Finding ‘P’ in CSR Entails Corporate Restructuring

“What do the C’s do when they retire?” asked one CSR observer lately. Referring to a long list of Cs – the CEOs, COOs, CTOs, CIOs, CFOs and others from the C-squad – he posed an interesting question: why don’t the C’s demonstrate Personal Social Responsibility (PSR) after their retirement.

It’s a noble thought, I would say. But I somehow can’t fathom how, can one expect PSR from a certain ‘C’, who has rarely (if not, never) been personally responsible for the actions of his/her firm throughout the career.

Dig out the cases where corporations and/or their personnel have been penalized for certain misconduct, and you will find a few easily identifiable factors common to most of them. First, most such cases take years before a court reaches its decision, thanks to power and money broking by the firms so involved. By the time an action is taken, unfortunately, much is lost by the society.

Second, a significant percentage of such judicial action involves the payment of fines that often runs in billions of dollars, which may or may not come with the order to clean up the mess. But compare the quantum of fine, with the financial gains made by the company during its period of transgression, and most likely you will end up taking a long cold sigh.

The feeling of despair will grow even more when you weigh the amount of penalty imposed on the firm against the number of lives directly and indirectly affected in the years to come. Think about it; how can one price the fine to compensate for the lives of children born with mutations twenty years after a toxic spill?

Third, while cases where company officials are jailed for their wrongdoings may sound evenhanded to discourage immoral social behaviour, there is, nevertheless, an underlying irony in the whole deal. That’s because directors and other officers of the firm are typically indemnified by the company. This means that the loss suffered by the C’s would be made good by their employers, that is, the company and its shareholders – just so long as it can be proved that they acted in the best interests of the company within the purview of its memorandum and articles of association and so forth.

Therefore, instead of expecting corporate genes to turn over a new leaf after their retirement, one should demand a major change in how corporations are structured in the first place. This can help employees adopt PSR before they hang their boots and not after it.

The trouble with corporations, however, is that they are legal entities a ‘person’ under law. But while a corporation may have all other attributes of persona-lity, it cannot be a vested with a heart and soul. It cannot be made to feel, to fear or to hope, to love, to expect or aspire.

Hence, being only a legal entity it can be expected to follow the laws but it cannot be expected to subscribe to moral values. We already know that in absence of strong pro-CSR laws, much depends on self regulation. But self regulation comes from heart and soul – something which corporate machineries do not have.

A related part of the problem is that most companies are ‘limited liability’ concerns, that is, the obligation of their owners and shareholders, including many of those from the C-team, is limited to the amount paid, or due to be paid, for the firm’s stock. These concepts imply that while organizations are responsible as an institution, the persons running them largely remain scotfree, with the deterrents being confined to money.

In contrast, if the directors together with the whole chain of command, including majority shareholders, were personally liable for the mess made by their firm, we could create a better world.

Restructuring firms, along the lines of personal liability without any room for indemnification by the company, would also help us classify more cases of corporate negligence as criminal suits than civil.

This means, that C’s could then be imprisoned for life (or could even be guillotined) in case of foul behaviour – a move that can then perhaps trigger a real sense of ‘personal responsibility’ in all the stake-holders.

How can this change be brought about, however, is a difficult question. As long as businesses remain the driving force behind lawmaking, through public funding and lobbying, there is little hope for a change.

    Author Information

    Sohaib Jamali is a financial journalist from Karachi.

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