Is it really illegal for a company to act ethically?

divabat — Fri, 13 Jun 2008 15:20:30 -0800

"[Companies] have a legal responsibility to make their shareholders lots of money, which means they *MUST* rip you off for as much as they can get away with." Really? I've heard that sentiment many times (the above is a direct quotation) and it doesn't make sense to me. According to Carrotmob, "It's illegal for a corporation to behave in a socially responsible way -- unless that socially responsible behavior happens to be identical to the behavior that maximizes profit."

Proponents of the above argue that if a company shows "record profits", that's a sign that they've been ripping off customers. According to them, companies only think about their shareholders and the Board, and therefore must make as much money as possible regardless of ethics.

Is this true? Is it really illegal for companies to act ethically unless it makes money?

To me, it seems that if the above sentiments were true, social enterprises would not be able to exist. Also, it would make Corporate Social Responsibility illegal.

When shares are bought in a company, they are traded away very quickly, and aren't share prices usually determined in large part by the public perception of the company? Surely shareholders and Boards would notice if the customers are being ripped off or if the companies are acting unethically, and respond negatively to unethical corporate behaviour?

It seems to me that these notions come from the idea that "for-profit" = "evil bad conglomerate", but I can't seem to find any actual legal or economic basis for saying that companies must be unethical to profit.

Is there actually any basis to those points? Is it really illegal for a company to act ethically?

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Is it really illegal for a company to act ethically?