OXYMORON: For Those Who Think `Business
Ethics` Can Be a Contradiction in Terms:
Let's Get Real About Business Responsibility

Guest Commentary by David Korten
Business Ethics, May/June 1996

I have a simple message for the socially responsible community: Get real. All this focus on measures like recycling, cleaning up emissions, contributing to local charities, or providing day care sounds noble, but it's little more than fiddling at the margins of a deeply dysfunctional system.

Most discussions of business ethics make two implicit, faulty assumptions. First, that the managers of global corporations have the option of acting in the broader social interest. And second, that many of our world's most pressing problems--from unemployment, inequality, and social disintegration to environmental stress--can be resolved through actions internal to the firm.

They can't, because the dysfunction isn't in the firms--it's in the system.  The heads of our most powerful corporations serve an unforgiving master: a global financial system hell-bent on maximizing short-term financial returns to shareholders. Given this system, it is all but impossible to manage for social responsibility.

Case in point: As chairman of Eastman Kodak, Kay Whitmore led the company to report 1992 profits of $1.14 billion--a margin of roughly 5 percent on net sales. In 1993 he was fired for trimming only two thousand jobs from the company, after institutional investors had clamored for twenty thousand.

By contrast, Scott Paper's Al Dunlap was considered a `model CEO` by the financial markets. During his less than two-year tenure, Dunlap eliminated eleven thousand jobs, cut in half spending on research, eliminated all corporate gifts to charities and ordered managers not to involve themselves in the community. The market responded by increasing the company's share price 225 percent. Dunlap was rewarded with nearly $100 million in salary, bonuses, stock and other perks.

The financial markets send powerful signals, and they are the only ruler to which the global corporation must respond. A CEO who goes along is rewarded. A CEO who doesn't is ousted.

For all the talk of multiple-stakeholder capitalism, the real world shows us something far different. The global corporation has abandoned accountability to all stakeholders save one: the global financial market. The world of corporate management does not lack for people of high moral character. But whether saints or rogues, corporate managers are captives of the system.

Global corporations present themselves as benefactors of society, providing good jobs and the products essential to our standard of living. But in truth the corporation is a legal entity invented specifically to concentrate economic power in the hands of a small number of people, and shield those people from public accountability. Corporations perform that function with deadly efficiency.

Concentrated economic power begets concentrated political power, which is used by the largest corporations to shift the costs of operations onto workers and communities through tax concessions, substandard working conditions, and relief from environmental regulations.  The name of the game is to privatize gains and socialize costs.

Richmond,Virginia, recently attracted a Motorola Inc. facility, for example, by giving the company a $55  million grant, a $2 million tax credit and a $5 million re-imbursement package for employee training. Workers and communities competing for scarce jobs in a global economy have little choice but to acquiesce to such giveaways. We call it being globally competitive.

The central problem is that finance is separated from community. If we are serious about business responsibility, we must restructure the system to create a strong positive bias in favor of smaller, locally owned enterprises that operate responsibly. To do this we will need--among other things--internationally coordinated antitrust action to restore  market competition, radical political reform to get corporations and big money out of politics, internationally enforced standards of corporate conduct, tax preferences for employee-owned enterprises, an adequate minimum wage, energy use taxes, and the elimination of aid to dependent corporations.

Recycling and day care are great, but they're baby steps. It's time to get down to our real work. We must take the capitalist system back from the finance machine. And we can do it. After decades of experimentation and growth, the socially responsible business community has the savvy, the models, and the momentum. More important: The heart of the world is with us--and when that's true, nothing can stop us.

David Korten is the author of When Corporations Rule the World, Berrett Koehler, 1995.