Can legal reforms rescue business back from greedy shareholders?

Article by Wayne Visser

An International Sustainable Business column for The Guardian

The notion of a social enterprise – a business that explicitly strives to create wider societal benefits, rather than focusing narrowly on shareholder returns – is not new. In the 1700s and 1800s, a charter of incorporation was only bestowed on those businesses that were socially useful – for example, water utilities or railroads.

As Joel Bakan, legal academic and author of The Corporation, explained to me: “The original notion of the corporation was that the sovereign would grant the status of corporation to a group of business people in order to acquit themselves of some responsibility to create something that was in the public good … the notion that this was simply about creating wealth for the owners of the company was alien.”

The 18th and 19th centuries also saw the birth of the co-operative and credit union movements, initially in Britain, France and Germany, and later spreading across the globe. Today, according to the International Co-operative Alliance, more than a billion people are members of co-operatives worldwide, with co-operatives providing 100m jobs (20% more than multinational enterprises).

The economic activity of the largest 300 co-operatives in the world equals that of the 10th largest national economy. In the US alone, there are more than 29,000 co-operatives, accounting for more than $3tn (£1.9tn) in assets, generating more than $500bn in revenue and $25bn in wages.

Despite these noble roots, and the existence of co-operatives as an institutional alternative, the modern corporation with its with short-term, shareholder-driven mission has come to dominate our global economic landscape. Multinationals especially are seen by a growing tide of critics as not only failing to act in the interests of the public good, but as being agents of wholesale value destruction in communities, economies and the environment.

Bakan goes so far as to argue that today’s companies are pathological in nature, in the sense that “the corporation has a legally defined mandate to relentlessly pursue – without exception – its own self-interest, regardless of the often harmful consequences it might cause to others.”

Partly in reaction to the growing power and impact of big business, we have seen the rise of another counter-movement over the past 40 years, focused on social and environmental entrepreneurs. Among early pioneers were the Ashoka Foundation (established in 1980), Fundes (1985) and the Social Venture Network (1987), with a new wave of momentum coming from high profile cash injections by the Schwabb Foundation (1998) and Skoll Foundation (1999) and books like The Power of Unreasonable People by John Elkington and Pamela Hartigan.

Within the big corporates over the same period, corporate social responsibility and sustainable development programmes have gained ground, moving through defensive, charitable, promotional and strategic stages, as I have described elsewhere. However, in the face of growing pressure to prioritise their fiduciary duty towards shareholders, these CSR and ‘triple-bottom line’ efforts have been widely criticised as little more than window-dressing and corporate spin, and largely ineffective in tackling our most pressing social and environmental crises

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Cite this article

Visser, W. (2013) Can legal reforms rescue business back from greedy shareholders? The Guardian, 23 February 2013.