Tuesday, 28 September 2010

Are corporations allowed to sell healthy food?

Whenever advocates for healthy food talk to food business executives, one common response is:
Personally, I would like to serve a healthier product.  But, if these efforts threaten profitability, I risk getting sued by stakeholders.  Corporations are obliged to pursue maximum profits and no other goal.
The executives' response is not entirely correct.  Courts give a lot of deference to corporate management to use their own best business judgment.  Admittedly, a corporation cannot simply give away profits freely to serve public causes like better nutrition.  However, the managers have plenty of legal maneuvering space to develop a healthy product line, without fear that shareholder lawsuits will succeed. 

A recent working paper (.pdf) by Tufts economics professor Julie Nelson reviews the long history of relevant court cases.  She finds that, when people argue that the law requires profit maximization as the sole goal, they commonly are really describing their wishes that this were true, not evidence that it actually is true.
The profit maximization doctrine appears to operate far more strongly at the level of theory or ideology, than at the level of the actual practice of business management and corporate law. It seems, in short, to be a case of transcendental nonsense.
Nelson also tackles the more philosophical question of how profit-seeking should be related to other virtues and relationships, even love for our fellow person.  I suspect that I like markets better than she does, on balance.  But, like Nelson, I think markets should not be a social goal in themselves. They are a means to achieve bigger goals.  Just as a tennis game is most fun when two friends compete hard by the rules, I think competitive markets make our society better.  Markets are a great game, but a dreadful religion.

If one can argue with a straight face that selling healthier food enhances the reputation and long-term prospects of the company, I think that would count as a reasonable business judgment.  Corporations may not want to make sacrifices, but I doubt many claims that they are legally prevented from serving healthy food.

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