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Wednesday, July 27, 2005

Becker and Posner On Corporate Social Responsibility

Gary Becker and Richard Posner at the Becker-Posner Blog are answering the question "Do Corporations Have a Social Responsibility Beyond Stockholder Value?". T

Becker's answer:
...My answer is "no", although maximizing value, meeting contracts, and obeying laws help achieve many of the goals by those claiming corporations should be "socially responsible" by taking care of the environment, considering the effects of their behavior on other stakeholders, and contributing to good causes. Still, laws and contracts, and individual use of their own resources, rather than corporate behavior, should be the way to implement various social goals.
Posner adds:
I agree with almost everything that Becker says, but will suggest a few qualifications. I can think of one situation in which "pure" charitable donations by corporations, i.e., donations that do not increase profitability, could benefit shareholders. Assuming that most shareholders make some charitable donations, they might want the corporations they invest in to make modest charitable donations on the theory that a corporation will have more information about what are worthwhile charitable enterprises than an individual does. For example, charities differ greatly in the amount of money that they spend on their own administration, including salaries and perquisites for the employees of the charity, relative to the amount they give to the actual objects of charity. Presumably corporations are in a better position to determine which charities are efficient than individuals are; if so, then shareholders may impliedly consent to some amount of charitable giving by their corporations. But not much. The reason is that one person's charity is another person's deviltry: a shareholder who is opposed to abortion on religious grounds would be offended if his corporation contributed to Planned Parenthood. The practical significance of this point is that corporations avoid controversial charities, so that the issue of implied consent becomes whether the shareholder would like his corporation to make a modest contribution to some set of uncontroversial charities.
For the whole piece(s), click here and here.

Ben and Jerry's is a perfect example of Posner's comment that "one person's charity is related to another person's deviltry". If you want to spark some good classroom discussion of these issues, Michael Schill has case titled Ben & Jerry's Homemade that's based in large part on this issue. The link takes you to the abstract on SSRN, and you can download it by clicking on the link at the bottom of the page. It's pretty "low-tech" and doesn't require much in the way of finance sophistication, so it would even be good for a low-level undergraduate class. .

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