Corporate Citizenship

	12.1 Corporations as Citizens
	12.2 Corporations and Internal Democracy
	12.3 Corporate Responsibility and Corporate Welfare
	12.4 Corporations, Taxation and Crime

In the previous Study Week we dealt with the legal status of land and the ways in which land can have very different meanings for different members of Australian society. We also saw how citizens' rights to property can be expanded by (a) recognition through the common law and (b) changes in statutory legislation. The issue of property ownership has long been central to changing ideas of citizenship. As far back as Ancient Greece, male property-holders were the only people capable of becoming full citizens. In more recent times, voting in parliamentary democracy was for centuries limited to men of property. In this Study Week, we examine the implications of the private ownership of property for the development of citizenship and democracy. In particular, we discuss debates over the rights and responsibilities of business corporations in Australia. We will examine the possible conflicts between individual and corporate civic duties and those between corporate interests and social concerns. Our focus here will be upon the role of major corporations, which have become increasingly powerful with the onset of globalisation.

In the broadest terms, globalisation refers to a process of economic, political, technological and cultural integration across nations, in which the powers of nation-states to regulate their economies has declined. The global dominance of major corporations raises several key questions. Can corporations be seen as citizens of any country? If so, what are their rights, duties and responsibilities? What is the role of government in regulating corporate activity? Is corporate citizenship confined within national boundaries or can it only be understood at a global level? What are the responsibilities of corporations to their employees, to local communities, to nations and to the world? These questions provide the focus for this week. Several interrelated issues are considered:

The role of governments in regulating corporate activity.

Corporate management and workplace organisation.

Corporate responsibility and corporate welfare.

Relationships between governments and business.

Corporate taxation and corporate crime.

1.Corporations as Citizens

One of the main principles underlying the idea of corporate citizenship is that corporations ought not just to concentrate on making profits, but that they ought to exercise wider social responsibilities. That is, those advocating corporate citizenship envisage that companies have duties and obligations not just to their shareholders, but also to others who may have an interest in the outcome of a corporate decision. These 'others' may include their employees, the communities in which they exist, and the governments that regulate and often support them. In the first reading, Jeremy Moon addresses the issues of the social responsibility of business and the extent to which corporations can become citizens. He argues that we can use a model of citizenship to illuminate the relationships between business organisations and society. Moon shows that corporations can perform broader social roles than most do at present.

STUDY EXERCISE 12.1

Read:Jeremy Moon, 1995. The firm as citizen? Social responsibility of business in Australia. Australian Journal of Political Science 30(1): 1—17.

Answer the following questions:

1.What are the three sorts of motivation for the social responsibility of business? Answer

2.In what ways have the firms surveyed by Moon institutionalised their social responsibility? Answer

3.What evidence does Moon use to indicate that globalisation does not undermine corporate citizenship? Answer

4.In his conclusion, how does Moon consider the model of citizenship assists in understanding relationships between business and society? Answer

Moon's discussion is set within a political-economic context which has seen a steady erosion of governmental provision of social welfare. Successive governments in Australia have cut public expenditure. Corporate benevolence has been seen by some commentators as an alternative source of welfare provision. For example, a few months after his return to office, the Prime Minister, John Howard (Australian 6 November 1998), called for an increased commitment by companies to welfare provision:

The spirit of corporate citizenship suggests that a company that derives profit from the community has an obligation to contribute to its development. Just as we now expect unemployed young people to work for the dole, it is reasonable to expect the same principle of mutual obligation to apply to the business sector. I would like to see many more businesses contribute to the welfare of the community through cash grants, matching gifts, gifts in kind and other activities, such as mentoring and providing guidance.

The Prime Minister's call was criticised by many as an attempt to justify reduced government expenditure on welfare. The issue of an expanded role for business is also addressed in a different way in the next reading. Nick Greiner, former Liberal Premier of New South Wales. Greiner claims that a 'civic capitalism' is required.

STUDY EXERCISE 12.2

Read:N. Greiner, 1995. Civic Capitalism: an Australian Agenda for Institutional Renewal. Sydney: Centre for Independent Studies. Occasional Paper #54, pp. 1—5.

