Paul Brest moderates a conversation with Shona Brown, Colin Mayer, and Margaret O'Mara, on the role of business in society and the evolving relationship between corporations and government, both before and during the COVID pandemic.
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Social Science for a World in Crisis
Narrator: From the Center for Advanced Study in the Behavioral Sciences at Stanford University, this is Human Centered. How can corporations renew their purpose to better adapt, respond to, and help rebuild a world in crisis. Today on Human Centered, we're bringing you another recording from the CASBS webcast series Social Science for a World in Crisis, which originally webcast on August 12, 2020. This episode of the series is titled Reimagining the Corporation, and it features panelists Shona Brown, a former senior vice president at Google, independent advisor to a variety of companies, and a member of the CASBS board of directors, Colin Mayer, the Peter Moores Professor of Management Studies at the University of Oxford, a member of the British Academy, and a CASBS partner. Margaret O'Mara, a Howard and Francis Keller Endowed Professor of History at the University of Washington. And last, moderating the conversation is Paul Brest, former dean and active professor emeritus at Stanford Law School and CASBS Faculty Fellow. Brest was a CASBS Fellow in 1983 and '84 as well as a board member from 2009 to 2018. Brest engages the panel in a discussion on the role of business in society and the evolving relationship between corporations and government, both before and during the COVID pandemic. Together, they explore questions of whether countries should reexamine regulations and the legal structures underlying corporations. Can corporations take actionable steps in policy and practice to improve outcomes in areas where their actions have been deficient in the past? And in particular, how can they change their response to worsening inequality and climate change? You can learn more about this episode and others in the CASBS series Social Science for a World in Crisis by exploring the links we provide in this episode's notes. There you'll find summaries and videos of the events, participant bios, and suggested articles authored by panelists. Now join Human Centered as we listen in on the CASBS event Reimagining the Corporation.
Paul Brest: Hello, I'm Paul Brest, an emeritus professor at Stanford Law School, former CASBS fellow, board member, and board chair at one time, and welcome to the fifth episode of CASBS's webcast series Social Science for a World in Crisis. I want to acknowledge the co-sponsor for this episode, the British Academy. You've read the bios of our three panelists and our event promo provides links to their extended bios. So I'll quickly introduce them so we can jump into the discussion. Shona Brown is former Senior Vice President at Google who advises and sits on the boards of a number of companies and nonprofits, including the CASBS Board of Directors. Colin Mayer is the Peter Moores Professor of Management Studies at the University of Oxford and a fellow of the British Academy. Margaret O'Mara is Howard and Frances Keller Endowed Professor of History at the University of Washington and a former CASBS fellow. Today's conversation is on reimagining the corporation, a topic for which this panel is supremely qualified to discuss. Here's how we're gonna proceed. After a few introductory remarks, I'll turn our panelists— I'll turn to our panelists and the four of us will engage in a conversation. We'd like to include you in the conversation as well. Those who registered were able to submit questions by email on the registration form. And now during the event itself, attendees can submit questions using Zoom's Q&A feature. We ask that if you submit questions, they be as concise and on point as possible. Given the expected volume of questions, we won't be able to address them all, but be assured that the panelists will see them all after the event concludes. And now just a few words to set the stage for today's discussion. The title of Milton Friedman's famous 1970 essay, "The Social Responsibility of Business Is to Increase Its Profits," captures the essence of corporate social responsibility as it was understood during much of the 20th century and into this century. Under this conception, the only stakeholders to whom corporate management is accountable are the company's owners or shareholders. But the last several decades have seen movements, mainly in Europe and the U.S., to consider the responsibilities of businesses to a much broader range of stakeholders: employees, customers, suppliers, workers in the supply chain, communities, environments affected by the company's conduct. For a long time, these ideas were mainly the domain of academics and activists outside the corporate world. Among the prominent academic works is from our panelist Colin Mayer, whose recent book Prosperity argues for a much broader conception of corporate purpose. Colin is the author of the British Academy's monograph Principles for a Purposeful Business, and the document explains, let me just quote from it, a corporate purpose is the expression of the means by which a business can contribute solutions to societal and environmental environmental problems. Corporate purpose should create value for both shareholders and stakeholders. A properly formulated purpose statement identifies how companies assist people, organizations, societies, and nations to address the challenges they face, while at the same time helping companies avoid or minimize the problems they might cause. Two noteworthy events in the past two years were public statements by Larry Fink, CEO of BlackRock, the world's largest asset manager, and the Business Roundtable to the same effect, the latter with the title "Business Roundtable Redefines the Purpose of a Corporation to Promote an Economy That Serves All Americans." This new paradigm has hardly taken the world by storm. The Business Roundtable statement was harshly criticized by the Council of Institutional Investors, and a recent survey indicates that the 200 companies whose CEOs signed on to the Business Roundtable statement have on the whole done no better, and in some cases worse, with respect to stock buybacks, layoffs, and other responses to the COVID crisis. Today, our panelists will look at contemporary corporate practices in domains ranging from the environment to pharmaceuticals to equity issues in high and low-tech issues. They'll look at the good and problematic instances of corporate behavior and ask, what are the barriers to good behaviors? What characterizes exemplary behaviors and what conduces to them? What's the future of the purposeful corporation as Colin and the British Academy and the Business Roundtable define the idea? And now I'm going to turn it over to our panelists who are going to address these issues with lots of examples, I hope.
