The Corporate Joust with Morality

[Caroline Kaeb is Assistant Professor of Business Law and Human Rights at the University of Connecticut.  David Scheffer is the Mayer Brown/Robert A. Helman Professor of Law and Director of the Center for International Human Rights at Northwestern Pritzker School of Law. They are co-chairs of the Working Group on Business and Human Rights of the U.N. Global Compact’s Principles for Responsible Management Education.]

The corporate world is struggling with two competing visions of corporate ethics as the governance gap in national capitals stymies effective responses to global challenges.

The first vision gaining steam in recent years has been a form of corporate activism we call “corporate counterattack.”   Some major multinationals are increasingly challenging and indeed changing poorly conceived government policies or occupying the policy void.

Take the United States. Last year Apple, Angie’s List, Anthem, SalesForce, Roche Diagnostics, Cummins, Eli Lilly, and companies headquartered in Indiana successfully brought heat down on Governor Mike Pence to amend legislation that had allowed businesses, citing religious freedom, to discriminate against gays and lesbians.  The uproar caused the state initially to lose perhaps dozens of conferences and $60 million of anticipated revenue. Walmart similarly counterattacked against discriminatory legislation in Arkansas.

Google and other multinational corporations in the deep South balk at operating in states that glorify the Confederate flag or enact legislation undermining minority rights.  The latest examples are North Carolina and Mississippi, where laws discriminating against gay, lesbian, bisexual and transgender people have prompted strong corporate reactions. PayPal cancelled a $3.6 million investment in North Carolina. Google Ventures froze new investments in the state and other companies are reconsidering their plans. Over 140 CEOs and business leaders of such corporations as Facebook, Bank of America, and Apple signed an open letter to North Carolina Governor Pat McCrory opposing that state’s new law. Such giant corporate employers as Tyson Foods, Nissan, Toyota, and MGM Resorts International have loudly protested Mississippi’s regressive law. These collective business voices challenge state governments to protect human rights while such public authorities seek their corporate investments.

Meanwhile, in Europe some corporations have addressed the humanitarian crisis swamping that continent with philanthropy and commitments to train and employ migrants, including refugees, from the Middle East and North Africa. A newly-formed partnership of companies, including McDonald’s, MasterCard, Facebook, and DreamWorks Animation, generates private funds for the World Food Programme to feed millions of migrants by providing free ad time and access to digital promotion.

This stands in contrast to the chaos that unfolded on the European continent as governments swung further to the right and shut their borders, lacking any “big ideas” as human misery cloaked the endless flow of destitute individuals. The governance gap in Europe, North Africa, and the Middle East shows few signs of narrowing, thus assigning even greater responsibility to corporations that are willing to act boldly and innovatively to address humanitarian needs.

In early 2015 Sony Corporation marketed “The Interview,” not only for revenue but also in defense of freedom of expression after North Korea, or its agents, apparently launched cyber-attacks on the company so as to intimidate it into locking up the comedy critical of Kim Jong-un.

In the wake of recent terrorist attacks in Europe and the United States, internet giants struggle to find the right balance between privacy and security in the face of calls for more government surveillance and information sweeps that would impinge upon privacy rights globally.  For example, Apple recently refused a lower federal court order to reverse engineer a dead terrorist’s locked iPhone in San Bernardino, California, so as to gain password access and thus assist the FBI in its investigation of the deadly terrorist attack in that city. Ultimately the FBI used other means to access the iPhone.

National security concerns are of vital importance. But Washington’s insistence that Apple develop software to unlock the privacy of the iPhone is potentially dangerous. It exposed Apple and other cyberspace companies to comparable demands by repressive governments and even other democracies that will be inspired to compel corporate complicity in undermining human rights protections for spurious national security priorities. Among the victims might be human rights activists and political dissidents seeking to advance principles embodied in the American Bill of Rights and international human rights treaties.

