HANDBOOK
                     of
STRATEGY AND MANAGEMENT

                  Edited by
      ANDREW PETTIGREW,
        HOWA...
17

                      What Are the Responsibilities
                        of Business to Society?

                 ...
374                          HANDBOOK OF STRATEGY AND MANAGEMENT


     Table 1 7.1      Business and society terminology
...
THE RESPONSIBILITIES OF BUSINESS                                         375


     classification of corporate social res...
Table 1 7.2     Themes in the study of business and society relations
Lines of i nquiry                                 1 ...
Table 17.2        (Contd.)
Lines of inquiry                              1 960s                        1 970s             ...
Table 17.2 (Contd.)
Lines of inquiry                       1 960s                          1 970s                         ...
THE RESPONSIBILITIES OF BUSINESS                                        379


            Business and Society Themes     ...
380                    HANDBOOK OF STRATEGYAND MANAGEMENT


    governmental and business actions, making             of t...
THE RESPONSIBILITIES OF BUSINESS                                      381


      specific issue. The economic responsibil...
38 2                   HANDBOOK OF STRATEGYAND MANAGEMENT


      faculty with a rich training in ethics. In the      guid...
THE RESPONSIBILITIES OF BUSINESS                                   38 3


     and Hofstede (1980) for insight and instrum...
384                   HANDBOOK OF STRATEGYAND MANAGEMENT


      t wo decades (Miles, 1987; Mitnick, 1993;          managi...
Table 1 7.3 Examples of'stakeholder • tactics by decade
1960s                                           1970s             ...
38o                    J-L4NDBOOK OF STRATEGY AND MANAGEMENT


 For example, Frooman (1999) uses resource         trade tr...
THE RESPONSIBILITIES OF BUSINESS                                    387


     both partners has been relatively uncommon....
388                    HANDBOOK OF STRATEGYAND MANAGEMENT


        In conclusion, our objective in this brief       categ...
Table 17.4   A comparison of husiness'responsibilities to society
    Type of responsibility                   Common desc...
390                    HANDBOOK OF STRATEGYAND MANAGEMENT


      user fees. The nature of these mechanisms,            ar...
THE RESPONSIBILITIES OF BUSINESS                                     391


    known set of goals, responsibilities, compe...
392                   HANDBOOK OF STRATEGYAND MANAGEMENT


 wealth-creation i mperative of business            and utility...
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HANDBOOK