Colin Mayer: Okay, thank you, Paul. Let me just open up the discussion by posing the question, well, what is, what is the problem that we're trying to fix? Business is associated with an immense amount of growth and prosperity around the world, but increasingly we are realizing that it's also associated with growing environmental degradation, inequality, social exclusion, and mistrust. And we're increasingly realizing that the standard solutions to those problems in terms of markets, competition, regulation, while extremely important, are proving to be insufficient on their own in the face of increasing globalization of businesses around the world, and the pace of technology advancement, which means that regulation increasingly lags behind what's happening in companies. So the contention for reimagining the corporation is that business should be solving problems, solving problems in a profitable commercial fashion and not profiting from producing problems for us or the planet. Now that doesn't obviate in any way the need for regulation, but it implies that regulation and competition policy and the operation of markets will operate more effectively. And thinking about Paul's question about examples opens up the observation that in many respects the promotion of those corporate purposes beyond just shareholder interests faces quite an uphill challenge because our entire systems of ownership, governance, law regulation, measurement performance, finance investment They all have at their heart the notion of promoting the success of the company, in particular in relation to the interests of shareholders. But notwithstanding that, there are countries around the world where the form of law and ownership and institutional structure encourages more in the way of purposeful business. And I'm never going to illustrate some examples in particular from Scandinavia where there are a concentration of many companies that fulfill this. And in particular in Denmark, there is a system of ownership which is known as industrial foundations by which companies are owned by foundations. They don't just give away money, they have a dominant share in those companies. And that ownership, I'm going to say, is very significant in terms of promoting corporate purpose. Let me take as a starting point a company, uh, in, uh, the Netherlands that isn't actually an industrial foundation It's called DSM, which stood for Dutch State Mines, and that's exactly how it started its life at the beginning of the 20th century. It then shifted to what today is described as being a global, purpose-led, science-based company active in nutrition, health, and sustainable living. DSM's purpose is to create Bright Futures for All by addressing its products and solutions to some of the world's biggest challenges while simultaneously creating economic, environmental, and societal value for all its stakeholders. Now that's a company that for much of its history has had a very clear purpose which has allowed it to transform its business fundamentally to address current challenges. Another example I'm going to take, this time of indeed an industrial foundation, is one of the largest shipping companies in the world called Maersk, whose purpose is to shape the future of trade by acting as a catalyst for the next generation of trade logistics power players. A second example of an industrial-owned foundation company is Novo Nordisk. Novo Nordisk, a pharmaceutical company that produces insulin, and a few years ago it suggested that its purpose was to produce insulin. It was descriptive. Of its purpose. But then it's realized that actually that's not its real purpose. Its real purpose is to help people treat type 2 diabetes, which insulin is used to treat. And that may involve taking insulin, but in many cases it doesn't. And then it went on and realized, well, actually its purpose was more than that, to help people avoid getting type 2 diabetes. In the first place, and now its purpose is stated as being driving change to defeat diabetes. And in that area of pharmaceuticals, we have a very significant illustration of the importance of ownership in terms of the extent to which companies can and do promote purposeful activities in the form of AstraZeneca, pharmaceutical company that's based in the UK, but nearly wasn't based in the UK when it was subject to a hostile bid from Pfizer, a bid that failed. The irony of that failed bid is that that company during this pandemic crisis has now entered into a partnership with Oxford University to manufacture and distribute vaccine because it says it's a British company and it wants to support British research. And more significantly than that, it's going to price its vaccine at cost without seeking to make a profit on it, as indeed is another prominent company in the field, Johnson Johnson, and that stands in marked contrast to some others which are intending to sell price of the COVID vaccine if and when it's developed by a factor of 10 times greater than the underlying cost of production. Now ownership is vitally important because ownership provides the commitment from investors to support what the boards of companies are doing. But the knowledge that's earned from one area can be transferred elsewhere. Let's take the example of Helga Lund, who is the chairman of Novo Nordisk and the chairman of BP. One of the reasons why BP is now committing to net zero by 2050 across its operations, net zero in oil and gas production and 50% reduction of carbon intensity of its products by 2050, is that that is an agenda that was very much more in the spirit of the type of corporate activities that Helga Lund was used to from Novo Nordisk. Than the nature of the previous BP. Shell, an Anglo-Dutch company, is doing something similar in terms of its targets and also in terms of cutting its dividends. So one of the points that I really want to emphasize in concluding is that it's It's not very surprising that one year after the Business Roundtable statement, we see that the progress that many of those companies have made has been limited, or some cases maybe even backward, in terms of promoting purpose that embraces a broader set of stakeholders. And that's not surprising because in essence what we're talking about is a way in which we need to think about the essential elements that are required to promote purposeful businesses, and those revolve around those four key areas that I was mentioning: law and regulation, ownership and governance— and I've just illustrated some of the significance of ownership— measurement of performance, and the way in which one rewards people against appropriate measurement, and the way in which the financial system operate and invest in the corporate sector.
Paul Brest: So you've— before turning to Shona and Margaret, let me just ask one question. You've given some positive examples of companies that have corporate purpose. Turning to the vaccine area, where Oxford has a, you know, very strong corporate purpose, would you say that Johnson Johnson and other companies that are trying to profit off vaccine manufacturing distribution do not have a corporate purpose or have an inadequate corporate purpose?
Colin Mayer: I think that Johnson Johnson does take corporate purpose very seriously. It has a clearly defined corporate purpose, which is heart, science, and ingenuity to change the trajectory of health for humanity. It's encountered quite a lot of problems during its history, but I think it's recognizing increasingly the importance of really giving effect to that purpose. And that's what I hope we're going to bring out from the discussion today as to how companies like Johnson Johnson can really ensure that they deliver on their corporate purpose.
Paul Brest: Let me just press one more time for—
Colin Mayer: give me—
Paul Brest: can you give us an example of a company that does not have a corporate purpose?
Colin Mayer: Yes, so the examples that I was giving in relation to the energy companies, the oil companies, of having an objective of essentially maintaining dividends and maximizing the dividends that they were paying to their, to their shareholders was based on the notion that that was the overriding objective. And that came in the face of increasing evidence of the extremely detrimental consequence of what they were doing. Now, why is that an illustration of not a purpose? Because that clearly violates the second part of my notion of a corporate purpose, and that is that companies should not profit from producing problems for people or planet. That is exactly what the fossil fuels were recognizing until the recent change, which has come about for a variety of reasons which we might discuss, in terms of recognizing much more clearly what their purpose is in terms of not profiting from producing harm.
Paul Brest: Great, thank you. Shona or Margaret?
