It seems to be commonly assumed among Buddhist social activists that there is something fundamentally and ethically suspicious about business and economics. Corporations, in particular, are seen as a destructive force. Are they?
We’re asked the same two questions often: how existing businesses can be incorporated as “benefit corporations,”or “B-corps”—a business that explicitly lays out goals related to serving the world and the greater good—and advice on how our greed-driven, corporate-dominated economic system can be dismantled and replaced with a “new economy” of Buddhist-centered values. We each find ourselves explaining over and over that the starting point of such requests is itself misguided.
These requests arise from the belief that leaders of a traditional corporation are legally obligated to prioritize short-term profits over all else, so long as they run the business within the bounds of other regulations. Some Buddhist commentators even say that because the essence of a traditional corporation is profit maximization, it is the institutionalization of the poison of greed. So we don’t have to go on repeating ourselves, we’d like to first explain a few little-understood facts about law and economics, and then explore how releasing such beliefs about the “essence” of the corporation is actually very much in line with core Buddhist teachings.
Let’s start by examining the facts: traditional corporations are not required to maximize profits. The corporate charter is the state-granted document that brings a corporation into legal existence. No matter what you’ve read elsewhere, these charters do not require traditional corporations to maximize profits. Many U.S. corporations are chartered in Delaware, for example, because that state has the most developed set of laws governing corporations that say, in short, that corporations are formed “to conduct or promote any lawful business or purpose.” Profits do not receive special mention. And in legal interpretations of corporate charters, the notion of corporate “purpose” is usually interpreted broadly. Consideration of ethics and of the interests of other stakeholders in the firm—such as employees, communities, suppliers, creditors, and customers—are not excluded.
If profit maximization is neither written into the law regarding charters nor in the charters themselves, is it enforced by lawsuits brought by shareholders against corporate executives? In actuality, the courts regularly apply something called the business judgment rule when shareholders try to claim that managers have breached their fiduciary duty to serve the interests of the corporation. The laws about fiduciary duty were created with the intent of promoting loyalty to the company and reasonable care in decision-making. Managers are entitled to reasonable compensation, but aren’t supposed to divert company resources and opportunities to uses that otherwise benefit themselves. And they’re required to analyze options carefully as they make decisions, not just wing it. In practice, a court usually will accept any reasonable business purpose expressed by managers, trusting that the managers know the ins and outs of the particular business much better than they do.
Executives, then, have considerable freedom from court intervention when they make their decisions. If the executives argue that, for example, an environmental initiative is in the long-term interest of the business, the courts generally will not second-guess their arguments. Neither, by the way, do the courts generally support shareholders when they question the idea that the “market for executive talent” justifies granting outrageous compensation packages to the executive team. It is not just people on the left who are angry about ridiculously high executive pay—even right-leaning shareholders are, too. The idea that shareholders of large, publicly traded corporations can easily sue, fire, or cut the pay of executives if they take some displeasing action—whether that action be in the service of the social good, or in the service of feathering the executives’ own nests—is a myth.
The one case in which the law directs managers to maximize the financial return to shareholders is at the moment when a publicly listed company is being taken over. This is because the shareholders’ stock will be converted to cash (or to stock of the acquirer) at that instant. But until the moment when the sale becomes inevitable, managers and directors still have considerable latitude. They are allowed to consider the effects of a sale on other stakeholders as well as take any actions that plausibly could preserve or increase the financial value of the business over the long-term, should it not be sold. Because a number of studies suggest that running a business with sensitivity to the concerns of employees, customers, communities, and the environment increases long-term share value, it’s not all that difficult for managers to make the case that continuing to operate the business in ways that serve these concerns is a reasonable exercise of business judgment.
If there is no general legal obligation to maximize profit, then perhaps the principle is enforced by market competition. According to mainstream economic theory, in a perfectly competitive market a firm that does not maximize profits will be driven out of business. If the wages it pays, for example, are higher than those paid by its competitors, it will have to raise the prices it charges, and this will drive away its customers. If it shows lower profits than its competitors, it will be unable to get financing. Yet, to the extent this picture has any truth to it, it holds just as much for the “benefit corporations” that some activists are now championing as it does for traditional corporations. Neither is organized as a not-for-profit corporation—and even a nonprofit organization must find a way to bring in at least as much cash as it spends. And, of course, reality often very little resembles the economists’ model of perfect competition. Wal-Mart, ExxonMobil, Microsoft and the like are hardly the anonymous, powerless firms envisioned in the theory. Most firms have a good deal of room to make choices—for good or ill.
If you observe the actual behavior of traditional corporations, you will rarely observe a single-minded focus on making money for the shareholders, even though its leaders might sometimes spout that rhetoric. Some corporations are more oriented toward innovation, or expansion, or maximizing CEO compensation, than toward shareholder value. Others focus on preserving a tradition, serving a community, being a great place to work, or providing a beneficial, quality product. The vast majority balance a number of different goals. Still others are rather a mess and do not seem to effectively pursue any goals at all.
This is not a Pollyannaish defense of traditional corporations, but simply a clarification of the facts. Of course corporations can, and all too frequently do, act in ways that cause harm to workers, communities, and the environment. There are all too many examples of this, and they may easily be called on as evidence that traditional corporations are fundamentally a negative influence in the world. But imagine yourself in a similar conversation with a hard-line secularist friend who wants to prove to you that religion is fundamentally a negative influence in the world. Your friend can draw on an endless parade of evidence, including the medieval Christian crusades, the Inquisition, divisions in Ireland, and ISIS. And they won’t forget to include the Zen justifications of samurai codes and imperialist ambitions in Japan, as well recent anti-Muslim acts of violence by Buddhists in Myanmar. What can you reply in defense of Buddhism, except that such anecdotes are only parts of a much bigger picture?
