Marjorie Kelly is founder and editor of Business Ethics magazine. 

It’s not hard to trace the route from today back to the 1980s. The two eras are (un)ethical bookends to the greatest bull market in history. The management excesses that seemed so shocking back then—hostile takeovers, massive layoffs, and exorbitant CEO pay—became fuel for a hungry 1990s market. Minimally acceptable excesses gave way to outrageously fraudulent excesses, until the whole thing blew up in a kind of July 4 extravaganza.

What we all wanted to do back then was change things. Looking back over the years, I’m struck by how little change of real substance has taken root. Codes of conduct have sprouted like weeds. Ethics officers at major corporations have grown from a handful to hundreds. Business for Social Responsibility has become a multi-million-dollar operation. Social investing assets have swelled into the trillions. Business schools have added endowed chairs and required courses in ethics. Awards and best-of lists have grown in profusion.

Through it all—as ethical decision-making was taught to MBAs, good companies were sought out for stock portfolios, or descriptions were compiled of best practices—the underlying assumption was that managers had genuine freedom to be socially responsible.

As professor Sandra Waddock of Boston College Carroll School of Management noted in an unpublished paper,Fluff is Not Enough,” Enron rang all the bells of Corporate Social Responsibility (CSR). It won a spot for three years on the list of the 100 Best Companies to Work for in America. In 2000 it received six environmental awards. It had great policies on climate change, human rights, and (yes indeed) anti-corruption. Its CEO put together a statement of values emphasizing “communication, respect, and integrity.” The company’s stock was in many social investing mutual funds when it went down.

Enron fooled us. But that’s not the real lesson here. The lesson is that all the things CSR has been measuring and fighting for and applauding may be colossally beside the point. If we want to know why the corporate social responsibility movement has accomplished so little of substance, here’s the reason: the pressure to get the numbers overrides everything else. It overrides not because God-given, organic “market” forces are at work, but because the system is designed that way. It is designed to serve certain people and not others.

Because of course, in getting “the numbers,” companies are not compiling bloodless digits at the bottom of an income statement. Corporate profits lead to share price increases which represent dollars in the pockets of real-life human beings, primarily two groups of human beings: executives and wealthy investors. Chief executives get most of the blame, and certainly their pay has gone from outrageous to usurious. But they’re not the only ones pocketing unconscionable wealth these days. In just the waning years of the bull market, from 1997 to 2000, the wealth of the Forbes 400 went up by $1.44 billion each. That’s an increase of $1.9 million each day, for more than a thousand days on end.

We’re told that everybody’s retirement portfolios shared in the gains. But since 1983, two out of three American households saw no increase in retirement wealth from pensions. Among the 5 percent wealthiest, pension wealth went up 160 percent.

Somebody’s profiting from the overwhelming drive to get the numbers, and that somebody is not “everybody.” It’s the financial elite.

They prosper not because they’re more productive or virtuous than the rest of us, but because they wield power. CEOs select their own board members and craft their own pay packages, rigging the game to make themselves wealthy. Yet they keep their jobs only if they make shareholders wealthy—and they get fired when they don’t. In the last couple of decades when we dreamed we were working a CSR revolution, the real revolution was the shareholder revolt happening in corporate boardrooms.

Back in the 1980s, hostile takeover artists awakened slumbering boards and forced them to better maximize gains for shareholders. A new tool for doing so was firing CEOs, which boards did at two dozen major firms between 1991 and 1993. Another new tool for enforcing shareholder primacy was massive stock option packages, the same options packages that led directly to the ethical scandals of our day.

It was the laser focus on stock price gain that encouraged executives to drive their beasts so hard they collapsed. CEOs were the visible villains, but there were whips wielded to keep them driving toward maximum share price: whips of firing, stock options, and hostile takeovers. These are among the tools of corporate power. And they are tools available only to the financial elite. They are among the tools that make corporations and CEOs do what they do.

If we wish to accomplish something in the next fifteen years we would do well to focus on democratizing structures of power. That means imagining, and then creating, economic democracy.

Democracy is about two things. First, it is about purpose. In the political realm, it’s about an overriding concern for the common good. In the economic realm, it’s about having the common good trump the narrow self-interest of the financial elite. It’s about broadening corporate purpose from serving shareholders to serving stakeholders, and releasing executives from the destructive mandate to maximize shareholder gain at any cost. Second, democracy is about structures that bring this purpose alive. It’s about shaping the system forces that act on all corporations. It’s about consciously crafting new democratic system structures—structures of voice, structures of decision-making, structures of conflict resolution, structures of accountability.

Eventually this will mean changes in law. Laws controlling corporations now amount to a patchwork of regulations about working conditions, pollution, or consumer well-being—focusing on outcomes rather than underlying mechanisms. Thus we’ve been like homeowners chopping down nuisance trees which continually spring back, because we have failed to eradicate the roots. As Abram Chayes remarked in The Corporation in Modern Society, it was the judgment of America’s constitutional convention “that limitations of structure rather than limitations of substance would best secure our liberties.” If the founding generation’s work has proved “effective, durable, adaptable,” economic reforms have proved less so. It is quite possible, Chayes wrote, “that the difference in approach contributed to the difference in the quality of the result.”

Taking on the challenge of economic democracy is a tall order, but there are tall leaders in the CSR movement today. I’m thinking, for example, of the first generation of socially responsible entrepreneurs, the founding fathers and mothers of socially responsible mutual funds, the authors of books, the heads of nonprofits, the creators of stakeholder theory. I’m thinking of all the people who have defined CSR and built it into the industry it is today.

The people who can lead the way are among us. The need for economic democracy is self-evident. And the historical moment for change is opening, as the Watergate of Wall Street unfolds.

We can use this moment to take corporate social responsibility to the next level: the level of economic democracy. We can become a new founding generation, completing the design in the economic realm that our forefathers began in the political realm. Instead of chasing one form of corporate wrongdoing at a time, we can put in place enduring structures of justice, effective structures of checks and balances. For it is only in this way that we can truly safeguard the common good—not only for today, but for generation after generation to come.

Excerpted from the fifteenth Anniversary edition of Business Ethics, the premier publication of the movement for greater social responsibility in business <>. Copyright © 2002, Mavis Publications, Inc. Used by permission of the publisher.

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