Margaret O'Mara: I wanted to add on to Colin's remarks, which I think are really important, and particularly the kind of the containers with which corporate behavior operates. I'm a historian. I'm a historian of the United States. And so I want to pull out some historical reflections from the US and sort of two overarching in particular. One is that there is very little that is free about free enterprise. That's one point. And then the second point is that tech companies, which are very much the focus of a lot of this question of corporate behavior and corporate responsibility and the future of the corporation, The tech companies are actually not all that different. They're less different than you think, or less different than they may have sort of presented themselves as being historically. What do I mean by that? What I mean by there's no such thing as free enterprise is simply that state policy conditions what corporations are able to do. That law and regulation, and with that ownership and governance and all the things, these principles, these incentives, it creates incentives, it creates the limits of within which corporate behavior can occur. And kind of in contrast to Colin's examples from outside the United States, in the United States, we have had a kind of a history since the very beginning of state engagement with and shaping of markets, all the way from land credit bureaus to railroad charters to infrastructure projects of the New Deal and beyond to the Cold War military-industrial complex. To tax and regulatory regimes of the high-tech era, they have been— that business has been shaped by the state in many dimensions. But federalism, the American federal system, and the— and a kind of allegiance, both in principle across the political spectrum, to free enterprise, or as some scholars would say, kind of putting the government out of sight, or hiding the extent of government engagement, has created this dissonance between an understanding and I see this vividly in the research I've done on the history of the technology industry, which was very much shaped by streams of federal funding and other tax and regulatory regimes, but done so in ways that were indirect enough and privatized enough that even the participants in that industry often weren't aware of how much the state had made that industry. And that continues to this day. There's sort of this separate— this idea of kind of the the Silicon Valley cowboy riding off into the setting sun, that is actually at odds with the way that state power and government power in the United States context has shaped the trajectory of the US industry. And so this gets to my second point, which is tech not being that different. And thinking about corporations that are computer— and this is obvious, kind of an obvious thing, but I think it's worth pointing out that when we talk about the future of the corporation, it isn't as if you're talking about BP and Shell and Novo Nordisk on one hand and then on the other hand you're talking about Amazon and Apple and Google and they're different. There are of course many, many different things about the way the tech industry works, both the large firms and the small firms. But the, you know, if I point at one of the stories that I sort of underscore about the Apple's origin story, right, which has this wonderful kind of has from the very beginning has presented itself as kind of a countercultural think different company. But the reason that that Steve Jobs and Steve Wozniak emerged from their Silicon Valley garage and that it was their company, not all of the other garage-based homebrew personal computer companies that made it to the big turn— big time was in part because they got the best marketing and management help money could buy. And they had mentors, they had venture capitalist investors, they had others who were helping them become a real corporation that operates on the metrics one would expect a large— now a large multinational corporation to operate. So I think that's one at one point. And then a specific example, which I think points to the importance of recognizing that corporate behavior is, whether we think of it bad or good, particularly in the last 40 years in the United States, has operated against what we might say headwinds that have pushed all corporate behavior in a Friedman-esque direction. And I think Colin's final point about kind of it's not surprising that the Business Roundtable statement hasn't kind of resulted in meaningful change, or it hasn't done all that much yet, is that certainly in the United States case, you have systems of ownership, you have systems of law and regulation that are suited to encouraging certain corporate behavior. And this is something that sort of popped out in the antitrust hearing where the four CEOs of four of the biggest tech companies were called before the House Subcommittee two weeks ago, making headlines. But all of the, you know, the sort of complaints about mergers and acquisitions, for example, and Facebook's acquisition of Instagram as an example. Well, as Mark Zuckerberg was quick to point out, well, you guys kind of let it happen. And that is, you know, it is not as though corporate responsibility and leadership is not important. And I think Shanna is going to have some good examples of where American corporations have kind of taken a different path. But taxation is a great example. So lots of headlines in the last couple of years, this is sort of a political talking point last year or two years ago, Amazon not paying taxes. This incredibly wealthy company that doesn't seem to be actually netting out and paying US federal taxes. And so what exactly does that mean? Well, what it meant was Amazon, because of a series of deductions and tax breaks, many of which were lobbied for and crafted in response to the needs of the technology industry. Things like the way that you price out stock options and deferred compensation, the way that R&D is taxed, the way capital gains taxes have lowered to create incentives for venture investment, among other things. That there's, you know, and as CEOs from Jeff Bezos to Tim Cook have kind of pointed out, you know, look, we're just using the tax code you gave us. And, you know, the tech industry had a role in shaping the tax code the way it is. But understanding the history of this, and also I think really grappling with and recognizing and making visible, in the US case at least, the incredibly important role of the state at the federal level and at the state and local level. In shaping markets and creating incentives and disincentives for certain kinds of corporate behavior is really essential to figuring out, well, what does the future look like? And this is not to sort of— this isn't a full-throated argument for, you know, regulate them all, break them up. That's not what I'm saying. I'm saying we need to sort of understand this state-market relationship, particularly if we're looking at the American case, but also I think it comes up quite vividly when you look at these cross-national comparisons and you see the way in which both politics, which both results in policy and also business culture, how that shapes what the possibilities are for a for-profit corporation, what they're able to do and what they're incented to do by their investors, by their shareholders, by their workers by their customers. So I'll leave it at that.
Paul Brest: Before you leave it at that, there's several questions that have come in. I'm going to try to synthesize into this broad question for you, Margaret, which is what are some, what are some different substantive regulations or pieces of legislation that you can imagine governments doing? Let's take the US and the national federal government. That would push in the direction of good corporate purposes?
Margaret O'Mara: Well, I think one of the complications is that it's, you know, and this is one of the reasons that, for example, the US has the tax regime it has, is that not every remedy is going to affect every industry in the same way. One of the great projects of the tech industry, particularly in the 1980s, was to really work with lawmakers of both parties to adjust, to use used moments of tax reform as a way to get things in the tax code that actually made more sense for research-driven companies, things like accelerated depreciation schedules that were different for a chipmaker than they were for a steel producer. But I think things like, you know, I think part of this is a result of an imbalance between work, a broader corporate imbalance between, that has contributed to income inequality and inequality more generally in which you have executive compensation break. Growing by over 900% since 1978, and worker compensation growing by about 12% in the same period in the United States, where you have this real dissonance. And so creating, kind of recreating the systems of security around employment— and this isn't necessarily through unionized labor, although in the past that's been a tool— but to create employment security, we create— I think creating financial security at the worker level is something that will will assist. And regulation kind of takes a lot of different forms. I point a lot when talking about antitrust, which is again one of many, many different things, but I point a lot to the case of AT&T, which before it was— before Ma Bell was broken up in the early '80s, it was a regulated monopoly for about 7 decades. And over the course of that, the terms of it being able to be very large and being the universal telephone provider was that it had to stay in its lane. It couldn't get into other types of communication, whether it be telegraph and then later communication by computer. And the consent decrees that the Department of Justice brought down on AT&T in the interim, when AT&T, being a good— looking out for the bottom line and looking for business expansion, kept on getting out of its lane and trying to get into computing, for example, had an incredibly generative effect on the creation of other companies. Notably the 1956 consent decree that forced AT&T to license the transistor for free. The transistor was invented in Bell Labs 9 years earlier. The free licensing of that and then the cheap licensing of successor technologies was something that Gordon Moore himself later said we probably would have not had a silicon semiconductor industry in Silicon Valley without that because it allowed that invention to be to be dispersed outside the confines of Bell Labs and for other entities to profit from it. So I think that, you know, thinking about policies to foster market competition, which extend beyond a mere kind of blunt instrument, making big companies smaller, there are a lot of— but I think those are examples from the past that might be useful to think about now.
