Blog Paul de Bijl: Corporate responsibility goes further than merely not violating the law

Regulation as a delegated responsibility

Last year, the Digital Markets Act (DMA) came into force, and on February 17, the Digital Services Act (DSA) went fully in effect, too. The DMA imposes obligations to prevent all-powerful 'gatekeepers' – Alphabet (Google), Amazon, Apple, ByteDance (TikTok), Meta (Facebook) and Microsoft – from thwarting competitors or leveraging their power to other sectors. The DSA makes online services and platforms responsible for curbing the spread of illegal content, as well as for protecting the fundamental rights of users. As a result, citizens are able to take back some control in the digital domain.

The debate over corporate responsibility has been raging for over half a century now. In 1970, Nobel Prize winner Milton Friedman wrote in the New York Times that the only social responsibility that companies have is to increase profits, provided that they play by the rules of free and fair competition, without deception or fraud. This so-called 'Friedman doctrine' places the interests of shareholders above those of stakeholders such as employees and people in the neighborhood of companies. His argument was that it is up to the government to levy taxes, and, in that way, pursue public objectives such a clean environment or a safe workplace.

Perhaps Friedman wanted to confine the debate to clearly delineated arguments, yet his doctrine strikes as ideological. For example, government interventions will never be perfect. Another assumption of the doctrine is a free society with rules in place that everyone abides by. Yet, companies not only push the boundaries and explore the gray areas, they also exert influence over the rules of the game (see the enormous sums of money spent on lobby activities alone). The precondition that nobody cheats is therefore misleading.

A lack of responsibility leads to harm

It’s not just the digital platforms that sometimes feel less responsible for the harm they directly or indirectly cause. In 2021, the legalization of online gambling resulted in a splurge of ads and a surge of new gamblers. Ads painted a picture of harmless entertainment while providers did the bare minimum in terms of addiction prevention. Last year, two top executives of a chemical company warned against stricter regulation of pfas and GenX by arguing that anything can be toxic if you take too much of it. And several years ago, a former CEO of a supermarket chain claimed that they have no influence over what consumers eat. Digital platforms often similarly contend that they are mere conduits of what users post or trade.

Digital technology makes new types of dubious practices possible. Think of Facebook tracking the online behavior of individuals without Facebook accounts, and the collection of biometric facial data without explicit consent of the individuals in question. Or think of 'dark patterns': design choices in digital environments that stimulate users to scroll, make purchases, or share personal information. By doing so, digital providers wheedle money, attention, and data from people.

Why should such behavior be the norm? Businesses could (in line with their promises and marketing messages) invest much more in the prevention of harm to buyers or, more in general, to society as a whole. Calling on ‘the market’ to do the right thing or relying on businesses’ innovations to solve all of our problems falls short. "If we don’t regulate Amazon, we are effectively allowing it to regulate us", said Stacy Mitchell (a critic of concentrated power of businesses) in a 2020 New York Times article. Lawmakers, too, bear a responsibility, which is to clarify what they wish to protect, and then put in place robust frameworks for achieving those objectives – cf. the DMA and DSA – protecting democracy and society against undesirable digital business models.

Breaking the cycle

How do we break the cycle of firms coming up with something clever, the government responding to that with additional oversight, after which firms figure out something new again? One option is to apply the precautionary principle (from the EU treaty) in legislation and regulation more often. That principle allows for precautionary measures if there is just a risk of major or irreversible harm. Then there is also ACM’s Guidelines on the protection of the online consumer, which point out that providers need to act in good faith, meaning being honest towards buyers. Additionally, a social duty of care for executive and supervisory board members can also help, which has been included in the European Corporate Sustainability Due Diligence (CSDD) directive, which must be implemented in national regulations. Provided that this is not just seen as yet another box to be checked.

Rules and regulations can never cover everything: we need to take a broader perspective. It’s not just a company’s words that count, it’s also the causes that it commits to, the ideas that it stands for. Colin Mayer of the University of Oxford sees a solution in 'corporate purpose', where a company’s very meaning (its raison d’être if you will) is solving problems in profitable ways without passing on the costs to others. In that context, profit is only justifiable if it does not come at the expense of others.

Corporate purpose is not easy or without obligations. Sometimes, we believe that a company’s actions are meaningful and in line with our own personal values. People seek out meaningful jobs, or buy from providers to whom they feel connected. Yet, some companies manipulate our intuition. That is why trustworthiness and transparency are absolute necessities. A meaningful mission must act as a visible foundation of a company’s strategy, having a verifiable effect on the company’s actions. That makes demands on corporate governance, calls for strong leadership, and is also just hard work. On the other hand, the impact (also in terms of business performance) can be enormous.

The penny may drop

Markets are much more than desirable products at competitive prices. When people lose control over their decision-making, they also lose confidence, which is the foundation of our economy and society. Consumers are trailing behind in digital sectors, but the government cannot solve that by itself. Companies and shareholders cannot avoid the fact that responsibility entails more than ostensibly not violating the law. That also applies to new regulations such as the DMA and the DSA. Shareholders, buyers, employees, and other stakeholders – that means all of us – can call companies more firmly to account.

Paul de Bijl, ACM’s Chief Economist