The Corporation as Citizen
Corporations not only have citizens, they are citizens. They have rights in the societies where they operate, but they also have responsibilities which law and custom impose on them. We increasingly expect our corporate citizens to act decently. At the very least they need an informal licence to operate, as the Tomorrow’s Company Inquiry at the Royal Society of Arts in London described it.
Some would argue that behaving decently is justifiable because it is, in the long run, good for the bottom line. A company that is mean, spiteful, and ungenerous to its surrounding communities, will only have fair-weather friends. Therefore, an investment beyond the call of duty which builds friends for hard times is a good investment. Grand Metropolitan, the London-based food and drinks multinational, which spends £13 million annually on community involvement, believes that it creates a virtuous circle and has produced an input/output matrix to demonstrate this. Others ask whether it is not enough to behave well for the sake of behaving well. Does generosity and a care for those around you have to be justified by anything other than a generous spirit? John Kay and John Plender, two advocates of a British version of stakeholding as the model for businesses, speak of stakeholding as responsible individualism. Responsible individualism is another name for proper selfishness.
In the past, rich individuals were the patrons of the arts, enriching their communities by their choice of architects, sculptors and artists; they financed charities, established foundations and endowed museums and art galleries. Whether it was genuine benevolence that inspired them, a stake in immortality or vainglorious pride, they were judged to be worthy citizens. Today, as much is expected of the corporate citizen if they, too, are to be judged worthy. I am hopeful that the halls and forecourts of our businesses may yet come to resemble the churches of Tuscany, as exhibition spaces for our artists, open to all who might pass by. It is encouraging, also, to see the names of big and small firms on the programmes of new opera companies, local theatres and city music festivals. Guilty industrialists and bankers financed the Renaissance, and we are forever in their debt. Those who make economic capital would be wise to create some accompanying social capital or they will erode the society which surrounds them.
In Britain, as in America, many major companies have taken the point and have recognized the importance of investing in their surrounding communities, either directly or through intermediate agencies. One such agency in Britain is Business in the Community, dedicated to supporting the social and economic regeneration of communities. The businesses bring their skills and their physical facilities to schools, deprived communities and young entrepreneurs, and contribute to the improvement of the environment. The initiative has introduced many business leaders and young executives to areas where they had seldom trod before. Their increased awareness of the communities in which they work can only lead to good.
A recent survey, however, made it clear that the general public in Britain still expects much more community involvement from business. The licence to operate is still waiting to be validated. Gestures alone are not enough to qualify one as a genuine citizen. The charitable suggestion would be that the public is uninformed. There are more good citizens than they realize. More facts and numbers would therefore help. The London Benchmarking Group consists of six major UK companies who are trying to put some hard facts into the reporting of their community activities so that they are more transparent and their impact more easily assessed. Six companies don’t make a mountain, but their example may encourage others. As GrandMet says: ‘Businesses can make major contributions to societies over and above the satisfaction of customer and shareholder needs.’ The more those contributions are made visible, the more easily will people believe that capitalism can be decent.
Businesses in Britain have discovered social entrepreneurs: the growing number of energetic individuals who take it upon themselves to make something happen in their local environment, be it a new Arts Centre, a hospice or housing association, a scheme for re-engaging young people in the workforce or for educating children out of school. Businesses have more of an affinity with entrepreneurs than with local councils or large not-for-profit bureaucracies. Businesses are happier to lend their resources to such people because they have more confidence that they will be properly used. They may even hope that they will find models in the behaviour of these social entrepreneurs that could be useful to them in their own business. Altruism is not to be sniffed at just because it helps you as well as others.
Maybe we should look elsewhere for our models. Charles Hampden-Turner tells the story of Intel in Penang, Malaysia, where the Pentium processor is made. ‘The managing director, a Chinese Malaysian, described how he had started an in-house shop. Why? “To save time,” he explained, “but also to generate profits, which we used to start the Credit Union. Now we have taken capital in the Credit Union and invested it in low and medium-tech corporations in this area . . . it is so that any employee who has worked for us loyally but cannot learn the trigonometry needed for Pentium production can be outplaced in a company which our union partly owns. We find jobs for everyone.”
‘We were standing in the middle of a flower garden which was also the day nursery. The children were learning English: “Good morning, visitor!” they chorused. Managers’ children are educated at cost, technicians’ at half-cost, workers’ children are educated free.’ Economic Capital and Social Capital go well together.