Paul Brest: Thanks. Shona.
Shona Brown: Difficult to know where to start. I think Before taking a narrower threads, whether it's around, yeah, compensation or policy or any of the specific, I think I would just circle back to Colin's original premise about wouldn't it be nice if corporations operated with this broader purpose and didn't do damage anyway. I think probably most people would agree that if they were incentivized not to do damage, that that would be a good thing. In broad strokes, whether that's around environment or around equity. And I think as I was listening to Margaret's comments, I was asking myself, since the world of tech is the world I know, why are those— why does it seem that those tools are are perhaps less effective even in tech. And I think it's, at least in my experience, you know, over the last 30 years, which is really the window, it has been the case that the pace of change in the tech industry has generally been faster than anything else around it. Whether that be government regulators or otherwise. And so, I don't know if historically that's always been the case. Margaret could probably comment on it, but from my felt experience, it feels like the gap when you're on an innovation cycle of, unless I drive out new products and services, you know, as this significant portion of what I do on an annual basis, I am going to be overrun by competitors. And despite all of the discussions about monopolies or oligopolies or otherwise, it is a very competitive industry to a large degree. And so when you have an industry focused on that and the mindset of how do we keep innovating, I think it's been quite difficult for for common sense regulation, if you will, and effective regulation. Perhaps there's been a bigger gap there than there might have otherwise been. And then on the markets front, because, you know, I think the environment is probably the best example that comes to mind of something that doesn't seem to be governed well by market dynamics, right? The classic common good. But if I think about it, The complication in the tech industry is what is the market? You know, I'll give one example, which is for European regulators to decide that one of the first places they would act vis-à-vis being concerned about Google and its market power is in the area of commerce is kind of, pretty funny 10, 15 years ago when you understand how little e-commerce Google was responsible for, right? And so why did that happen? It's just such an odd thing. And I think it's a question of how you define what the markets are again. And that's probably particular to as we move from as we move into an internet space and an internet software and services space where that also comes into play. And it just makes me think that these traditional tools, which really, when done well, I think can be quite— well, are necessary and a key part of solving this problem of general corporate purpose. I think it's why in tech it's just created— it's been quite ineffective and created problems. I'll just make that general comment and then take it wherever my colleagues want to in terms of diving into one of the more specific issues.
Margaret O'Mara: Can I add on a comment on your question about the speed of tech, which I think is a very, very relevant point? I mean, I think we have been here before. I think the speed of which railroad technology and the combinations— more broad trust and combinations of the late 19th century in the US case, and also in other industrializing countries, was kind of far outpacing— well, there wasn't a political infrastructure, so it was kind of this post hoc regulation. But what's significant is that the post hoc regulation that comes out of that era is still the regulatory agencies in the US that were still working on these problems. So the FTC comes into being in 1913. It's very much a product of that. You know, it's thinking about John D. Rockefeller. And not to say that it hasn't adapted and updated the times. We do have a regulatory apparatus that perhaps is a mismatch. I think the other thing that's always on tech people's minds is the Microsoft case, which is a great example of, look, the Microsoft case comes up, by the time it's resolved, Netscape, which was the catalyst for it, has gone pretty much effectively gone away. The browser wars have moved on to something else. The technology has moved on. And there's still a sort of lively debate about kind of what did that mean for the market and Microsoft's presence in it. And So I think those things are kind of on the minds when we think— and also, I think colors this. Tech is a particularly difficult case to map these existing tools that states have onto things like intellectual property and software and all sorts of— there's not— but, you know, we have been here before. We have had very fast-moving industries before. We've done it before. We just have to retrofit.
Colin Mayer: Could I just pick up on this? Because I think it's an extremely important issue, because it comes back to this fundamental question of, well, can we solve our problems simply through having better enforcement of regulation? And I think what both Shona and Margaret have said about the problems with regulation are absolutely right. I was quite closely involved in designing the price cap regulatory system in the UK in the beginning of the 1990s, which is essentially along a traditional regulatory structure of having an asset base that one measures and applying a cost of capital to deriving what the required rate of return of companies should be. Now, that completely falls apart when you can't measure the asset base because a vast proportion of the assets are intangible, and even more falls apart when actually you're not talking about risk, which you can measure, you're talking about, in many cases, uncertainty for which it's impossible to attach realistic probabilities. And so So people are now increasingly focusing on the notion, well, okay, can we think in terms of moving from ex post regulation to ex ante regulation to take account of this fast pace and increasing pace of technological change that's occurring? And the answer is, in principle, yes, but it's incredibly difficult for an external regulator to do that. Let's take an example. Let's take the example of AI. A lot of the concerns about AI at the moment revolve around the future of work, and the future work is really an important issue. But actually, the more substantial elements in relation to AI probably relate not to manual labor but to mental labor, because in essence, as machine learning accelerates, the potential for AI to take decisions for us, not simply to help us with taking decisions, increases appreciably. Now, the question that that raises in an, an axiomatic regulatory context is, well, what sort of social, human, moral problems could arise from our lives increasingly being dominated by machines that are making decisions for us and essentially controlling our lives. Now, one can try and get a regulator to think about that, but it's a complex exercise. And indeed, what one wants to do is to say, well, actually, those who are designing these new machine computer systems should be thinking about what are the potential problems that might arise associated with them. In other words, the notion of external as against an internal regulatory system has serious limitations associated with it.
