The constituents of corporate responsibility: separate, but not separable, interests? - shareholder and societal interests not mutually exclusive

Business Horizons, July-August, 1991 by Dan R. Dalton, Catherine M. Daily

The "Hook" Revisited

We alluded to examples earlier concerning R&D and advertising expenditures, noting that allocations to these areas could be redirected to shareholders in the form of dividends. We also concluded - we hope rightly - that very few observers would find such a decision even remotely defensible. Indeed, we argued that such activity would essentially amount to mortgaging the future of the corporation. We concluded that section by asking if such expenses for "societal purposes" might have the same character. Peter McColough, ex-president of Xerox, has persuasively expressed his view on this question (Starling 1984):

I'm not saying that shareholders should

be last; that doesn't work, either. If they

are disregarded or neglected, you won't

be able to raise the capital you may need

in the future. Also, they deserve a good

return for putting the equity or risk capital

into the business. If the expenditure

doesn't give any benefit to the company

long-term, it probably shouldn't be pursued.

Now, a lot of expenditures a company

makes may, at least in the short

run, cost the shareholders money. But if

an expenditure is for the purpose of

training employees or getting better employees,

or motivating them through

various benefit programs, or doing work

in our society that will make it a better

society and therefore a better market,

you can justify it on that basis.

Consider expenditures designed to renew our inner cities; consider expenditures designed to provide educational opportunities to those who otherwise would be without; consider programs designed to provide retraining to those whose employment has been displaced by new technologies. Can we reasonably argue that allocations such as these are like those for R&D and advertising? Without the concerted efforts of the corporate many, who exactly will constitute the new markets for the new and improved products and services of corporate America and our international friends? And, what will be the source of a continuing, able work force?

We read daily that the United States faces a major problem in the near future because so many of our young people no longer wish to pursue careers in science. Suppose a reputable pharmaceutical company took this threat seriously, as might be expected. Suppose, further, that it decided to provide funding to individuals to encourage them to do graduate work in organic chemistry, pharmacology, or whatever other fields would be appropriate. Obviously, these monies could have been otherwise allocated. We would be very surprised if such a decision would be subject to serious criticism. On the contrary, we would think that a program as we have described would be met with enthusiasm in the corporate community. That is interesting, particularly since its "payoff," if any, is relatively longer term. How long does it take to train a Ph.D in these areas? And even if they are so trained, there is absolutely no guarantee that these students will actually contribute any meaningful development towards the corporation's continuing need for innovative products and services.