Attempts
to broaden the notion of corporate responsibility
have largely rested on some variation of the doctrine
of social responsibility.
While various definitions of social
responsibility have been advocated, there seem
to be five key elements in most, if not all, of
these definitions:
1 corporations have responsibilities
that go beyond the production of goods and services
at a profit; 2 these responsibilities involve
helping to solve important social problems, especially
those they have helped create; 3 corporations
have a broader constituency than stockholders
alone; 4 corporations have impacts that go beyond
simple marketplace transactions; and 5 corporations
serve a wider range of human values than can be
captured by a sole focus on economic values.
The Traditional View
The traditional view of the corporation
holds that whatever social responsibilities corporations
have are exhausted by marketplace performance.
The market is made to bear all the moral freight,
as exemplified in the title to Milton Friedman's
(1970) seminal work that is often quoted on this
point.
There is and can be no divergence
between the operation of a successful business
organization and that organization's socially
responsible behavior; social responsibility is
subsumed or totally contained in marketplace performance.
The basic moral principal that
informs this view of the corporation and gives
it moral justification is that of economizing.
A business organization is formed to provide goods
and services that people in a society are willing
to buy at prices they can afford.
To do this successfully, business
organizations must economize in the use of resources--combine
resources efficiently--so they can earn profits
to continue in business and perhaps even expand
into new markets. In doing this successfully,
business provides goods and services for consumers,
jobs and income for employees, and increases the
wealth of society. (Buchholz 1977)
The social performance of business
is thus tied up with marketplace performance.
If a business organization earns an optimal level
of profits, this means that the business has economized
in the use of resources, assuming that competition
exists in the markets it is serving.
The business has produced something
people want to buy in such a way that it has met
the competition. Successful performance in the
marketplace is socially responsible behavior,
and there is no divergence between such responsibility
and being successful in the marketplace. Successful
business performance in the marketplace and acceptable
social behavior are believed to be one and the
same thing.
Although Milton Friedman is most
often cited as support for this view, a lesser-known
management theorist, Oliver Sheldon (1923), states
this view in even more explicit terms. Sheldon
strongly advocated the development of a professional
creed for management in the closing chapter of
his book.
He believed that the managerial
function was a constant factor in any industrial
organization no matter what external forces exist
or the nature of the economic system in which
the organization operates. The function of management
remains much the same under any set of external
conditions and is the element charged with guiding
the organization through periods of change, the
one stable element in the process of evolution.
There is no structure or system under which management
does not fulfill approximately the same functions
as it does here and now.
Because management was such an
important factor in modern societies all over
the world, Sheldon thought it important to develop
a managerial creed, a philosophy of management
or a code of principles "scientifically determined
and generally accepted" to act as a guide
for the daily practice of the profession.
Without such a creed, said Sheldon,
there can be "no guarantee of efficiency,
no hope of concerted effort, and no assurance
of stability" (1923,p. 284). Such a creed,
then, can help establish the legitimacy of the
managerial function and assure its continuity.
Sheldon's creed links the managerial
function to the well-being of the community of
which it is a part and encourages management to
take the initiative in raising the general ethical
standards and conception of social justice that
exists in the community.
The goods and services produced
by a company "must be furnished at the lowest
prices compatible with an adequate standard of
quality, and distributed in such a way as directly
or indirectly to promote the highest ends of the
community" (1923,p. 285). Such a statement
calls for management to be responsible and ethical
in relation to broader community interests.
Management is encouraged to look
beyond the bottom line and the interests of stockholders
and be concerned about what could be called the
public interest. The creed recognizes that management
serves at the discretion of society and derives
its legitimacy from being a useful social function,
a theme found in modern social responsibility
literature.
But what are the interests of the
community, at least as Sheldon sees them? A close
reading of the creed shows that it is based on
the ethic of economizing, that the primary concern
of management, according to Sheldon, is to promote
the efficient use of resources, both personal
or human resources and capital or material resources.
The primary focus of the creed is
on economic utilization of the factors of production
which can be determined by the scientific method.
