Corporate Responsibility?: Discussion With Professor Bainbridge

Law professor Stephen Bainbridge, of UCLA, and major blogger is a properly recognized expert on corporate governance. I, also, consider him a respected friend with whom I correspond, sometimes differing, clarifying positions.

His deep thought and knowledge of the law, and my many years of executive involvement in corporate decision-making, complement each other, while sometimes conflicting. Over-simply put, I don’t believe that only “shareholder wealth maximization,” Professor Bainbridge’s standard, is the sole legitimate standard of corporate governance, although I do support strongly that – like the “originalist” Constitution – one had better have overriding arguments to go beyond that.

I’ve written many times about the matter of imposing restraints on U.S. hi-tech companies selling Internet technology to China, Vietnam, and MidEast states that use it to repress free speech and dissent. Aside from my concern for human rights generally, my emphasis is that:
* This behavior undermines U.S. foreign policy to encourage the growth of democracy abroad for a more benign environment;
* This behavior goes beyond undermining the general U.S. foreign policy, but abets campaigns against the U.S. and the West, often incited by these buying states – such as the current “cartoon” intifada -- by furthering one-sided information being available to their populace; and
* The resentments bred among future leaders abroad may well undermine the long-range economic success of these firms.

Professor Bainbridge’s latest column is at Tech Central Station, “The Importance of the Shareholder Wealth Maximization Standard.” It is, as always with Professor Bainbridge's columns and blog, a valuable read.

He begins:

There has been a fair bit of ruminating about corporate cowardice lately. Several technology firms have been criticized lately for agreeing to cooperate with authorities in China.

He concludes:

In sum, if you don’t like corporate cowardice, the answer is to work for changes that make corporate courage profitable….But don’t try changing the basic rules of corporate governance.

I agree. At least, for the most part, and almost always. I do not argue for changing the “basic rules of corporate governance,” heaven forbid. I do argue that there are rare times when there are other “basic rules,” like not undermining U.S. foreign policy, that must come into play. This is one of those times.

UPDATE: Professor Bainbridge and I may not disagree by much. In a reply he posted at his blog to another commenter, Bainbridge wrote:

The question is NOT whether "business can or should be charged with some level of effort to repay that contribution society has made." Of course business can. And business is so charged. It's called taxes. And regulation. My argument is that so long as management operates within the bounds of law, both business AND society are well served by a regime in which the legal fiduciary duties of directors require them to maximize shareholder wealth. You want business to internalize certain costs, then pass a law. But don't change the rules governing whose interests management pursues.

Posted by: Steve Bainbridge at Feb 7, 2006 3:08:30 PM

Reasonable, and I emphasize reasonable, export restraints, may be such a law.