What role should business play in society, and what responsibilities do they bear for the state we’re in? As we struggle with the twin crises of the pandemic and climate breakdown, these questions are more pertinent than ever before.
For decades, the mantra of free market economics has been that the only “business of business is business,” as Marc Benioff, the CEO of the US software company, Salesforce, has put it.
He was reflecting on the enduring influence of an article published just over 50 years ago by the US economist, Milton Friedman. Writing on the “social responsibilities of businesses”, Friedman had argued that they had only one: to always act in the interest of their shareholders and increase profits, so long as they stay “within the rules of the game.” This was how they could best serve society.
It’s a view that continues to hold sway today. Friedman’s article, “influenced — I’d say brainwashed — a generation of C.E.O.s,” Marc Benioff, a critic of this approach, wrote. “Our sole responsibility to society? Make money. The communities beyond the corporate campus? Not our problem.”
Boris Johnson was channeling pure Friedman recently when he claimed that the UK’s relative “success” in rolling out Covid-19 vaccines was down to “greed.”
“It was giant corporations that wanted to give good returns to shareholders,” the British prime minister told a group of parliamentarians.
It did not take long for social media to erupt, with critics pointing out that pharmaceutical companies have received billions in public money to develop vaccines, and it was down to a huge army of the UK’s National Health Service staff and volunteers that so many people had received their inoculations so quickly.
Contrary to Johnson’s claim, greed alone can only go so far. The pandemic and how we are responding to it have exposed the limits of Friedman’s doctrine. The evidence shows that “giant corporations” acting solely in the interests of their shareholders can not only not solve the problems of the world but are also actively contributing towards them.
In the case of the pharmaceutical companies, their refusal to share their knowledge and technology means that the world is vaccinating its population far more slowly than it could be. While the UK and a handful of other rich nations are racing ahead, poorer countries have been left waiting and uncertain as to when they will receive enough jabs for their citizens. This puts us all in danger, as new COVID-19 variants emerge.
As, Tedros Adhanom Ghebreyesus, director-general of the World Health Organization (WHO), has argued, “market-driven mechanisms alone are insufficient to achieve the goal of stopping the pandemic by achieving herd immunity with vaccines.”
In the face of this challenge the WHO has established a potential solution. Through the COVID-19 Technology Access Pool (C-TAP), companies can share knowledge and technology. But pharma companies have lobbied against this initiative and none has so far joined.
If they were to do so, they might well earn less from their vaccines, but not doing so puts the whole world’s health and economy on a more precarious path than would otherwise be the case.
COVID-19 is not the only crisis where businesses’ apparent prioritization of “shareholder value” is contributing to the problem not the cure.
Take the example of JP Morgan Chase and climate change. In 2020, economists at the US bank sent clients a warning that left unchecked, the climate crisis, “would likely push the earth to a place that we haven’t seen for many millions of years… Something will have to change at some point if the human race is going to survive.”
The economists noted that the crisis, pushed by fossil fuel emissions, “reflects a global market failure in the sense that producers and consumers of CO2 emissions do not pay for the climate damage that results.”
Yet in every year since the adoption of the Paris Agreement in 2015, JP Morgan has been by the far the biggest financier of the fossil fuel industry. According to annual reporting by the Rainforest Action Network, it has provided nearly $317 billion between 2016 and 2020, a third more than the next biggest source of fossil fuel finance, Citi.
So while the bank understands that the burning of fossil fuels is creating a crisis that imperils the human race, it is still prepared to pour billions into the industry, apparently with the goal of earning short term profits for its shareholders.
There could not be a better example of why the world needs a new understanding of what the responsibilities of businesses really should be, with governments enforcing new regulations, or “rules of the game”, as Friedman put it half a century ago,
By coincidence, this year also marks the anniversary of a much less well-known document than the Friedman Doctrine. In 2011, the UN published its “Guiding Principles on Business and Human Rights,” which established that businesses have a responsibility to respect human rights throughout their global operations.
The UN Guiding Principles require that companies “do no harm” or, in other words, take pro-active steps to ensure that they do not cause or contribute to human rights abuses within their global operations and then provide remedy for the victims of any human rights abuses when they do occur.
Amnesty International’s researchers have documented numerous cases of how irresponsible corporate behaviour is harming people’s human rights around the world. Yet businesses are escaping scrutiny and accountability due to the failure of government regulators to keep pace with the complexity and fast changing nature of businesses’ global operations.
The UN Guiding Principles require governments to step up — to protect people and the planet from negative impacts of corporate actors.
This June, the European Commission will publish a draft law that will hopefully go some way towards this, establishing the need for companies to conduct what is known as “human rights and environmental due diligence”. This should require European companies to assess how their global operations or business relationships might put human rights at risk and then put effective measures in place to prevent harm. The draft law should also ensure that the victims of harm have access to remedy.
Such a law is essential if we are to redefine the role and responsibilities of businesses and successfully tackle the grave issues facing us all. We cannot leave it to corporations themselves to decide what they can or cannot do.