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On the nonsense of corporate “duties” from a Tory MP

Great minds think alike: I had been meaning to fisk Jesse Norman’s recent defence of the idea that companies have wide social and other “duties” – not just to that nasty stuff about doing what the owners want – but Tim Worstall, at his Adam Smith Institute perch, beat me to the punch. (As readers might have noticed, my Samizdata productivity has been hit by my being very busy at work, and, er, lots of trips abroad lately.) Here’s Tim:

Well yes Jesse: but you’re a Tory MP, not a Labour one. You’re not there to defend the idiocies of the past Labour Government you’re there to try to correct them. This part of the Companies Act was deliberately brought in to try and appease the more drippingly social democratic parts of the Labour Party. Rather than now stating that this is the aim and purpose of a company you’re supposed to be shouting from the rooftops that they got this wrong. The point and aim of a company is the enrichment of its shareholders, nothing else. You should be agitating to get the law changed to reflect reality, not accepting the fantasies of your predecessors: otherwise what’s a Tory for if not to be a reactionary? Alternatively, if we’re to have Tory MPs being so drippingly wet what’s the reason for the existence of the Labour Party any more? Who would need them?

Here is Norman’s original article – in the Daily Telegraph – so readers can judge for themselves whether Tim Worstall has him accurately pegged. He has, in my view.

Companies have no broad “duties” if you believe in private sector, and in a civil society based on voluntary relationships. That means if I set up a firm, with capital of mine or entrusted to me by others with their consent, then apart from not breaking rules about force, fraud, etc, there is nothing else one is required to do. Professor Milton Friedman has this all understood years ago. The proper response to calls for “corporate social responsibility” is “fuck off”.

When Norman talks of a “corporate duty” in some broader sense, he makes no attempt, from what I can see, to validate that by reference any fundamental principles. He is, I see, the author of a new book about Edmund Burke, and he uses Burke quite clearly to push against all this terrible “individualism” (ie, belief in personal freedom) and suchlike that he sees as causing all our problems. Never mind that libertarians/classical liberals have plenty to say about the benefits of a community based on voluntary interaction, not coercion. (How many more times does this have to be explained to the dullards who keep banging on about how we are “atomists”?). It is also well worth remembering that Burke was not a “Conservative” in the sense people today understand it; he was “Old Whig” and friend of the likes of Adam Smith and David Hume, and had little time for economic intervention.

To get back on the nub of the tax/company issue, as Tim Worstall says, if big firms are able to use their accountants and advisors to get around onerous local tax laws, then perhaps Norman and his fellow MPs should consider whether to make local tax laws as simple, and as low, as possible. Another point he ought to consider is something that Worstall again writes about on a regular basis: tax incidence. Companies are not people: if you tax a firm’s profits, then those taxes are paid by people in some way. The taxes are passed on in the form of lower dividends, lower capital gains, crappier products, lower wages paid to staff, shoddier products and services, etc. Norman should consider the sensible ideas of the 2020 Tax Commission.

Norman is a member of a political party that, however dimly, ought to be aware of such basic facts. Yes, I know that many of the Cameroons are utterly useless, but there surely are enough bright Tory MPs who can take Norman aside and explain the basic facts of economics to him. I can think of several MPs well suited to the role. Does Norman have Steve Baker’s contact details?

Addendum: I suppose some on the libertarian camp might argue that calls for corporate duties are what you get when firms receive subsidies, privileges from the state of various kinds, soft loans from central banks, etc. But the solution is not to grant these things in the first place. Simple.

30 comments to On the nonsense of corporate “duties” from a Tory MP

  • PersonFromPorlock

    I’m inclined to agree with you, with the important caveat that acting for an organization doesn’t release you from individual responsiblility. If it did, then ‘I was only following orders’ (or ‘pursuing profit’) would excuse any action. So the corporate officer must avoid making amoral decisions solely in the name of profit, unless we want a world where successful business executives are functional sociopaths.

    And by ‘amoral’ I don’t mean ‘illegal’: making a law about every possible good or bad act would be legislative micro-managing of the worst sort.

    No ‘corporate duties’, then, but there are still personal duties that should be honored regardless of context. Self-government means, first of all, governing yourself; and that includes corporate officers.

