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Karl P. Sauvant, PhD
Resident Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
p(212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask] | t: @CCSI_Columbia

“A New Challenge for Emerging Markets: the Need to Develop an Outward FDI Policy”, "China Moves the G20 toward an International Investment Framework and Investment Facilitation", "China Moves the G20 on Investment", "The Rise of Self-judging Essential Security Interest Clauses in IIAs", "Can Host Countries have Legitimate Expectations?", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", "The Evolving International Investment Law and Policy Regime: Ways Forward", "China's Outward FDI and International Investment Law", and  "Policy Options for Promoting FDI in the LDCs" are available at and

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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 208  September 11, 2017

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Matthew Schroth ([log in to unmask])
Corporations need to look beyond profits*
Lisa Sachs, Jeffrey Sachs and Nathan Lobel**
‘In theory, there is no difference between theory and practice. In practice, there is.’ This adage is useful in assessing Lilac Nachum’s Columbia FDI Perspective.[1] She suggests that society is best served when companies focus on maximizing profits rather than on their social and environmental impacts. In this regard, Nachum echoes Milton Friedman’s famous and controversial 1970 position.[2] This may be good theory, but it is bad practice. The real world is too far from the idealized world of Friedman and Nachum to let companies off the hook. 
Nachum argues that, so long as corporations obey the law in good faith, they produce the most social benefit by maximizing profits and bringing goods and services to the market. This argument works under strong theoretical assumptions, mainly that market prices provide accurate signals of social costs and benefits. This is true only when markets are perfectly competitive, negative externalities and information asymmetries are absent and governments are efficiently providing public goods.

In practice, market prices pervasively diverge from true social costs and benefits.  Market power is widespread, and firms exercise considerable control over their product prices. Negative externalities are rarely addressed through corrective taxation, regulation or direct negotiation. Governments chronically underprovide public goods. And many enterprises flout the law, knowing that resulting fines will be dwarfed by ill-gotten profits.  
To correct inefficiencies, governments must intervene. But many corporations employ their formidable resources to drive legislation and block or roll back responsible regulation. In 2016, special interests spent US$3.15 billion to employ 11,166 lobbyists in the US.[3] This is not the work of a few corporations; it is near-universal practice among large firms trying to influence the law for private benefit. When disasters strike, stories of special interest lobbying and deregulation are rarely far behind.[4]
Even in a world of governments scrupulously correcting market failures, corporate profits could still be mal-distributed because of control failures within the firm itself. Nachum implies that profit-maximization enables corporations to contribute to society through shareholder wealth, taxes, jobs, and innovation. In reality, greater profits often lead to exorbitant executive pay[5] (at the shareholders’ expense)—even for CEOs dismissed for malfeasance[6]— as well as further efforts to avoid and evade taxation.[7]
Given the above, we propose the following standards:
  • Companies should not aim to profit from negative externalities. Governments should induce firms to internalize externalities through corrective pricing or regulation, but the absence of government action or international regulation does not absolve firms of the responsibility to avert harms on others.
  • Corporate law should ensure that directors’ duties reflect a responsibility to minimize harm to the environment and to society, including through observance of workers' rights and environmental, health and human rights standards. 
  • Firms should refrain from lobbying for the narrow interests of the firm or sector, and legislation should restrict undue corporate influence on public policy. Governments should pursue the public good rather than narrow corporate interests.
  • Investors should engage in environment, social and governance (ESG) investing, holding companies to account through shareholder engagement (such as the recent ExxonMobil shareholder resolution[8]) or by divesting from companies that do not pass ESG-filters.
Nachum is right that firms are evaluated based on their contribution to society. So, business leaders should consider why large companies have lost the public’s trust. Firms need to stop self-interested lobbying, polluting, cheating, and feathering their own nests, to the detriment of the public and the firms’ own shareholders. We need social responsibility throughout society, including in corporate boardrooms and C-suites.
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
** Lisa Sachs ([log in to unmask]) is Director of the Columbia Center on Sustainable Investment (CCSI); Jeffrey Sachs ([log in to unmask]) is the Director of the Center for Sustainable Development at Columbia University; and Nathan Lobel ([log in to unmask]) is the Special Assistant to the Director of CCSI. The authors are grateful to Jacob Lipton and Olivia McFadden for their research assistance and to Klaus Leisinger, Peter Muchlinski and Rob van Tulder for their helpful peer reviews.
[1] “How much social responsibility should firms assume and of which kind? Firms, governments and NGOs as alternative providers of social services,”
Columbia FDI Perspectives, No. 207, August 28, 2017.
[2] Milton Friedman, “The social responsibility of business is to increase its profits,” The New
York Times Magazine, September 13, 1970.
[3] “Lobbying database,” The Center for Responsive Politics,
[4] Juliet Eilperin and Scott Higham, “How the minerals management service’s partnership with industry led to failure,” Washington Post, August 24, 2010; Deniz Igan and Prachi Mishra, “Three’s company: Wall Street, Capitol Hill, and K Street,” Vox Centre for Economic Policy Research, August 11, 2011.
[5] “Executive paywatch,” AFL-CIO, In 2016, CEOs of S&P 500 Index companies made an average of US$13.1 million—347 times that of the average US rank-and-file worker.
[6] Fox News paid US$65 million to executives dismissed following sexual harassment claims;
[7] Frank Clemente, Hunter Blair and Nick Trokel, “Corporate tax chartbook: how corporations rig the rules to dodge the taxes they owe,” Americans for Tax Fairness, September 16, 2016.
[8] Gary McWilliams, “Exxon shareholders approve climate impact report in win for activists,” Reuters, May 31, 2017.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Lisa Sachs, Jeffrey Sachs and Nathan Lobel, ‘Corporations need to look beyond profits,’ Columbia FDI Perspectives, No. 208, September 11, 2017. Reprinted with permission from the Columbia Center on Sustainable Investment (” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Matthew Schroth, [log in to unmask].
  • No. 207, Lilac Nachum, “How much social responsibility should firms assume and of which kind? Firms, Governments and NGOs as Alternative Providers of Social Services Rwanda,” August 28, 2017.
  • No. 206, Victor Steenbergen and Ritwika Sen, “Increasing vertical spillovers from FDI: ideas from Rwanda,” August 14, 2017.
  • No. 205, Jing Li and Jun Xia, “State-owned enterprises face challenges in foreign acquisitions,” July 31, 2017.
All previous FDI Perspectives are available at