Shona Brown: Colin, I think it's a great little kind of sliver just to talk about it for a second on the AI front, which is— and I think it helps tease out this issue when you're sitting in the chair and you're focused on this innovation and growth. And let's, for all intents and purposes, say, you know, you're not a greedy short-term glutton. You're actually thinking about building the institution. And this question of, what is your duty to do no harm, to foresee? And I think that that is an entirely fair criticism, you know, of the tech industry's lack of foresight, you know, being really excited about all the potential positives, which by the way would also be commercially good things to do, but potential positives, but not really thinking about the negatives. And with respect to AI, I would be really troubled by any regulation that attempted to understand AI as much as those that are designing and building it, because I think that's just an impossible task. However, maybe there's some kind of do-no-harm test that you could imagine. I'm thinking of labor laws. So, in the US specifically, showing that what you are doing is not directly harming those protected groups, right? So is there something that could be created where the, if you will, the knowledge required is really just an understanding and a lot of time thinking about potential harm, not really knowing whether AI is going to cause that problem, but gosh, you wouldn't want it to happen. And I think facial recognition is something that's been in the popular press. It's exactly in this in this sweet spot. And so I don't know that— maybe the two of you do, but I don't know that there's a lot of thought given to, could I create regulators whose focus, you know, was on, yeah, cultural behavior, if you will, not knowing necessarily exactly what, but at least saying, look, pass the test. We don't want to slow down your innovative and your experimental. And your ability to create things that don't work and throw them out and try again, et cetera. But if you are building something, you should be able to show that you were at least asking these questions or anticipating. That feels to me, at least at the top line, as something that would be palatable if it was done well. Does that ring true to either of you?
Paul Brest: Let me— while you're answering that question, let me just ask I'd like you to address this as well. Can you think of examples where regulation has wisely been ahead of the problems rather than lagging?
Shona Brown: I don't know about ahead, but the best example for me in this general space is child pornography in the US and how it's managed. And, you know, it is, as I believe, you know, full cooperation, private-public. Now, it helps that the law is really darn clear about the topic. But still, it's a narrow example where at least I think, if not ahead, at least at pace with the creation of online distribution of child pornography has been managed as well as it could and cooperatively between private and public sector. That's one example anyway.
Margaret O'Mara: I just add, I think that sort of the notion of top-line principles is very useful because you're never going to keep up with the tech, right? So if you sort of— if you propose regulatory remedies that are key to the dilemma of the moment, whether it be content moderation on social media, whatever form it takes, circa, you know, the moment you're making that law or regulation, you're going to be far, far behind. So these broader principles— yeah, yeah. And it obviously requires technical understanding to— and there really has been, I think, one of the things that has happened in the last several decades, and this is partially because on the US case, the many of the agencies that were the kind of the repositories of scientific and technical expertise were diminished or completely dismantled by both the executive and legislative branch. So you have a lot of— used to have a lot more technical voices who were listened to within the federal government that kind of provided a— there was more of a counter, you know, counterbalance. The conversation was more balanced. And right now, for very good reason, I think the tech companies go to Washington and they're like, these people don't know what they're doing. I think that's changing quite rapidly. There's been a real push to understand the different elements of the problem, but it points to the fact that you, you know, you need to have technical understanding, but you need to think about what are the ends. And child porn is a great example. It's also a vivid example because this is something that everyone can agree is bad. And where it gets more slippery is the question of applying standards of consumer harm, for example, that date from the era of, you know, Teddy Roosevelt and Woodrow Wilson. Yeah, but it is, it's like unambiguously bad. And I think one of the things that is challenging, right, at this moment, in this, again, sort of tech-specific moment, is even comparable to other moments of regulation, like putting seat belts in cars, or limiting the sale of cigarettes. Like, people could be like, yeah, bad, we need to— those are bad. Good to have seatbelts, good thing. And now it's a little more like, well, how bad is Amazon Prime? Like, I really like Amazon Prime. Is it bad that it's so convenient that I'm able to do this? And so there's an ambiguity that makes, I think, kind of makes this argument a little more squishy. And again, I think comes into the other things, Colin, that you introduced about what is the container in which a corporation operates. It's about governance, it's about leadership, it's about other things that don't have to do with necessarily— it's law and regulation and it's other things too.
Colin Mayer: And that's absolutely right, Margaret. And Paul, your question is of fundamental importance because yes, of course, there are many, many examples of regulation being ahead of the game, because what regulation at its best does is it reflects what is deemed to be socially acceptable, publicly acceptable, that may well not have been recognized yet by the corporate sector as such, you know, things such as factory laws or child labor or whatever. And then I think, you know, coming to Shona's observation, is the heart of the issue. It's not that we're suggesting there shouldn't be— no, or necessarily less regulation— is that we've got inappropriate regulation. I mean, come back to the example that I was describing about this regulatory system that I helped design around asset-based price caps, etc. That was just the wrong way of thinking of the problem. What one should be doing is to say the role of regulation is essentially to define what are acceptable purposes. In many industries you don't want any regulator to do that, you just want there to be a run to the top in terms of companies competing in terms of producing the most desirable corporate purposes, but in some areas There's a real need to align the purpose of a company with what is a public objective and what is socially acceptable. And those examples that we've been talking about here are illustrations of that. They're illustrations of the regulator helping to define what are acceptable company purposes and not getting into the micro, uh, elements of establishing, well, precisely how does a company do that.
Paul Brest: So let me push back on that for a minute and then come to a broader question. I mean, almost any company, let's leave out, and I think it's great to have a few easy cases, and I think child pornography is an easy case, and I agree, but any company can define what it's doing providing goods and services for customers who want it as its corporate purpose. And what, what are bad corporate purposes? What's an example? I mean, you gave child pornography as an example of a bad corporate purpose. You can imagine a company with a good corporate purpose doing it in bad ways, but what would it mean for a regulator to define acceptable and unacceptable corporate purposes. What are examples?
Colin Mayer: Let's take the example of what people often regard as being the toughest cases in terms of purpose, and that is the sin stocks, okay? Addictive products—gambling, alcohol, tobacco, uh, fossil fuels might be put into that category—and say, well, Well, first of all, are those— are companies that are seeking to profit from producing those products demonstrating a bad corporate purpose? Well, according to the definition I put forward, the answer is yes. There were very good reasons historically. Let's take the example of junk food and fast foods. There's a very good reason why some of the most ethical companies in the world were chocolate producers, because back in the 19th century that was regarded as being an important source of nourishment for certain parts of the population. If we fast forward 150 years, we discover that actually they're associated with the types of things that Novo Nordisk is trying to solve in terms of diabetes. Okay, so those companies started off with a legitimate purpose, but that purpose then became increasingly inappropriate. It was the duty of those companies to have recognized that, to have anticipated it. It's exactly the same as the case that I was talking about in relation to, uh, the fossil fuel producers. Now, if companies fail to recognize the way in which social preferences and priorities are changing, it's quite appropriate then for the regulator to intervene and say, uh, those are not valid purposes for companies in the 21st century.