Thus the community is presumably interested in
an efficient use of resources in order to increase
its standard of living. Management thus derives
its legitimacy from applying scientific principles
in running corporate organizations to accomplish
this objective:
Industry exists to provide the
commodities and services which are necessary for
the good life of the community, in whatever volume
they are requested.... It is for Management, while
maintaining industry upon an economic basis, to
achieve the object for which it exists by the
development of efficiency--both personal or human
efficiency, in the workers, in the managerial
staff, and in the relations between the two, and
impersonal efficiency, in the methods and material
conditions of the factory (Sheldon 1923, pp. 285-86).
There is no mention in the creed
about what is now called the social responsibilities
of management. While Sheldon recognizes the importance
of certain aspects of the external environment,
such as government, public attitudes, and foreign
trade, social issues are not mentioned. Perhaps
it is not fair to criticize Sheldon for this omission,
as his creed only reflects the times in which
he wrote.
Problems such as pollution, equal
opportunity, occupational safety and health, and
other social issues were not generally recognized
as needing attention in those years. But it seems
clear that Sheldon believes that the social responsibilities
of business are exhausted by marketplace performance.
As long as business performs its economizing function
well, it has fulfilled its social responsibilities;
nothing more need be said about corporate responsibility
and the creation of a good society.
Another characteristic of this
view exists in the method Sheldon advocates to
make the creed specific and develop a set of standards
to guide managerial practice. These standards,
according to Sheldon, can be determined by the
analytical and synthetical methods of science.
The aim of those who are practicing
the management profession should be to develop
a "science of industrial management"
distinct from the science it employs and the technique
of any particular industry. Yet if management
is truly a science, and its practice can be circumscribed
by a set of scientific principles, what need is
there for a philosophy of management or a professional
creed for management? If management is a science,
it becomes nothing more than the application of
scientific principles to concrete situations.
It involves no consideration of
responsibilities to the larger community outside
of marketplace behavior or any conscious ethical
reflection that is a part of a true professional
activity.
Changing Views
Although not everyone accepted
the notion that business was solely an economic
institution with only economic responsibilities,
it does seem that this view of the corporation
has been the prevailing view in our society. And
as long as the system worked well enough for most
people, there were not likely to be any serious
questions raised about the social performance
of business outside the marketplace context.
It was the concern with social
responsibilities that began to raise serious questions
about this view of the corporation and its responsibilities
to society. The problems that social-responsibility
advocates addressed, such as pollution and unsafe
workplaces, were in large part created by the
drive for efficiency in the marketplace.
Thus it began to be argued that
there was a divergence between the performance
of business in the marketplace and the social
aspects of business behavior. (Donaldson 1982)
Many began to believe that cleaning
up pollution, providing safer workplaces, producing
products that were safe to use, promoting equal
opportunity, and attempting to eliminate poverty
in our society had something to do with promoting
human welfare and creating the "good life"
in our society. Yet business was causing some
of these problems and perpetuating others in its
quest for an efficient allocation of resources.
For example, by economizing in
the use of resources and disposing of its waste
material as cheaply as possible, business was
causing some serious pollution problems regarding
air quality and poisoning of drinking water. By
always hiring the best qualified person for a
job opening, business was helping to perpetuate
the effects of discrimination against minorities
and women.
It was at these points of intersection
between the economic performance of business and
changing social values of society that questions
about corporate responsibility began to arise.
Business increasingly came to be viewed as a social
as well as economic institution that had social
impacts needing the consideration of management.
Social-responsibility advocates
strongly argued that management needed to take
the social impacts of business into account when
developing policies and strategies; much effort
went into convincing management to take its social
responsibilities seriously. A great deal of research
was done to help management redesign corporate
organizations and develop policies and practices
that would enable them to respond to the social
expectations of society and improve their social
performance. (Etzioni 1994)
The deficiencies of the traditional
view of the corporation began to be exposed. It
became clear to many that there were numerous
points of divergence between good business performance
and what society expected of its business organizations.
An ethical creed based on the traditional view,
such as the one proposed by Sheldon, did not include
the social aspects of corporate activities or
encourage management to pay attention to the social
impacts of corporate operations.
