Why Do Corporations Play By Rules That Leave Society Worse Off?

Why Do Corporations Play By Rules That Leave Society Worse Off?

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Corporations exist to maximise profits, not to create social value

Walmart, Apple and Shell are richer than countries like Russia, Belgium and Sweden. In fact, of the largest 200 entities that exist, 158 are corporations. While many corporations are just as rich as countries, that’s where the resemblance ends because unlike government, corporations conform to a set of rules that lead to monstrous social and environmental outcomes. 

If you think about the function of a government, it (should) exist to serve its citizens by providing the services and infrastructure needed to support a thriving society. Each person (and company) contributes to a functioning society through tax contributions. 

Corporations exist to maximise profits for their shareholders — it’s a legal obligation for them to do so, in fact. While having more wealth than most countries, the function of a corporation is to serve a tiny proportion of society who invest as shareholders. They don’t care about adding any social value; they only care about maximising the thing that matters most; profits. This obligation leads to corporations behaving in ways that create devastating social and environmental impacts.

Nigeria is the largest oil exporter in Africa. In 2021 the oil and gas sector made up 10 per cent of gross domestic product and represented 86 per cent of the country’s export earnings. You would imagine that abundance of wealth would translate into low levels of poverty. Think again. Half the population lives on less than $1.90 a day. On top of this, the Niger Delta has suffered catastrophic environmental damage because the oil industry sees no need to reduce, limit or clean up the environmental impacts of their activities.

International oil companies dominate the sector. Shell, responsible for producing 39 per cent of the nation’s oil, is one of the primary beneficiaries. They have generated billions in profits for themselves and a handful of Nigerians who have become billionaires through extracting wealth that should have benefited society. 

So, the oil companies extract the wealth that could be used to stimulate the economy and uplift millions of Nigerians from poverty. They rub salt in the wounds by destroying the environment in the process, helping to exacerbate Nigeria’s poverty.

This is just one example of a country’s wealth being stolen by powerful corporations who take what they want and leave any negative impacts for people to deal with. 

Surely the whole point of the economy is to provide the goods and services needed to allow each person to thrive? That’s why the economy exists; it is a mechanism used to produce and then distribute goods and services. 

Yet, one of the strangest things about modern society is that the free market has become an all-encompassing sphere of influence. Society and the environment merely exist in service to it. That’s why corporations see no problem taking wealth that should have created prosperity for all. Society exists to benefit them and their shareholders. 

People in society merely serve as tools for corporations to extract more wealth to create even more value for shareholders. Obviously, shareholders are people themselves, but the victims of corporate abuse are rarely going to have enough capital to be able to invest in these companies.

Why have we designed an institution that operates only for its own benefit? Well, because corporations are quite fabulous at doing what they do — they make the investors and people that work for these businesses enormously wealthy. The greed of corporations translates into higher profits and bigger bonuses for executives; while shareholders get healthy dividends or the value of their shares increases, everyone’s a winner. Apart from society and the environment, that is. 

You may be thinking the times of corporate abuses are behind us; corporations are embracing sustainability. Well, of course they are. But not through a desire to create sustainable business models. They do so because they know the reputational risk of not doing so. Embracing sustainability is a public relations piece that helps create an illusion that they are pioneering a transformation towards a sustainable society. Meanwhile, they continue full steam ahead with business as usual.

Take the oil industry. Shell and other oil companies produce glossy sustainability reports with targets to achieve net zero by 2050. How can oil companies whose product has done more than most to create the climate crisis claim to be working towards the solution to the climate crisis? 

It is an act of self-preservation. They pay lip service to the idea that they’re becoming sustainable, but an oil company can only become sustainable if it stops selling oil, meaning it would no longer be an oil company. Clearly, they have no interest in getting rid of oil, but they certainly have an interest in providing the illusion oil will play an essential role in meeting future energy needs. 

The bottom line is that the rules of the game remain unchanged. And if you don’t change the rules of the game, then you can expect these companies to continue to behave in the same way.

The same goes for the people that work for them. Ultimately decision-making in corporations is made by people, but in a ruthless, dog-eat-dog market, each person knows all too well that if they don’t prioritise the interests of the corporation, they’ll be out of the job and soon replaced by someone who will.

That’s why corporations continue to strive to pay the lowest wages, reduce employee benefits to a minimum, pay low (or zero) corporation tax, and union bust — because they only exist to serve themselves and the people who work for them. 

Nothing will change until the rules of the game change. And considering that many corporations are far wealthier than countries, they have enormous influence over the rules they play by. It seems unlikely they will agree to any rule changes because doing so would impact their influence and power. 

It’s hard to comprehend that we have created a business model that seeks to extract wealth from society and the environment when society is the thing the corporation should be seeking to serve. We have created monsters, and so long as corporations are obligated to maximise profits, we’ll continue to experience monstrous outcomes. To change the monsters, you need to change the rules they play by. Only then can you eliminate the monstrous outcomes that we continue to experience.