Answer the following question:

1. What are the main features of 'civic capitalism', as described by Greiner? Answer

To what extent can or should corporations perform the broader social roles suggested by both Moon and Greiner? This question raises issues that date back before the rise of industrial capitalism. As noted in an earlier week the Canadian political scientist, C.B. Macpherson (1962), coined the term 'possessive individualism' to describe the relationship between individual, state and economy found in the classical liberal tradition. In the classical economic liberalism of Adam Smith, the pursuit of private profit is seen as socially beneficial, since it increases the total wealth of nations. The most powerful source of common interests was economic activity, which was the product of the rational, self-interested actions of homo œconomicus (economic man). Smith argued that, even though individuals may be pursuing their own selfish interests, their actions will eventually enhance the common good, since the overall wealth of society will be increased. The accumulation of wealth, therefore, should be left as free as possible from intervention by governments or other organisations. This is one of the major assumptions underpinning many contemporary or 'neo-classical' or 'neo-liberal' arguments.

From such perspectives, the modern corporation is the possessive individual writ large, but with far greater economic and political power than envisaged by Smith. Corporations are answerable primarily to their shareholders, whose voting power corresponds to the number of shares they hold. The main goal of the corporation is to achieve a return on investments, namely profit. Hence, the overriding responsibility of corporations is to maintain or increase their profits. In this representation of corporate activity, there is little room for any conception of citizenship resembling that applicable to individual citizens—a view maintained by P.P. McGuinness in the following reading:

Read:P.P. McGuinness, 1992. Corporate honesty is the best policy. Australian 1 December: 44.

According to McGuinness, corporate 'generosity' is only justified if 'the shareholders are likely to benefit in the long run'. A contrary case is proposed by Peter Hollingsworth, Anglican Archbishop of Brisbane, in the next reading. He proposes that corporations have a philanthropic duty, to integrate social and environmental concerns within the pursuit of profit.

STUDY EXERCISE 12.3

Read:P. Hollingsworth, 1998. Philanthropy can toe company line. Australian 27 October: 13.

Answer the following question:

1. What is the 'new paradigm of corporate responsibility' which Hollingsworth writes about? Answer

2.Corporations and Internal Democracy

Corporations, therefore, operate according to distinctive principles. Unlike most parliaments, political parties or trade unions, they do not have democratic constitutions. They are hierarchical, with senior management decisions being implemented by subordinates. One of the distinctive characteristics of corporate organisation is the assertion of 'managerial prerogative', the right claimed by senior management to run the corporation (including such areas as employment conditions and investment decisions) as they see fit, in the interests of shareholders.

Historically, the only forces to have significantly curtailed managerial prerogative have been trade unions, governments and legal bodies (for example, in regulating wages and working conditions). The assertion of managerial prerogative has been supported by a variety of managerial theories and practices, claiming that pursuit of the 'bottom line' (that is, profit) must take precedence. It also justifies such actions as cutting jobs or increasing prices. The goals of greater managerial control and the maximisation of profit have always been central to capitalist activity. From the start of the Industrial Revolution in the late 18th century and into the early 20th century, they were pursued mainly through autocratic rule by individual capitalists. As companies became larger and more complex, there emerged a growing need for specialists in different areas, and more systematic attempts to achieve 'corporate efficiency'.

The most significant innovation was by Frederick Winslow Taylor (1856—1915), who inaugurated the system of 'scientific management' or Taylorism, as it came to be known. For Taylor, the key to efficiency was the systematic implementation of scientific management principles, in contrast to 'rule-of-thumb' operations. The techniques he developed were designed to eliminate working practices he regarded as 'wasteful', to increase managerial control over employees and, thereby, to maximise 'efficiency' and profits. With the establishment of assembly-line production by Henry Ford (1863—1947), the labour process was further intensified. 'Fordism' is a term used generally to refer to the organisation of developed economies which prevailed for much of the century: manufacturing-based, high levels of male, full-time employment, with strong work-discipline.

