Welcome to the Greenleaf at 21 blog series. To celebrate our 21st birthday, over the next few months we will be sharing original posts by influential Greenleaf authors, in which they discuss how their field has changed over the last 21 years and what they hope to see change in the future. This article by Lalith Gunaratne focuses on how the corporation has evolved over the last two centuries:
The legal license to operate a business evolved in the 19th century with limited liability laws providing a corporation the status of an “individual” and a “person”. Yet the corporation is immortal, as it can outlive its proponents. The law enables the corporation privileges and immunities, primarily to earn a profit of the stockholders, and exercise a variety of political rights – the right to freedom of speech, lobby governments and make campaign contributions.
Business owners then decide how responsible the corporation will be, internally and to the outside world. As free enterprise grew in the late 1800s, political rights and privileges – the right to lobby governments and make campaign contributions – shaped the way western democratic governments are elected. It is no secret that many politicians who form governments are propped up and supported by business interests.
This may compromise the role of the government, the oversight, regulation and governance that protect the common interests of the people who elect politicians. However, in democratic countries at least, there are safe guards, such as an independent judiciary, laws, regulations, civil society organisations and a robust opposition to keep politicians and government alliances with corporations in check.
CSR has been used to build a corporate image rather than for altruistic reasons
Over time, there have been exceptional business leaders who transformed their legal licence to a social licence to operate by leading corporations in a responsible manner without needing to coerce or be regulated by governments.
The Cadbury Brothers of Birmingham pioneered corporate philanthropy ushering in a new era in industrial relations and employee welfare. By 1899 their Bournville factory had 2,600 employees supported by works committees, medical services, pension funds, education and training for employees.
The Rowntrees were also active anti-poverty campaigners, establishing the Joseph Rowntree Foundation which continues to serve humanity to date.
Both the Cadburys and the Rowntrees were among other Quaker business families to establish their corporations on moral principles based on their religious values.
Quaker values included:
• Compassion for the oppressed or marginalised.
• Peace – conflict cannot be resolved by violence or armaments, but only by patient negotiation.
• Justice and Social Action wherever there is inequality or unfairness.
• Honesty and Integrity in all transactions in work, business, finance and in personal
• Simplicity – step lightly in the world, avoiding excess.
• Community striving for a unity that encompasses diversity valuing cooperation rather than competition.
Jamshedji Tata founded Tata Sons in India, in the late 1800s with similar values. He focused on worker welfare, establishing housing communities with support services for their textile and steel mills. Tata was inspired by Mahatma Gandhi, who urged Indian industrialists to demonstrate their commitment to social progress through his notion of “trusteeship”. Tata created a philanthropic trust to hold 66% of the equity capital of Tata Sons to live up to this call.
Religion aside, the Quaker values are relevant for modern day corporations to gain social license and be responsible citizens. Yet leadership values may not be the sole driver for many of today’s corporations who embark on CSR. CSR has been used to build a corporate image rather than for altruistic reasons.
There is also a tension between regulation and voluntary action for CSR. Governments have to balance between civil society and corporate interests to the call of regulation. No amount of regulation will stem bad corporate behaviour if leadership values are questionable. Authenticity and responsibility comes with good intentions founded on sound leadership values and walking the talk.
There have been exceptional business leaders who transformed their legal licence to a social licence to operate by leading corporations in a responsible manner
With a younger generation of business leaders, the hierarchical management paradigm is transforming to a leadership or a circular paradigm – honouring the “living system” of nature. They acknowledge the perils of climate change and conflict that arises from inequality in the world and prefer more responsible corporations. They are also facilitating a convergence of ideologies – East and West, mind and matter and moving the male dominator model to a partnership model, based more on respect, empathy and mutual benefit.
As the 19th century business leaders showed, charity begins at home. A competitive male-dominated worldview changed business in the 20th century making them predatory with its focus on shareholder value. 21st century business leaders are realising that the corporation can no longer be depersonalised. It has to become aligned with a complex and unpredictable but a spiritual human being, with a free will and imagination, hope, faith and ambition, seeking a meaningful life to sustain itself into the future.
The 18th century limited liability laws designed for the industrial era require reform to meet the human and environmental needs of an era acknowledging the “living system” of nature. What corporations deem externalities will have to be valued as a part of doing business into the future. This may bring an alignment between the corporation, politics, government and the common interest of society and the environment for mutual benefit.
“I desire to end capitalism almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other theories”
Gandhi – 1939
An article by Lalith Gunaratne
Lalith Gunaratne, CET, MSc, is the founder of Sage Ontario for Mindful Business and has written a chapter on Sri Lanka for The World Guide to CSR: A Country-by-Country Analysis of Corporate Sustainability and Responsibility, published by Greenleaf Publishing.
Buy The World Guide to CSR (hardback/paperback/PDF eBook) direct from Greenleaf Publishing.