Tuesday, February 27, 2024

A New Lesson in Corporate Ethics

Corporate ethics and the US dollar

Photo by Nattika / Shutterstock.com

Some may wonder about the ethics of hoarding large amounts of cash. Does cash contribute so much to the value of their common stock, or is it from fear of economic turbulence and viewed as a hedge against bankruptcy? Innovation, new products and services, would probably drive greater market capitalization, and some of those companies could spend billions of what they are holding and still have enough to operate the company for many years of bad times. Interestingly, the most frequent reason given for holding large amounts of cash is that the company can’t think of anything to spend the money on that will reap them notable financial rewards. This is a failure to innovate.

Corporate cash is a large part of why the economy hasn’t recovered from the debt crisis and why we don’t have adequate economic growth today. In past recessions, economist would tell us that consumer spending accounted for three-quarters of the economy, and that the economy would rebound as soon as consumers started spending again. But consumer spending on homes and cars and lifestyle is a big part of the debt crisis, and now that so many consumers are unemployed as well, we can’t turn to consumers to spend us out of the recession.

In our emerging low-debt post-consumerism world, we should look to large companies to open their coffers because that’s where all the wealth has become focused. Companies have forgotten their role in the biggest picture. Yes, of course they must survive and protect shareholder value for their owners, but within the social compact they too have a responsibility within the community at large to play their role in society.

To fail to serve their society is an ethical failure. To each in their respective industry to ask what role their company should be playing in society, what products or services their company could and should be bringing forth to, for example, to reduce waste, heal the environment, improve human health, and to do it all for less is the ethical challenge before business – to see the need and contribute according to one’s industry.

Apple is a shining example of this. From the invention of the personal computer to the iPhone they have solved human problems we didn’t even know we had until the solution was in front of us. Toyota with their Prius, the rise of organic food, or the invention of the index fund all show true corporate social responsibility. Rather than giving society yet another “flavor” or another “line extension” that isn’t needed, to instead be “socially responsible” to be the engine of innovation is to rise to an ethical challenge.

In every industry, companies could provide for human need and betterment. They could fund innovation, they could hire capable individuals, and they could solve problems that the Federal Reserve Bank, the Congress, or the Executive branch of the government weren’t meant to solve. Governmental bailouts avert disaster, but they don’t really produce economic growth, and to expect them to do so is to invite moral hazard. We need business to step forward and invest and be the engine of the economy.

Both prosperity and progress emerge from innovation and productivity. It is the job of business to eventuate the wealth of our society. A failure to do so is an ethical failure to understand the significance of true social responsibility. It isn’t enough to hold cash when there are no important ideas or new innovations on the table. It is the responsibility of business within an economy to solve human needs and to open a future by fulfilling a lofty role in history.

It’s not illegal for companies to hold any amount of cash on their books, but when their billions could restart the economy it is unethical for companies not to rise to the occasion. Business productivity drives economic and societal improvement.

Copyright © 2011 KLM, Inc. All Rights Reserved.

Print Friendly, PDF & Email