Corporate Accountability. Not Moral Responsibility

Abstract

The aim of this article is to briefly spell out why corporate moral agency is a fallacy and to show how this conclusion should shift the field of business ethics more in the direction of political philosophy and the rule of law. An argument based on a false assumption can be valid, but it cannot be sound. If corporate moral agency is a fallacy, and thus also moral prescriptions for corporations, how do we salvage the field of business ethics? To the extent that business ethics is about corporate behaviour (rather than individual managerial behaviour), the field can shift its foundational paradigm from ethics (which requires the attributes of moral agency) to legal accountability (which can be imposed instrumentally on corporate legal agents). By letting our elected representatives legislate the norms of acceptable corporate behaviour we can hold corporate legal entities legally accountable. What these norms should be then becomes the central focus of business ethics seen through the lens of political philosophy.

As I embarked on my PhD in philosophy in 2001, my working title was ‘The Moral Responsibilities of Multinational Firms’. My aim was to quickly establish, as several authors had done before me, that the corporation is a moral agent, and from there progress to elaborate on a wide range of corporate moral responsibilities. However, as I plunged into the corporate moral agency (CMA) literature (e.g., De George, 1981; Donaldson, 1982; French, 1979; Werhane, 1985), I was unconvinced by the arguments put forward, and so the lion’s share of my thesis ended up arguing for why CMA is a fallacy. Along the way, several senior academics in the field tried to dissuade me from pursuing the topic stating that ‘the issue of CMA has already been settled’. Concluding that the academic field of business ethics, that I was trying to become a part of, was in part built upon a fallacious assumption was not where I had hoped that my intellectual honesty would lead me. Nevertheless, here we are.

An argument based on a false assumption can be valid, but it cannot be sound. If CMA is a fallacy, and thus also moral prescriptions for corporations, how do we salvage the field of business ethics?

To the extent that business ethics is about corporate behaviour (rather than individual managerial behaviour), the field can shift its foundational paradigm from ethics (which requires the attributes of moral agency) to legal accountability (which can be imposed instrumentally on corporate legal agents). ¹

The aim of this article is to briefly spell out why CMA is a fallacy and to show how this conclusion should shift the field of business ethics more in the direction of political philosophy and the rule of law.

Corporations Cannot be Morally Responsible ²

CMA is the notion that a corporation can be morally responsible for actions in a manner that is distinct from the responsibility belonging to its human members.

Proponents of CMA argue that corporations share many of the same characteristics as humans, such as the ability to have intentions and to perform actions. Corporations are said to have intentions because the corporate structure (e.g., corporate charter) expresses a purpose, and corporations are said to be able to perform actions because the structure directs members into action (see, e.g., French, 1979). But these arguments are at best analogies to our human capacities and are not the same in any morally relevant sense. Human intentions are mental states and as such we are consciously aware of our intentions. When we perform an intentional action we are aware of it, and when we are punished for that action we are also aware of it. A corporate structure is oblivious to all of this. ³

The importance of subjective ‘awareness’ relates to the necessary moral agency condition of autonomy, which easily debunks the idea of CMA (Rönnegard, 2013, 2015; Rönnegard & Velasquez, 2017). Almost no proponent of CMA mentions the autonomy condition. They do not because they cannot.

There are a number of instructive phrases used to describe autonomy such as: ‘free will’, ‘self-determination’ and ‘self-rule’. These phrases all express that we are the authors of our intentions and actions. In other words, we are able to make choices that are our own, and for this to be the case we must be aware of the choices we make. It is this that makes us the authors of our lives and makes us morally responsible for what we do. Corporate structures are not aware of anything and thus cannot be morally responsible for anything.

Furthermore, a corporation cannot be said to have intentions by virtue of the intentions of its members. A corporation must be able to form its own intentions to satisfy the autonomy condition. Only then can the corporation be morally responsible in a manner that is distinct from its members. An impossible requirement: inevitably anything that a corporation decides will be decided by one or more corporate members. When a bank, for example, is found guilty of defrauding investors, there is no disembodied corporate entity telling managers to steal from their customers. Corporations are created by people, of people, for people.

