Business Repression: A Shareholder Directive?
Over the past few months, I have been mulling over the various stories regarding Google, Yahoo!, Cisco, and other companies about how they have aided China’s government in suppressing her people. The facts of the stories as well as the corporations’ responses to criticism have always bothered me. I have a very firm set of morals with which I do my best to guide my daily actions, and accordingly, nearly every element of the various news stories mentioned is in conflict with my view of “right” and “wrong.” (If it is not clear, my intention is to establish that my morals work for me, but I don’t expect everyone to agree with them.)
I made a comment on the China Blog for my MBA program in relation to the issue and think it sums up fairly concisely many of the issues I have been grappling with. Following is a portion of my post (the remainder isn’t relevant to this topic):
“…While the public and the press may put a great deal of effort into deriding US multinationals for subjugating to the Chinese government, presumably in an effort to increase profit and shareholder wealth, corporations at the focal point of the issue routinely offer the same justification: they are subject to and must abide by the laws of the country within which they operate.
“While this ‘canned’ corporate response has begun to lose its staying power, the response is valid nonetheless. Indeed, corporations are subject to the laws of the countries within which they operate.
“But isn’t such response a bit of a cop out? Is anyone forcing Google, Yahoo!, Cisco, and others to do business in China? One could always argue (and I’m sure many executives have used such a justification) that shareholders, in their demand for ever-increasing profits and wealth, essentially force the corporation to seek out markets where such issues come into play. …’Don’t blame us, our shareholders demand growth and an astronomical return on their investment! China’s our only option!’
“I’m being a bit sarcastic here, but truthfully, if there is blame to pass around, I believe the bulk of it rests with shareholders, then consumers, and then executives. If the masses truly cared about human rights and freedom of the press in China, they would immediately stop using Yahoo! and Google, and force the company to act. Similarly, if shareholders truly cared about such issues, they would communicate as much to the Board of Directors, even if it meant a decrease in the value of their shares. A corporation’s leadership, at least in theory, is simply following the directives of its owners.
“That said, I firmly believe that everyone has a responsibility to stand up for their personal convictions, even if they are in direct conflict with the company they work for, the government that protects them, or the society within which they live. I imagine such brashness is a product of having never been politically repressed, and perhaps a bit naïve, but that is simply the way I choose to live my life. Is it appropriate to not speak out when your company aids a foreign government in the persecution of an individual, simply because they are critical of the government’s policies? If we will not tolerate such injustices within our own borders, what reasonable logic can justify operating in such a manner abroad? I hesitate to draw correlations between this type of behavior and more reprehensible instances of oppression (Stanley Milgram…) but if simplified to a base level, there isn’t much difference.”
I welcome your comments.
TAGS: This entry was posted on Sunday, May 14th, 2006 at 11:40 am and is filed under Business Ethics, CalPoly MBA, China, Corporate Governance, Corporate Social Responsibility. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
May 15th, 2006 at 1:15 pm
Just briefly:
Every person, unless acting under duress, is responsible for his or her actions at all times. Shareholders are often faceless funds or ultra rich individuals. The executive is ALWAYS responsible for the decisions he or she makes, regardless of the wishes of the shareholders.
Obviously, I think exeutives should come before shareholders on the list.
May 15th, 2006 at 2:04 pm
On a moral level, I completely agree with you. From a corporate governance standpoint, however, technically the executive (well, the officers and directors) are simply doing the bidding of the shareholders. In fact, if a CEO were to suddenly pull out of China because his company’s hardware was being used to aid the government in its effort of mass censorship and ideological suppression (…what’s that company’s name again? Sisyco? Crisco? Simco?…), he might be breaching his fiduciary duty to the corporation.
I’m not trying to argue in favor of the executive (in fact, I think the above situation — where an executive can be at fault for doing the “right” moral thing — is a huge part of the problem), just trying to highlight the responsibility shareholders and consumers have.
If you care deeply about the fair trade coffee movement and supporting small businesses, are you in conflict if you own shares of Starbucks? How many Starbucks shareholders complain and point fingers about globalization? How many Wal-Mart shareholders are against sweat shop labor? Are against the private sector’s abuse of eminent domain? How many consumers that spend money at either retail company claim to care about the same issues?
If you believe in freedom of speech, freedom of religion, worker’s rights, etc., yet still funnel your money into the coffers of the corporations that readily abuse such liberties, what kind of a message are you sending?
That’s the main point I was trying to make, yet as I’m sure it does to you, an executive claiming little or no responsibility for his or her actions enflames me.
Candidly, I am fairly critical of Starbucks yet occasionally buy a cup of coffee there (mainly due to circumstance, but that’s quite irrelevant). I’ve only been to a Wal-Mart once (it was in Mexico and my wife and I were desperate), but I use Google daily. I’m part of the problem if consumers are to share the blame (which I obviously think they are).
May 16th, 2006 at 11:46 am
I see your point and accept it as valid, however if the blame is spread to thin, it will evaporate. Does a fiduciary duty ever supersede an ethical or moral duty? I say no.
In the original corporations of the modern world such as the Dutch East India Company, the Hudson’s Bay Company, etc. the board of directors and shareholders sent Captains out on trading expeditions. The Captain of the ship was always directly responsible for the behavior and actions not only of himself but also of the sailors on the ship. It wasn’t up to the shareholders or board of directors to micro-manage the affairs of an expedition.
If attrocities were comitted, the consequences fell on the shoulders of the Captain. Today’s captains are CEO’s.
This was lot more eloquent when I was thinking about it last night, but you get the idea.
May 16th, 2006 at 4:53 pm
Excellent points!
That’s a sticky question. Personally, I think ethics and moral convictions should govern every action we take. From a governance standpoint, technically, I think it is possible to argue that one’s fiduciary duty is first and foremost to the corporation (duty of loyalty) always. It sounds preposterous, but if viewed strictly from a legal corporate governance standpoint, if you are an officer or director and put your personal ethics first and in conflict with the betterment of the corporation (i.e. at the expense of profits and shareholder wealth), it is possible that you are breaching your duty of loyalty and possibly engaging in self-dealing.
That said, this type of debate (in which, on a personal level, I 100% fall on the same side you are arguing from) raises some of the inherent weaknesses of the structure and purpose of a corporation. If it can be shown that a director has a greater duty to the corporation than to his or her own moral standards, what kind of backwards and sadistic entity does a corporation have the propensity to become? We have some pretty good examples to respond to that question: Enron, WorldCom, Tyco, Adelphia, and a host of others.
That is incredibly idealistic. I love it. …except, whether that was the original intent or not, corporate case law has twisted and churned the reality such that not only is the Captain not responsible for the actions of the sailors, but more often than not, neither is he responsible for his own actions (especially if the company is incorporated in Delaware). I think the recent scandals and resulting legislation have helped a bit, but who knows how long that will last.
To be clear, I completely agree with the points you are making on a personal level. I’m trying to spark debate and dialog about this very hairy issue, as I think the media and society very readily point fingers without adequately considering all of the contributing factors.