In a recent Harvard Business Review article, Niskanen Center Senior Fellow Ed Dolan explores how the Erb Principles for Corporate Political Responsibility help offer a comprehensive set of objective standards against which to judge corporate political activities.
Half a century ago, Milton Friedman famously drafted an essay that has since defined business’ role in democratic society. Friedman wrote: “In a free society … there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
This statement has long guided business’ role in society, but what of its role in the political process? In the same essay, Friedman implies a division between government and business, where government defines the rules while business focuses on making profits within them, specifying that corporate leaders are not to act as “legislator, executive and jurist” by using corporate resources “to restrain inflation, improve the environment, fight poverty and so on.”
This concept, Dolan writes, is different from how things actually work. “Instead, we find corporations up to their elbows in the rulemaking process at every level,” he writes. “They contribute to the campaigns of elected officials, lobby regulatory agencies, and do what they can to influence the selection of judges.”
A Framework for Political Responsibility
Yet, given that the right to petition the government is written into the Constitution, Dolan does not suggest a wider division between business and the political system. Rather, “we need a set of principles to guide and evaluate the participation of businesses in politics,” he writes. This is where the Erb Principles for Corporate Political Responsibility (CPR) come in. Dolan believes the Erb Principles are the most comprehensive solution yet devised to clarify the meaning of and provide benchmarks around corporate political responsibility.
“The Erb CPR principles do not take sides in the debate over social responsibility,” he writes. “They are designed to appeal equally to the staunchest Friedmanite and the most progressive advocate of corporate ESG. What they do is lay out some broad guidelines for the political activities of corporations, regardless of their views on shareholder vs. stakeholder primacy.”
Dolan goes on to outline the Erb principles — accountability, legitimacy, responsibility, and transparency — as well as the associated actions the Corporate Political Responsibility Taskforce has identified as aligned with responsible political behavior. “Taken together,” he writes, “the declaration of principles and the specific governance measures that support them offer a set of objective standards against which to judge corporate political activities.”
“The balance between free-market capitalism and constitutional democracy is always a delicate one,” Dolan writes. “The CPR principles can help harmonize the two and they allow for a much clearer dialog about companies’ participation in the democratic process.”