What–if any–responsibilities do corporations have beyond their bottom lines? This important question was debated today at the Center for American Progress by two distinguished experts from the business world.
Susan Lee, Vice-President for Economic Policy at the Center for American Progress, introduced the event. Leo Hindery Jr., Managing partner of Intermedia Partners VII, and Fred Smith Jr., President of the Competitive Enterprise Institute, debated the issue, moderated by The Wall Street Journal Assistant Managing Editor Alan Murray.
In framing the debate, Murray describes “something very important going on in the world of corporations.” Tracing what he terms “the age of the CEO” in the 1990s through 9/11 and more recent scandals, Murray points to a growing discussion of how the power of corporations should be used in society.
Hindery, himself a former CEO, believes that corporations must be interested in more than just maximizing returns to shareholders. Citing customers, employees, and the larger community as other important factors, Hindery seeks to expand the understanding of a corporation’s purpose to “a vibrant, prosperous middle class, growing from the bottom-up, best for corporate America, and certainly best for the country.”
According to Hindery, long-term success and profitability come from “being equally responsible to multiple constituencies,” and not just to investors. He supports a government role in developing those responsibilities because “corporations are simply incapable of self-policing.” Hindery also emphasizes, citing his personal experience, that creative and hard-working executives can successfully run socially responsible businesses.
Smith challenges the idea that generating wealth is the social role of corporations, and that they should focus on what they do best. He points out that “a profitable corporation does have to look at the world it operates in,” he argues that additional social policy considerations can interfere with good business. “It’s hard enough to run a corporation,” he believes, without expecting executives to compare dollar values and moral values.
In describing the role of corporations in society, Smith points to their success in focusing on specific areas and improving society through that narrow work. “It’s a good idea that we have specialized institutions,” and in specialized areas corporations are especially good at “expanding wealth and knowledge.” Expecting corporations to solve broad social problems might be expecting them to do too much.
Smith also emphasizes the need for business to better define the public debate about their role in society. “They haven’t adequately explained to the world what their role is,” he claims. “We need to teach the rest of us to enjoy capitalism.” In his view the misunderstood function of corporations has inhibited needed investment and made it more difficult to craft good government business policy.
Both debaters agree that businesses should be profitable, should be competitive and should follow the law. While Hindery says he believes there is room for corporations to have broader concerns, Smith says he thinks business needs to “get over its guilty feelings about itself.”
