Corporate responsibility and the good society: from economics to ecology - factors which influence corporate policy decisions; includes bibliography

Business Horizons, July-August, 1991 by Rogene A. Buchholz

Those scholars who are not content to view the corporation as solely an economic institution having only economic responsibilities have sought to develop new theories and rationales for the notion that a corporation has responsibilities to society that go beyond economic duties. They have been searching for a theoretical paradigm to replace or at least supplement the economic paradigm that explains corporate behavior in a free enterprise context and prescribes principles for management to follow in running an efficient and responsible organization.

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 principle 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.

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.