Corporations are Not Unitary Rational Actors

Matt writes:

As you can perhaps tell from my dyspeptic response to some of our Ideas Festival sponsors’ efforts to brand themselves as “green,” (see also Boeing’s hilarious hand-crank powered flashlight) I don’t see the “corporate social responsibility” movement as having a ton of promise. I think large firms will more-or-less inevitably seek to maximize profits and the role of the state is to ensure that that profit maximizing behavior takes place in a larger framework such that its impacts are beneficial.

I’m not so sure. A few months ago I visited the Cincinnati headquarters of Proctor and Gamble as part of a departmental field trip, and one of the things that struck me was the apparent role that employee preferences played in terms of corporate environmental policy. The framework that Matt lays out above is the traditional “billiard ball” understanding of the corporation; it is a unitary, rational actor that seeks to maximize profits within the legal framework set forth by the state. It may also, of course, try to modify that legal framework to increase profit maximization opportunity. This is a framework that the discipline of international relations borrowed from economics to create Neorealism, the idea that states can be treated as unitary, rational actors seeking to maximize power (or security).

Of course, we all know that states are not, after all, unitary rational actors; they are instead fragmented actors that respond to a variety of different external and internal stimuli in a way that leaves their behavior “rational” only in a very technical sense. I think that corporations can probably be treated similarly; the CEO of Proctor and Gamble does try to maximize profits, but there are internal as well as external constraints on P&G’s behavior. If the employees strongly support a certain kind of environmental, recycling, or social program, then it becomes hard for P&G to ignore that concern in the pursuit of profit maximization. No corporation, after all, can simply fire all of its workers. As such, I think that Matt underestimates the prospect of some companies branding themselves as “green” in a meaningful ways. Such moves aren’t simply public relations, but rather can also be a response to “grassroots” demands from within the corporation, and from shifts in corporate culture.

Cross-posted to TAPPED.