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Reflection: Moral Firms and the Future of Capitalism

Published online by Cambridge University Press:  05 August 2024

Rebecca M. Henderson
Rebecca M. Henderson*
Affiliation:
John and Natty McArthur University Professor, Harvard Business School, Boston, MA, USA
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Abstract

Capitalism has taken many forms over the last 500 years. This short essay asks whether rediscovering the idea that corporations have a moral duty to contribute to the social good might help create a form of capitalism capable of addressing the massive problems that we face. I argue that the property view of the corporation, or the idea that the sole goal of the corporation should be to maximize investor returns, might once have been appropriate, but is currently causing enormous damage. I suggest that the entity view of the corporation, or the view that the primary purpose of the corporation is to serve the common good, has a long history, and is currently remerging in ways that have the potential to help reform capitalism in powerful ways.

Keywords

moral dutycorporation purposeforms of capitalism
Type
Reflection
Information
Business History Review , Volume 98 , Issue 1: Forms of Capitalism , Spring 2024 , pp. 285 - 300
Copyright
© 2024 The President and Fellows of Harvard College

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Footnotes

1

This paper draws heavily on several previously published papers written by the author, including “Moral Firms?,” Daedalus 152, no. 1 (2023): 198–211; “Changing the Purpose of the Corporation to Rebalance Capitalism,” Oxford Journal of Economic Policy 37, no. 4 (Winter 2021): 838–50; Reimagining Capitalism in a World on Fire (New York, 2020); and “Innovation in the 21st Century: Architectural Change, Purpose, and the Challenges of Our Time,” Management Science 67, no. 9 (2020): 5479–88.

References

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3 Henderson, Reimagining Capitalism in a World on Fire, chapter 1.

4 Rebecca Henderson, “Moral Firms?,” See also Iris Origo, The Merchant of Prato: Daily Life in a Medieval Italian City (New York, 2017).

5 John Winthrop, The History of New England from 1630 to 1649, 2 vols (Boston, 1853).

6 Henderson, “Moral Firms?,” Also see Albert O. Hirschman, The Passions and the Interests: Political Arguments for Capitalism Before Its Triumph (Princeton, 1977).

7 Adam Smith, The Theory of Moral Sentiments, ed. Knud Haakonssen (Cambridge, 2002).

8 The Business Roundtable, “Statement on Corporate Responsibility,” Oct. 1981, 12, as cited in Ralph Gomery and Richard Sylla, “The American Corporation,” Daedalus 142,2 (2013): 102–18, and Henderson, Reimagining Capitalism in a World on Fire, Chapter 1.

9 Henderson, “Moral Firms?,” See also Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” New York Times Magazine, 13 Sept. 1970.

10 See “Great Depression,” Britannica, accessed 5 Jan. 2024, https://www.britannica.com/event/Great-Depression; and Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, accessed 5 Jan. 2024, https://fred.stlouisfed.org/series/M0892AUSM156SNBR.

11 Henderson, Reimagining Capitalism in a World on Fire, chapter 1.

12 Henderson, “Moral Firms?,” Also see Business Roundtable, “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans,’” 19 Aug. 2019, accessed 5 Jan. 2024, https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.

13 Larry Fink, “The Power of Capitalism,” accessed 5 Jan. 2024, https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter.

14 McKinsey & Company, “Purpose before Profits? Employees Say ‘Yes, Please,’” 21 Jan. 2021, accessed 5 Jan. 2024, https://www.mckinsey.com/featured-insights/coronavirus-leading-through-the-crisis/charting-the-path-to-the-next-normal/purpose-before-profits-employees-say-yes-please, cited in Henderson, “Moral Firms?”

15 Edelman, “2022 Edelman Trust Barometer,” accessed 5 Jan. 2024, https://www.edelman.com/trust/2022-trust-barometer. Cited in Henderson, “Moral Firms?”

16 See Google Books Ngram Viewer, “Stakeholders” and “Corporate Social Responsibility” in Printed Texts, 1970–2019, created 26 May 2022, accessed 5 Jan. 2024, https://books.google.com/ngrams/graph?content=stakeholders%2Ccorporate+social+responsibility&year_start=1970&year_end=2019&corpus=en-2019&smoothing=3&case_insensitive=true, cited in Henderson, “Moral Firms?”

17 Richard Locke, “Supply Chains and Working Conditions During the Pandemic: Lessons for a New Moral Political Economy?,” Daedalus 152, no. 1 (2023): 131–42.