Paul Brest: So, Colin, you're suggesting, if I understand you, that producing alcohol, fast foods, and oil and gas are, are not, uh, legitimate purposes. I'd love to hear what Shona and Margaret think about those.
Colin Mayer: Well, could I say that that's not what I'm saying? I'm saying that by profiting by not addressing the harm associated with those is an illegitimate purpose. So that the— to the extent that fossil fuel companies are shifting the nature of their production, they're doing so in an entirely appropriate fashion. Can addictive companies think about shifting their production in such a way as to address the harm? Absolutely. One can think about products that fulfill the requirements of their customers in terms of relatively cheap products that bring them personal satisfaction, relaxation, social interaction, etc., without the harmful elements associated with them.
Shona Brown: I mean, I think it's interesting. I'll take alcohol, uh, since I'm not involved with any alcohol companies, um, and I think, you know, Even that one, it's an interesting question whether the traditional tools help. They do to some degree, which is that one can make, I believe, a perfectly science-based case that modest amounts of alcohol, particularly if consumed in the Mediterranean diet, you know, reduce your stress. And, you know, it's not necessarily a bad thing. Now, trying to get 12-year-olds addicted to alcohol is probably just objectively a bad thing. Trying to increase per caps, meaning daily consumption of alcohol in people who are already having their sort of reasonably recommended amount is probably a bad thing. So now we're into the subtleties of what do you try to regulate from the outside in? Okay, well, if I'm If I've got government-funded institutions, whether that's schools or other places where there are lots of 12-year-olds running around, that seems a perfectly smart place to regulate and say, "Don't sell alcohol." Perhaps I'm a nation that believes you shouldn't be consuming alcohol below a certain age, so obviously you're going to make sure that the company isn't somehow circuitously trying to work around that. I think that's probably more relevant for cigarettes than alcohol, still. So, I mean, even something like alcohol, which I think we all agree when consumed in the wrong amounts and particularly by the wrong age groups or health groups, you know, is a bad thing. I don't think you can just start off and say the company must be evil because it makes alcohol. Now, interesting, there are lots of individual investors who might choose whether they're institutional or otherwise and say, you know what, I actually don't want to be investing in companies because yes, I agree, alcohol is not necessarily outright evil, but it feels like a lower-level type of corporate contribution. And no matter what package you put around it, you know, the purpose is going to seem less useful than, say, this company over here working on renewable energy or whatever thing you want to choose. I think it's interesting just to even take something as straight up as alcohol. And I would actually put the production of arms, not for military purposes, but the production of arms into this category as well. You know, I think there is a legitimate group of folks who, from a sporting perspective, you know, like to go out and, and shoot at a range or the pieces of metal that fly through the sky, whatever those are called, I forget. But I'm not sure that outright you can say, well, that company could have no purpose, right? No broader positive impact just because it's selling that or making and selling that particular product. So I'll just say that I think the devil's in the detail. And maybe just to circle back on this, because we haven't raised this issue yet, which is that I still end up— and I think Johnson Johnson is perhaps the earliest example, Colin, you cited, because they're not owned by an industrial foundation or whatever, and yet you cited them as acting relatively purposefully. And yes, there's a long history there. Founders and all that sort of stuff. But I think it really comes down to, too, there's a particular leadership team with a particular attitude and sense about their responsibility, which isn't— which is, they are a C-Corp, you know, they are, you know, they are responsible to shareholders, but they've chosen to take a broader attitude. And that's to do with the people running the company and the board that's overseeing them and, you know, trickles down, I'm sure. Some layers, but it's also just an interesting question about— there's an interaction between who ends up in and who we choose to put into those places of seats of power and what is their cultural attitude to this question of broader purpose, which ultimately has to get solved as well, in addition to all of these other pieces around regulation and markets and so on. Margaret, do you want to comment?
Margaret O'Mara: Yeah, well, I think both of my colleagues' comments kind of point to this broader thing, which again is obvious, but sometimes lost in conversations about the corporation, particularly adversarial ones, which is that corporations are part of a broader fabric of civil society, one that has to do with law and regulation, has to do with the sort of those who invest or choose to invest in them, by customers and workers. And one of the things about a lot of these knowledge-driven industries is that in a way, some of their employees, that their talent is their most important asset. And so recruitment and retention and having an image of being not just a good place to work, but a place that's doing the right thing is something that actually adds value and is important to the corporation. And also I think these examples point to this ambiguity that is also inherent in the products of, you know, whether you're selling guns or alcohol or social media, where you can have certain use cases cases that are perfectly benign and pleasurable and kind of advance the goals that the company sets out to do, whether they're a winemaker or whether they're Twitter. And there are other ways that— there can be ways in which the product is designed, the way that it's used, and also the way that, you know, that I think this is particularly pertinent when we're talking about addictive products, whether they be— whether it be a gambling site or or booze or cigarettes or the internet or certain internet platforms and how they are designed— the design for maximal engagement, which of course has contributed to their growth, which again is serving their goal as a corporation to serve their— to deliver shareholder value, works against, particularly as these platforms have expanded into realms other than simply kind of where they started, that has become problematic. So, you know, this is— I mean, we're all kind of pointing out the nuances and the complexities, which I think from a policymaker's standpoint, you know, from a public policy standpoint, becomes, you know, we're making it harder. But I think it helps explain why that we don't— you know, when you want— when you have so many different actors who would like to see change, including people within corporations themselves and leadership corporations, that the needle doesn't move as much as one might expect because it's a multivalent process.
