Once, there were no corporations. In fact, in European nations prior to the 17th century, there were exactly zero legally recognized associations whose express purpose was to make profit for their shareholders.
Once, there were no corporations. In fact, in European nations prior to the 17th century, there were exactly zero legally recognized associations whose express purpose was to make profit for their shareholders. All so-called “legal persons” (as opposed to living, breathing persons) were either universities, hospitals, churches or councils. Profitmaking was a task for private merchants, not publicly traded enterprises.
That all changed shortly after the English East India Trading Company received its charter from the British crown in the year 1600. Due in large part to some (technically illegal) organizing and amalgamation of assets, the “members” of the East India Company effectively became “shareholders.” Long story short, the institutional form that we know today as the “corporation” was born.
The corporate regime
According to a report assembled by Global Justice Now, a UK organisation using CIA Factbook and Fortune 500 information, Walmart is the tenth largest economic entity in the world – in terms of annual revenue, at least. This puts the corporate giant ahead of large, influential nations such as the Netherlands, Spain, Switzerland and Russia (among others) in terms of raw economic clout. In fact, out of the top 100 economic entities in the world, 69 of them are corporations; out of the top 200, 153.
It may still be premature to suggest that multinational corporations have replaced the nation-state as the main driver of global economic life. Yet corporate influence on the world stage shows no sign of slowing. This unprecedented situation goes by many names in the academic world: global capitalism, neoliberalism, oligarchy, even corporate tyranny. Whatever we might call it, it is indisputable that such an economic order has brought unique and monumental challenges to the set of problems and solutions falling under the banner of “sustainability.”
Our corporate world is here to stay – at least until the next revolution in world-defining institutional life comes along. Working for systemic change often requires working within existing systems, which is one way to think about the life’s work of Gerard Farias, Associate Professor of Management at Fairleigh Dickinson University and a world expert on global business strategy and sustainability. According to Farias and a growing number of business experts, the time for rethinking the modern corporation from the bottom up has come. In fact, it may have been here for quite some time already.
“This nexus of corporate wealth and power – both political and economic – is a cause for great alarm,” Farias remarked at a recent conference. “But it also represents a double-edged sword. This economic and political power seems to leave no option other than to call for the business sector to play a significant role in sustainable development.” In other words, academic alarm bells about corporate power cannot address material problems here and now. The business world must be made more directly accountable for the fruits of their institutions. Among other things, this means changing the way we teach business students.
Happily, there is good news to report here. “Profit-only” models are no longer popular in the common parlance of business leaders and educators – at least not as they are explicitly stated. The days of Milton Friedman, who vigorously argued that the sole responsibility of business is to increase profits, are more or less over. In fact, according to a recent study published in the MIT Sloan Management Review, “90 percent of managers agree that having a sustainability strategy is important to their business.” However, less happily, the same study also reports that only 60 percent of companies have an actual “sustainability strategy.” The puzzle here is not one of convincing moral monsters to become moral; rather, it is about presenting a clearer, more coherent sustainability vision for the morally interested. This takes work.
Most corporate sustainability strategies include a “business case” as a non-negotiable part of its terms. That is, whether it involves changes in labour, resource efficiency or customer satisfaction, sustainability activities must make a positive contribution to the firm’s bottom line. Companies are not built to lose money.
A steep climb
Unfortunately, according to Farias, sustainability strategies tempered by profit motives are not enough. The big picture is still grim. “We are at a crossroads. Firms have addressed the easy things to do. They have found alignment between their business interests and sustainability.” From the business perspective, what lies ahead is a “steep climb with treacherous slopes. A climb that calls for a commitment to sustainability, social and environmental justice without qualifications and a deep understanding of the interconnectedness between the environmental, human and industrial ecosystems.”
This climb is steep for at least three different reasons. First, there is the harrowing scale of environmental devastation that business interests (and governments, for that matter) have already wrought. As a now famous Princeton study showed in 2013, current levels of carbon dioxide would significantly warm the earth’s atmosphere for generations even if emissions around the world were halted immediately.
Second, there is the underappreciated fact that broad sustainability visions face problems with competing goals. One familiar example illustrating this problem is the conflict between alleviating poverty and reducing consumption, since higher standards of living tend to effect higher consumption levels worldwide.
Finally, there is the more structural issue of corporate organizations themselves. After all, even the most socially conscious business leaders conduct their important work in organizations that are built to make money, at least first and foremost.
In the interest of addressing these problems, some business schools have begun to integrate the United Nations’ official program of “Sustainable Development Goals” (SDGs) into their core curricula. At the heart of this program are 17 interconnected development goals, including poverty and hunger relief, climate action, infrastructure and education – all necessary conditions for adequate living in communities around the world. The idea is to reposition concerns for sustainability to the forefront of cutting-edge business education.
This commitment in business schools still largely depends on the initiative of individual faculty and administrators. Until more steps are taken at the level of national and international standards, it is difficult to imagine serious, systemic changes in institutional business practices.
Still, Farias’ words are stark, especially coming from someone so deeply invested in the theory and practice of international commerce: “Business education has for a long time hidden behind a shield of amorality. Pope Francis, in his 2015 encyclical Laudato Si, called on all of us, whatever our roles to gain a deeper understanding of the interconnectedness of poverty and environmental issues and to act on them. Let us heed that call.”