By Angeli Arora
If asked who I’d love to be seated next to at a hypothetical dinner party, I immediately respond, Steve Jobs. I would love to learn how he went about building a company that has had such an extraordinary impact in the world, changing the way we work, live and communicate.
I am not saying that Apple’s influence was necessarily good or bad – just that it was huge.
There is no denying companies do have the power to change the world for the better or worse. Indeed, some companies have caused irreparable damage to the world, the extent and effects of which are still being unearthed.
This leads me to the following questions: should companies have more regard for their impact in the world when they conduct their business? Do we need them to think harder about their “moral” obligations? And, most critically, how do we make that happen?
As a starting point, there are laws and regulations which prevent a company from engaging in certain harmful acts. Also, some harmful acts give rise to legal actions. However, these laws/regulations tend to prescribe a minimum standard of acceptable behaviour for companies.
There is, of course, much more a company can do to become socially responsible – each company must make its own decision in terms of how far it wishes to go.
On what basis does a company make that decision? What factors must it consider? When making such choices, directors must be guided by their “fiduciary duties”. This includes making decisions which most likely promote the success of the company for the benefit of its members. In making that assessment, directors must consider “the impact of the company’s operations on the community and the environment”. Importantly, this is not a separate standalone factor that directors must consider, but something that is only relevant to the extent that it affects the company’s success.
Shareholders, as owners, also have an important say in how a company is managed, including by removing directors they do not like. The largest shareholders in public companies tend to be institutional investors. These institutional investors have their own duties to act in the best interests of their clients, including to look after the money they have invested with them. Accordingly, when these institutional investors exercise their shareholder votes in companies, they are generally guided by their mandate to maximise returns for their clients (unless their mandate provides otherwise). Consequently, fund managers are not free to take into account business ethics in the same way you and I can if we vote directly.
In effect, a company only needs to do “the right thing” if it is in its own self-interest (with a view to long term maximisation of value). Sometimes doing the right thing might align with the best interests of the company; sometimes, the “best interests of the world” could conflict with “the best interests of the company”. In that situation, a director is faced with having to prioritise the company’s interests.
Circling back to the initial questions (should companies have more regard for their impact in the world when they conduct their business and how do we make that happen?), the laws (including on fiduciary duties) can of course be changed to impose higher minimum “ethical” standards on companies. However, we all have the power to effect change.
The more we factor in social responsibility when we make our own choices (for example which companies to invest in, what to buy and where to work), the more companies will need to care. This is because our choices impact the success of a company – increased investment, sales, financing, talent are all factors which contribute to a company’s success.
As we know, directors must keep the success of the company at the forefront of their mind when making decisions about the company.
Accordingly, we as individuals need to start looking closely at our own ethical choices before we criticise companies for their choices: do we look for the highest financial return at any cost? Are we prepared to stand by a company that distributes a lower dividend because it wishes to use cash to improve its ESG performance or do we buy shares elsewhere? Do we value jobs in companies which may not be the highest paid but are good corporate citizens?
Quite simply, if we want companies to do better, then each of us needs to do better too.
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