Corporate ethics

[dougo]

In a discussion at lunch today, luckylefty quipped that Google's motto should be changed to "Don't be evil (except as required to maximize shareholder value)." I've heard this notion before, that a public company is legally required to do whatever is necessary to maximize its profits, and could be sued by its shareholders for not doing so. This reminded me of a quote I ran across recently by costikyan (from a couple years ago, in the context of computer game companies and the overabundance of licensed games):

Tom Peters, the business guru, echoes the sentiment: No successful business exists to produce a profit. Yes, you need to produce a profit; in a capitalist system (and thank god we have one), profit is the condition of survival. But profit isn't the goal; no one other than the stockholders get excited at that. A corporation is one way or organizating a group of people to strive toward an objective—but that objective, the vision they share, is always, for successful businesses, something other than mere profit.

It seems unlikely to me that a corporation does not have the freedom to reject certain highly profitable avenues if it chooses—pornography is one of the most lucrative industries these days, so can shareholders sue Google for not launching Google Smut? Or is the only defense that it might tarnish their public image enough to hurt the rest of their business model?

Comments

[mshonle.livejournal.com]

I would only add to that that government is essential to have around in order to protect property rights (-land, -resource, -intellectual, or otherwise). It's also good at providing public goods where there would be a free-rider problem (like education, national defense) or where it would be too risky for companies to provide the good (like funding research like string theory; it could be billions spent on something that becomes nothing at all, though it may be important).

Good point about the socially responsible investments, too. Union pension funds and church and non-profit school endowments are a significant portion of the market, which does have power.

As for my favorite financial company, I like Vanguard. Vanguard was one of the few companies not to have any legal troubles with frauding investors (frauding like Merrill Lynch did, talking up a stock while privately ridiculing it). What makes Vanguard different is that the Vanguard customers are also the Vanguard shareholders. It's practically a co-op. So the incentive always was to do what was in the customer's best interests instead of the executives.

[dougo.livejournal.com]

(I think "shareholders" and "stockholder" are synonymous, and Wikipedia seems to back me up. Maybe you meant "stakeholders"? I'm not really sure to whom you're referring in the first paragraph.)

If Google could demonstrate that going into the porn business would hurt their profits more than it would help, then clearly that would be a solid defense against doing so. But it seems unlikely that it would be a net loss, let alone that they could demonstrate it, so I don't think this should be the only reason not to do it. Like the Tom Peters quote says, profit is necessary, but maximum profit is not the ultimate objective.

And it's not even about ethics—I don't think porn is socially irresponsible, but let's consider a more neutral subject. Google is probably positioned pretty well to do Internet games (along the lines of Yahoo! Games and Microsoft Zone; they have the server and bandwidth capacity, they have the audience and advertising channels, and they have developers who are really into games (several are regular posters to Spielfrieks). But it doesn't really fit into their mission to "organize the world's information". Shouldn't they be allowed to ignore games if they want to, as long as they're profitable without them?

I agree it's really attractive to boil everything down to economics. But it seems more libertarian to view it in terms of freedom. Perhaps I'm looking at it the wrong way: if the founders of Google wanted to run a company that wasn't optimally profitable, they had the freedom to keep it a private company. But choosing to go public means that they gave up the reins of control to those who actually own the company now, i.e., the shareholders. On the other hand, it looks like the founders are still majority shareholders, so I guess this is all moot: they're not going to be suing themselves for not getting into porn.

[dougo.livejournal.com]

Insert a close parenthesis after "Microsoft Zone". I hate how comments aren't editable.

[dougo.livejournal.com]

Oh, and I agree that consumers can favor ethical products that otherwise have a higher price. Perhaps the more important distinction is that the value of a share of stock is not solely tied to the profitability of the company, it's based on supply and demand of the shares, and hence speculation and public perception come into play.