Thanks to everyone who has posted and commented so far. Many interesting and provocative ideas and questions have been noted. I want to raise a matter that cuts across many posts, that of custom in how we think about religious ideas generally(and therefore how we think about those ideas in the workplace) and custom in how we conceive corporate goals, and then I will make a pitch for a more pluralistic approach to corporate life and discourse about the corporation.
Ron notes that his students seem to embody a norm of restraint when it comes to linking the corporation and faith. That is a deep and widespread norm in our culture, a practice that probably has many causes, one of which is a rather faulty understanding of the First Amendment. The proscription against state action on religion somehow gets wrongly transmuted into a proscription on religious discourse in the public but non-governmental sector, i.e., in those mediating institutions--including churches, schools, clubs, and even the corporation-- that stand between the state and the individual that we call "civil society." Thus, as a culture we are skittish about religion talk. That norm/custom carries over to the corporation. One result, among many, is that noted by Mike Naughton, that people suffer a sense of being inwardly divided in that they cannot connect their most deeply-held beliefs to their work lives. Another effect is a certain dishonesty in that one is expected to "translate" religious ideas into secular discourse to make those idea more palatable, at the cost of being sincere and transparent as to one's real thinking. What, for example, is wrong with openly opposing layoffs on the gound that one believes that employees should be treated with great consideration(not legally mandated, mind you, but one view).[I am not saying one cannot hold the oppsite view;I am simply saying one basis for my own views on why I resist layoffs unless necessary is the ground of religious belief about the vulnerable].
And this takes me to Christine's post, which rightly asks "top down or bottom up?" I favor the latter and that is why I disagree with Susan's Wake Forest piece which seems a bit impositional to me. I know she advocates very palatable goals but I do not want to achieve a desirable WHAT via an undesirable HOW(government mandate). I favor entity pluralism not legal mandates. I think there are many companies(Chick Fil A being just one) that seek to express religious beliefs in the marketplace. We should get over the monistic view that all companies all the time must have the same and singular goal, i.e., to maximize profits or the share price. That practice as we all know is not mandated by law but it is a custom, constrained by markets to be sure, and it grows out of business lore and business norms and business education(See Rakesh Khurana's fascinating indictment of agency theory in B schools in his new book, "From Higher Aims to Hired Hands...").
Shareholder primacy, in other words, is one goal of many. Companies could, to varying degrees, and consistent with raising capital(shareholders have choice too and can stay away from comapanies they think are "too" socially responsible), pursue profits but not only profits. Thus, rather than the current organizational dichotomy of profit/nonprofit, we would have a continuum of companies on the profit side(hedge funds being maximizers of wealth and others more diverse). That would give investors choice along with managers and employees and customers, etc. I think the decided turn toward "green" companies and the local food movement are examples of this growing diversity. (Alternatively, maybe there are more such companies out there than we know about--here we need some empirical work-- and it is we law and business teachers who parody this by our reductionism).
I also think we need to ask who within companies we are talking about. I tend to think about this at the director-officer level. I think they should be free(not required) to ground their thoughts about business practices on religious belief and to say so openly. But a lower level employee also should be given some consideration to honor his or her belioefs where possible. Thus, as to Robin's post, she makes the case for an exemption for certain business but I would also hope that senior managers within companies that must comply with various laws would permit employees who object to be excused from certain practices that trouble them on religious grounds. This again relates to Christine's point about whether we are talking about the entity or the individual. I think both, but again, by choice not mandate.
Thus, our ingrained custom of self-censorship on religious matters and our custom of shareholder primacy impede a more pluralistic discourse about this subject and hinder a more diverse business culture. But that can change and talking about it is one way to start.
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1. Posted by Gordon Smith on May 6, 2009 @ 9:43 | Permalink
Lyman, This is an important post, which touches on the heart of "faith and corporate law" for me. As we have discussed, nothing in the current configuration of corporate law impedes companies from establishing goals other than shareholder primacy. One might assume, therefore, that the almost uniform pursuit of shareholder wealth maximization is simply the effect of the market inspiring certain choices. This is undoubtedly true for many firms, but for other firms, the choice to pursue shareholder wealth maximization at the expense of other goals is probably less about economics than sociology. It's what business managers are taught in most business schools. It's what prior generations of business executives have done.
