Corporate accountability

On August 19, 2019, the Business Roundtable issued a press release containing a roughly 300-word statement, signed by 181 of its members. “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’” its headline read, citing a quote from its chair, Jamie Dimon. The CEOs pledged to “lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders,” and “move away from shareholder primacy.” The CEOs added, “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

[…]

A new narrative quickly began to solidify: Milton Friedman’s profits-at-all-costs way of thinking was dead. In fact, Fortune wrote in its cover story that “Friedman must be turning in his grave.”

There was just one catch: CEOs weren’t actually promising a new way of doing business, but simply a new way of talking about doing business.

[…]

As Columbia Business School’s Shiva Rajgopal, co-author of one study that investigated whether Business Roundtable CEOs followed through on their pledges, observed, “When these guys signed the BRT statement, the stock prices of these firms [did not] move … There was no heartbeat at all.” This suggests, as Rajgopal and his co-author wrote, “market participants agree with the assessment that the BRT statement represents cheap talk.”

Friedman being Friedman:

What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers.  […] In each of these cases, the corporate executive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stock holders, he is spending their money.

[…]

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other.

[…]

Here the businessman—self‐selected or appointed directly or indirectly by stockholders—is to be simultaneously legislator, executive and jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds—all this guided only by general exhortations from on high to restrain inflation, improve the environment, fight poverty and so on and on. […]  the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.

The basic idea behind the model of Systems Intentionality may be simply described, and applies equally to corporate and natural defendants. Diamantis has explained how natural persons commonly make use of “extended mind” supports, which are external systems or cognitive aids (such as recipes, maps and notes or records) to facilitate recall and decision-making. So too, I say, corporations adopt systems of conduct that enable them to make and implement decisions consistently and repeatedly, and respond purposefully to events. Indeed, having (unlike humans) no natural memory or cognitive capacity, corporations necessarily employ systems of conduct to direct, coordinate and manage the changing and fallible human (and other corporate) personnel that carry out corporate purposes, over time. The same holds true where human elements within the system are entirely replaced by self-executing (automated) processes.

The critical point is that, on my model, such systems exist in order to achieve some outcome (whether it be coordinated conduct, or consistent output). Thus, Australian courts have described the concept of a system as “an internal method of working”; “something designed or intended in its structure”.35 On this approach, a “system of conduct” is inherently purposive in nature: a “co-ordinated body of methods, or a complex scheme
or plan of procedure”. It is an organised connection of elements operating in order to produce the conduct or outcome.

Following this line of thought, once an adopted system of conduct is identified, it becomes possible objectively to assess the system to characterise the associated intention and other mental states. Here, the heart of the model is the proposition that corporations manifest their intentions through the systems of conduct that they adopt and operate, both in the sense that any system reveals the corporate intention and in the sense that it embodies or instantiates that intention. Another way of putting this is to say that corporations think through their systems—and so assessment and characterisation of the system enables us to know the corporate state of mind. No process of “inference” is required. The same is true of policies and practices, which may be understood as systems operating at higher levels of generality (in the case of policies) and as arising organically (in the case of practices). It becomes possible, from these humble beginnings, to determine from the nature of systems adopted by a corporate actor the spectrum of mental states commonly demanded by the law (such as general and specific intention, knowledge, mistake, recklessness, dishonesty and unconscionability).