, suggests that the moral law is also underscored by the notion of natural moral law that is “present in the heart of each man and established by reason, is universal in its precepts and its authority extends to all men.” (CCC 1956)

The Moral Responsibility of Corporations

One of the most significant challenges to understanding the moral responsibility of corporations is the reconciliation of competing moral standards. Mark Schwartz in the book Corporate Social Responsibility: An Ethical Approach identifies seven common frameworks found in the corporate social responsibility literature:

  1. Core Ethical Values Paradigm. This framework is most closely aligned to classical Aristotelian ethics. Schwartz identifies the prominence of the values of trustworthiness, caring, responsibility and citizenship. Cases where these values manifest include situations where corporations lack full disclosure of potential harmful effects of products. Others include not avoiding harm by failing to disclose dangers of products. Relating to responsibility, examples include situations where corporations fail to accept fault or blame other actors. Finally with regard to citizenship, this is the idea that corporations should engage in providing community assistance, demand fair trade parameters, and be mindful of their environmental impacts.
  2. Relativism Paradigm. This is the framework where a corporation’s actions are moral if the majority of the reference points believe it is morally acceptable (this would include others in the corporation’s industry or community). This paradigm allows for the acceptance of behavior (be it normatively established or not) that is acceptable to the reference group.   This logic would allow, for instance, bribery if it were accepted in a given industry or within a given culture/society.
  3. Egoism Paradigm. This is the framework where a corporation’s moral standard is that which is done in accordance to its own perceived best long-term interest. This approach can be interpreted to be closely connected with the concept of shareholder value in that actions are judged by the sole benchmark of what is best for the bottom line. In some cases, this approach could run contrary to such efforts as the promotion of worker health and safety or even the responsible and equitable use of the shared resources of the environment.
  4. Utilitarian Paradigm. This is the framework where a corporation’s action achieves the greatest benefit (i.e. utility) for all those affected. This paradigm is challenging because it can often lead to moral conclusions that may promote the greatest net good but be contrary to an individual’s moral rights. An example of such a scenario would be the development of the international surrogacy industry in India. The surrogacy worker often endures unbearable circumstances and limitations on individual freedom; however, often the families procuring these services are able to do only because India provides a low-cost alternative to procuring this service elsewhere, and the surrogacy worker herself is willing to accept what can be considered third-world rates for this labor, only because of its relative attractiveness of other work alternatives.
  5. Kantianism Paradigm. This framework is encompasses the philosophical framework of Immanuel Kant and notes that the corporation’s actions are moral if the motive behind the action is based on the corporation’s moral duty within the context of the categorical imperative of universalizability. In a sense this means that if everyone is doing it, it must be alright. Using this approach, corporations are given the leeway of being able to potentially ignore the consequences of their actions. Here Schwartz uses the illustration of how the energy firm Enron used “aggressive accounting that defeat[ed] the purpose of financial statements” because its practices were being used by others in the financial services industry.
  6. Moral Rights Paradigm. This framework is based upon the idea that a corporation’s action must respect the moral rights of the individuals affected by the action. An illustration of this approach could be the recent situation where Apple Corporation refused to “unlock” the iPhone of the San Bernardino terror suspect in violation of its perceived moral obligation to the privacy right of this individual customer, but perhaps more importantly to the privacy rights of all of its iPhone customers who were allegedly at risk of unwarranted government interference with the expected right of privacy in the use of Apple Corporation’s products.
  7. Fairness (or Justice) Paradigm. This framework is based upon the idea that a corporation’s action is deemed moral if the outcomes of the action are determined to be fair. The example that Schwartz uses to make this point is his perceived injustice of the compensation that was “awarded to executives after receiving billions in US government bailouts” after the 2007-2008 financial crisis.

Each of these paradigms offers a basis and benchmark. However, the question remains: where is the moral agency?  Phillips offers an elegant formula for moral agency that can be helpful as a basic parameter to discern where the collective moral responsibility does or does not reside in a corporation or with an individual corporate actor. His three-fold formula follows that to be morally responsible for an action, “an actor must have performed the action with: (1) a conscious purpose…, (2) actual knowledge… of the consequences or (3) reason to know its nature or its consequences.”

