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C is for Corporation


Wednesday, December 6, 2006

Ethics at the Corporate Level, with UCSB’s Charles Kolstad

This week, Martha Sadler quizzed UCSB’s Professor Charles Kolstad on the topic of corporate responsibility. “This is a big area of discussion,” he told her, “particularly within environmental circles.”

Professor Kolstad is jointly appointed in the Department of Economics and the Bren School of Environmental Science and Management. He also serves as president of the Association of Environmental and Resource Economists, which is launching an exciting new journal next March called the Review of Environmental Economics and Policy. Professor Kolstad’s undergraduate text, Environmental Economics, has been translated into Chinese, Japanese, and Spanish.

For more information on the topic of this week’s column, he recommends a book previewed here.

For such a prolific and busy man, Kolstad gave very short answers to these questions. It proved to be the most concise interview yet in the Curioser and Curioser series, so we’re just going to assume that he’s a very busy guy. Here’s an edited transcript of the interview.

What corporation in its right mind would manufacture here in the United States, where it is subject to environmental regulations and labor laws?

There are a number of reasons, including relying on a skilled, experienced, and long-term workforce. For example, [industries such as] films, software, and high-tech. Furthermore, many “products” are tied to a local market (i.e. construction, medicine, etc.).

I don’t know if you saw a documentary called The Corporation, which argued that publicly traded corporations are legally bound to place stockholder profits above all other concerns, including ethical concerns. Is that true?

I didn’t see it, but it sounds good. It isn’t quite true, but it is largely true. There is quite a bit of literature on corporate social responsibility and it is clear that in some arenas in which it is accepted that social norms should be followed, even if at conflict with stockholder return. Furthermore, often firms see that doing something socially responsible ultimately helps their bottom line by improving productivity, increases sales, or staving off tighter government regulation.

If what the film says is largely true, how can they be expected to behave ethically?

Ethical behavior is often codified in law. Outside of the law, I’m not sure what the appropriate answer should be.

How do you think that the late great free market thinker Milton Friedman would answer the question of how corporations can be expected to behave ethically?

He would say, I think, that if you want corporations to do something or not do something, make it a law. Otherwise, let them serve their shareholders.

Do corporations ever have codes of ethics—like the Starship Enterprise?

Not sure. Probably they do. However, these would probably apply to employees.

Who acts as the conscience of a corporation?

Corporations are really just a bunch of owners. The owners have consciences and sometimes vote on them in corporate meetings — often not though. Should corporations have consciences? That’s a good question.

What is to prevent corporations from incorporating basically anywhere in the world and escape all regulation? Couldn’t that be used as a threat — a very real threat — to discourage legislative regulation?

Nothing [prevents them] and they do [incorporate elsewhere]. However, as Nike learned, this does not always work out as well as expected.

How much can one stockholder do to persuade a corporation to express values other than maximization of profits?

I’m not sure what values you are talking about. One problem is that people have values and corporations are not people. I frankly don’t think corporations should have the rights that people have (free speech, etc), but that may also mean they should not have the same duties.

How much can a CEO do?

He or she is in charge and can do a lot.

What can the public or anybody else do to help corporations take environmental or other considerations seriously?

Pass laws. Express your views when you purchase things. Both are very effective.

Keep the conversation alive by posting your comments and questions below or by emailing Charles Kolstad at kolstad@bren.ucsb.edu.

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