In defense of freedom of expression, Google has fiercely challenged an extension of the European privacy right to be forgotten to non-European Union internet domains (such as google.com), regardless of whether the information was accessed from within the EU or anywhere else in the world. This is an example of competing public policy priorities that need to be weighed and possibly balanced with one another, and business has a vital role to play in that process.

None of these companies perfectly embraces principles of social responsibility and sometimes they overlook human rights or environmental standards in one part of the world while embracing them in other societies.  But there is no shortage of opportunities being seized by multinational corporations to significantly influence the protection of human rights and advance worthy social policy goals.  Fifteen years of growing corporate participation in the United Nations Global Compact, with its pledges on human rights, labor, environment, and anti-corruption, demonstrate a mindset shift that generates constructive societal contributions and a growing body of counterattacks against regressive or failed public policies.

However, there are fierce winds blowing against such initiatives.  The second and darker vision of corporate ethics remains wedded to short-term profits regardless of societal impact and even if fraudulently obtained.  The colossal Volkswagen deceit, where 11 million diesel-fueled and supposedly eco-friendly vehicles were apparently rigged to cheat on emissions tests, blatantly screamed “go to hell” to corporate social responsibility.  Coca-Cola paid scientists to argue that physical exercise is the antidote to high-sugar drinks, so consumers were encouraged to keep chugging and then jogging off the fat while Coke prospers.

General Motors, which settled with the Justice Department for $900 million, ignored and then delayed reacting to an ignition flaw in its vehicles that resulted in 124 deaths and 275 serious injuries. One young tycoon, indicted on securities fraud, shamelessly inflated the price of a 62-year old drug to treat serious infections from $13.50 to $750 and thought that was just fine in a world ruled by hedge funds.  A chief executive was recently sentenced to 28 years in prison for knowingly shipping peanut butter laced with salmonella, killing nine people and inflicting illness on at least 700 others.

Without waiting for government mandates, major corporations are joining a growing global coalition to convert to renewable energy sources.  But for decades Exxon Mobil aggressively funded climate change deniers despite the role of carbon-based fuels in that scientifically proven man-made phenomenon. Over the years, 62 resolutions have been introduced at shareholder meetings to compel the company to confront the reality of climate change in its operations and investments. But management and a majority of shareholders have voted down each of those resolutions, including 11 of them at the last shareholders meeting in May. Divestment campaigns by activists continue to dog Exxon Mobil. At least Rex Tillerson, the company’s chief executive, recently reiterated Exxon Mobil’s support for a carbon tax and further studies of the “risk” of climate change.

Former Massey Energy CEO Don Blankenship is now serving a one-year sentence in federal prison following the deaths of 29 miners he employed. He must have thought, as he managed one of the largest energy companies in America, that he could somehow evade fundamental coal mine safety standards and speak and act as if he was just barely crawling out of the Dark Ages of labor rights, and hence human rights.   If Blankenship took just one refresher course at any leading business school today, could he possibly walk out of that class with the same reckless views he exhibited on the job for years? Perhaps he would, which is why focusing on what business schools, and what they teach business students in core management classes as well as business practitioners in their executive programs, is important to review and get right. This entails teaching the protection, enforcement, and indeed advancement of human rights and other societal imperatives within the corporate world. It is in business schools in particular where it all starts, to shape the students’ minds to do rights-based business in the 21^st Century.

This duel between corporate responsibility and corporate deceit and culpability is no small matter.  The fate of human society and of the earth increasingly falls on the shoulders of corporate executives who either embrace society’s challenges and, if necessary, counterattack for worthy aims or they succumb to dangerous gambits for inflated profits, whatever the impact on society.

The fulcrum of risk management must be forged with sophisticated strategies that propel corporations into the great policy debates of our times in order to promote social responsibility and thus strengthen the long-term viability of corporate operations.  We believe that task must begin in business schools and in corporate boardrooms where decisions that shape the world are made every day.