In recent years, there have been moves towards 'post-Fordist' organisation of the workplace, as some managers and unions have sought to expand employee decision-making over the work they do. From this perspective, authoritarian management styles are seen as wasting the most valuable source of productivity: the people who work in the organisation. In many areas there has been a 'neo-Fordist' intensification of work, designed to reduce labour costs and extend managerial control. Accordingly, this trend has been distinctly anti-democratic and shares considerable affinities with 'scientific management'.

The possibility of more democratic organisation of the workplace has traditionally been advocated by those on the political Left and by various trade unions. Industrial democracy refers to the democratisation of industrial decision-making, whereby the workforce, not merely management, decides on key issues on such issues as workplace organisation, new technology or investment. Schemes for industrial democracy vary in the extent of their radicalism — from limited participation by employees in decision-making (for example, the establishment of work teams) to extensive programs for worker control. The following reading, by the Iranian sociologist, Assef Bayat, provides an overview of the main approaches to industrial democracy.

STUDY EXERCISE 12.4

Read:A. Bayat, Arguments for worker's participation. In Work, Politics and Power. London: Zed books, pp. 24—7.

Answer the following question:

What are the three main arguments in favour of greater workplace democracy? Answer

In the following reading Andrew Fraser takes a somewhat different line of critique and reform. Fraser (1993: 53) sees the modern public corporation as taking on 'the powers and attributes of a private government'. He offers a republican critique of the corporation to suggest that a corporation is not just an economic community but a political community of people who responsible for the consequences of their activity. His proposal is that, just as in a liberal democracy there is only 'one person one vote', so also this principle ought to be applied to corporate governance. That is, one way of empowering ordinary shareholders would be to require that each shareholder had only one vote at company general meetings. This would bring an element of equality into the corporate decision making process.

Read:A. Fraser, 1993. Constitutionalising the corporation. Excerpt. In Hudson and Carter eds The Republicanism Debate, pp. 52—6.

Fraser's republican proposal is a radical one. It is, however, only one of a number of concerns being expressed in recent years, by both business and government, about ways to improve corporate governance.

3.Corporate Responsibility and Corporate Welfare

Just as individual citizens have a variety of obligations—for example, paying tax or complying with various regulations in order to receive social welfare benefits—corporations also have obligations. Like ordinary citizens, they should pay tax and observe regulations, but a number of other questions can be raised concerning the broader obligations of companies. What responsibilities should corporations have to the communities within which they operate and to their employees? Jeff Shaw, an Attorney General in the NSW State Labor government reflects upon the implications of a major industrial confrontation between the Patrick stevedoring company and the national maritime trade union re presenting their employees.

Read:J. Shaw, 1998. Directors must use discretion. Australian 18 June: 34.

Shaw argues that there is a case for taking into account the needs and interests of company employees and the wider community, as well as profits. He points out, however, that current company laws tends to prevent directors from exercising corporate social responsibility.

Larger companies with high profiles tend to have the greatest incentives to appear to be acting as 'good corporate citizens', since adverse publicity can be very damaging to corporate images, and consequently to corporate profits. For example, in one of the most image-conscious industries, sportswear, the Nike corporation's public profile suffered from revelations that it has violated the rights of approximately 450,000 workers producing its shoes in Vietnam, China and Indonesia. The company's chairman, Philip Knight, stressed Nike's commitment to being 'good corporate citizens' (Australian 14 May, 1998).

Therefore, a crucial area of corporate responsibility is to employees. Corporations can play an important role in providing social welfare (for example, health and dental plans) for employees. This is more common in the United States, with its fragmented and limited social welfare system, than in Australia, which has a more integrated social welfare system. Companies also have responsibility to protect their employees, particularly with respect to occupational health and safety. Yet the extent to which they do so can vary widely. The workplace can be an unhealthy environment, in which there is a variety of potential problems, including: noise, heat, cold, chemicals, radiation, repetitive work, stress, harassment and violence.