Paul Brest: So I want to complicate things even a bit more and move away from regulation because, as everyone agrees, you know, regulation is one of the tools, but the corporation itself bears responsibility, its various shareholders and other stakeholders, but I want to comp— I think that maybe we're trying to cram too much into corporate purpose and that we're acting as if harm— first of all, some of what we're talking about corporate purpose is doing good, not just avoiding harm, so, and I'm not sure the distinction between the two is often, is always that sharp, but once you understand that there are multiple stakeholders of a corporation— customers, communities, suppliers, as well as investors— then doing good in one realm may compromise doing good in another. You know, Novo Nordisk has a wonderful mission. You can pursue that mission and be good or bad to your employees at the same time. So I just think we're treating— I just don't want us to treat corporate purpose or doing good or bad as if it's a binary thing. Very often a company is going to have to balance the welfare of one group of stakeholders against those of others, and I'd love to know what you think about that.
Colin Mayer: Well, if I start off on that, because I think it is a central question that actually coronavirus illustrated extremely well, because those are precisely the sorts of trade-offs that companies are finding they're having to make continuously at the moment in terms of supporting their employees, or laying them off, cutting their costs, and thereby being able to potentially charge their most disadvantaged customers cheaper prices, or in terms of companies shifting production to help fight coronavirus through producing equipment as against maintaining their dividends, which might be a very important source of income for their pensioners. Now, those really exemplify the importance of purpose and the, the way in which purpose helps companies to make those trade-offs. Let, let me just first of all start off by emphasising the fact that purpose has become particularly important because the link between government and business has become much more striking than people thought it was over the last few months. And there is a strong sense that business has received massive subsidies from government on the basis that they will help to take economies out of the current malaise and to do so in a way that recognizes the wider benefits that they should be conferring beyond just their shareholder interests in terms of their— in terms of their stakeholders. And the fact that many companies, banks failed to do that during the financial crisis was a source of a shift in public attitude in terms of supporting the bailout of banks initially to save the financial system, which then became derision, and they recognized that actually banks were not responding in terms of recognizing their social license to operate. So it's essential that companies don't make the same mistake. Now, In terms of then saying, well, what does it mean in terms of helping to support the development of economies and stakeholders when one has to make those types of trade-offs? The answer is that the corporate purpose defines what, from the point of view of the company, are the most critical elements in terms of its contributions to society, as well as what contributes to its most successful financial performance going forward. Because to be able to build those, uh, activities going forward, they have to fund them, they have to be able to attract investors, they have to create a value proposition. And what those purposes do then is to help companies to establish what really is core, Is it the case that supporting our employees and sustaining their employment is absolutely critical and a central value of our organization going forward, or is the fact that we have to shift to new activities that are going to result in us requiring a different type of workforce a more important factor going forward? So I, I would suggest that purpose is particularly helpful in terms of addressing precisely the sorts of trade-offs that you're talking about.
Paul Brest: Shona and Margaret, and this is also a good opportunity since we're going to end maybe in 5 or 10 minutes for any issues that we haven't raised, but it'd be interesting to have you address the point that Colin just discussed.
Shona Brown: I like the way Colin highlighted, and I would agree entirely, whether it's with regards to COVID or just generally, that these specific trade-offs, if you think about it as an allocation of resources as a corporate entity, whether it's on an annual or multiannual basis, am I going to invest in my employees, right? So in this COVID example, and by the way, which employees? Because, I think the best companies have first thought about frontline employees and the lower parts of your stack, if you will, and thought about what is best for them. And by the way, in the US situation, sometimes actually laying them off was best for them because of the nature of the social safety net here. But still, just globally, asking the question for all of my frontline employees, what's best for them? And then of course, asking the question for my management as well as distinct from, I've got a supply chain, right? In most industries, which is often less able to ride out these sorts of unexpected crises than the mothership, if you will. And what am I thinking? How am I thinking about my supply chain? And what can I do to support them? As distinct from customers. And, you know, and to what extent— and I think when you enter this kind of crisis and you do have a clear purpose as a corporation that is not only stated and understood, but also internalized, you know, by your broader leadership team, then it does make prioritization and immediate action on kind of allocation of resources much easier. So that's how I see it kind of internally when operating, and I think Colin does a good job with those trade-offs. And by the way, the stakeholders is the other piece of that. And I guess I just feel like there are some industries we have more reason to be scornful of than others. What immediately comes to mind in the US context is the airline industry that quite famously is very heavy on not, you know, on doling out extra capital into dividends. And therefore quite frankly not having a war chest for a crisis like this and being first in line to get a handout. I mean, that's at least what it looks like. I'm not involved in the airline industry, but from the outside in, it's sort of kind of damning. So, okay, great. Let's help them through the crisis, but should it really be a handout from the taxpayers to the airlines? Whereas that's, you know, I think there's degrees in industries as to what extent we should be judgmental. But I like the specifics. In terms of things we haven't yet discussed, and I don't— maybe Margaret was starting to allude to it, but I do think this tool in the toolkit is knowledge workers, and it does vary by industry. But if you're trying to reimagine the corporation, well, it may not be in your hands if you're very dependent on talent, and talent reimagines for you. And exercises their perspective with their feet in terms of where they want to work and where they don't want to work. I think that's much less relevant for hourly workers and for those who have less choices. But for the body of industry that's really affected by knowledge workers, that is another another, I think, emerging tool in the toolkit for really shaping behavior of corporations. I'll leave it at that.
