700 families to feed: the challenge of corporate citizenship.

AuthorRadin, Tara J.

ABSTRACT

When Howard Lutnick, CEO of Cantor Fitzgerald, was first interviewed after September 11, 2001, a tragedy that devastated his firm and stole the life of his brother, Lutnick stated that he now had "700 families to feed." The view that he expressed was that his firm was responsible to the families of the wage earners lost in the tragedy, even though the firm was not responsible for the events that had occurred. Such assumed corporate responsibility, consistent with a stakeholder-based approach to management, is often considered to conflict with the law. The purpose of this Article is to demonstrate that stakeholder management does not inherently conflict with the law. In fact, principles of stakeholder thinking coincide with our moral intuitions, reflect many demonstrated best business practices, and promote profit-generation as envisioned and advocated by the law. This Article explores the nature of stakeholder relationships and their impact on business enterprises. The interconnected experiences of individuals and organizations in the wake of the events of September 11, while exemplary and perhaps more pronounced, are not isolated. The purpose of this Article is to draw upon such experiences in order to move beyond the traditional hub-and-spoke model of the firm, and to integrate past and present examples in a more dynamic, stakeholder-based model of corporate citizenship that bridges the gap between stakeholder thinking and the law and is both descriptive and normative.

TABLE OF CONTENTS I. INTRODUCTION: CORPORATE CITIZENSHIP AND SUSTAINABLE PEACE II. LEGAL TREATMENT OF BUSINESS ENTERPRISES A. Theories of the Firm B. Law and Economics C. Fiduciary Law and Managerial Decision-Making D. Milton Friedman and Corporate Social Responsibilities III. STAKEHOLDER THINKING A. Traditional Stakeholder Thinking B. Stakeholder Relationships C. Stakeholder Thinking vs. the Law IV. STAKEHOLDER THINKING AND LAW: BRIDGING THE GAP A. History Revisited B. Rethinking Fiduciary Law C. Corporate Personhood D. Allowances in the Law for Corporate Responsibilities E. Stakeholder Thinking and the Law V. SEPTEMBER 11, 2001 A. That Day B. Stakeholder Concerns C. Role of Relationships VI. BUSINESS ENTERPRISES, STAKEHOLDERS, AND CORPORATE CITIZENSHIP A. Malden Mills B. Other Business Practices C. Contributions to Corporate Citizenship D. Lessons for Managers VII. CONCLUSION: CORPORATE CITIZENSHIP AND SUSTAINABLE PEACE I. INTRODUCTION: CORPORATE CITIZENSHIP AND SUSTAINABLE PEACE

When Howard Lutnick, CEO of Cantor Fitzgerald, was first interviewed after September 11, 2001, a tragedy that devastated his firm and stole the life of his brother, Lutnick stated that he now had "700 families to feed." (1) The view that he expressed was that his firm was responsible to the families of the wage earners lost in the tragedy, though the firm was not responsible for the events that had occurred. (2) Such assumed corporate responsibility, consistent with a stakeholder-based approach to management, is often considered to conflict with the law. (3) The purpose of this Article is to demonstrate that stakeholder management does not inherently conflict with the law. In fact, principles of stakeholder thinking coincide with our moral intuitions, reflect many demonstrated best business practices, and promote profit-generation as envisioned and advocated by the law. This Article explores the nature of stakeholder relationships and their impact on business enterprises. The interconnected experiences of individuals and organizations in the wake of the events of September 11, while exemplary and perhaps more pronounced, are not isolated. The purpose of this Article is to draw upon such experiences in order to move beyond the traditional hub-and-spoke model of the firm, and to integrate past and present examples in a more dynamic, stakeholder-based model of corporate citizenship that bridges the gap between stakeholder thinking and the law and is both descriptive and normative.

While, as evidenced by the virtually unprecedented, politically motivated assault on capitalism that took place on September 11, global politics and business have become increasingly intertwined, questions relating to sustainable peace are being discussed in new contexts such as business. (4) Business enterprises are no longer isolated from or immune to global politics. (5) Although business scholarship has not traditionally tackled questions of sustainable peace in any depth, as Jeffrey Nesteruk has noted, "[t]his does not mean, of course, that such an inquiry is an inappropriate one. Posing new questions is one of the central roles of legal theory. Even when the outcome of such inquiries is uncertain, asking novel questions can be fruitful, sometimes in unforeseen ways." (6) An immediate question comes to mind: If business is linked to sustainable peace, as is perhaps demonstrated by the attack on the World Trade Center, how does this influence our understanding of business?