Yet death and injury is often seen as largely part of the job (for example, in the mining or construction industries) and it has taken a long time for occupational health and safety issues to become important elements of corporate agendas. Again, in this case, companies often weigh up ethical or moral considerations against the 'bottom line'. For example, while health and safety standards in the Australian mining industry have improved over recent decades, there have been growing pressures for cost-minimisation which may lead to potential safety concerns.

Also, the concern for occupational health and safety may vary between countries and may become less important in low-wage economies. The following reading raises this issue. The Australian corporate giant, BHP, has achieved high occupational health and safety standards in its Australian operations. In its mining ventures in Africa, however, BHP has found that competitors have been prepared to accept much lower standards, in order to achieve lower operating costs. Treadgold (1998)argues that there need not be a trade-off between safety and productivity, since improved safety standards will reduce time lost through accidents.

Clearly, regulation in areas such as health and safety or environmental protection is less strict in some countries than others. For example, the US company, Union Carbide, was allowed to operate in India without the same constraints of environmental protection or regulation of employment conditions that would have applied in the United States. The escape of MIC gas at the company's Bhopal plant in 1984 caused 2,500 people to be killed and a further 10,000 to be seriously injured.

Two perspectives on these general issues are presented in the following readings. The first, by a labour market analyst, Judith Sloan, maintains that labour standards internationally will improve through minimising barriers to trade. According to Sloan (1996), labour standards would rise 'rise automatically with increases in per capita income'. The second perspective is offered by one of Australia's most prominent business leaders, Janet Holmes à Court, who argues for greater corporate responsibility in countries outside Australia.

Read:Janet Holmes a Court, 1998. We can teach by fair dealing. Australian 7 August, 1998: 13.

Holmes a Court argues that Australian companies can promote human rights in Asia by a number of means which include:

paying decent wages,

refusing to be involved in corruption,

demanding that business partners, contractors and suppliers practise good business ethics,

employ as advisers 'people who know our host countries'.

Corporations can provide welfare benefits, but they can also be substantial recipients of 'welfare'. Business occupies a privileged position in contemporary societies, due to its economic importance and governments have always played a major role in ensuring that business activity occurs. Like ordinary citizens, corporations benefit from government assistance. Although a great deal of media attention is directed against the poorest recipients of social welfare, such as Aborigines, single parents or recent immigrants, there is often little media coverage extended to 'corporate welfare'.

Government assistance to corporations assumes a variety of forms. These include grants, infrastructure, training, education, tax-breaks or helping minimise community opposition to business activity. In an increasingly global economy, governments at all levels compete with one another nationally and internationally for investment, through the provision of incentives to business. Major corporations, due to their size and power and the scarcity of investment, can extract substantial concessions from governments. Increasingly, governments are dependent on the judgments made by international business, particularly financial markets and international credit-rating agencies. Governments constantly take account of the likely impact of their policies on the overall level of business activity and the types of activity that should be permitted to occur.

If we are to understand corporations as citizens, it is clear they usually have far more power than other citizens. Their power is present on a daily basis and is not exercised only periodically through the ballot-box. For example, leading business people are regularly in touch with political leaders and public servants, and relationships between governments and corporations can become extremely close. The closeness of this relationship is evident in both major political parties and governments at State and national levels, and is basic a working assumption of political life.

Attracting and retaining investment has become increasingly competitive, creating pressure to make relationships between governments and corporations even closer. In an era of 'casino capitalism', in which huge profits can be made through instantaneous financial transactions, more traditional forms of gambling have also grown rapidly in economic importance. Governments in Australia, in all States and Territories, have looked to the establishment of casinos as a means of encouraging tourism, increasing economic activity, providing jobs and contributing to their own income base (up to 15% of state revenues). Gambling is one of Australia's most important industries, deeply embedded in the country's history.

The growth of casinos raises important questions concerning the relations between governments and business and the extent to which governments and communities can be seen as sharing the same interests as corporations. This is particularly problematic in an area such as legalised gambling. Margaret Rees (1997) has examined the development of the Crown Casino in Melbourne, with a particular concern for social and economic impact of the rise of a 'casino culture'. One of Rees' conclusions it that gambling can be viewed as a 'tax on the poor'. This is because it involves a redistribution of money from gamblers, who are mainly poor, to wealthy corporations.