Margaret O'Mara: Margaret? Well, I would agree that COVID, and well, the COVID crisis, and then also in the United States and elsewhere, Black Lives Matter and the protests over race, white supremacy, and racial injustice have all, as has happened in the past, crisis is an accelerant. As well as a disruptor, right? So it's taken some things that were already brewing, for example, white-collar worker activism in the technology industry being one example, and accompanying that, the increased visibility of blue-collar and contracted workers in the technology industry and in other knowledge-driven industries that are kind of seen as full of people with college degrees sitting in their work-from-home offices with their dog at their feet, that has kind of brought that out, accelerated that conversation quite remarkably. Remarkably, I don't know where that will go, but it, as in the past, and I think a lot, unsurprisingly as a US historian, I've been spending a lot of time in the last 6 months talking, thinking, and writing about the late 1920s and the 1930s, as well as the 1940s in the United States, and how that experience, that incredible economic disruption, which kind of broke all the economic rules, and in doing so widened the aperture of political possibility, and politics small p as well as big P, where ideas that were already brewing in the culture and ideas about corporate governance, ideas about worker power, ideas about federal spending, regulation, financial systems, monetary systems, kind of were able to kind of be actualized because of the magnitude of the disruption that went across so many different social classes in so many regions. And we could be encountering, you know, a similar case here. It sort of remains to be seen. But this is undeniably very big. You know, this is— 2020 is going to be one of those kind of end of an era, beginning of an era that the US history textbooks, you know, employ in the future, I have a feeling. And so there's this kind of opportunity that rupture creates that can be generative or not. I'm not saying that every dream, every liberalist dream shall be realized now. It's not that. It just is, it's this big shake to the system that kind of opens up new possibilities. And so this is really interesting when we're thinking about how the conversation about the role of the corporation and these questions about, and examples of, I think that the investors as a set of actors and as the role that they play in the in the corporation, which of course is different across industries and across lifespan. The seed investor, venture investor has a different set of priorities than the institutional venture investor. But they're conditioning behaviors. And while the market is not the economy, the behaviors and the imperatives of Wall Street, certainly for American corporations, has been preeminent. And I think the airlines are a great case where you have industries that have chosen to take what they get and pay it out, and then others who, for either deliberately or because they just were making so much money, they just have it on hand. You know, for the largest technology companies, they are very, very cash-rich at a time when even some very— from other industries just don't have those cash reserves. And I think that creates a very interesting dynamic. And quite frankly, it creates an opportunity for corporate leadership to make choices, different kinds of choices that serve either their workers, their customers, or the broader social goals that they see their corporation advancing.
Shona Brown: I think one two-finger comment on investors, and then Colin, please jump in, which is, 'cause we haven't mentioned it yet, is just to say the dynamic between investors and I'm thinking about US registered companies at the moment, public companies, where there is this dynamic, where it is often the case that the investor community is more focused on short-term financial return. And even in the situation in which you have a purposeful intended leadership of the public corporation and a longer-term view, it can be difficult difficult for them to stick to that road with pressure from the kind of quarterly earnings predicaments that they are normally in, sort of paused at the moment, but that they are normally in. So just to add that as a— I think an important point that we haven't had time to spend talking about today.
Paul Brest: And I'll just add a two-finger comment to Shona's, which is that for every wise investor who looks to the long term, there may be hundreds of investors who are just trying to make a short-term profit. And an interesting question is the extent to which BlackRock and other large institutional investors or asset managers can actually change that dynamic.
Colin Mayer: Could I perhaps just pick up on all three of those comments? Because I thought Margaret's observation that crisis is an accelerant is an extremely important one. And let me come back to the example I was talking about, the shift of the oil companies from being oil companies to energy company. That could be regarded as being a revelation of enlightenment on the part of oil companies. But there's a much more straightforward explanation for why they're now willing to cut their dividends and invest in renewables when they weren't in the past. And the answer is that they've suddenly realized the extent of their stranded assets. Okay, and one of the factors that then is allowing them to cut their dividends and in the case of Shell, to stop their share buyback program, is that their investors recognize that the game's up, um, and that these companies need to fundamentally change, uh, their business model. Now, that's then not in light— it's not a revelation, the Road to Damascus. It's, uh, simply that commercial necessity has driven them in that direction. It's a crisis that's unfolding as far as those companies are concerned. And indeed, one of the more enlightened statements that Milton Friedman made was that only a crisis, actual or perceived, produces real change. When that change occurs, the actions that are taken depend on the ideas that are lying around. It's therefore our duty, he said, to produce new ideas, keep them alive and available until the politically impossible becomes the politically inevitable. Um, and so really the, the issue that I think we're coming to is, are we simply going to rely on an ever-increasing and devastating set of crises to force change in the way in which our corporate sectors operate? Or are we going to realize that actually there is a bit of a systemic problem with the way in which we've designed our corporations and the associated financial systems around them? and that if we want to avoid being forced to change simply by devastating crises, then we may be well advised to reimagine the corporation for the 21st century.
Paul Brest: So Colin has just made a very eloquent and substantive closing statement. Margaret and Shona, would you like to say any concluding I think I'll add a tidbit at the risk of—
Shona Brown: I'll consider it an addendum to Colin's closing statement, which is just that I do think the— to use Margaret's term, the accelerant with regards to virtual work does create, I think, a positive opportunity for a whole host of reasons. For purpose to actually be more attainable in terms of our reimagining of the corporation. So I think that if you want to finish on something to be optimistic about, I would say that that is actually a positive, I believe, coming out of this crisis, which should energize all of us vis-à-vis this reimagining.
Margaret O'Mara: I'll just add that I too am an optimist. I think history gives you much reason for pessimism. I choose to use it as fodder for optimism because it shows that nothing is inevitable, nearly anything is possible, and sometimes in surprising ways. It just requires ideas and action.
Paul Brest: So I have been receiving in the chat lots of questions which specifically will go unanswered, although I've tried, and I think without the panelists knowing it, they have tried to answer some of the questions indirectly. But let me end by just a huge thanks to all three of you for an incredibly stimulating and enriching conversation, to thank the event's co-sponsor, the British Academy, and then just to look forward, We're going to open registration for episode 6 in the series, The Social Science for a World Crisis, which is going to— that one's going to occur on August 27th. That will focus on some of the dilemmas that higher education focuses on right now with former CASBS fellows Nita Bandelji, Jonathan Jansen, Caitlin Zulum, and they'll be in conversation with Deborah Satz, who's the moderator, who's Dean of of Stanford School of Humanities and Sciences. And then there are at least a dozen more episodes in store. So if you're not already on CASBS's notification list, go to the website homepage, casbs.stanford.edu, scroll to the bottom and you'll see a quick and easy place to sign up. Meanwhile, thanks to you again. I think I have learned a lot in the process and I hope that, that the listeners to this have as well. Take care, everybody.
Narrator: That was Shona Brown, Colin Mayer, Margaret O'Mara, and Paul Brest discussing Reimagining the Corporation. As always, you can learn more about this episode and others in the CASBS series Social Science for a World in Crisis by checking out the links in this episode's notes. There you'll find summaries and videos of the events, participant bios, and suggested articles authored by panelists. We've got more events coming to you in the Human-Centered feed, and of course, more original conversations with CASBS fellows hosted by John Markoff. Be sure to subscribe so you don't miss them. And while you're at it, go ahead and take a moment to review us in your podcast app. We'd love to hear your thoughts on the show. From everyone at CASBS and the Human-Centered team, thanks for listening.