P.C. Shannon

Forbes.com this week has a special section on corporate citizenship. I was particularly interested in the article about corporate philanthropy entitled “Can Corporations Save The World?” Considering the source, I was expecting it to be all about enlightened self-interest and up-with-capitalism, but it actually resonated with a lot of my own thoughts. I’ll avoid going on about the rise of corporate rule and instead focus on something simpler and a bit more relevant to the Forbes article: how corporations are valued.

Corporations are valued based on the price of their stock. The price of the stock, like anything else, is based on supply and demand. Since the supply is more or less fixed, demand is the driving force. Demand is determined almost exclusively by a company’s profitability. Thus corporate officers are driven to maximize profitability at the expense of all other considerations.

But what if profitability were a secondary consideration? I’ve thought about trying to put together a sort of alternate stock market where companies are rated on their environmental and social responsibility. People would be encouraged to buy stocks in the most highest rated companies, which would in turn drive up the price of those companies’ stocks. If NASDAQ were supplanted with such a system (or even if e.g. S&P ratings were based on responsibility instead of profitability), then corporate leaders would be motivated to be more responsible.

As the Forbes article points out, a limited form of this is already happening as consumers become increasingly aware of corporate behavior and vote with their dollars:

“In order to make a profit in this day and age, companies are not going to exist if they don’t have corporate responsibility,” says Alan Hassenfeld, the chairman of Hasbro. “You have to do the right thing,” he says, claiming it helps to recruit and retain employees as well as keep customers.

My favorite quote from the article comes from someone who would clearly disagree with me:

“When you boil it down, there are two economic systems: socialism or capitalism. [Corporate social responsibility] is the viral agent of socialism. Social welfare should come from government and investment from corporations.”

My intuition is that this person would also argue against universal health care, but that’s a different issue. I may advocate socialized medicine and corporate responsibility, but I’m a stalwart proponent of capitalism as well. Really what I’m looking for is some moderation. I definitely think that companies should be profitable, but wouldn’t it be great if your boss increased your benefits instead of maximizing his stock options? And wouldn’t the world be a better place if everyone at Wal-Mart earned a living wage and had decent health care?