4.Corporations, Taxation and Crime

A major criterion of citizenship is liability to taxation. Without taxation revenue, governments cannot function. Most individuals dislike paying tax, or at least paying what they regard as more than their fair share. Corporations, as argued in the previous reading, have far greater power than most individuals to minimise the tax they pay. For example, they can employ lawyers and accountants to reduce their tax liabilities, as well as making use of tax loopholes and tax havens. With the process of globalisation, it has become increasingly difficult for national governments to impose taxation on companies, large and small. The capacity of companies to reduce or eliminate their liabilities to taxation has meant that the burden of taxation has been borne more and more by ordinary wage and salary earners.

There is, however, an important difference between tax minimisation (which is legal) and tax evasion (which is illegal). This takes us towards the issue of corporate crime. Tax havens can provide opportunities for money laundering ('cleaning' the profits of crime by passing them through legally-registered companies). Money laundering has become a global industry, with drug trafficking being the single most important source of illegal income. Advances in telecommunications have assisted money laundering by making financial transfers instantaneous and very difficult, if not impossible, for regulatory agencies to trace. For purposes of both tax evasion and money laundering, numerous 'shell' companies can be used to ensure that the 'money trail' is as complex and difficult to follow as possible.

It is also much more difficult for companies in some industries to become 'good corporate citizens', because the product they sell may be inherently anti-social. For example, manufacturers of anti-personnel land-mines are unlikely to achieve popular acclaim. One of most controversial areas of corporate responsibility for ill-health and death involves the tobacco industry. Tobacco companies are in the rare position of selling a commodity which actually reduces the size of their market, by killing smokers. As more and more people die from disease attributable to cigarette smoking and as governmental regulation of cigarette distribution and advertising is tightened, so tobacco companies need to look to ways of expanding their markets. Tobacco companies can also increase their markets by making their products more addictive and more appealing (and by disassociating them from any potential health risks). Despite the evidence of linkages between cigarette-smoking and a variety of life-threatening diseases, cigarette companies have in the main sought to deny the linkages in numerous legal cases. They have sought to defend cigarette manufacturing and consumption on the basis of individual freedoms and the 'right to choose'.

The prospect of litigation is among the most important influences on corporate activity, in discouraging potentially criminal behaviour. Protracted law suits can be damaging both financially and in terms of corporate images. One of the most celebrated cases of corporate litigation involved the Ford Pinto, one of the best-selling cars in the United States during the 1970s. The Pinto, however, suffered from an unfortunate problem caused by the fuel tank's proximity to the rear bumper. This meant that in accidents, there was a strong likelihood that the fuel tank would burst into flames, incinerating the vehicle and its occupants. In the course of several court cases arising from claims against the Ford Motor Company, it was established that the company's senior management had been aware of this problem before the vehicle was released for sale.

In line with its responsibility to the shareholders, the management had made a calculation of costs and benefits associated with different ways of dealing with the situation. It calculated that the costs of redesigning the dangerous fuel tanks would be around US$137 million, whereas the likely litigation arising from deaths and injuries would only cost US$50 million. Ford, therefore, chose the more cost-effective option and rejected its responsibility to the wider community. When the details of this decision became public, however, other unforeseen consequences occurred. The company became liable to a series of much larger law suits, as well as a loss of consumer confidence and significant damage to its corporate image. One valuable outcome, though, was that vehicle recalls to rectify vehicle defects became an established part of the industry. Therefore, corporate crime, if publicised, can eventually lead to socially beneficial outcomes. Yet corporate culture usually discourage 'whistleblowers'.

Tony Poveda (1994) has examined corporate responsibility in the two areas of white-collar crime considered above, namely, cigarette smoking and vehicle defects. In the case of the Ford Pinto, he demonstrates that, as well as reduced sales of the particular product, the negative publicity had other impacts, including damage to the reputations of the company and its executives, reduced sales of the firm's other products and incurred more restrictive legislation governing their activities. These examples illustrate how corporations are often in the position of making decisions where the financial 'bottom line' may come into conflict with broader issues, such as health, safety or the environment. The corporate image or identity again surfaces as a major factor in ensuring corporations act according to reasonably ethical standards.

