Are Companies Good Citizens?

August 30, 2011

With the sniping and gridlock around raising the federal debt ceiling, job creation stalled, and 401ks in free fall, a question to consider is:  What does this all have to do with corporate citizenship?

Amidst this turmoil, American business has mostly sat on the sidelines, or lobbied behind the scenes, but been more observer than public participant in the issues of the day. 

Meanwhile, corporate profits are swelling and companies rest atop piles of cash (reportedly Apple has more in reserve that the U.S. Treasury). The analysts say that business is waiting for more stability, security, and certainty before it invests its considerable reserves. 

That may be sound economic strategy for a company, but it is surely harmful to the country. So, what are the responsibilities of business as a good citizen when it comes to investing in the nation?

Requirements of Citizenship

There is no doubt that companies enjoy rights and freedom as “citizens” of the United States. Their primary obligations are to pay their taxes and obey the law. Public companies of course have fiduciary obligations to shareholders. 

In addition, many companies choose voluntarily to exceed the law in their safety, employment, and environmental practices, to engage their employees and communities in good works, and to contribute a share of their profits to society via philanthropy. This is what it means to be a good corporate citizen!

But how about being corporate citizens on a macro-economic and global geo-political scale? 

In our experience, very few companies have corporate citizenship policies on, say, appropriate rates of corporate taxation, health care provision for working people, job creation in domestic versus foreign locales, or even preferences for democracy and human rights in places where they do business.  

Hardly more than a handful have spoken out about climate change let alone taken a stand. Now some would argue that these are solely matters of public policy, and that it would be inappropriate for business to intrude itself into these spheres. If that stance is correct, why then do companies give monies to U.S. politicians and support lobbying on their behalf by, for example, the U.S. Chamber of Commerce?

Vigilance and Citizenship

Many point to “vigilance” as a duty of a nation’s citizens. In a limited sense, that means being aware of threats to security and freedom from the outside and opposing misdeeds and malfeasance within. In a more activist corporate sense, it calls for awareness of external forces impinging on a company and for activation of internal competencies and culture to respond to them. 

We see vigilance at work in top companies today as they respond to the rise in obesity by improving the nutritional profile of foods-and-beverages and to climate change threats by greening their operations and packaging. This takes firms beyond traditional to strategic definitions of corporate citizenship (or Beyond Good Company as we report in our book on the link between corporate citizenship and business strategy).

At the same time, vigilance was lacking in, to cite some recent examples, the BP oil spill, the report that General Electric didn’t pay any taxes, and the News of the World phone hacking scandal. And how do you rate banks and investment houses as corporate citizens nowadays?

Our contention is that these businesses failed in their duties to be vigilant as corporate citizens.  And they have, as a result, soured the public’s trust in business overall.

Unsustainable levels of debt, unemployment, and losses in consumer confidence define the business environment in the U.S. (and much of Europe) today.  Aren’t companies being vigilant by hunkering down and hoarding cash?  If so, then they are part of the problem rather than part of the solution.

Citizenship and the Commonweal

Beyond being vigilant, good citizens also take an interest in and take actions to improve the commonweal. In this sense, citizenship is not a “one-way street.” Many point out that the traditional social contract between business, government, and civil society has shifted over the past few decades and that business today has obligations to society that were, in other eras, assumed by government and/or community groups. 

Globescan’s annual surveys, for example, find that the majority of the world’s public holds business responsible not only for its products, operations, and treatment of employees but also for improving education and public health and for reducing the rich-poor gap. 

Some of this shift in expectations has to do with the failings of national governments and civil society in these arenas, and some has to do with the increased power and wealth of business today. Whichever way you frame it, the bottom-line is that business, as a corporate citizen, is today expected to contribute significantly and substantively to the common good. 

How’s that been working out? Not so well. As public expectations have climbed, trust and confidence in business have fallen.

Visible Leadership

Albert Einstein once said, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing…” 

Comparable sentiments on the immorality and ineffectiveness of “looking on and doing nothing” come from Benjamin Franklin, Joan Baez, Martin Luther King, Thomas Paine, and hundreds of other good citizen role models. 

Business is being confronted with social, political, and economic forces that challenge the very nature of the firm and well-being of society. What should a good corporate citizen do? 

A. Business leaders should not get involved in the important issues of society and focus instead on their firm’s profitability and stability? Or

B. Business leaders should get more involved in the important issues of society and provide leadership for improving the common good?

Option A means more hunkering down and hoarding of profits. 

Option B, by contrast, requires business to expand its role beyond the familiar terrain of developing and serving markets. It asks companies to actively engage in fighting poverty, creating new jobs, eliminating waste and environmental pollution, improving education and health care, protecting human rights, and reducing corruption. It tethers business, government, and civil society groups together in a kind of collective self-interest. 

These new roles will have to be negotiated both legally and publicly. It opens uncertain territory and calls for courageous leadership by business.  Questions have to be asked and answered about business profits versus societal prosperity, about the national versus global responsibilities of a business, and about the optimal relationship between the three sectors.

Likely as not, the same conflicts seen in the political sphere will arise in companies as issues are debated, stands are made, and actions are undertaken in the name of corporate citizenship for the sake of business and the commonweal. 

That is, in our view, the responsibility of and the price to be paid by good corporate citizens.   

The authors: Googins is executive director emeritus of the Boston College Center for Corporate Citizenship and a professor of organizational studies at the Carroll School of Management, Boston College. Mirvis is an organizational psychologist and senior research fellow at Boston College.