Foundational considerations in the corporate social responsibility debate; - includes bibliography - corporate social responsibility theories

Business Horizons, July-August, 1991 by Richard J. Klonoski

Over the last several years, the debate over the nature and extent of the social responsibilities of business has become heated and complex. A number of positions have been taken on the issue of "corporate social responsibility" (hereafter referred to as CSR). In an effort to defuse some of this complexity, I will present an overview of this debate and attempt to sort out the various approaches taken toward determining the responsibilities of business institutions to the broader society. I will also try to group these diverse approaches to CSR within "camps" and make some general observations about the foundations of the debate itself. Finally, I will argue that the complexity of the CSR debate can be somewhat simplified once the many different CSR theories are classified in relation to a single foundational question. This question is, "Are corporations social institutions?"

FUNDAMENTALISM

At one end of the spectrum of CSR theories are those that conclude either that there are no social responsibilities for business or that CSR is very limited. The most well-known proponent of claims that the corporation has few if any explicitly social responsibilities is the economist Milton Friedman. Friedman's position is captured in his pronouncement that "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" (Friedman 1983). Friedman's reference to the "rules of the game" suggests that social responsibility is derived from the general economic environment or context in which business operates.

Friedman's position on CSR has been characterized as "fundamentalism" and gathered under what has been called the "legal recognition" view. "According to the legal recognition view, the corporation is an autonomous entity,... owned and run b a freely constituted group.... It is not a creation of society" (DeGeorge 1990). Thus the corporation has no special moral or social obligations. The basis of Friedman's argument is an unguarded acceptance of the values that undergird a free market economic system. Such values include individual free choice and rights, especially the right to own property and to an unfettered use of that private good. It is argued that corporations are fully private, economic institutions designed only to make money. According to Friedman, the "business of business is business."

Other fundamentalists have also argued against CSR. Theodore Levitt holds a "functionalist fundamentalist" position. He works out of a backdrop similar to Friedman's and suggests that our society, as it expresses itself through the free market, is committed to a radical pluralism. Such a social, political, and economic pluralism is best preserved when major "functional groups" do not encroach on each other's provinces of behavior.

The function of labor is to provide for its workers, of government for the "general welfare," and of business to maximize profit through vigorous competition in any way consistent with the survival of business in the economic system. Levitt warns that CSR can be bad for business and bad for society, and goes so far as to say that business in the United States should see itself as being "at war ... And like a good war, it should be fought gallantly, daringly, and above all, not morally" (Levitt 1983).

For both Friedman and Levitt, the fully private and basically economic character of business as such, and of corporations in particular, insulates business institutions from social responsibilities. The starkness of this position as a full denial of the existence of any social responsibilities for business has caused some thinkers (who wish to perhaps soften and then support a free market, fundamentalist approach to determining CSR) to try to "reform" Friedman. Douglas Den Uyl is one thinker who attempts to present Friedman as a "fundamentalist individual agreement" theorist. He argues that Friedman's commitment to respect for contracts or individual agreements implies a respect for the individual rights created in those agreements.

Den Uyl further argues that Friedman's basic position not only doesn't prohibit corporations from being socially responsible, but may actually allow for CSR within the limits of a prior contractual agreement with the stockholders. This agreement enjoins corporation managers to maximize profit. Key to the positions of both Den Uyl and Friedman is the claim that beyond keeping individual agreements, corporations and their managers are not ethically required to be socially responsible. This CSR theory is sometimes referred to as the "traditional stockholders model" (Bruono and Nichols 1990). The argument is that the corporation managers and directors only have a responsibility to the "owners" of the firm. Their singular responsibility is to maximize profit. This position can also be characterized as something of a "role-based" approach to CSR because the "role" of the corporation and of those who run it determines the responsibilities of the corporation or of business itself.