Corporate Social Responsibility

Questions about moral and political philosophy necessarily entail a consideration of political economy, which comprises two fundamental and overlapping concerns: the relationship between government and business and the relationship between business and society. It is the second relationship that has spawned the notion of corporate social responsibility—which comprises a firm’s actions in that regard, or its corporate social performance, and the corporate social orientation of its managers—as well as much scholar-ship concerned with social issues in management and business and society. With some oversimplification, they can all be distilled into the question, what are the societal responsibilities of businesses?

Although answers to this question tend to fall into one of two strongly contrasting models, Archie B. Carroll’s taxonomy of the four domains of economic, legal, ethical, and discretionary or philanthropic responsibility provides a more nuanced approach. According to this approach, a firm’s economic duty is to operate efficiently and profitably and to maximize shareholder value. It should do so while complying with the law and avoiding harmful civil litigation, as well as acting in accord with societal, business, and industry moral norms and expectations or formal codes of conduct. It should also act to promote the overall welfare of society and avoid doing harm. (Partly in response to theoretical criticisms, in recent writings, Carroll has eliminated discretionary philanthropy as a separate category and emphasized the overlapping nature of the three remaining domains. Philanthropy is included within both the ethical domain, as it is often ethically motivated, and the economic domain, because it is sometimes strategically motivated.) The two competing views of the proper relationship between business and society are the classical minimalist model of free enterprise capitalism and the revisionist free enterprise framework, in which corporate social responsibility plays a prominent role.

Classical Free Enterprise Model of Business

The minimalist conceptualization of business responsibility originated in the economics of Adam Smith and the political philosophy of John Locke and, more contemporaneously, in the writings of the economist and social theorist Milton Friedman. The intellectual and moral justifications used in the model include natural rights theory, social contract theory, utilitarianism, and enlightened ethical egoism. The model views the maximization of shareholder value as the only legitimate responsibility of the corporation—reflecting the social contractual and property rights of shareholders to come together exclusively for that purpose, with as little intrusion as possible from government— as long as it abides by the law and the basic ethical precept of not infringing on the rights of others. Because maximizing shareholder value is accomplished by efficiently and productively creating goods or services, society benefits overall. Using Carroll’s taxonomy, a public corporation is conceptualized as having economic responsibilities but few legal and ethical responsibilities because it is absolutely required by law or custom to accomplish its economic aims. There are no legitimate discretionary or philanthropic responsibilities, an orientation characterized by Tom Donaldson as one of ethical indifference. (The owners of privately held companies are, however, free within this perspective to “foolishly” take on whatever social responsibilities they may choose.)

Critique of the Classical Model

Joel Lefkowitz summarized the four major scholarly criticisms of the minimalist model of business: (a) the tenuous justification for and moral deficiency of libertarian natural rights theory, which fails to acknowledge concepts that many believe are integral to the concept of morality—positive obligations and duties, beneficence, and justice; (b) the limited nature of property rights; (c) the unproven assumption that shareholders desire only short-term profit maximization; and (d) flaws in the application of utilitarianism (i.e., maximization of the overall net good for society) as a moral justification for free markets—for example, the absence of any perfect free markets and the restricted economic definition of what is “good.”

Revisionist Free Enterprise Model Including Corporate Social Responsibility

According to Adolf A. Berle, Jr., and others, an upheaval took place during the second quarter of the 20th century, during which time corporations grew enormously, stock ownership became more widespread (hence diffuse), and shareholders became more separated from those who ran the firms. Management became more autonomous and powerful, with greater discretionary latitude. Opinion leaders such as U.S. Supreme Court Justice Louis Brandeis and social scientist Talcott Parsons advanced the notion that the occupation of the manager had become professionalized. One of the important distinctions between a profession and an occupation is that a profession has a putative concern for and sense of responsibility not just to the paying customer or client but also to society at large. This enlightened concern for the well-being of society began to infuse conceptions of the role of manager and provided a basis for construing a sense of duty beyond that of profit maximization on behalf of shareholders—that is, corporate social responsibility.

The general rationale for corporate social responsibility is that, from a moral perspective, the modern corporation’s power to do great good or great harm necessitates that it consider all of its direct and indirect effects on society. In addition, corporations are granted certain benefits by the state, such as limited liability for its owners and managers; indeed, as a legal entity, the corporation’s very existence is created by the state. Corporations are also granted benefits by the communities in which they reside, such as clean air, police and fire protection, and transportation infrastructure. Therefore, they accrue reciprocal obligations to contribute to overall well-being. The classical business model applied social contract theory from political philosophy to the economic world of business to justify the voluntary association of shareholders to advance their profit motives. The revisionist model extends it further as the moral basis for the corporation’s existence and the means of understanding its relationship to society. Two themes are apparent: As major institutions of society, organizations have a responsibility to (a) do good and contribute to the solutions of societal problems; and (b) take into account the interests of their many constituencies— those who are affected directly and indirectly by their actions—that is, their stakeholders. In other words, organizations are conceived as “citizens,” and good corporate citizenship may be displayed by implementing constructive corporate social performance and by engaging in proactive activities, such as enlisting in the United Nations Global Compact. The UN Global Compact is a voluntary enterprise that seeks to promote 10 principles of human rights, labor standards, environmental protection, and anticorruption initiatives for businesses (and other organizations) on a global scale.

