Just what are companies for?
Corporations are important actors in our societies, says Edward Hadas. They organise much of our labour, produce much of what we consume, own lots of property, and shape or reinforce many of our social attitudes. But what, in essence, are they? And just what can or should we expect from them?
You could answer in two fundamentally different ways, depending on whether you side philosophically with Aristotle or Thomas Hobbes. For Aristotle, the human being is a “political animal” – that is, people form organisations and groups (such as companies) because we are social and organised by nature.
For Hobbes, on the other hand, we are essentially individualists, each concerned with our own gain, and hence can’t help but come into conflict. But because our desire for stability is just as strong, we agree to submit to political rulers in exchange for social peace. There is a similarity here with modern theories of the firm – that we give up autonomy and submit to collective discipline in order to create something of more value over time. If there is one thing economists could do to understand corporations better, though, it would be to “forget Hobbes and embrace the Aristotelian tradition”.
The notion of “stakeholder capitalism” – that the role of firms is to serve not just shareholders, but also all ‘stakeholders’”, such as employees, customers, suppliers, affected communities, and so on – goes some way towards that end. But even here the stakeholders are usually portrayed as engaged in Hobbesian conflict –labour against capital, customers against the environment, etc. This puts managers and directors in a bind – to appease all stakeholders, they need them to “buy into” rules for deciding among competing claims.
Such agreement is next to impossible unless the various stakeholders share an Aristotelian commitment to the common good. All collective human endeavours, including business corporations, are essentially cooperative and aim to be “long-lasting, to promote the good of the group and its members, while at the same time treating their own good as less important than the broader good of the societies in which they operate”. Even if no actual community ever lives up to such standards, if they keep them in mind they will better be able to navigate such problems as excessive executive pay, environmental neglect, abuse of customers’ trust, and the manipulation of the venality and foolishness of politicians. A proper understanding of what companies are for helps “set expectations for appropriate corporate conduct”.