The Death of Neutral Corporations

Cora Leeuwenburg

Associate Editor

Loyola University of Chicago School of Law, JD 2022

The current social and political climate, as well as our planet’s environmental climate, have shown the new role that corporations play in society. The pandemic and the current social upheaval seen worldwide have increased the need for real and meaningful corporate commitment to social responsibility.

Corporate response to COVID-19 and BLM

Many companies have responded to the pressures of COVID-19 by putting in extra effort to look after stakeholder interests, including offering full pay to furloughed workers, shifting to produce hand sanitizer and medical products, donating to food banks, and greater flexibility in hours and remote working, as well as other means beyond what is legally required. Conversely, many companies have not responded as compassionately. Amazon is not the only company to capitalize and profit off the pandemic and social unrest. There have been plenty of companies engaging in irresponsible business practices, including risking worker health with unsafe work conditions, massive layoffs, and more, all while accepting government financial support.

Corporations have also responded in a variety of ways to the social upheaval propelled by the Black Lives Matter (“BLM”) Movement. Some major corporations such as Netflix, Hulu, and Disney have all publicly stated their support for BLM, while others, including Facebook and Intel, have even gone further and committed to donating to groups fighting racial inequality. There have also been signs of real structural change ushered in by the reinvigorated movement. Jack Dorsey, the chief executive of Twitter and Square, along with many other companies, declared Juneteenth a corporate holiday. Additionally, Serena Williams’ husband, Alexis Ohanian, the founder of Reddit, resigned from the board leaving a vacancy which was filled by the first black director in the company’s history. Despite the seemingly mass corporate support for BLM and the fight to combat systemic racism, most of these corporations also have a history of maintaining the entrenchment of racial inequality.

2020 shaping corporate social responsibility

While corporations have historically attempted to retain the façade of neutrality concerning polarizing social issues, 2020 has potentially seen the end of that policy. For the first time political and social issues are being viewed as part of corporate social responsibility. So how can we make sure that corporations are accountable to social changes and ensure that they respond ethically, and not only pay lip service to stakeholders?

Shareholders as a social and ethical compass

One way is through increased shareholder access to the board and management. Shareholders are a hand to the pulse of society that management, sitting high in their privileged tower, desperately needs. COVID-19, BLM, and the 2020 election have all shown how shareholders may influence management in terms of compliance and ethical practices. It has been accepted that shareholders are able to shape management decisions through shareholder activism and socially responsible investing but shareholder access to the board directly would ensure even greater influence and responsivity.

Despite the common refrain that corporations either serve shareholder interests or societal interests, COVID-19 and the recent social justice events have demonstrated that not only can corporations serve both, but that shareholders can ensure they do so. The Business Roundtable’s 2019 statement reinforces the interdependence between corporate success and shareholder interests. Shareholders are still members of society, and most have an interest in current events. As such, improving economic opportunity, racial equity, and social justice serve to gain corporations social capital, attract more consumers, establish a more diverse and talented workforce, and maximize shareholders’ returns and address their social interests.

Agency activism

Another way of ensuring corporations respond to current events is through agencies such as the Securities and Exchange Commission (SEC). While agencies don’t have the flexibility to act as quickly as shareholders, they have the power to force corporations to comply through regulations. Agencies must also be willing to take a more active role in responding to social issues and ensuring corporations respond accordingly.

One area in which agency regulation shows the most potential is concerning sustainability and environmental concerns. Corporate governance by agencies serves to minimize risk, which is most effective when the right risks are addressed. This includes climate, biodiversity loss, natural disasters, and human-made environmental disasters. Not only is this a social issue, but sustainability extends far beyond, affects the day to day operations of all businesses. Agencies have the power to ensure that corporations respond to environmental concerns as well as other social changes. While agencies do have the power to make these changes, there must also be an emphasis on outcomes and effective enforcement in order to best achieve these goals.

Accountability to stakeholders

The COVID-19 pandemic has also shown that perhaps the most powerful check on corporations comes not only from shareholders but from stakeholders as a whole. The pandemic has shown that the five main stakeholder groups – customers, employees, suppliers, communities, and shareholders – all hold different but equal power over corporations and management. As such, it is paramount that boards continue to maintain transparency and accountability to these stakeholder groups. Stakeholders must be incorporated into corporate oversight and decision making not only to demonstrate the company’s commitment to their stakeholders but also their commitment to ethical responses to societal changes.

While the current social and political climate has exposed the need for real corporate social responsibility, it is up to stakeholders and regulatory agencies to ensure it occurs. It is easy for corporations to post the right things on social media to placate consumers and the public, but to achieve the real structural change that is needed, stakeholders cannot lessen the pressure on management, and agencies must enact binding and meaningful regulations.