Thus it provided no means or rationale
for management to internalize the social costs
of production and left this task to government
regulation, a social control mechanism that is
generally unacceptable to management as well as
inefficient in many of its aspects.
Sheldon wanted to see management
in a broader social and ethical context, but ended
up being a victim of his own scientific outlook.
Science is descriptive; it cannot prescribe for
management or society the objectives worth pursuing
to create a good society.
The scientific method is crucially
important to management, but it is not sufficient
to provide an ethical or moral philosophy for
management. Such a philosophy cannot be built
solely on the notion of economizing but must include
the broader purposes of the community and its
welfare, an ethical vision Sheldon so eloquently
stated but failed to develop.
Social Responsibility Theory
And Practice
The problem facing modern management
theorists who accept the fact that a divergence
often exists between social performance and marketplace
behavior, and that one cannot be subsumed under
the other, is how to connect social responsibilities
with management behavior so they are not peripheral
to mainstream business concerns.
This is a most difficult task--and
one that has not yet been successfully accomplished.
While there is a good deal of evidence that the
language of social responsibility and social responsiveness
is now an accepted part of management theory and
practice, such concepts remain more or less perpheral
concerns that have not replaced the traditional
economic responsibilities of business.
In short, it appears that many
of the changes that were anticipated in the Sixties
and Seventies have in fact taken place, but more
by absorption and adaptation than by replacement....
Contemporary managers are more aware of the impact
of business activity on the physical and social
environment and the quality of life, but production,
marketing, and finance remain their primary concerns.
And in academe, the social issues/public policy
area is well established as an essential element
in a sophisticated and comprehensive management
program--and a very popular theme in executive
education--but it does not pervade the entire
curriculum in the way that some of us once thought
it might. (Preston 1986)
Part of the problem is with the
nature of social responsibility doctrine itself.
The word doctrine is used consciously, as it seems
that social responsibility was more of a doctrine
than a serious theory of the corporation. Scholars
and executives who advocated social responsibility
seemed to do so as an article of faith, not as
a theoretical paradigm that could bid for serious
attention and begin to compete with economic theory
of the firm for a hold on the thinking of scholars
and business executives.
By and large, the economic theory
of the firm has not been replaced by any new theories
or ways of thinking about the firm and its responsibilities.
The bottom line of corporate organizations as
well as for the nation as a whole is still economic
in nature.
There are several reasons for this, not the least
of which is the difficulty of implementing social
responsibility in a competitive context. Being
socially responsible costs money. Pollution control
equipment is expensive to buy and operate.
Ventilation equipment to take toxic
fumes out of the workplace is expensive. Proper
disposal of toxic wastes in landfills can be very
costly and time consuming. These efforts cut into
profits. In a competitive system, companies that
go very far in this direction will simply price
themselves out of the market. This is a fact of
life for companies operating in a free enterprise
system, a fact the social responsibility advocates
never took seriously.
[E]very business . . . is, in effect,
"trapped" in the business system it
has helped to create. It is incapable, as an individual
unit, of transcending that system . . . the dream
of the socially responsible corporation that,
replicated over and over again can transform our
society is illusory.... Because their aggregate
power is not unified, not truly collective, not
organized, they [corporations] have no way, even
if they wished, of redirecting that power to meet
the most pressing needs of society.... Such redirection
could only occur through the intermediate agency
of government rewriting the rules under which
all corporations operate. (Chamberlain 1973)
Management has to be concerned
about the economic performance of the organization.
It cannot set aside these requirements to pursue
social objectives that conflict with economic
performance and expect to remain in business for
very long. When there is a choice to be made between
an ethical ought and a technical must (something
business must do to remain a viable organization
within the system), it seems clear which path
most managements will follow. Technical business
matters are the ultimate values--a technical business
necessity is a must that always takes precedence
over an ethical ought that would be nice to implement
but is simply not practical under most business
conditions (Seleckman and Seleckman 1956).
It could be argued that social
responsibility theory and principles cannot provide
answers to the problems of finance, personnel,
production, and general management decision making.