18 Andy Boynton, “Unilever’s Paul Polman: CEOs Can’t Be ‘Slaves’ to Shareholders,” Forbes, 20 July 2015, accessed 5 Jan. 2024, https://www.forbes.com/sites/andyboynton/2015/07/20/unilevers-paul-polman-ceos-cant-be-slaves-to-shareholders/?sh=15fbc0fb561e.

19 Ranjay Gulati, “How a Defined Purpose Drove Unilever’s Turnaround,” Inc., 16 Oct. 2023, accessed 5 Jan. 2024, https://www.inc.com/ranjay-gulati/how-a-defined-purpose-drove-unilevers-turnaround.html.

20 Big Charts, accessed 5 Jan. 2024, https://bigcharts.marketwatch.com.

21 Charles Donefer, “State ESG Laws in 2023: The Landscape Fractures,” 31 May 2023, accessed 5 Jan. 2024, https://www.thomsonreuters.com/en-us/posts/esg/state-laws/.

22 Rebecca Henderson and Tony L. He, “Shareholder Value Maximization, Fiduciary Duties, and the Business Judgment Rule: What Does the Law Say?,” Harvard Business School Background Note 318-097 (Jan. 2018).

23 NYU Stern Center for Sustainable Business, “EST and Financial Performance,” accessed 5 Jan. 2024, https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/research-initiatives/esg-and-financial-performance.

24 Rebecca Henderson “Innovation in the 21st Century: Architectural change, purpose, and the challenges of our time,” Management Science, 67, no. 9 (2020): 5479–5488. https://pubsonline.informs.org/doi/10.1287/mnsc.2020.3746 and Zeynep Ton, The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits (Boston, 2014).

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26 Grand View Research, “Meat Substitutes Market Size & Trends,” accessed 5 Jan. 2024, https://www.grandviewresearch.com/industry-analysis/meat-substitutes-market#:∼:text=The%20global%20meat%20substitutes%20market,43.6%25%20from%202023%20to%202030.

27 Grand View Research, “Beef Market Size, Share Trends Analysis Report by Cut,” accessed 5 Jan. 2024, https://www.grandviewresearch.com/industry-analysis/beef-market-analysis#:∼:text=The%20global%20beef%20market%20size,4.8%25%20from%202022%20to%202030.

28 See Statista, “Assets under Management (AUM) of the Government Pension Investment Fund (GPIF) in Japan from 2014 to 2023,” accessed 5 Jan. 2024, https://www.statista.com/statistics/1422200/aum-of-government-pension-investment-fund-japan/#:∼:text=As%20of%202023%2C%20the%20level,(NPS)%20of%20South%20Korea; and Sifma, “Research Quarterly: Equities,” accessed 5 Jan. 2024, https://www.sifma.org/resources/research/research-quarterly-equities/#:∼:text=The%20U.S.%20equity%20markets%20are,the%20next%20largest%20market%2C%20China.

29 Climate Action 100+, accessed 5 Jan. 2024, https://www.climateaction100.org/.

30 Climate Action 100+, “Progress Update,” accessed 5 Jan. 2024, https://www.climateaction100.org/progress/progress-update/.

31 Henderson, “Firms Morality, and the Search for a Better World,” in A Political Economy of Justice, ed. Danielle Allen, Yochai Benkler, Leah Downer, Rebecca Henderson, and Josh Simons (Chicago, 2022), 203. Also see The Consumer Goods Forum, “Collective Action and Investment in Landscape Initiatives: The Business Case for Forest Positive Transformation,” Nov. 2022, accessed 5 Jan. 2024, https://www.theconsumergoodsforum.com/wp-content/uploads/2022/11/2022-FPC-Business-Case-for-Landscape-Engagement-Report.pdf.

32 Matthew Amengual and Laura Chirot, “Reinforcing the State: Transnational and State Labor Regulation in Indonesia,” Industrial and Labor Relations Review 69,5 (2016): 1056–80.

33 Daron Acemoglu and James A. Robinson, The Narrow Corridor: States, Societies, and the Fate of Liberty (New York, 2019).

34 Edelman, “2023 Edelman Trust Barometer Reveals Business is the Only Institution Viewed as Ethical and Competent; Emerges as Ethical Force for Good in a Polarized World,” 15 Jan. 2023, accessed 5 Jan. 2024, https://www.edelman.com/news-awards/2023-edelman-trust-barometer.

35 William W. George and Amram Migdal, “Battle for the Soul of Capitalism: Unilever and the Kraft Heinz Takeover Bid (A),” Harvard Business School Case 317-127, May 2017 (Revised Dec. 2023).