Sometimes, perhaps often, untoward events occur that no one intended when corporations pursue business goals. They are quite simply unintentional accidents. In such cases, where no members are morally responsible for an event, proponents of CMA (e.g., Werhane, 1989) suggest that the corporation must be morally responsible, otherwise, corporations are let off the ‘moral hook’. But this is a non-sequitur. Not all harmful events need to be caused by moral agents, which any natural disaster clearly shows. If anyone is morally responsible for harm in a corporate context, we can only look to managers of flesh, blood, and minds. ⁴

Wrongly maintaining that corporations are moral agents gives rise to the illusion that corporations can hold themselves accountable, much like humans with a conscience can. This is simply not the case. If the moral abilities for organizational self-restraint are absent, then restraint must be imposed externally if we want accountability.

Corporations are created by incorporation using the corporate legal form. Corporations are not moral agents, but they are legal agents. As such, we have the entire toolbox of the law available to hold corporations accountable.

From Moral Responsibility to Accountability

One might at this point object and say, ‘corporate members are moral agents, so can’t we just substitute the concept of CMA with the moral agency of members?’. No. First, as mentioned above, there will be corporate events for which no member is morally responsible. Second, it would be a category mistake to simply transfer ‘corporate duties’ to corporate members. Corporate members can have moral duties, but they cannot have corporate moral duties. If one maintains that a corporation has certain moral duties to stakeholders, it does not follow that any particular member has such a duty, unless such circumscribed responsibility has been explicitly assigned and assumed by a member.

We might hope for a measure of voluntary self-restraint from managers who feel a sense of social responsibility, but to generally expect this from entire organizations working in a competitive environment with profit as the dominating incentive is simply unrealistic. It would be naïve to think that managers, whose remuneration is often tied to market success, are going to do much more than pay lip service to stakeholder concerns that do not align with the bottom line.

At best, we might salvage corporate moral prescriptions by regarding them as a call for new corporate legislation. ‘Corporations ought to take stakeholder interests into account when making decisions’ might be interpreted as ‘Corporate managers should have a legal fiduciary duty to take stakeholder interests into account when making decisions’. ⁵

Usually, we see no problem with using regulation to persuade or dissuade behaviour. Natural people are actual moral agents with the ability to self-restrain, yet we still have laws against theft and murder because not everyone does as they ought to. But, in the field of business ethics, most academics seem satisfied to only prescribe voluntary ethical prescriptions to corporations (despite the fallacy of such prescriptions). Luckily that is not the world we live in. It would be a disaster. ⁶

Business ethics as a field has largely progressed through a focus on corporate self-regulation (Norman, 2011). As I see it, the reasons for this are two-fold. First, the field has largely accepted the thesis of CMA, thus assuming that corporations can act out of moral self-restraint. Second, the field’s most significant theory, stakeholder theory (Freeman, 1984; Phillips, 2003), has libertarian underpinnings that give little reason for externally imposed regulation by government, thus leaving the corporate entity as the sole locus of responsibility. Nonetheless, the real world has no libertarian states. All economies involve external regulation of companies to a greater or lesser extent. In pursuit of corporate responsibility, it seems as if the field of business ethics has largely ignored the tool of legal regulation.

A concern for corporate stakeholders need not take a corporate-centric perspective, as shown by efforts to situate corporate conduct within a political framework (e.g., Heath et al., 2010; Rönnegard & Smith, 2023). In this view, whether a corporate decision is normatively proper depends upon the wider business and political context (Martin, 2013). ⁷ This takes us into the domain of political philosophy and opens the door to arguments from social justice that culminate in corporate legislation.

The corporate-centric perspective has focused on self-regulation with regard to stakeholders. A shift in perspective towards political philosophy instead takes a society-centric perspective to impose constraints on corporate conduct in the form of legislation for the benefit of citizens (at least more liberal theories within political philosophy do so).

This shift in perspective places citizens front and centre irrespective of what stakeholder hat they might be wearing. What is desirable for citizens in representative democracies is decided by the legislative body populated by elected representatives.

Corporate boards are elected by shareholders. Corporate boards (and their managers) are not elected by citizens, and as such do not have a public mandate. This fact can mean that it is not the prerogative of managers to address social issues, but it also raises the question of whether managers are in an epistemic position to address such issues.