The businessperson's role is defined largely through
private gain and profit, and to suggest that this
can be set aside for adherence to a set of social
responsibilities, however well-intentioned, that
may conflict with that role is startlingly naive
and romantic. The business person is locked into
a going system of values and ethics that largely
determine the actions that can be taken. There
is little question that at any given time individuals
who are active within an institution are subject
in large measure to its prevailing characteristics.
(Trachtenberg 1995)
Perhaps the most serious problem
with social responsibility doctrine is at the
level of theory rather than practice: that there
is still a lack of an acceptable theory about
the social responsibilities of corporations. The
debate about social responsibility was held largely
on moral grounds: that corporations should balance
responsibility with power, that they should be
socially responsible out of a sense of enlightened
or long-run self-interest, that they could avoid
the haunting specter of government regulation
by being socially responsible, that they needed
to be responsive to social values as society changed
to remain a viable institution, or that they could
gain a better public image by being socially responsible.
These arguments were more in the
nature of "ought" statements relative
to how corporations should behave to create a
good society. But they were never incorporated
into a comprehensive theory that encompassed social
as well as economic responsibilities, and they
never placed these two sets of responsibilities
in juxtaposition to each other in some kind of
mete theory of the corporation. In addition, these
arguments never established social responsibilities
as prior to economic responsibilities, and placed
economic activities in a social context that apparently
had been the traditional way of viewing economic
activity prior to the development of modern industrial
societies (Polanyi 1944).
The power of the traditional view
of the corporation, whether evoked by Oliver Sheldon
or Milton Friedman, is that it is relatively precise
and makes sense in a mechanistic sort of manner.
Most people can immediately grasp the essential
elements of economic theory and understand how
all the pieces fit together. The traditional view
of the corporation legitimizes self-interest,
prescribes the responsibilities of corporations
in ways that can be measured, and provides relatively
clear guidelines for managerial decision-making.
Social responsibility doctrines,
on the other hand, are amorphous and fuzzy and
provide no clear guidelines for managerial behavior.
The critics of social responsibility were right
when they exposed the difficulty of providing
a legitimate basis for social action by corporate
managers. Social-responsibility advocates provided
no sound moral basis for managerial social action
other than some impossible-to-measure notions
of enlightened self-interest or creation of a
better corporate image--worthy goals perhaps,
but certainly difficult to implement in a competitive
context.
The social audit, though generating
some useful and interesting ideas and concepts,
never really produced anything approaching a consensus
on ways to measure social performance. It was
effectively killed by the business community when
the Commerce Department proposed the development
of a corporate social index during the Carter
administration.
Economic growth cannot take place
without the appropriate environmental conditions
to support growth. The notion that policymakers
have to make a trade-off between economic growth
and environmental protection in decisions about
public and corporate policy no longer makes sense.
Bibliography
Neil W. Chamberlain. 1973. The Limits of Corporate
Responsibility (New York: Basic Books).
Milton Friedman. 1970. "The Social Responsibility
of Business Is to Increase Its Profits,"
New York Times Magazine, September 13, pp. 122-126.
Karl Polanyi. 1944. The Great Transformation (Boston:
Beacon Press).
Lee E. Preston. 1986. "Social Issues in Management:
An Evolutionary Perspective," in Daniel A.
Wren, ed., Papers Dedicated to the Development
of Modern Management, The Academy of Management,
San Diego, California.
Benjamin Seleckman and Sylvia Seleckman. 1956.
Power and Morality in a Business Society (New
York: McGraw-Hill).
Oliver Sheldon. 1923. The Philosophy of Management
(London: Sir Issac Pitman & Sons).
Rogene A. Buchholz. 1977. "An Alternative
to Social Responsibility," MSU Business Topics,
pp. 12-16.
Thomas Donaldson. 1982. Corporations and Morality
(Englewood Cliffs, NJ.: Prentice-Hall), pp. 36-58.
Amitai Etzioni. 1994. The Spirit of Community.
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Alan Trachtenberg. 1995. The Incorporation of
America: Culture and Society in the Gilded Age
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