In the wake of September 11, dialogue regarding the relationship between business enterprises and sustainable peace has become a springboard topic for us to consider how our business models and legal principles can be integrated into stronger descriptive models with both normative and instrumental implications. (7) Stakeholder thinking provides a useful lens through which to view business enterprises, particularly in terms of engagement, development, and recovery. (8) In exploring the role of business enterprises in contributing to sustainable peace, this Article offers a stakeholder-based approach as a viable metaphor for business. (9)

Although stakeholder thinking has frequently been construed to be in conflict with the legal principle of shareholder primacy, (10) there are indications that stakeholder thinking does not inherently conflict with the law. (11) The purpose of corporate law is to protect the investment of shareholders and to guard their potential profits. (12) Stakeholder thinking does not inherently challenge the rights of shareholders as residual claimants. (13) On the contrary, arguments in favor of stakeholder management hold that stakeholders in general, including shareholders, benefit from such an approach. (14)

Part II of this Article deals with stakeholder theory and the law. It begins by confronting and resolving perceived conflicts between stakeholder thinking and the law. This Article explores the role of law with regard to business enterprises such as corporations. The Article outlines the legal context and environment in which business enterprises operate and traces the rise of shareholder primacy. Part III then presents an overview of the development of thinking during the past 20 years, beginning with the 1984 publication of R. Edward Freeman's Strategic Management: A Stakeholder Approach. (15) This is followed by Part IV, which endeavors to bridge the gap between stakeholder thinking and the law and reveal that stakeholder thinking is consistent with and supportive of legal principles.

The story of the September 11 devastation of the World Trade Center in New York is retold in Part V. (16) Business ethics relies on storytelling to create connections between people and to provide models for behavior. (17) In this instance, the story is not of a single business enterprise, but of a community of business enterprises and stakeholders. Essential to this story are the roles of networks of stakeholder relationships in contributing to the recovery and rebuilding of downtown New York. In Part VI, the Article connects lessons from September 11 to a broader model of corporate citizenship. Emphasis is placed on the movement toward a relational model, as opposed to the traditional hub-and-spoke model originally proposed by Freeman. Current approaches to stakeholder thinking have shifted the focus from the individual stakeholders to the interconnected stakeholder relationships that underlie and influence business enterprises. Finally, in Part VII, the Article concludes by linking corporate citizenship to sustainable peace. Business enterprises play an integral role in sustainable peace through their participation in the stakeholder networks that underlie their organizations and society in general.

  1. LEGAL TREATMENT OF BUSINESS ENTERPRISES

    In order to determine both the contribution and controversy of stakeholder thinking, it is important to view it within the context of the legal environment for business enterprises. In many ways, the treatment of business enterprises by the law has stemmed from their artificiality. Business entities are inherently "fictitious." (18) State codes structure their incorporation and existence. (19) These codes provide for the issuance of stock to shareholders, who are considered the owners of the entities. (20) Managers are then designated to control operations in their interests. (21) The relationship between managers and shareholders is considered fiduciary in nature. This has given rise to the notion of shareholder primacy--that managers are expected to pursue profit maximization. (22) Economic thinking has also become increasingly popular within legal scholarship and jurisprudence. (23)

    While this is not necessarily true in other countries, where the legal infrastructure supports attention to a variety of stakeholders, (24) the tradition in the United States has been to assume that non-shareholder stakeholders are without rights. (25) In fact, this is not entirely true. (26) While non-shareholder stakeholders are given general protection, there is abundant legislation that specifies situations where stakeholder concerns actually trump shareholder concerns. (27) In addition, fiduciary law does not preclude managerial responsibilities to other stakeholders as well. (28) In fact, convincing arguments can be and have been made that attention to multiple stakeholders can actually enhance overall profitability in the long-term if not the short-term...

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