#METOO AND THE CONVERGENCE OF CSR AND PROFIT MAXIMIZATION.
Author | Hill, Claire A. |
Position | Corporate social responsibility - 2018 Leet Business Law Symposium: Fiduciary Duty, Corporate Goals, and Shareholder Activism |
CONTENTS INTRODUCTION I. SEXUAL MISCONDUCT II. PROFIT MAXIMIZING FIRMS AND SEXUAL MISCONDUCT III. BEYOND SEXUAL MISCONDUCT IV. RETURNING TO PROFIT MAXIMIZATION AND CSR INTRODUCTION
After allegations that Harvey Weinstein had sexually assaulted many women appeared on the front page of the New York Times in October of 2017, (1) the #MeToo movement began in earnest. (2) Nowadays, allegations implicating #MeToo concerns as to a company's employee, whether or not involving illegal behavior, may result in swift firing or reprimand; in any event, such allegations cannot appear to be taken lightly lest the company's reputation suffer. Lawsuits and shareholder activism are increasingly focusing on "toxic" "boys club" cultures at workplaces, (3) and going beyond misconduct to consider other issues relating to gender such as board diversity. (4)
This development has broader implications for the debate as to whose interests corporations should be serving: should corporations be solely or primarily focused on profits for shareholders or should they also be taking into account the interests of other stakeholders? In previous work, I have argued that the increasing emphasis on corporate social responsibility (CSR) and environmental, social, and governance (ESG) concerns is leading to a convergence between these supposed alternatives; here, I make the case with specific reference to #MeToo, outlining a rhetorical strategy by which the convergence might be more successful.
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SEXUAL MISCONDUCT
Since the #MeToo movement began in earnest, many business executives, media figures, and other prominent people have been subject to allegations of sexual misconduct. (5) What has happened to these people? There have been a range of responses, some more serious, and some more warranted than others. (6) As noted above, it is clear that behavior that was once acceptable no longer is. Indeed, some of the more serious misconduct seems to have been an open secret, (7) but the executives responsible for the misconduct were nevertheless signed to new employment agreements. (8) What the board knew in some of the cases may be litigated, but there are indications of some level of board knowledge in at least the Weinstein case and perhaps in the comparatively less egregious case of Les Moonves, now-former CEO of CBS, as well. (9) Weinstein is potentially facing ruinous criminal and civil liability. (10) Moonves, by contrast, is doing much better:
Just months after being fired by CBS, Leslie Moonves is running a new company. And though Mr. Moonves and his former employer are locked in a dispute over $120 million in severance, CBS is paying for the office space that Mr. Moonves now occupies. The company, Moon Rise Unlimited, operates out of a lOth-floor suite at 9000 Sunset Boulevard, among the tallest buildings in West Hollywood. A glass-sheathed office tower with expansive views of Los Angeles, it can be seen from miles away and is near entertainment industry beehives like Soho House and Chateau Marmont. Mr. Moonves was forced out of CBS in September after multiple women accused him of sexual misconduct. In December, the company officially said lie was fired, citing "willful and material misfeasance, violation of company policies and breach of his employment contract." His exit agreement, however, states that CBS must pay for Mr. Moonves's "office services" for no less than a year, even if the company fired him for cause. CBS declined to comment. (11) This account, notwithstanding being in the news section of a prominent newspaper, seems to convey the reporter's disapproval. Moonves was accused of serious misconduct yet was able to negotiate an exit agreement under which he receives significant benefits. And Moonves would, apparently, have a case that he is entitled to receive his $120 million severance. There are many media reports that criticize the possibility that he could receive severance under these cir cumst anees. (12)
This outcome is in part a story of CEO employment agreements that make firings for cause very difficult indeed. (13) For instance, often, being convicted of a misdemeanor, or being indicted on felony charges but not being convicted, does not yield for-cause firing. (14) One article suggests that Moonves not getting severance "could signal a shift in the #MeToo quest to hold abusers accountable--a new data point that gives the existing scatter plot coherent shape." (15)
It will be interesting to see what the lawsuits and other pressures yield. Certainly, there have been firings, and interestingly, many of the men fired have been replaced by women. (16) Female representation seems to be increasing on boards as well. (17)
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PROFIT MAXIMIZING FIRMS AND SEXUAL MISCONDUCT
Corporations have duties to their shareholders, notably, to earn profits. But to whom else do they owe duties, and what do those duties entail? Different people have different views about this issue and, ultimately, many of the differences are matters of first principle, not really amenable to resolution. (18) The question we can approach, though, is: what maximizes profits? Obviously, companies spend enormous amounts of time considering this question, and they proceed according to their best assessment of the answer.
I am presently exploring whether certain business practices that seem to increase profits by reducing costs might have ancillary effects that limit, if not eliminate, the effect of the cost reductions. Imagine trying to save money on wages by hiring Worker B for 50 percent of the wage of the previous Worker A, only to find out that Worker B is less than 50 percent as productive as Worker A. Worker A may have friends who might shun the business, not being willing to work or shop there. Worker B's income is, by hypothesis, quite low, and he may not be particularly well-disposed to his company. The aggregate effect may be that the labor cost savings may be more than offset by increased production costs, increased costs in finding employees, and reduced demand. Worker B, who was ostensibly saving money for the company, turns out to ultimately cost money instead.
Another example involves a company's imposition of overly aggressive sales targets. Such targets may encourage overly aggressive sales tactics. The result may be that more honest employees quit and are replaced by employees whose willingness to lie for the company might be matched by their willingness to lie to the company. A third example hits closer to the topic of this Article: a company's assessment that a particular executive who engages in sexual or other misconduct brings value to the company that outweighs the costs of the behavior. The behavior may be worse than what the company thinks it is overlooking, or its assessment of how the behavior will be regarded once it becomes known may understate the costs, which may include penalties, increased regulatory scrutiny, and other results of reputational loss.
In the face of pressure from various realms, even a company taking the position that its only stakeholders are shareholders seeking profit could conclude that profit maximization is not always furthered by aggressive cost-reduction or revenue-maximization strategies or by not punishing (or even rewarding) its executives notwithstanding the executives' bad behavior. Especially as to the latter, but to some extent also as to the former, even a profit-maximizing company would not want to be caught making precise computations as to respects in which it gets close to, or perhaps crosses, a line (usually of legality, but perhaps even morality). Imagine a company being caught having made an assessment that the...
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