  • Mr Ed

    Companies are legal ‘people’, but not ‘real’ people. It is a simple step to re-engineering Society for the State to define a director’s duties in a manner that it wishes, so that action may be taken against those who do not conform. No real person has had their liberties infringed, simply an office-holder’s duties have been redefined, and the Corporate person (a nonsense) is simply directed to act in a manner that is consistent with its responsibilities and privileges.

    Socialist nonsense has been swallowed whole by the Conservative Party, they are intellectually in thrall to the Labour Party, they simply feel that they should be implementing the programme.

  • [...] On the nonsense of corporate “duties” from a Tory MP [...]

  • PaulH

    I’m largely clueless on this, so could somebody explain the justification for “The point and aim of a company is the enrichment of its shareholders, nothing else”? I had thought the purpose of a company was to do the thing the company had been formed to do. The fact that this is almost always to make a profit doesn’t mean that it’s bound so to do, does it?

  • Johnathan Pearce (London)

    PaulH, well, I think the point is that shareholders tend to want to enrich themselves when they own a firm, rather than make themselves poorer! Strictly speaking, though, the owners of a firm can do what the hell they want, such as running it to benefit certain groups for philanthropic purposes, etc. The key is that this decision must be that of the owners, not a government telling people what to do with their own money.

  • PersonFromPorlock

    PaulH
    July 19, 2013 at 2:01 pm

    I’m largely clueless on this, so could somebody explain the justification for “The point and aim of a company is the enrichment of its shareholders, nothing else”?

    As for instance when John DeLorean decided that if cars wouldn’t make money, cocaine would.

  • RRS

    Screeds like this, by politicians in whatever regalia (and with whatever academic certifications) carry with them the implicit drives to increase the functions of governments and therefore the significance of politicians in human activities (including, inter alia, those conducted as business organizations).

    Usually this occurs under the standard guise of presenting political objectives (principally increases in power through increases in governmental functions) as “social policy.” The mechanisms are:

    1. Taxation.

    2. Public-private “partnerships.”

    3. Direction of activities through regulations (“Rules of Policy”).

  • Mr Ed

    PaulH has a point. The purpose of a Company is to do what its Articles permit, those articles being written by the controlling shareholders or, initially, the founder(s). The shareholders control the company, but only indirectly through the directors, but the shareholders risk their capital with the last claim on its assets should it fail.

    Once you start with the legal nonsense of legal personality for a share certificate, do not expect to emerge with sense.

  • Laird

    PfP, I would remind you that DeLorean was acquitted.

  • Laird

    PaulH does have a point, but only in a very narrow sense. Yes, there are entities having corporate form which are set up for purely eleemosynary purposes; obviously their principal objective is not to make a profit.* But for the ordinary for-profit company (including the multinationals mentioned in Norman’s article) its sole purpose is maximizing the profits for its investors, and Johnathan’s point is correct.

    For (normal) for-profit companies, their managers have a duty to focus on achieving the goal of maximizing their investors’ profits. No third parties have any legitimate claim on the assets of the company (the Companies Act of 2006 notwithstanding). This is not to say that the managers shouldn’t take into consideration the effects of their actions on those third parties (customers, employees, suppliers, the municipalities in which they operate, etc.), but only because to ignore them would be detrimental to the company’s profits. Whatever moral obligation exists to those third parties is discharged in the ordinary course of business operations, through paying salaries, buying supplies, paying utilities cost and taxes, and of course supplying customers with products they want at prices they will pay. There exists no obligation beyond that. Period.

    This may be slightly off-topic, but not much. For those of you who haven’t seen the movie “Other People’s Money”, in it Danny DeVito (playing the notorious corporate raider Larry the Liquidator) gives a great speech about a company’s supposed obligations to third parties. It’s worth watching, and thinking about.

    I would also like to note that Norman’s quotation of Benjamin Cardozo is misleading in the extreme. That case (Meinhard v. Salmon, 1928) involved the obligations of one business partner to his other partners. It has absolutely nothing to do with any purported duties of a company to third parties. Norman implies otherwise, which I consider dishonest.

    * But I would call your attention to the American spectacle of “non-profit” hospitals which seem to be purely focused on maximizing revenues and profits. Those profits don’t go investors, but rather into large salaries for their officers and the expansion of their empire (through building construction and the acquisition of other medical groups). Norman’s complaint could properly be directed against them.

  • PersonFromPorlock

    Laird, an acquittal because of entrapment doesn’t refute that DeLorean went along with the ‘trap’. He could have turned the matter over to the authorities at any time.

  • Laird

    Hey, I didn’t say he was innocent, merely that he was acquitted. But anyway, the whole reason that entrapment serves as a legal defense is that there is no evidence that the defendant was predisposed to commit the crime absent the enticement provided by the “entrapper”. In other words, it was not something he would have done on his own, without being enticed into it by the law enforcement authorities. So if he really was entrapped (and I’m inclined to accept that as fact) then he really was innocent of the mens rea necessary for a crime.

  • RRS

    Going back to the original post:

    Business organizations (corporations, etc.) do not have “duties” or obligations in a society – only people have them.

    Governments do not have interests, let alone the infamous “Prevailing Interest” of judicial description – only people have interests.

    Human cooperation that results in business or commercial enterprise results from the disparate interests of those cooperating and does not become some other form of interest, collective or otherwise.

  • Mr Ed

    @ RRS if the law mandates that a Ltd Co, and/or its directors have duties, be it to the environment or to a section in society, then the shareholders have no say in the matter, they only have claim on what is left for them after operational costs etc.

    This is the same ‘law’ that might limit liability of a company whose operations end up unlawfully destroying my property, whereas a simple peasant doing the same in person is wholly liable.

  • RRS

    Mr Ed.

    I think you are referring to Rules of Policy, not Law

    Those are constructs.

    They have to do with the political sense – but nothing to do with the social sense of order (and morals) in a society.

  • Paul Marks

    I looked at the book on Edmund Burke by this man.

    Mr Norman blandly claims that the present economic crises was caused by “deregulation” – total nonsense. And he implies that Edmund Burke favoured the sort of regulations he favours (which would have come as a surprise for the man who spent so many years working for such things as the repeal of all Statutes on “engrossing” and “forestalling”).

    Mr Norman also claims that Denmark and Norway are very “traditional societies” (silly me – I thought they were vast Welfare States where P.C. doctrine had broken down most traditional principles of civil society, such as married families).

    And on and on.

    I think it is safe to say that Mr Norman is not exactly the brightest genius.

  • Rich Rostrom

    A corporation represents its shareholders. There could be many shareholders, or just one.

    If you want to be a Randite anarchist, you can say that no one has any moral obligation to anyone else, only the right and duty to follow self-interest alone.

    Actions have consequences both good and bad. Sometimes actions which are good for some are also bad for others. Sometimes the actor cannot be held responsible for bad consequences to others, or does not himself benefit from good consequences.

    Nonetheless, people generally refrain from acts that are bad for others despite potential benefits for themselves, and often do things that are good for others despite costs to themselves. This behavior is described as “responsible”.

    Does this responsibility disappear when actions are taken by employees or officers of a corporation on behalf of shareholders? The fiduciary duty of the corporation’s officers is to the money interest of the shareholders. But ISTM that shareholders retain the moral responsibilities of members of society, and corporate officers and employees acting for shareholders should honor those responsibilities.

  • Mr Ed

    @ RRS you may have a philosophical point, but I am referring to the law as set out in Acts of Parlament and case law. Since Dr Bonham’s case is now disregarded, not to do so leads to, at the very least, severe costs consequences, as well as ridicule, if one is bringing or defending a legal case.

  • Jonathan Pearce wrote:

    Never mind that libertarians/classical liberals have plenty to say about the benefits of a community based on voluntary interaction, not coercion. (How many more times does this have to be explained to the dullards who keep banging on about how we are “atomists”?).

    Rich Rostrom wrote:

    If you want to be a Randite anarchist, you can say that no one has any moral obligation to anyone else, only the right and duty to follow self-interest alone.

    I wonder who exactly was Rich Rostrom addressing.

  • RRS

    Mr. Ed

    You are quite correct. What you describe is the essence of a Political Society, which I have referred to elsewhere in the two posts on this general topic.

    Bear with me on a repetition:

    Consider two forms of social order: observed order and desired order.

    Laws are a description (in some circumstances a definition) of observed order.

    Rules, regulations (legislation) are descriptions of desired order.

    It is the relationship of its members to the form of social order, whether it be the observed order or some desired order that will determine the obligations of the individuals (and their associations) with respect to either laws or legislation.

  • Julie near Chicago

    A “Randite anarchist”? That’s a contradiction in terms, since Miss Rand was a solid, 100% minarchist with, famously, no use at all for anarchism.

    Although I suppose that there are such people, very loosely speaking–that is, no-government types who are otherwise mostly in accord with Miss Rand’s philosophy.

  • Julie near Chicago

    Laird, Other People’s Money — good suggestion. A very good movie and does indeed make the case for corporate takeovers, including the benefits of liquidation if the company can’t be profitably resuscitated, very well indeed.

  • Julie near Chicago

    Back to this from Rich:

    “If you want to be a Randite anarchist, you can say that no one has any moral obligation to anyone else, only the right and duty to follow self-interest alone.”

    The statement of her position becomes a lot more accurate if you point out that Miss R. was always and only talking about rational self-interest. Rational self-interest demands that one evaluate one’s proposed actions in terms of one’s long-term as well as short-term interest; and that evaluation must also consider the effects on others, on whether those effects will be good or bad for oneself (as side-effects of side-effects, so to speak) directly or indirectly, and on the logical implications of the principles involved in committing the action.

    In other words, rational self-interest is very close to enlightened self-interest, which considers the long-term as well as the short-term effects, and also understands the fact that a principle that okays my actions will also okay those same actions when undertaken by others in similar circumstances. “Sauce for the goose,” as the saying goes, and this in principle, not just in practical outcome.

    Of course, we do have a moral obligation to others: Not to keep them from exercising self-determination, directly or indirectly, except when they have purposed (or acted) to stop us from exercising ours. That’s the obligation of justice proper (not “social,” “environmental,” etc. etc.).

  • Julie near Chicago

    PS. Other than that one questionable paragraph, I agree generally with Rich. Of course, the devil is always in the details.

    As a matter of fact, one of the very important related issues is that of Just War. I am waiting for someone to post on a topic that will allow me to drag something about that. :>)

  • Lee Moore

    I think this whole post is based on a fundamental misconception, revealed by the title :

    On the nonsense of corporate “duties” from a Tory MP

    If JP had got the inverted commas in the right place there would be no puzzle :

    On the nonsense of corporate duties from a “Tory” MP

  • Julie near Chicago

    :>)!

  • Paul Marks

    As Julie has pointed out in the past – Ayn Rand was a strong supporter of benevolence.

    Rand opposed “altruism” partly on philosophical grounds, and partly because it leads to the confusion (and “confusion” is a nice way of putting it) between compassion and legal obligation.

    Leftists (for example academia and the “mainstream” media) even claim that goods and services (provided at the involuntary expense of other people – slaves) are “rights” , that providing “fair shares” is a matter of “justice” (i.e. legal right).

    Contrary to what is often said Edmund Burke was NOT against the tradition of natural rights and natural law (I will not get into a detailed discussion of the alleged difference between the two) what he was against was the claim that there was a “right” to “positive” things (such as the vote – or “fair shares” of an estate on the death of the owner, or…..).

    And he was certainly against such things as the statement in the 12th century Decretum “A man who keeps more than he needs is guilty of theft”.

    This undermines all property right, and it destroys the distinction between the virtue of benevolence (charity) and legal right (justice) – “compulsory charity” is an abomination of a concept (like dry rain or a square circle).

    This stuff was a conflict in theology long before it was in secular (newly secular) political philosophy.

    The idea that the poor benefit from such errors (such as the error that God gave the world to humanity IN COMMON, private property needing to be “justified”) is a gross mistake.

    Actually such ideas, if made into policy, lead to the destruction of civilisation – which is certainly not to the benefit of the poor.

    Five people do NOT justly stay alive by eating one person (survival is not the same as survival AS A HUMAN BEING) – and cannibalism, made into a principle of policy, is not good economics anyway.

  • RRS

    PM – unLTD;

    legal right (justice)

    Justice is the performance of obligations.

    If the obligations are prescribed by clan, tribe, oligarchs, or tyrants (be they simply majorities) then the justice is Prescribed Justice.

    If the obligations are composed of those individual senses of “ought to and ought not” including constraints on conduct, which are recognized and accepted and held with sufficient commonality in the social order, then they represent the morality of that order and the resulting justice is Moral Justice.

    Law, following and defining the social order, subject to the availability of an adequate system, can provide means for either kind of justice.

    In the case of Prescribed Justice, the legal system will operate for the objective of a desired social order, which may not necessarily be the defined social order.

  • Mr Ed

    More nonsense, but also nonsense that may be unlawful, from another MP.

    http://www.express.co.uk/news/uk/417594/Take-on-British-staff-firms-told