Other relevant CCSI news and announcements
  • On September 19, 2017, CCSI will will launch its Fall 2017 International Investment Law and Policy Speaker Series. We’re delighted to announce that this year’s speakers will include Laurence Boisson de Chazournes, Vladimir Khvalei, Annette Magnusson, Fuad Zarbiyev, Adrian Jones, and Carlos Correa. This fall, the series will again be co-sponsored by Crowell & Moring LLP and Baker & McKenzie LLP. The series will be moderated by Ian Laird, Grant Hanessian and Kabir Duggal. All talks will take place at Columbia Law School. Select presentations will be webcast; please see our website for the schedule and more details. No registration is required.
  • On September 20, 2017, CCSI and the UN Sustainable Development Solutions Network (SDSN), under the guidance of Prof. Jeffrey Sachs, Special Adviser to the UN Secretary-General on the SDGs, and Laurent Fabius, President of the Constitutional Council of the French Republic, will host a one-day conference to present and discuss the blueprint for a Global Pact for the Environment. Coinciding with the 72nd Session of the UN General Assembly, this Conference will offer a high-level opportunity to explore the complex legal and political challenges of the Global Pact in light of existing agreements and soft law principles on the environment, and the current global political scene. Distinguished panelists include International Union for Conservation of Nature President Zhang Xinsheng, UN Environment Program Executive Director Erik Solheim, and President of the National Green Tribunal for India, the Honorable Justice Swatanter Kumar. The event is free and open to the public, but advance registration here is required. For more information, please visit our website hereDelivering a message to government and business leaders at the Paris launch of the Global Pact for the Environment on June 24, 2017, Prof. Jeffrey Sachs affirmed the critical importance of the Global Pact for the Environment to put the protection of the environment on a rigorous, sound, clear and universal legal basis. View the video here.
  • On September 21, 2017, CCSI, the UN Sustainable Development Solutions Network’s Thematic Network on Good Governance of Extractive and Land Resources (‘SDSN Thematic Network’), GIZ, the International Council on Mining and Metals (ICMM), the Responsible Mining Index, the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF), and the Prospectors & Developers Association of Canada (PDAC), and the University of Cape Town will host a strategic meeting to take stock of initiatives seeking to operationalize the Sustainable Development Goals (SDGs) for companies and other relevant stakeholders, assess whether and how private sector reporting mechanisms and frameworks are or should be aligned with the SDG Indicator framework and how they could be harmonized, and identify next steps for advancing the various efforts being undertaken to improve the contribution of the extractive industries to sustainable development.The event is free and open to the public, but advance registration is required. To register, please contact Nathan Lobel at [log in to unmask]edu. For more information, please visit our website here.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
(212) 854-0689
Fax: (212) 854-7946
Copyright © 2017 Columbia Center on Sustainable Investment (CCSI), All rights reserved.
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