Conclusion

This Study Week has addressed several themes, including the social responsibility of corporations. It has examined this issue in regard to increasing democracy in workplace organisation and the wider implications of maintaining close relationships between governments and business. The key question was whether, and the extent to which, corporations can be held to the same duties and responsibilities as ordinary citizens. As we have seen, given the conflicting priorities and imperatives this is not a straightforward matter. In any case, to act as good corporate citizen will always require fine judgement that involves the complex task of weighing up differential consequences for company, community, employees and wider community. Here may see another version of the possible conflict between liberal and civic republican principles. A civic republican corporate citizenship would require that the corporation take account of the wider public good, even if that entailed some corporate cost. The liberal corporate citizen, however, would act very much in the way advocated above by P.P. McGuinness. That is, it would confine itself to fulfilling its responsibility to provide good returns to its shareholders. Accordingly, it would seek merely to obey the law and act honestly in its corporate transactions.

The globalisation of the world economy (particularly with respect to currency transactions) poses further substantial problems for the ideal of corporate citizenship. If we assume that corporations should have similar responsibilities as those expected of ordinary citizens, we must also be aware of a key difference. Major corporations often have far more power than ordinary citizens to influence the methods of external regulation or legal controls, and also to resist them, if they wished to do so. Accordingly, to enforce good corporate citizenship may also require increasing regulation and legal action at an international level, as well as within national boundaries. This type of strategy, however, goes strongly against the trends of the last two decades. All this suggests that if the idea of 'good corporate citizenship' is to be more than just a slogan, it will need more refinement. There are encouraging signs, however, that such a reconsideration is occurring in Australia.

In the next Study Week we shall examine somewhat similar problems in the context of transnational citizenship. There we shall consider the growth of international organisations and the corresponding rise in global political activism, as well as their implications for Australia.

Review for Week 12

Before proceeding, you ought to review your understanding of this week's topic by:

(a) checking your responses to the Study Exercises against those supplied in the Study Guide, and

(b) reading again the documents for this week and completing the related Study Questions in the Workbook, for which there are no answers provided.

References

Bayat, A. 1991. Work, Politics and Power. London: Zed Books.

Ewin, R.E. 1991. The moral status of the corporation. Journal of Business Ethics 10: 741—56.

Fraser, A. 1993. Constitutionalising the corporation. Excerpt. In Hudson and Carter eds The Republicanism Debate, pp. 52—6.

Greiner, N. 1995. Civic Capitalism: An Australian Agenda for Civic Renewal. Sydney: Centre for Independent Studies. Occasional Paper #54, pp. 3—5, 14—24. [excerpt]

Hollingsworth, P. 1998. Philanthropy can toe company line. Australian 27 October: 13.

Holmes a Court, J. 1998. We can teach by fair dealing. Australian 7 August, 1998: 13.

McGuinness, P. 1992. Corporate honesty is the best policy. Australian 1 December: 44.

Moon, J. 1995. The firm as citizen? Social responsibility of business in Australia. Australian Journal of Political Science 30(1): 1—17.

Poveda, T.G. 1994. Rethinking White-Collar Crime. Westport and London: Praeger.

Rees, M. 1997. The sickness of the casino culture. Workers News Online 16—30 June.

Shaw, J. 1998. Directors must use discretion. Australian 18 June: 34.

Sloan, J. 1996. Backdoor protectionism. Australian 6 October: 11.

Treadgold, T. 1998. The human factor stumps BHP. Business Review Weekly 9 March: 20—23.

Internet and On-Line Resources

Below is a list of web-sites relevant to this week’s course material. These sites should be of use in completing the study and research exercises for this week.

Business for Social Responsibility:

Corporate Citizenship Research Unit, Deakin University:

Left Business Observer: