Guest Opinion: Big business and the role of the social contract

In the world today, most large businesses are corporations. These large corporations and conglomerates wield enormous influence and power, both in the marketplace and in the world of politics.

For the consumers who purchase their products, large corporations can be both a source of cost savings and a potential market tyrant. For the shareholders who hold ownership in the corporation, a large corporation can be a valuable investment or a worthless use of money.

For all members of society involved with the legal fiction of a corporation and the people behind it, there is a social contract. Depending on the size of the aggregate, this social contract can be on a small, individualistic level or it can be a large-scale, involving multiple levels of society and organizational interests.

In essence, this social contract states that the corporation is to provide benefit to those directly involved in its dealings, such that the corporation provides value for them.

The purpose of a corporation is, indeed, to maximize its value for the shareholders; however, a corporation is simply a legal fiction intended to provide investors with a vehicle through which to separate their business from themselves.

It is, in fact, people who run corporations¬—not words inscribed to page—and it is these people who are subject to a social contract as opposed to the corporation itself, which is a flimsy legal entity.

Although the organization must make a profit for their owners, the people behind it should be aware of how other people will react to their decisions and behavior. Whether it is movement of jobs and facilities overseas, a change in the design of the company logo or a shift in organizational policy and theory, the choices made by businesspersons can have a powerful effect.

This can be seen in popular culture by movements following the actions of Bill Gates, Steve Jobs and Warren Buffet, as well as the people who act in their stead and under their direction. Whenever one of these famous individuals takes an action, people watch.

Thus, it is the behavior of the people behind the mask—behind the legal fiction—who actually create the image of the organization and who decide what direction the company should take next.

Of course, the social contract functions as a two-way street: If consumers do not buy products based on traits they claim to value, an organization may be forced to shift its focus in order survive in the marketplace. If consumers permit organizations to perform unethically by buying their products or using their services, they tacitly approve their actions.

If shareholders of a particular corporation choose only to look at returns on their investment, then those corporations may be forced to engage in unseemly behaviors in order to meet the cries of an uncaring and often cruel capital market. If shareholders do not act to ensure that corporations perform in a manner consistent with shareholder values, then corporations will do whatever they can to increase shareholder value in the short term.

Thus the corporate social contract is a complex game of tug-of-war between various interests, all striving for success in a competitive environment that crushes certain organizations and rewards others with increased market share and/or profits. It is the duty of the corporation to ensure that it fulfills the social contract it holds with its constituents while serving its overt purpose to its shareholders: to increase its overall value as a firm.

The corporate social contract is both an agreement and a siren, warning its members of impending danger when it is violated.

When the social contract is upheld, both corporation and constituents can reap the fruit of their labors. When either constituent or corporation violates it, then all bets are off, most knowledge becomes questionable and relationships between groups can become strained—even antagonistic.

Therefore, upholding the corporate social contract is imperative for both corporation and constituent—both for a safer society and for a better marketplace.

*This article was originally published in the Daily Barometer and is printed here in its original form, though it has been edited for brevity.