It is because the corporate citizen can be a force for good where other agents can’t that the concept of corporate citizenship is so important. Christian Aid is spearheading a campaign in Britain, called Change the Rules, to prod the big supermarket chains into using their purchasing power to improve working conditions in third world countries. Christian Aid claims that children aged six are working on coffee plantations in Brazil and that the demand for good quality grapes has produced a reliance on pesticides which damage workers’ health. To sell or consume food produced in this way is, they say, exploitation, and the signs are that more and more people are agreeing with them. Christian Aid has persuaded two food chains to start work on a pilot project to improve working conditions in several developing countries. The top ten chains have an annual turnover equal to the income of the world’s poorest 35 countries and therefore can, says the charity, afford the changes. Oxfam, too, is working with five British retailers to improve conditions for garment workers in the developing world.
‘Goods produced under conditions which do not meet a rudimentary standard of decency should be regarded as contraband and ought not to be allowed to pollute channels of interstate trade.’ That was President Roosevelt speaking, half a century ago. His comment was overwhelmed by the consumers’ careless splurge, but consumers now care more. Increasingly, given the choice now available, consumers want to feel empathy towards the companies they buy from, as well as the products that they buy. As companies like Body Shop have shown, enlightened policies bring in enlightened customers, but it works the other way round too – as customers become more enlightened they expect businesses to act as enlightened citizens also.
A refinery in Australia was concerned by the high level of absenteeism among its workforce. Asked at this time to contribute to a fund for the improvement of the local community, the management agreed but added an inspired codicil. For every day of absenteeism they would subtract a percentage from their donation. This condition was notified to all their workers. Within months the absenteeism had fallen to record low levels. Individuals care, it seems, and companies should care also, if they are to represent the concerns of their members.
THE NEW SOCIAL CONTRACT
Translating the idea of the company as a village and a community into the reality of modern corporate structure is complicated. Most executives are happy to leave the idea on the shelf as an interesting metaphor. This will not be enough in the long run. The soul of a business must be expressed in its constitution, and, if it is going to be more than the instrum
ent of its financiers, who call themselves its owners, the articles of association must reflect the new reality. Examples thus far are few. They include the John Lewis Partnership in Britain. Two less well-known cases are given below. More are cited in the next chapter, which is concerned with the management of the new kind of citizen organization.
• The Camellia Philosophy
Camellia plc is an unusual company. It is primarily devoted to long-term tree agriculture, with large numbers of tea estates on the Indian subcontinent and in East Africa. To these must be added a wide range of other commercial and industrial interests. It is a publicly quoted company but a majority of the shares are owned by a Foundation. The first duty of the Foundation is to ensure, through its share control, that Camellia continues to exist for at least 100 years – a reasonable stab at immortality. That part of the dividends accruing to the Foundation which exceeds new capital investment requirements is largely reinvested in the countries where the profits are earned, in schools, hospitals and ventures to improve the lot of the peoples in those lands.
The remarks of its Chairman, Gordon Fox, in the 1995 Annual Report express the philosophy of the company very clearly.
I appear to be something of a lone voice these days . . . in challenging the conventional view that the shareholders ‘own’ the company and, by extension, that they own the assets of the company. I adopt this position not only because most shareholders, whether they are individuals or institutions . . . are essentially punters . . . but because I was taught to believe that with ownership came responsibility, caring and concern. I therefore find it difficult to accept the conventional concept of ownership when the marketplace applauds and rewards a company’s share price and its management upon its announcement of provisions, often representing years of retained earnings, relating to the redundancy of employees. Particularly since recent studies are now demonstrating that many restructurings have led to permanent damage to the company’s infrastructure, let alone morale.
Anyone who has contemplated a great work of art or craft cannot help but observe that there is an indefinable point where the creative process has imbued it with a unique quality whereby it has become transformed into something quite spiritual, a holy grail so to speak. In perhaps a distant way this special quality can also come to exist in a company, which enables it to generate high levels of allegiance and general respect. It also appears to generate its own particular energy levels, which leads to creativity, diversity and growth. Certainly its particular culture becomes something palpable, and I would maintain that this quality is a most valuable asset and worth sustaining not only for the sake of its employees and others whom it directly affects and influences, but for society at large, because such companies underpin the strength and stability of society and set a valuable example for others to follow.
Camellia has grown and prospered over the years because it is pervaded by a sense of allegiance – loyalty between colleagues, between employees and, above all, loyalty by the company to those it employs. The resultant environment leads naturally to a quality of motivation that far surpasses that of the carrot of share options, encouraging individual greed, and the stick of threatened redundancy.
Camellia’s philosophy offers a vision of a benevolent capitalism which benefits all connected to it, without favouring one group excessively. It will not suit everyone because the narrow base of public holding limits its capacity to raise money from the market. Most firms, however, finance their growth from retained earnings or bank borrowings. Again, it is hard for well-established businesses to get from here to there unless they buy back their own stock and place it in a Foundation. Few are profitable enough to do this to the necessary extent. Camellia, however, stands out as a possible model for the future.
