Firms, Transparency, and Morality / by Simmon Li

This is something that's been on my mind recently. Corporations seem to be equivalent to "the firm" with which micro-economics is so concerned. And of course, being a capitalist society, the firms are an integral part of our society. It's interesting to me that we have, in some ways, defined corporations as people. Wikipedia states:

Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like natural persons ("people"). Corporations can exercise human rights against real individuals and the state, and they are often responsible for human rights violations. Just as they are "born" into existence through its members obtaining a certificate of incorporation, they can "die" when they are "dissolved" either by statutory operation, order of court, or voluntary action on the part of shareholders. Insolvency may result in a form of corporate 'death', when creditors force the liquidation and dissolution of the corporation under court order, but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offences, such as fraud and manslaughter. ((

There have been a few events that have crystallized in me, this question of transparency and morality. Obviously, WikiLeaks was a big driver of this question for me. The company is in possession of data regarding the banking industry, and is going to release it in the new year. And it brings up the question of how transparency and morality are linked. The more interesting question to me is, how can we define corporations (firms) as people, and give them certain rights that we grant ourselves when the corporation as a person lacks fundamental faculties of reason and morality that so define human nature? I mean, a corporation is a collection of people, and so you would think that they can be responsible, moral, and good. And of course, there are corporations out there that do satisfy these adjectives. But one has to wonder how the idea of transparency plays into such brand management. I mean, some companies make good decisions because they know that consumers will buy the idea of responsibility. What the essential question is, how do firms behave morally? Obviously, this is completely oddball, because I think we have enough trouble dealing with issues of human morality, and yet somehow, corporate morality (as an entity) seems infinitely more complex. And it is here that I find a lot of the scholarship on morality doesn't apply. Are firms concerned with utility? Perhaps they're concerned with doing good, or perhaps they are entities that best exemplify psychological egoism. Economics is concerned with efficiency, and rightly so. I think it's important to be efficient, but the question that seems even more important is one regarding whether or not efficiency and morality can co-exist in an economic production system. The introduction of business ethics to me, points to a way forward, but as a normative realization, can only go so far. Business ethics often suggest how you "ought" to act, and I think as we've seen in the past years, it doesn't always hold. This is the idea of ethical practice vs moral practice that I think is extremely important. The question then is, how would transparency at the corporate level affect the moral psychology of the corporation? 2008/2009 was especially precarious for this kind of thing. I feel that a lot of what went wrong in the financial sector can trace a thread to the decay of moral fibre in the industry itself. CDOs and credit swaps basically offloaded responsibility to other parties. There seemed to be a lack of ability for these outfits to make decisions in a moral way. Which is why I think it's interesting to ask how we can treat companies like people when they lack fundamental faculties of reason and psychology that individuals do. Is transparency the substantive force in enabling a moral psychology to even flourish? It seems to me that transparency does act in that way for entities like governments. The thing with governments though, is that they are fundamentally "public" institutions, while businesses are "private" institutions.

Transparency seems to be the answer to these moral issues. In the vein of Rousseau: by leveraging transparency, corporations will be more compelled to act in ways are in line with the general will's general interests, rather than the personal interests of those that make up the "person" of the corporation. That to me, is another paradox. A corporation is defined as a person, but really they are an entity. A personal is ultimately responsible for their own actions. At least, a mentally able person. A corporation then, seems to represent (and has been enshrined in law) as a mentally disabled person. Someone with multiple personalities, at the very least. I think that a corporate mind, much like a human mind, starts as a tabula rasa, in that a company can decide how it wants to interact with the public. So far, the majority of companies out there operate behind closed doors. It seems that this enables these companies to act in ways that may fundamentally be disconnected with the general interest, and go against Rousseau's general will. For example, when it comes to sustainability, one would imagine that the general interest would be to maintain (at the very least) the level of environmental health, and the general will would be for the conditions to improve. The wild thing is that there are companies that have managed to convince citizens that such an interest is not worth thinking about. In fact, some people would believe that such climate change would be good for us, or is something that we have no control over. Regardless of whether climate science is reliable or not, if anyone actually thought about the situation, a simply Pascal's wager would point to the answer: there's a 1/2 chance if we do something, and a 1/4 chance if we don't. Let me build a chart:

Climate Change Happening Climate Change Not Happening
Let's Do Something (A) Less Risk (Manageable present cost) (B) Less Risk (Manageable present cost)
Let's Do Nothing (C) More Risk (Catastrophic future cost) (D) No Risk (No cost option)

In any case, let's take a look at the chart itself. Option A is discussed ad infinitum, nothing more to be said. Option B is the one of two "negative" options. The key here is that it's manageable present cost (fiscal, capital, economic) for what would appear to be "nothing", but let's keep it real: sustainability will matter and it's something we have to address at some time in our future. If world population is going to increase (it's slowly losing steam), it is still something worth addressing. So, I think option B is something we'll have to do some time in the future anyway. No time like the present they say. This is in opposition to option C, which is the other "negative" option. In this case though, the cost is human. I'm not claiming it's going to happen soon, etc, etc, but to me, it seems the most unacceptable option. Option D is the "best" as it is the only no-cost option. There is only a 25% chance we'll get there though, and if I were a betting man, I'd avoid that. In summary, there is a 75% chance we'll have lower risk, with that 75% broken down in 2/3 (or 66%) as controllable, and 33% thrown to the wind.

Why is this even up for debate? It's so appalling to me that people can take the 1/4 chance, the only no risk option when it is clear that we have MUCH better odds elsewhere. It seems to me that the lack of cognition, the moral decay of certain industries (rather, I should say: given so much moral trump power that money holds), and the mentality of consumerism are going to completely destroy us. There is nothing moral about willing the destruction of ourselves at the expense of our own future. So, while transparency will only be effective at addressing point 2 (the moral trump power of money), I think that it is the most important point to address. The problem with climate change is that all these firms, pandering to private interests, continue to misinform and misdirect attention where it ought not to be. Fundamentally, what they are doing is immoral in that it is against the general interest, and against the general will. Would transparency fix this up? I think so. The financial industry of course, is linked by the money that they send over, not to mention their own indiscretions. By exposing the flows of capital, it would be clear where money goes. With transparency, it would be clear the kinds of activities that go on in the name of profit. The citizenship (I believe), fundamentally is interested in survival, and in this transparent world, would be able to decide, rationally, what is good and what is bad.