What if modern corporations pursued ethics at the expense of profits? This was the question posed by Prof. Luigi Zingales to an audience of approximately 30 students Monday at an event hosted by Catholics at Booth and the Lumen Christi Institute. The answer, according to Zingales, is that modern corporations should seek to maximize utility, not profits, and that it is the duty of shareholders today to hold their corporations responsible for ethical violations.
Zingales began his discussion by focusing on the source of what he termed a “Copernican Revolution” in finance and ethics: Oeconomicae et pecuniariae quaestiones (or Considerations for an ethical discernment regarding some aspects of the present economic-financial system), a new document commissioned by Pope Francis and written by the Congregation for the Doctrine of the Faith. The document states that the “vision of man individualistically understood, as primarily a consumer whose worth consists above all in a maximization of his earned income” is inadequate. Instead, the document states that “the human person . . . has a sense for gains and flourishing that are more holistic, not reducible either to a logic of consumption or to the economic aspects of life.” Zingales contrasted the document with Milton Friedman’s conclusion that “the sole social responsibility of a corporation is maximizing profits,” which has effectively become the assumption upon which modern corporations operate. Citing the sparse legal indictments of business leaders in finance following the subprime mortgage crisis and subsequent economic crash, Zingales found Pope Francis’s writings to be necessary to build a more ethical economy moving forward.
The bulk of the speech focused on how to turn Pope Francis’s words from theory into reality. According to Zingales, the change must start with shareholders deciding to “invest and engage,” using their votes to force corporations to make decisions that prioritize ethics over profits. As an example, Zingales spoke of the Northwest Coalition for Responsible Investment, an investor group run by nuns that has invested in firearm manufacturers and for decades attempted to use those investments to pressure the manufacturers to take steps to reduce gun violence. The group claimed victory following the Parkland school shooting when BlackRock joined them in publicly demanding that firearm manufacturers respond to the tragedy. As current and future financial investors and business leaders, Zingales stated that MBA students have a responsibility to follow in the steps of these activist investors in forcing companies to think about ethics and not just profits. He reminded the audience that “not choosing [to actively invest] is choosing not to choose,” and that attempting to avoid the debate over ethics entirely was a moral choice, endorsing the status quo.
In response, Booth students asked questions regarding obstacles to Zingales’ proposal in the United States. The first challenge involved forcing corporations to be more transparent regarding their business operations. In response, Zingales advocated for better protections and rewards for whistleblowers, as they are the key to making unethical practices known. The second challenge involved tolerance for companies that make controversial ethical decisions. Zingales responded that Americans must learn to be tolerant of competing ethical systems. As an example of the U.S.’s failure to be tolerant in this regard, he referenced the recent Hobby Lobby case before the U.S. Supreme Court, in which the Hobby Lobby owners argued that the Obama administration’s insistence that they cover contraceptives in their health care plans violated their desire to run their business according to Christian principles. According to Zingales, Hobby Lobby should be able to run its business according to its own ethical principles. The effort to make businesses consider ethics over profits will never succeed in a pluralistic society, he argued, if Americans are only willing to accept corporations that align with their own ethical and political preferences.