I have recently submitted my PhD thesis. This post summarizes its main arguments and findings.
My thesis asks two questions: “Do corporations have responsibilities that are not specified in current corporate law?” If so – “what are these responsibilities?” I answer in the affirmative to the first question and suggest the area and limits of these responsibilities.
A central theme in my work is Adam Smith’s theory of private property. Smith’s property serves not only as a justification for corporate social responsibility but also proposes a possible content for such responsibility.
A considerable share of positive answers for the above questions has been grouped under the umbrella term ‘corporate social responsibility’ (CSR). However, despite its being the focus of increased attention, CSR is an ambiguous concept that suffers from a lack of sound and robust justifications. The lack of sufficient reasoning keeps CSR an uninformative concept that does not contribute to a better understanding of the role of firms in society and, subsequently, has no real effects on policies.
In my thesis I offer a definition for CSR with a firm philosophical grounding, rooted in Adam Smith’s moral, legal, and economic philosophy. I propose a moral justification for CSR and portray a sphere of responsibilities that may be derived from it.
My work illustrates the two most popular philosophical groundings for CSR: the view of corporations as social role bearers and the view of corporations as responsible citizens. I argue that the term’s vagueness and ambiguities result from its contingent nature. Instead, I argue that responsibility should originate from the corporation’s kernel definition, its meaning, and its purpose. Consequently, I assert that corporate social responsibility rests on a corporation’s fundamental characteristic, namely the right to private property.
A main argument of I my work is that the right to own a property thrusts social responsibility on all owners and, in particular, on corporations. This responsibility bears different characteristics than corporate responsibility that originates from the corporate allegedly social status.
According to Smith, the right to property is not a priori natural right. Rather, it is justified so long as it does not interfere with the property-less right to support themselves. Smith claimed that laborers hold just expectations to enjoy their work’s product. The right of capital owners to hold on to the workers’ product must coincide with the worker’s claim. The responsibility of capital owners is to share the fruits of their laborer’s labor with him. If capital owners do not fulfill their responsibility to share the laborer’s products, justice is violated; inequality rises, and laborers are marginalized from society. Respecting the laborer’s claim for the fruits of his own labor is the capital owner’s social responsibility.
Smith’s version of CSR obviates the current discussion around CSR as it diminishes a priori the economic and political power of corporations, making the discussion about corporations’ social role a futile one.
The idea of corporate responsibility advanced in my work may appear at odds with the popular, Blackstonian, understanding of private property as an exclusive dominion. However, even this view has a social (albeit weak) welfarism aspect; it acknowledges property as an exclusive dominion designed for maximization of private, and accordingly, social, wealth.
The claim that property rights have a direct social function to contribute to a just and prosperous social order was never entirely dispelled from legal and economic discourses. The most pronounced legal scholar in the early 20th century to advance this view is Leon Duguit. According to Duguit, property has a social role in addition to its private role. The right for property is secured not only for the satisfaction of individual needs but also to the community’s needs. This is a natural consequence of the division of labor and the growing interdependence of community members. The right for property is designed and shaped by social needs.
Deguit’s treatment of property rights goes hand in hand with Smith’s view as it entails social responsibility not to injure others’ right to subsist. According to Smith, the social institution of private property, together with free competition and the invisible hand mechanism, work to enhance national wealth. However, Smith acknowledged the vulnerability of markets and their tendency to fail as an ideal apparatus. For them to operate as a socially desirable instrument, they require a continuous sovereign intervention.
Duguit’s view has recently received a strong wind with the emergence of the progressive property school that acknowledges the social obligations that property implicates. Members of the progressive property movement assert that property has a social nature. In order to exercise property rights, society first needs to establish a social vision that encompasses a conception of the common good. Scholars like Gregory Alexander, Eduardo Penalver, Joseph Singer and Laura Undekuffler (all from Cornell Law School) see property theory not in the framework of welfare maximization (as suggested by the law and economics school represented by Posner and Epstein), but rather as rooted in virtue ethics tradition.
These views reject the dominant Blackstonian view of property as an exclusive approach. Moreover, they seem to comply with Smith’s approach to property. Both views understand property as a social institution that correspondingly entails social responsibility. According to Smith, private property is morally justified so long as it does not prohibit others from having a fair share in communal resources. In a similar manner, Singer writes that “entitlements, including property rights, go both ways; they entitle and they obligate. You cannot have one without the other. To learn what entitlements we should have, we must ask what obligations we owe each other” (Singer, 2000, p. 210).
Not only Smith view of property rights gets a modern representation. His advocation of workers’ claim for a share in corporate profits is represented by former ILO economist Daniel Vaughn-White (2010). Vaughn-White offers an economic analysis of global wage trends and shows how the share of labor-wage, as well as its real value, has significantly declined in recent years. Accordingly, Vaughn-White calls for the integration of wage issues in CSR policies. He introduces the concept of a fair wage that “refers to company practices that lead to sustainable wage development” (Ibid, p.66). It is distinct from living wage (a wage that is sufficient to afford a decent standard of living) in that it includes a “wage-fixing mechanism“. This mechanism supports wage adjustments and “lead[s] to balances wage development in the company“.
Smith’s conceptualization of corporate social responsibility is highly relevant to 21st century global and national policies. Its fundamental conceptualization of the social role of property and the moral importance of socially inclusive policies are apparent in contemporary legal, economic, and moral discourse. Moreover, Smith’s arguments outweigh current justifications for CSR and offers better and solid arguments.