The idea that business firms exist to maximize profit originated with economists. While one might suppose that economists “discovered” this by studying actual businesses, the reality is that economists invented the notion of profit maximization. They did so because it makes the study of business extremely simple—something one can do with math on a blackboard, and which resembles the high-status discipline of physics. This invention means that economists have largely been able to avoid having to talk about those messy, social, soft, complicated topics such as how money alone isn’t enough to get people to cooperate toward a common purpose, or how in the real world many different priorities all demand a leader’s attention.
The notion then gained popularity among many in the business community, academia, and the media. In her book The Shareholder Value Myth, corporate and business law expert Lynn Stout suggests that part of its popularity with scholars is due to the fact that it lends “an attractive patina of scientific rigor” to the study of corporations. Meanwhile, for the media it provides a “sound-bite description of what corporations are and what they are supposed to do.”
This simplicity is a big reason for the myth’s wide reach. Our minds like to think of things as having simple “essences.” This makes them easier to categorize and allows us to make quick and straightforward judgments. If we firmly believe that the essence of a traditional corporation is to make a profit, then we can easily define our ethical orientation toward it. Further investigation and questioning seems unnecessary.
That sort of certainty should make Buddhists nervous. We think it’s useful to approach corporations as we might approach a Zen koan. Zen practice teaches us the importance of doubt and of investigation. We are taught to doubt the stories we tell ourselves about ourselves, about our possession of an unchanging kernel of “me,” and to observe carefully how our own minds function. In particular, we look at how we tend to unreflectively embrace “received wisdom” and how we often layer stories about what’s happening on top of what’s actually happening. Similarly, we can dig deeply into what is in fact in front of us in the realm of commerce.
While Economics 101 teaches that the essence of a firm is to maximize profit, Buddhism 101 tells us that one of the three marks of existence is that all phenomena lack any essential nature. This includes corporations. Real, complicated, contingent, historically arising corporations exist, but they exist as emergent, interdependent, social creations, reflecting a broad range of human interests, emotions, and actions. The notion that that the “essence” of businesses is profit maximization is a socially created belief that we have added on top—and one that is not supported by any fundamental principle of law or economics.
Do we quickly assume that when a traditional corporation adopts a positive environmental change, this must only be crass “greenwashing” and a public relations ploy? And, by the way, do we equally quickly assume that a similar initiative undertaken by a benefit corporation or a nonprofit is clear evidence of a total commitment to protecting the environment? Belief in essences erases doubt and suggests easy answers. Actually investigating the facts of each case might yield answers that surprise us.
Another of the three marks of existence, impermanence and change, also applies to corporations. The behavior of corporations is shaped by cultural norms as well as what the public believes they do and should be doing. It wasn’t that long ago that the vast majority of businesses took pride in how long their products lasted rather than in planned obsolescence. The causes of the recent drastic deterioration of the well-being of many U.S. workers (or former workers) are much more recent and specific than some vague, unchanging “drive for profit.” It’s true that legal rulings sometimes change the environment in which businesses function. The 2010 Citizens United U.S. Supreme Court ruling, for instance, reinforced the idea of a corporation as an independent actor. This decision not only allows corporations free reign to make political donations, but throws further disguise over their actual interdependence and contingency. We can work to change norms, expectations, and laws in a more positive direction.
Let’s also consider the eighth of the 10 grave precepts [a set of Buddhist moral codes], “Not Sparing the Dharma Assets”—being generous, not withholding, and more broadly, not squandering opportunities or potential. If, due to misinformation, we suppose that a large and very powerful sector of contemporary society is by its nature unable to serve the dharma, we engage in an unfortunate squandering of what could be valuable assets. Both Shakyamuni Buddha and the Dalai Lama have offered good, practical guidance to businesspeople about how to make and use wealth in wise and compassionate ways. Bringing that advice into practice more widely, rather than focusing only on building a small set of alternative institutions we might think reflect Buddhist values, would be a noble goal.
If, on the other hand, we help spread the myth that traditional corporations are fundamentally driven—and must be driven—by bottom-line financial interests alone, we actually may make irresponsible behavior more socially acceptable. Business leaders increasingly have been coming to feel that profit maximization is simply expected, despite the fact that it isn’t mandated. Faced with a choice between action that will maximize short-term profits and action that would integrate other values, some may opt for the former, feeling that they have little choice. They are also allowed to excuse themselves by claiming that they are held captive to the system. We can and should demand better, not only of the enterprises we may be directly involved in, but of all enterprises.
We applaud the intentions and support many of the goals of those advocating for benefit corporation legislation and driving the “B corp” movement. We don’t deny that these initiatives are helping some businesspeople form or transform their enterprises around values other than profit maximization. Yet we fear that they are unwittingly reinforcing a false belief that profit maximization is and must be the essence of businesses incorporated in the traditional way.
It may seem surprising, but we see economics and law as potentially healing, pastoral professions, and the world of business and commerce as a place where one can live the enlightened life. Understanding the origins of our mistaken beliefs about corporations can help us expand our understanding of the connection between Buddhist values and the world in which we live. And perhaps it can help us act in business, and in this world more generally, in increasingly wise and compassionate ways.
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