Asks lawyer: If companies are people, shouldn’t we stop mandating they behave like ‘sociopaths’?

What if instead of just maximizing profits for shareholders, companies were legally required to adopt and adhere to codes of ethics governing their responsibilities to employees, customers, communities and the future?

That’s the provocative idea from Jamie Gamble, a partner at Simpson Thatcher and longtime counsel to some of the Fortune 100s biggest names, according to the New York Times.

In a new essay, Gamble argues that if corporations are “people” – as declared by Justice Samuel Alito in the high court’s 2012 Citizens United decision – then “they are legally obligated to act like sociopaths.” Unlike real people who exist in webs of relationships that come with ethical considerations in addition to the mere economic, today’s corporate governance laws require companies to focus on maximizing shareholder value above all else. Corporations can be sued for doing anything less.

But what if we required companies to codify the ethical standards to which they agreed to be held? Specifically, according to Gamble, what if we required companies to define their obligations to customers, employees, the communities they’re apart of, the environment, and the future?

Stockholders would have to vote to agree to the standards, but once approved, companies could be sued for failing to uphold them. The threat of frivolous lawsuits would be reduced, he argues, because such rules would operate within a system of case law already highly deferential to management — and because plaintiffs would have to prove managers acted in “bad faith,” a high legal bar.

Moreover, the risk would be worth it because, as Gamble writes:

the people charged with acting for the corporation will have to discuss how the corporation should act and will have to account in that discussion for how the corporation’s actions affect others.

What I like about the idea is the simple way it proposes elevating ethics and humanity as part of corporate governance, where for too long the singular emphasis on “shareholder value” has created perverse incentives to minimize investment in R&D and raising employee wages. In this way, it could be an effective way to push back on short-term thinking and to encourage more thoughtful, long term investment.

In addition, it could encourage a race to the top. With consumers clamoring for companies and brands to adopt more pro-social stances, strong codes of ethics could be good business — ultimately benefiting shareholders in addition to other stakeholders. Consider the way Dove has grown to dominate its category since adopting its Real Beauty positioning in 2006, the splash that Patagonia has made by adopting an activistic stance on the environment, or the fact that Nike’s stock is up since embracing Colin Kaepernick with its “believe in something” campaign. In an economy dominated by socially minded Gen Zers and Millennials, affirmative ethical stances could counterintuitively help the bottom line.

Finally, it could introduce a source of creative tension at the heart of corporate decision making that ultimately leads to better company performance. Research shows that when teams are confronted with an opposing point of view, even if that point of view is wrong, by forcing examination of why the team’s preferred course of action is right, disagreement leads to better outcomes overall. By forcing corporate boards and management teams to grapple with near term vs short term, economic and ethical considerations, it could lead to better decision making overall. Would Lehman Brothers have taken the same profligate stance towards subprime mortgage investments if managers were forced to justify the strategy in light of a legally binding commitment to the communities the firm served? Maybe, but maybe not.

While it’s hard to imagine Gamble’s proposal getting adopted anytime soon, by challenging the status quo, it raises welcome questions about whether we could be doing corporate governance different and better. At a time when corporate consolidation in multiple industries dominates, creating headwinds for small businesses and entrepreneurs, such a proposal might be an important way to help level the playing field. The winner? Potentially all of us, as well as the communities such businesses serve.

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