This commentary is adapted from a post in Todd Cort’s Substack newsletter The Real Price of Risk. The views expressed are the author’s own.
Every year, somewhere in the first few weeks of the semester, a student asks me a version of the same question. It usually comes after we have worked through a case in which a company did something that was legal, profitable, and plainly wrong: dumped a cost on a community, squeezed a supplier past the point of survival, or sold a product it knew would cause harm. The question is always a version of: “But who decided that? Who is actually responsible?”
It is a valuable question, and for most of my career I did not have a satisfying answer. The honest answer is that no single person decided. The decision emerged from a structure: a board responding to shareholders, managers responding to incentives, employees responding to targets, all operating inside a legal entity that was designed, quite deliberately, to separate the consequences of its actions from the people who take them. Everyone inside the corporation has a conscience. The corporation itself does not.
It would be easy to treat the question of corporate morality as a perennial one, the kind of thing philosophers debate in every generation. But I believe that our current moment is different, and that the case for the moral corporation is now as much a matter of risk management and economic survival as it is of ethics.
We see all around us the impact of the disjuncture between corporate morality and action. Climate risk is quietly causing escalating economic risks to communities, governments, and others. The Forbes 400 added $1.4 trillion in wealth in a single year while S&P 500 CEOs were paid, on average, 312 times their median worker. Companies are deploying artificial intelligence at extraordinary speed while disclosing almost nothing about its effects on their workforces, energy use, and risk profiles. And the largest IPO in history was built on a governance structure that separates those who bear the economic consequences from those who make the decisions.
These are not isolated stories. They are symptoms of the same underlying condition: a global economy whose most powerful institutions—the corporations—are designed to capture benefits privately while distributing costs publicly, operating in a world where those costs are now arriving faster, larger, and more correlated than at any time in modern history. Scholars have begun to call this a polycrisis: climate change, resource depletion, inequality, geopolitical fragmentation, and technological disruption, each amplifying the others.
In 1976, Michael Jensen and William Meckling described managers as agents of shareholder principals whose interests needed to be aligned through incentives. Over the following decades, those ideas reshaped corporate governance, executive compensation, and business education.
The corporation did not begin as a profit-maximizing machine that eschewed any broader sense of purpose. Indeed, for most of its history, it was an entity defined by its purpose, created by a sovereign authority to accomplish a defined end.
The earliest corporations in the Western tradition were monasteries, cathedral chapters, universities, guilds, and towns. Each existed for a purpose beyond itself: worship, learning, the regulation of a craft, the governance of a community. The trading companies of the early modern era, including the Dutch and English East India Companies, were also chartered for specific purposes and granted specific privileges in return. That history is far from innocent; the East India Company became an instrument of conquest and extraction on a staggering scale, which is itself a warning about what happens when a chartered purpose is captured by private gain. But even then, the corporation was understood as a creature of the state, chartered to serve an end the sovereign defined.
The early American corporation followed the same logic. Through the early 19th century, most corporations were chartered one at a time by state legislatures for specific public purposes: a bridge, a canal, a turnpike, a bank.
By the end of the century, that had changed. States adopted general incorporation laws that allowed anyone to form a corporation for any lawful purpose. This evolution democratized access to the corporate form, a genuine benefit that ended the era in which charters were privileges for the politically connected. But it also quietly removed the requirement that a corporation serve a purpose beyond itself.
Once purpose was removed from the charter, the question of whom the corporation served had to be answered elsewhere. In 1919, the Michigan Supreme Court held that “a business corporation is organized and carried on primarily for the profit of the stockholders.” Nonetheless, for several decades after the Second World War, large American companies still saw themselves as institutions with obligations to employees, communities, and the nation.
That managerial era had its own failures, and it is important to acknowledge them. By the 1970s, many large American companies had become bloated conglomerates run for the comfort and empire-building of their managers, with poor returns and little accountability. The shareholder-value revolution that followed was, in part, a legitimate response to that problem. It imposed discipline, reduced waste, and made managers answerable to someone.
But the cure came with a radical simplification. In 1970, Milton Friedman argued in the New York Times Magazine that “the social responsibility of business is to increase its profits.” In 1976, Michael Jensen and William Meckling described managers as agents of shareholder principals whose interests needed to be aligned through incentives. Over the following decades, those ideas reshaped corporate governance, executive compensation, and business education. Stock-based pay tied executives’ fortunes to the share price. Hostile takeovers disciplined managers who did not maximize it. And business schools built an entire curriculum on the premise that the purpose of the firm is to maximize shareholder value. Corporate purpose was replaced with a number.
This simplification has been built into the very tools we teach in business schools. Valuation models, capital budgeting exercises, and portfolio optimizations maximize a single objective, because it is far easier to optimize one variable than many. Students absorb not just the method but the premise.
There are other options out there. Nobel Prize winner Elinor Ostrom documented communities around the world that managed shared resources sustainably for generations: irrigation systems in Spain and Nepal, fisheries in Maine and Turkey, alpine pastures in Switzerland and Japan. They needed neither privatization nor central control. They succeeded through a set of design principles: clearly defined boundaries, rules matched to local conditions, participation by those affected in making the rules, monitoring by people accountable to the community, graduated sanctions, accessible conflict resolution, and recognition by outside authorities of the community’s right to organize.
Numerous other traditions have spent millennia thinking about souls, virtue, and right action. Read side by side, Western philosophy, the Abrahamic faiths, and the traditions of South and East Asia arrive, by very different paths, at insights—including that wealth must serve an end beyond itself and that people are ends, and their work carries dignity—that the shareholder-value corporation has largely forgotten.
The corporation has no soul. But the corporation is made of people who do, and it is shaped, more than we usually admit, by the institutions that train its leaders. We as business educators can teach in a way that includes this broader tradition of purpose and responsibility in economic life, and shape the moral character of the corporation.
The next time a student asks me who is actually responsible for the actions of a corporation, I want to have a better answer. I want to be able to say: you are. And here are the tools, the structures, the traditions, and the community to help you do something about it.
“The Yale School of Management is the graduate business school of Yale University, a private research university in New Haven, Connecticut.”
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