Wharton’s Eric Orts and Amy Sepinwall discuss ‘The Moral Responsibility of Firms.’

People are responsible for their individual actions. But what about the company as an entity? In a new book titled The Moral Responsibility of Firms, authors Eric Orts and Craig Smith and contributor Amy Sepinwall argue that companies are indeed morally culpable.

Orts is a professor of legal studies and business ethics at Wharton and director of the school’s Initiative for Global Environmental Leadership; Smith is a professor of ethics and social responsibility at INSEAD, and Sepinwall is a professor of legal studies and business ethics at Wharton. Orts and Sepinwall recently discussed the book on the Knowledge@Wharton show, which airs on SiriusXM channel 111.

The Moral Responsibility of Firms

The Moral Responsibility of Firms by Eric W. Orts, N. Craig Smith

An edited transcript of the conversation follows.

Knowledge@Wharton: Why was it important to put together a book looking at moral responsibility for firms?

Eric Orts: There’s a very long-standing philosophical debate about whether organizations like business firms have a moral responsibility as firms themselves, or whether it’s only the individuals in the firm or organization who have moral responsibility. This has been a long-standing problem and a number of people have contributed to it, but it’s not really been resolved for decades. We decided it was time to revisit this question. In partnership with INSEAD and with a generous grant from the Wharton and INSEAD Alliance, we decided to pull together the leading thinkers on this issue, have a conference on it and then write the book based on that conference.

Knowledge@Wharton: Is there a for and against in this book?

Orts: You have some scholars — among them are Philip Pettit who is a philosopher at Princeton; Michael Bratman at Stanford, although he hedges somewhat in the book, but he’s included in the chapter in favor of finding more responsibility for firms; Peter French, who has written a very influential statement that moral responsibility can be attributed to firms. They’re examples in the first part of the book. In the second part of the book, Amy is included in that as well as some other people, including John Hasnas at Georgetown, Ian Maitland and some others arguing the other side of it. The basic argument there is that you have an individualist point of view and the idea of moral responsibility really doesn’t make sense to attribute to firms.

Just as some background, I raised this with a friend last night and said, “I’ll be on the radio talking about this.” She said, “What do you mean? It seems like it’s common sense that you would think there would be moral responsibility of firms.” But once you look into this a little more deeply, you realize it’s not really necessarily true.

Just take the Volkswagen example [and its emissions cheating scandal]. If I bought a Volkswagen, it was not correct that it was represented as an environmentally friendly vehicle. There was environmental fraud conducted. But then is it true that Volkswagen as a whole is responsible for that, or is it only the individuals within Volkswagen who may have known about it who were involved in the deception?

It probably doesn’t make sense for me to say, “Well, whoever sold me that car did a moral wrong” because they’re going to say, “I didn’t know that the other people were doing this. I was completely innocent.” The local dealer who sold me the car is probably not morally responsible. Yet many people would assume VW is responsible, so then anyone associated with VW must be responsible. That’s kind of the question that we’re trying to get to the bottom of.

“In an organization, it’s often easy to hide when you’re doing something you might know is wrong.”–Eric Orts

Amy Sepinwall: The book in many instances pursues, at a fairly high level of abstraction, thinking theoretically about corporate moral responsibility. But it’s motivated by these instances of corporate wrongdoing where it looks like maybe we can identify some individual perpetrators of corporate wrong. But even were we to hold each of them responsible, it’s not clear that we would fully have expunged the indignation that the corporate wrongdoing has elicited.

If you think about the BP oil spill, for example, which is the worst environmental disaster that the United States has seen, it turns out that what caused the oil spill was a number of relatively small errors for which there are individuals who are guilty. But they’re guilty just for their small contribution. If we were to hold each of them responsible, punish each of them in accordance with their contribution, we really would not end up with the kind of response that matches up with the amount of harm that BP created.

There is this felt sense, as some of the authors in the book put it, of a responsibility deficit. This idea that holding only individuals responsible fails to fully account for all of the harm that occurred, and we need to do something else if we want to respond appropriately. It often takes the form of punishing the corporation or blaming the corporation or holding the corporation responsible.

Knowledge@Wharton: The German government is pursuing potential charges against the leaders at VW who may have known about what was going on. There should be a personal responsibility, but should there be a moral responsibility as well?

Orts: Well, that’s exactly it. The legal proceedings you have with VW and with these other cases shows you — practically — why this philosophical issue matters. Is it enough to just have a big judgment against VW as a company and make them pay a huge penalty? What I call in the book individualists, ethical theorists would say, “No, that’s completely not OK because you are essentially letting all these people who really did the bad acts off the hook and sort of pretending that by punishing a big auto company we’re getting that.”

Another good example of this, and this is mentioned by Craig Smith in his introduction, is the financial crisis and what happened after that. Very few, if any, actual human beings, were convicted of crimes or punished for various allegations of financial fraud. But you had very big penalties paid by banks and other financial institutions that admitted to crimes and admitted to wrongs and paid huge amounts of damages. The question is, does that really help anything? Does that really help to deter moral bad behavior if you’re just putting [the onus] on the shareholders of the banks and you’re letting the bank as an entity take the hit and not actually going [after] individuals?

One footnote: There has been an actual policy change on that. [Former acting Attorney General] Sally Yates, who has become famous for other things since then, has an influential memo that changed policy within the Department of Justice and that said we are not as a matter of policy going to do that anymore. We’re not going to pursue or settle cases just with the corporation. We must have individuals on the hook. For our purposes, that’s one of these reasons this practical question of moral responsibility matters, because it goes

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