Interestingly, Phillips’s formula is not much different than the teaching in the Catechism about the three conditions that together constitute mortal sin: (1) sin whose object is grave matter, (2) action committed with full knowledge and (3) action committed with deliberate consent. (CCC 1857)

The Social Responsibility of Corporations

The Compendium of the Social Doctrine of the Church explains that “[b]esides this typically economic function, businesses also perform a social function, creating opportunities for meeting, cooperating and the enhanc[ing] the abilities of people….” (338) Pope St. John Paul II explained in his Encyclical Letter Centesimus Annus that “a business cannot be considered only as a ‘society of capital goods’; it is also a ‘society of persons.’” (43)

Proponents of Corporate Social Responsibility (CSR) theory argue that because corporations are citizens of society, corporations should have moral obligations as if they were individual citizens—akin to both the aggregate theory and real entity theories of corporate conceptualization that Phillips describes. Schwartz outlines five common attributes of the evolving theory of social responsibility:

  1. Corporations have responsibilities beyond production.
  2. Corporations have responsibilities to help solve societal problems—particularly problems caused by those same corporations.
  3. Corporations have a broader constituency than merely stockholders.
  4. Corporations impact society beyond just in the marketplace.
  5. Corporations serve a wider range of human values than can be captured by a sole focus on economic values.

Because of this socio-economic approach to understanding the role of corporations, CSR theory manifests itself in what managers and investors term as an “ESG” (environmental, social and governance) management paradigm. The environmental aspect relates to how corporations interact with and sustain the environment. The social aspects relate to how corporations contribute (time, talent, and treasure) to the communities in which they belong.  And the governance aspect of CSR theory relates to how corporations govern themselves in a responsible, transparent and prudent way—to the benefit of their shareholders—and all other stakeholders (employees, customers, suppliers, regulators, etc.).

Opponents of CSR theory typically subscribe to the concession theory of corporate conceptualization and rely heavily on the individual business person to do his part to act morally and responsibly. This is good, but CSR proponents argue that given the reality of what corporations are in our modern society, putting the responsibility and burden on the individual is not enough.

The Spiritual Responsibility of Corporations

St. Paul instructs us that “[f]or we must all appear before the judgment seat of Christ, so that each one may receive good or evil, according to what he has done in the body.” (2 Corinthians 5:10) This is a major tenet of our faith, and there really is no question about it. Our actions in this life have consequences.  As it relates to our work in the world, the Catechism reminds us that “[m]an is himself the author, center, and goal of all economic and social life.” (CCC 2459)

But who is responsible for the aggregated activities of man (as in the work of corporations)? It is often a challenge to understand this fully. However, by employing the notion of the Mystical Body of Christ we begin to understand how this notion unfolds. All of us are connected by our humanity, and we are called individually and collectively to maintain the health and well-functioning of mankind, with Christ as our head.

Modern society and culture have slowly divorced the spiritual and temporal understanding of how we engage in the world. As such, it is indeed counter-cultural to think in these terms.  But, as people of faith, we rely again on St. Paul, who reminds us that “[w]e know that in everything God works for good with those who love him, who are called according to his purpose.” (Romans 8:28)

The World of Work and the Work of God

Without question, corporations play a very important role in society. Not only do they provide a mechanism for work and human self-sufficiency, but they also provide a mechanism for society to make enduring, multi-generational investments that are not reliant on government policy or investment or dependent upon the sole investment decisions of patriarchal elites.

The way that corporations interact with society depends upon many factors and is rooted in the rights and responsibilities afforded to it by those entities governing its incorporation and affirming its perpetuation in society. As business people of faith, we are all called to find opportunities to give witness to our highest aspirations, not only through our own efforts but also through the collective efforts of the business associations with which we contribute our time, talent and treasure. In this way, corporations are truly responsible.

Photography: See our Photographers page.

About the Author:

Dawn Carpenter is a banker with the heart of a teacher and scholar. She is a veteran of Wall Street who studies what Christian theology has to tell us about the nature and value of work and the responsibilities of wealth. Using the experience of her nearly 25 year banking career, Ms. Carpenter serves as a Practitioner Fellow at Georgetown University’s Kalmanovitz Initiative for Labor and the Working Poor. She is also a founding Advisory Board member to the School of Business and Economics at Catholic University of America, chairman of the Investment Committee and member of the Finance Committee of the US Conference of Catholic Bishops’ Black and Indian Mission, and as the Co-Chair of the Advisory Board of DC Habitat for Humanity.

Ms. Carpenter is currently working toward a doctorate in Liberal Studies at Georgetown University where her groundbreaking research investigates the nature of work and the responsibilities of wealth. She has previously earned a M.A. in systematic theology from the Notre Dame Graduate School of Theology at Christendom College, a M.P.M. in public finance from the University of Maryland, and a M.A./B.A. in political science from American University. Ms. Carpenter and her family reside in Washington, DC.