Take for example the issue of CO2 emissions. It might seem ethically uncontroversial that fewer emissions should always be pursued. However, the ideal amount of emissions cannot be zero. In that case, there would hardly be any production of goods and services at all. Managers are not in an epistemic position to determine the ideal level of emissions for themselves because it involves an aggregate of all industry actors as well as the level of acceptable emissions for citizens. Those democratically mandated with the role of overseeing emissions are in an epistemic and normative position to make such decisions.

Furthermore, do we really want to vest responsibility for societal concerns in the voluntary discretion of managers? Common concerns for business ethicists include such things as working conditions, product safety, and environmental pollution. Addressing these concerns comes with additional costs that often run counter to business interests. If these concerns are important, are they not important enough to legislate?

The law serves three primary functions: punishment, deterrence, and remedy. The function of punishment is the purview of criminal law and in most jurisdictions applies only to natural people, not legal persons such as corporations. Criminal convictions require criminal intent (aka. guilty mind) which clearly corporations themselves cannot have. ⁸ Nor can corporations be punished with incarceration as a natural person can. In the words of British eighteenth-century lawyer Lord Edward Thurlow: ‘corporations have neither bodies to be punished nor souls to be damned’.

Nevertheless, the legal toolbox also contains civil law that serves the functions of deterrence and victim compensation. Civil law does not require the metaphysical baggage of identifying corporate intent. Rather, corporate civil liability is a form of vicarious liability whereby the corporation is held liable for employee(s) actions. This typically requires the intent of the employee(s), though not necessarily, as in cases of strict liability offences. Legal sanctions are primarily financial in nature, such as fines to deter, as well as pecuniary remedies for plaintiffs.

Criminal law aims to punish perpetrators based on punishment being deserved. Without the requisite abilities of CMA the notion corporate punishment or desert makes no sense. There is no ‘guilty mind’ nor corpus to be punished. However, the civil law functions of deterrence and remedy are instrumental, and as such can straightforwardly be applied to corporate legal entities.

If corporations are fined and ordered to pay compensation for wrongdoing this can change the financial calculus of business decisions. When a car manufacturer is considering whether to cheat on emission tests, those making the decision should know that cheating carries a considerable financial risk. Transgressing the law should not be profitable, which is how we hold corporations accountable. (Holding corporate legal entities to account financially does not preclude also holding the people who did the deeds legally accountable. Holding corporate members to account, though often difficult, may deter misconduct more than merely fining the corporate entity).

By letting our elected representatives legislate the norms of acceptable corporate behaviour we can hold corporate legal entities legally accountable. What these norms should be then becomes the central focus of business ethics seen through the lens of political philosophy.

Political philosophy, generally, deals with ideals. Political philosophy tries to put forward what justice requires of a system of social cooperation and political governance. Most often a functioning democracy and legislature is taken for granted. In the real world, for many countries, the democratic rule of law cannot be taken for granted. Under such circumstances, legal accountability of corporations might seem to fall short. One might then argue that business ethics seen as corporate self-restraint (by managers) is better than a dysfunctional judiciary. Business ethics, so to speak, fills the judicial gaps that should be in place. Such self-restraint might be of some consolation, but it is not an ideal to aim for. ⁹ The rule of law is both instrumentally better at holding corporations accountable, as well as more just when those norms express the will of the people.

The inadequate working conditions and polluting smokestacks of industries in less developed nations are not fundamentally an issue of insufficient moral responsibility by managers, even though this might be true. The fundamental problem is that these countries do not have functioning democracies and judiciaries. Though voluntary self-restraint by managers should be welcomed, it should not be expected. The ideal for these countries, as for those that are more developed, is to hold corporations accountable to democratically agreed-upon rules that are codified in law.

Conclusion

CMA is a fallacy. Corporations are not the type of entity that can be morally responsible. Corporations are merely legal agents. Normative prescriptions for corporate behaviour within business ethics are nonsensical unless one reinterprets them as a call for corporate legislation.

If corporations cannot be morally responsible, and managers cannot be expected to self-restrain, then we are left with legal mechanisms for corporate accountability. This implies a shift in the field of business ethics away from ethics towards political philosophy so that corporations are held accountable through the rule of law in our democracies.