Anyway, one of the foundation stones of any discussion of "faith and corporate law" is the fact that discretion in the operation of businesses is expansive. Entrepreneurs can form businesses for any purpose they want, as long as it's not illegal. And managers of existing businesses have broad discretion to pursue various (often conflicting) goals. Corporate law simply has little to say about any of this. Which makes me wonder whether the conversation about "faith and corporate law" isn't a fairly short one.
2. Posted by Elizabeth Brown on May 6, 2009 @ 14:24 | Permalink
This conversation, like much of the academic literature on corporate law, seems focused primarily on large, publicly traded corporations. These corporations have to maximize profits not because federal or state laws require it but because the laws of the markets require it. Corporations, like Costco, that put other goals above maximizing profits, such as employee benefits, are punished in the stock markets with lower share prices, which in turn hurts their ability to borrow money from banks and other sources. Only a very small portion of the public, which is increasingly dependent on investments in corporate stocks and bonds for their retirement portfolios, is willing to take lower returns to support companies that pursue non-profit maximizing goals. Most of the social responsibility investment (SRI) funds claim to earn returns that are roughly the same as other investment funds in order to attract investors. Large institutional investors, which now control over 60% of the investments in publicly traded companies, also are not interested in investing in companies that are not engaging in shareholder wealth maximization practices. These institutional investors owe fiduciary duties to protect and maximize the funds under their management. Again many of these are pension funds or university or other philanthropic endowments which need the funds to meet future obligations. They would be breaching their fiduciary duties if they elected to invest in firms that subordinated profit maximization for other goals.
Most businesses, including most corporations, in the US are NOT publicly traded. Most of these businesses are small and, while their owners hope to make a profit, a significant number of them are operated for reasons other than maximizing profits (e.g., desire to be their own bosses, interested in developing a new product or invention, interested in pursuing a lifestyle different from that available in a large corporate setting, etc.). Some of these other goals are religious or socially responsible. In addition, there are a number of large but not publicly-traded corporations, like SC Johnson, that are freer to purse other goals. They are freer to do so because they don't have to worry about being punished by the stock market analysts, traders, and investors for doing so. It is these non-publicly traded firms that fill in that spectrum mentioned by Lyman and others.
One issue that I have not seen mentioned in this discussion is: to what extent do lawyers and other gatekeepers who are advising firms considering going public have an obligation to discuss the constraints on the goals of a public corporation or business with the owners? (Corporations are not the only publicly traded entities. There are a few LLCs and LPs that have their ownership interestes traded on NYSE and Nasdaq.) It may be that such conversations are unnecessary as the owners are aware of the extent to which they will lose control of the business once it goes public. I, however, am not completely convinced that this is always the case, particularly when owners are getting very persausive sales pitches from investment bankers looking to drum up business for themselves. The owners of the Body Shop seemed to have believed that the company would continue to pursue its environmental and social objectives with the same vigor after it was taken over L'Oreal, a publicly trade corporation. In the end, however, L'Oreal cutback substantially on these programs after gaining control. The Body Shop's Ethiscore dropped from 11 to 2.5 after L'Oreal acquired it. See OECD publication, Informing Consumers on CSR in International Trade, at http://www.basisboekmvo.nl/files/OECD%20Report%20on%20CSR%20communications.pdf
Talking about the downsides of public ownership might get more frequently discussed now in the wake of Sarbanes-Oxley then it did previously. In the late 1990s a large number of companies went public because it seemed to be the thing to do and only later realized that the costs outweighed the benefits, particularly if their stock ended up in the large group of stocks that are rarely followed by the analysts and are lightly traded.
Finally, while non-publicly traded businesses can pursue other goals rather than profit maximization, they still have to at least break even or make some profit or their creditors will not allow them to pursue their other goals. For example, Maldin Mills Industries, the original manufacturer or Polartec, was operated for years by Aaron Feuerstein, in accordance with his views as a religiously observant Jew. When the factory burned down, he rebuilt in Lawrence because he felt that his religion imposed on him a moral obligation to care for the community and for his workers. He continued to pay the workers for much of the time that the factory was closed. He was highly praised for these actions by President Clinton and others. In the end, however, the expenses of rebuilding and the loss of market share while the factory was closed forced Malden Mills into Ch. 11 bankruptcy. The creditors forced Mr. Feuerstein out as CEO and put in place new management that would maximize profits.
Of course, just because a firm is being operated to maximize profits doesn't mean that management will succeed in doing so. The new management at Malden Mills didn't do much better with their profit maximization strategies. The business went back into bankruptcy in 2007 and its assets were sold to a new company called Polartec, LLC which is owned by Chrysalis Capital Partners.
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