Multiple Stakeholder Theory

Although it is marked by some definitional and theoretical difficulties, stakeholder theory is probably the most well-known version of the corporate social responsibility model. A stakeholder is generally defined as any person, group, organization, or institution that can influence the focal organization or be affected by it, either directly or indirectly. Some constituencies are stakeholders by virtue of the organization’s moral obligation to them, others because their strategic impact on the organization (and hence its other stakeholders) must be considered by the organization’s decision makers. Each constituency— employees, customers, shareholders, the public, the media—may have a different stake in the organization, and the basic notion is that ethical and effective management of the organization entails recognizing and working with the legitimate, multiple, and often conflicting interests of different stakeholders. That approach is often referred to as a strategic stakeholder approach to management. The explicit concern for the interests and well-being of all stakeholders, including but not limited to the profit-maximizing objectives of shareholders, is what renders stakeholder theory moral in nature. As ethicist Wesley Cragg explained, corporations may be private entities, but they do have responsibilities to the public—they are accountable to multiple constituencies.

It has been observed, most notably by Donaldson and Preston, that there are three different kinds (or levels) of stakeholder theory that require different sorts of justifications. Descriptive stakeholder theory is the least controversial. Many, if not most, management scholars accept the empirical evidence supporting the conclusion that managers are sensitive to the interests of multiple constituencies and try to take them into account in decision making. Strategic or instrumental stakeholder theory concerns functional relationships regarding the consequences of behaving in that manner. It is eminently sensible to believe that managers would be wise to attend to all those who might affect the success of the firm. However, the evidence is insufficient and too equivocal to conclude that long-term organizational survival and effectiveness is significantly enhanced by explicit stakeholder management. Normative stakeholder theory holds that such an approach is a moral imperative—that organizations ought to be managed in that fashion. This is the level at which competing moral justifications for exclusive shareholder wealth maximization versus the multiple stakeholder model take place. The multiple stakeholder view is supported by the arguments summarized previously as well as by the meta-ethical principle of universalism, which holds that no one’s (or no group’s) interests take precedence over anyone else’s unless they are reasonably justified. Opponents hold that is precisely the point—that managers have a special fiduciary relationship to shareholders that gives the latter a superordinate moral status over other stakeholders.

Critiques of Corporate Social Responsibility

There are several additional points of contention to consider:

  • Organizations cannot have moral responsibilities. This view, articulated by business ethicist Manuel Velasquez, is not merely that organizations are not morally responsible or should not be held to have moral responsibilities but that they cannot be morally responsible because they lack the prerequisite attributes. Notwithstanding that the law, for some purposes, treats a corporation as an “artificial person” (e.g., it can sue and be sued), it is not a real individual entity with causal powers and intentionality. It is the presence of conscious, unified beliefs, motives, and intentions that permits an entity to be a moral agent. As Velasquez points out, the actions that we impute to a company are brought about by individuals, not by some metaphysical entity; when we attribute goals and intentions to a company, it is merely a metaphorical “as if” intentionality. From the perspective of corporate social responsibility and performance, even if this is true, it may be of no practical significance: Corporate social responsibility can simply be understood as pertaining specifically to the responsibilities and actions of organizational decision makers.
  • Vagueness and lack of clarity. Both corporate social responsibility and stakeholder theory have been characterized as theoretically imprecise and operationally (i.e., pragmatically) indefinite. For example, there is some disagreement concerning the definition of who is a stakeholder, and distinctions have been made between primary and secondary stakeholders and moral versus derivative stakeholders. Most important for stakeholder theory, very little prescriptive advice or empirical evidence is available to guide the appropriate balance of multiple stakeholder interests. Are all stakeholders’ interests to be considered equal? If not, what are the criteria for treating them equitably? What do we even mean by an appropriate balance? How should it actually work in practice? Similarly, what actions qualify as being socially responsible? And how many of them are necessary to demonstrate adequate responsibility?
  • The relationship between corporate social performance and organizational effectiveness. Because the outcome of the moral debate between the classic shareholder wealth maximization model and the revisionist corporate social responsibility model is largely indeterminate, attention has been paid at the instrumental level to whether the latter might actually contribute to the former (i.e., whether it pays, in terms of corporate financial performance, for an organization to behave in socially responsible ways). A great deal of empirical research has been conducted to address this issue. The good news is that reviews, including meta-analyses, of those studies support the view not only that there is a positive relationship between corporate social responsibility and financial performance but that it is a causal relationship from the former to the latter. But if one believes that the most important justification for the corporate social responsibility model is normative (i.e., moral) rather than strategic, then the bad news is that we are running the risk of reducing corporate social responsibility to merely another profit-maximizing strategy.

References:

  1. Berle, A. A., Jr. (1954). The 20th century capitalist revolution. New York: Harcourt, Brace.
  2. Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business and Society, 38, 268-295.
  3. Donaldson, T. (1982).   Corporations and morality. Englewood Cliffs, NJ: Prentice Hall. Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20, 65-91.
  4. Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York Times Magazine, pp. 32-33, 122, 124, 126.
  5. Lefkowitz, J. (2003). Ethics and values in industrial corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403-441.
  6. Schwartz, M. S., & Carroll, A. B. (2003). Corporate social responsibility: A three-domain approach. Business Ethics Quarterly, 13(4), 503-530.

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