• Bertelsmann AG
Bertelsmann is a £8.2 billion media conglomerate, head-quartered in Germany, with over 60,000 employees around the world. Founded in 1835, it is now more than 160 years old. In order to safeguard the continuity of the company, the Bertelsmann/Mohn families have passed the majority of their shares to the Bertelsmann Foundation. Currently this Foundation owns 68.8% of the equity capital, the Mohn family 20.5% and the ZEIT Foundation, based in Hamburg, 10.7%. The Bertelsmann Foundation states in its Bylaws that it ‘exclusively and directly pursues purposes relating to the general welfare’. In practice it will invest in education and training enterprises relevant to the media world as well as innovative civic projects.
The company has a major profit-sharing scheme under which the greater part of the profits are shared out among the employees of what Reinhard Mohn, the Chairman, calls the Partnership. The profit-sharing is realized by issuing Profit Participation Certificates which are listed on the Stock Exchange. By this method the capital remains in the business as equity. The employees are entitled to sell their Certificates; most of them, however, regard them as additional savings for their old age. Over recent years the Certificates have paid an interest rate of 15 per cent at an average market rate of 200 per cent.
Mohn sees this system as a way of guaranteeing the long-term financial security of the workers, but also as a way of increasing their identity with the company.
The company is unusual in that it has a formal written constitution, with many Bylaws. The thrust of the constitution is that ownership carries obligations. In the preamble to the constitution the objectives of the company are set out as follows:
The company must make the maximum possible contribution to society. All group interests are subordinate to this goal.
Self-fulfilment of all persons working in the company must be made possible on the job. The management is responsible for guaranteeing the internal structures necessary for this, as well as for harmonizing conflicting interests.
The company must achieve a profit, in order to ensure its survival and the jobs it provides. Earnings are used for the formation of new capital, payment of dividends, and employee profit-sharing.
The company must support the functions of the state by paying taxes.
There is a section in the formal constitution headed ‘The Company in Society’:
We advocate a free, democratic, and social order in society, because we believe that such an order guarantees the highest degree of personal freedom and the best prerequisites for social development.
We believe the following to be necessary:
A free-market system based on the principle of competition, performance, and a broad distribution of private property. It is the task of the state to assure freedom of choice on the part of the consumer and free competition.
A social system committed to social responsibility, in which the owners of large assets consisting of means of production acknowledge their responsibility as trustees with regard to the general public.
An organizational structure in business which gives everyone the same opportunity for personal development and assures a fair distribution of wealth, a share of the means of production, concern for social needs, and a balanced relationship between rights and duties.
Many organizations have something similar in their statements of company philosophy. It is rather different when it is spelt out in a formal constitution which is binding on all members of the company. This is Corporate Citizenship made real.
THE BIG ONES
The examples cited started life as private firms. Their constitutions were the gift of their founders. The problem is different for the large, publicly owned companies, where it is really an issue of a new type of governance.
Consider these facts. In a list of the world’s hundred largest economies, fifty are corporations. General Motors’ sales revenues roughly equal the combined GNP of Tanzania, Ethiopia, Nepal, Bangladesh, Zaire, Uganda, Nigeria, Kenya and Pakistan. In another list of the world’s totalitarian and centrally-managed economies, Cuba comes in seventy-third place. Seventy of the economies above her are corporations, as we have already noted. Only China, whose rulers would like to think that they can manage centrally, gets
into the top set. North Korea doesn’t even make the top 500.
The issues raised by these facts are those of accountability. These issues will push their way up the agenda of politicians and directors as the century comes to an end. When corporations are bigger than nation states you have to ask who governs them and for whom, and when those corporate states eschew democracy in favour of efficiency you have to wonder how long they will last, because history suggests that when people get richer they demand a voice. There are no rich dictatorships.
Because we did not regard a business as a community, we never thought to apply the same rules to them as we would to a nation state, where matters of human rights, free speech and the responsibility of the governors to the governed would be argued and even fought over. If a country decided, unilaterally, to disenfranchise and expel 40,000 of its citizens, voices would be raised around the world. When a corporation such as AT&T does it, the stock price goes up and with it the earnings of its Chief Executive.
All this will have to change, in time. Big corporations are not multinational or transnational, they are supranational, floating free of nationalities. They are anchored in no one country, answerable to no one government. Increasingly virtual, made up of separate bits connected by electronics, they are literally hard to pin down. Their shareholdings are so dispersed and intermingled with other corporations that it is not clear who owns them, and as more and more of them start to buy back their own stock and hold it in their own Treasury, the day could come when the corporation eventually owns itself.
The Hungry Spirit: New Thinking for a New World Page 15