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  • Gene Van Son

    Unfortunately, too many in the business world still believe as Nobel Laureate Milton Friedman did: “The Social Responsibility of Business is to Increase its Profits.” Friedman said, “I share Adam Smith’s skepticism about the benefits that can be expected from “those who affected to trade for the public good”– this argument must be rejected on grounds of principle.” In his opinion the “the doctrine of social responsibility” in business was collectivist thinking — socialism.
    http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

    And as we saw last year in Indiana “social responsibility” is a very fluid concept in the business world.
    A number of major corporations sided with the LGBTs and Progressives by threatening to boycott the state of Indiana if it passed the Religious Freedom Restoration Act. As Patrick Daneen wrote in a First Things essay: “The decision by Apple, Walmart, Eli Lilly, Angie’s List, and so on was a business decision—even more, a marketing decision. Coming out in opposition to the Indiana RFRA law was one of the shrewdest marketing coups since E.T. followed a trail of Reese’s Pieces. The decision to #BoycottIndiana was not made because it was the politically courageous thing to do; it was made because it was the profitable thing to do. The establishment could express support for a fashionable social norm while exerting very little effort, incurring no actual cost, and making no sacrifice to secure the goal. It had the further advantage of distracting most people from the fact that corporations like Apple
    have no compunction doing business in places with outright oppression of gays, women, and Christians. Those real forms of repression and discrimination didn’t matter; Indiana’s purported oppression of gays did.”
    http://www.firstthings.com/article/2015/06/the-power-elite

    Keep fighting the good fight Dawn.

    • Dawn Carpenter

      Gene, thank you for your thoughtful comments. I agree that “social responsibility” is often used as a euphemism for a political and social agenda that is not at all consistent with Catholic Social Teaching. Thanks for the encouragement.

    • TomD

      Milton Friedman believed that economic freedom was the only realistic path to human happiness and flourishing. I’m also pretty sure that Friedman was not an advocate of no governmental role or regulation in economic activity, he was for an absolute minimum. And I’m not sure that it is fair to say that he completely discounted virtue as a commendable human necessity in that endeavor, but he recognized that we can construct a free society much more easily than a virtuous society:

      https://www.youtube.com/watch?v=RWsx1X8PV_A

  • james

    Using the movie rating codes that the industry developed to assess what is acceptable to view based on
    age, maturity and sensitivity do you think that each corporation should be given a rating by the CC as
    to how responsible they in this domain ?

    • Dawn Carpenter

      James, you raise an interesting question. I am very intrigued by the work of IRIS, the catalog of generally-accepted performance metrics established by the Global Impact Investing Network. Although these metrics (and resulting ratings) take into account financial performance, they also take into account social and environmental performance. The user can set the criteria for evaluation based upon the values and objectives of interest to the user. (I am interested, for example, in metrics that measure compatibility with Catholic Social Teaching.) For now, these types of advanced measurement tools are only being used in the impact investing market. But it would be very interesting to see how something like this could be used in other contexts. Here is the link to the IRIS website, if you are interested: https://iris.thegiin.org/ I believe that we are on the cusp of some very exciting times in corporate governance, and my prayer is that we can begin to plant seeds that in the next generation will produce fruit. I am encouraged by what I see in the Millennial generation and their passion for important social/community issues. In my view, the first step in culture change is to convince people to care.

    • Howard Richards

      I’m afraid any such attempt would be a total mess. For one thing, there are far too many businesses; for another, there are complicated relationships, such as are involved in franchises or when a company or part of a company is acquired by another company. The Church really does not have the manpower for such an undertaking. Then there are the private agendas that would be dressed up as though they were papal bulls.

    • james

      Believe me, if the CC could come up with 2000 pages of canon law it could codify a list
      of moral points for any business it wishes to examine. It could easily whittle down the
      Fortune 500 and hold to the fire those aspects that violate the spirit or letter of charity.

    • Howard Richards

      Coming up with a list of principles is easy, and arguably it has already been done in documents like the Compendium of the Social Doctrine of the Church. I thought you were talking about something like the Legion of Decency or the Index of Forbidden Books, which would APPLY those principles in evaluating specific corporations. That’s not really possible, nor is there any desire to do such a thing. Just look at how reluctant the bishops are to actually require theology professors at Catholic universities to obtain a mandatum!

    • james

      I am talking about applying principles to these corporations by publishing in an
      index format any transgression against charity, a format that can be read by anyone to see where their money is invested, to what their purchasing power
      supports so as to subtly but surely apply pressure to change. This is why most
      people don’t buy furs anymore and why vegan inclinations went from 0 to now
      almost 15 % of the population. I understand the nature of reluctance in the CC
      too especially after Galileo’s mandatum to spin that sun around the earth.

    • Howard Richards

      My mistake. I thought I was talking to someone who was at least trying to get things right.

    • james

      You’ll never learn anything by hanging out with people who always agree with you.