  1. 1. HANDBOOK of STRATEGY AND MANAGEMENT Edited by ANDREW PETTIGREW, HOWARD THOMAS AND RICHARD WHITTINGTON SAGE Publications London • Thousand Oaks • New Delhi
  2. 2. 17 What Are the Responsibilities of Business to Society? DAVID A. WHETTEN, GORDON RANDS and PAUL GODFREY Some readers might be wondering: Why powerful, organization-bending social forces is include a chapter on business ethics and social at the heart of business and society scholarship. responsibility in a handbook on strategy and Given that the term used to characterize this management? Our short answer is that we see area of focus, `business and society', denotes the many benefits from greater integration study of relationships, it should not be surpris- between business and society scholarship and ing that scholarship in this area has specialized more mainstream approaches to the study of in the subject of external relations management. strategy and management. Following are three Business strategy scholars interested in this sub- supporting arguments, each associated with a ject can learn a great deal about the categorical major section of our chapter. arguments used to justify the claims regarding First, organizational science scholarship, what constitutes a firm's legitimate responsibil- broadly defined, can benefit from a better ities. In particular, scholars who tend to focus on understanding of the history of thought regard- the instrumental aspects of external relations ing the troubling matter of business responsi- involving suppliers, channels of distribution, bilities. We offer two brief examples. unions, etc., can gain a better understanding of Although debates regarding the control and the full range of relationships firms must man- accountability of organizations have receded age, including those external claims made on into the background of organizational scholar- firm resources that are represented as `moral ship, generally, this subject continues to ener- obligations'. In addition, the recent theoretical gize much of the scholarship on business and work pertaining to stakeholder relations has the society relations. When these scholars scan the advantage of being more bi-directional in orien- business landscape they `see' social activists tation than the dominant inside-out models of and special interest groups expending tremen- customer relations, supplier relations, etc., that dous energy changing business practices that populate the broader organizations literature. i mpact society in ways they see as adverse. The first section of our chapter details the Whether one agrees with the activists' intentions history of scholarship on business and society or not, they are undeniably exerting increasingly relations, showing how the number and variety greater pressure on, and in many cases control of claims regarding corporate social responsibil- over. the strategies and actions of firms. ity have increased through the years, and how Achieving a better understanding of these the scholarship on stakeholder relations has
  3. 3. 374 HANDBOOK OF STRATEGY AND MANAGEMENT Table 1 7.1 Business and society terminology Term Definition Attitudes Situation-specific beliefs Behavioral intentions Planned actions Behaviors Actions Corporate social performance Actual behavior regarding social issues (may be used to refer either to responses, outcomes and impacts of responses, or the entire set of inputs, throughputs, and outputs resulting in social impacts of corporate behavior); a stakeholder's assessment of the degree of acceptability of a company's social responses Corporate social responses Actions taken by a company that are intended to or actually do impact a social issue Corporate social responsibility Societal expectations of corporate behavior; a behavior that is alleged by a stakeholder to be expected by society or morally required and is therefore justifiably demanded of a business Corporate social responsiveness Processes of responding to social demands Descriptive ethics Description of the actions engaged in and how these compare to societal moral expectations Duties An action which is obligatory in order to protect the right of another Ethical, moral Behavior consistent with principles that define what is good or bad Ethics The study of moral obligations and behavior; a set of principles or rules that judges or guides decisions made or actions taken by individuals or groups Justice Fairness in treatment; various forms exist including distributive (allocation of benefits and burdens associated with some action), compensatory (providing recompense for harm suffered), retributive (imposing punishment for wrong behavior), and procedural (establishment of/adherence to/consequences of following administrative rules) Morality Questions of fundamental right/wrong action (good/bad as opposed to correctlincorrect) Negative rights Those rights which a person will enjoy unless interfered with (the duty is one of ' negative action', i.e., non-interference in the other party's enjoyment of the right), e.g., life and liberty. The creation of harm frequently involves interfering with negative rights, and negative rights have primary importance in ethics Normative ethics Articulation/prescription of desirable behavior or a desirable principle on which to make moral decisions Positive rights Those rights which a person can sometimes enjoy only if others take action to see that it is provided (the duty is one of 'positive action', i.e., provision of the entitlement), e.g., food for the starving, shelter for the homeless. The production of social good frequently involves the provision of positive rights, and positive rights have secondary importance in ethics Rights Things to which an individual is entitled either by virtue of citizenship or humanity Utilitarianism The philosophical theory which states that the morally best action is that which produces the greatest net benefits for society as a whole Values Fundamental preferences for outcomes or modes of existence, which are used as a guide for making decisions emerged as a prominent framework for under- Business and society scholars have identified standing the process by which external claims four generic responsibilities of business. These are presented, investigated, and negotiated. encompass a wide spectrum of `duties', Second, the obligatory dimension of the including creating wealth, obeying laws and myriad and often conflicting litmus tests of regulations, avoiding harm, and ameliorating social responsibility facing contemporary social ills. Firms attempting to discharge these firms raises some vexing conceptual chal- responsibilities confront a multitude of dilem- lenges that should appeal to organizational mas, arising both within and between the four theorists interested in the general subject of responsibility categories. The conceptual and organizational dilemmas and paradoxes. practical conundrums associated with this
  4. 4. THE RESPONSIBILITIES OF BUSINESS 375 classification of corporate social responsibili- issue was scientific management pioneer ties are the focus of the second section of our Henry Gantt, who in 1919 advocated that chapter. companies should serve society (Wren, 1979). Finally, the business and society literature Four years later, English businessman Oliver contains numerous intriguing leads for new Sheldon included this argument in his 'philo- areas of investigation in related areas of man- sophy of management'. More specifically, agement scholarship. Whereas the purpose of Sheldon suggested that every manager needed the first section is to expose readers with a to adopt three principles: general interest in organizations to the busi- ness and society literature, the purpose of this (1) 'that the policies, conditions, and methods final section is to suggest opportunities for of industry shall conduce to communal well- boundary-spanning collaboration on topics being'; (2) that 'management shall endeavor to hitherto unstudied. Hence, the final section of interpret the highest moral sanction of the our chapter has a distinct forward-looking ori- community as a whole' in applying social jus- entation, inviting readers to consider a variety tice to industrial practice; and (3) that 'man- of research ideas stimulated by our reading of agement ... take the initiative ... in raising the the business and society literature. Given our general ethical standard and conception of space limitations, we have opted to introduce social justice'. (Wren, 1979: 207) a wide variety of topics rather than exploring a handful in detail. This is consistent with our The incorporation of social concerns in overall objective of inviting the broadest pos- management education came after the Second sible range of readers to become more familiar World War. Dean Donald David of the Harvard with this literature and to add their theoretical Graduate School of Business Administration and methodological perspectives to the con- suggested in a Harvard Business Review arti- temporary discussions in this field regarding cle (1949) that business involvement in com- some of the most practically challenging and munity and public affairs must be a quality intellectually interesting issues facing tomor- promoted by business education. From 1952 row's business executives. to 1958 a series of articles on the subject of Before proceeding, we are concerned that business and society appeared in HBR. because many readers will be new to the According to Paul (1987: 8), `the basic theme business-society literature (within which we of much of this work is the necessity for the i nclude the business ethics literature), some of individual to integrate personal values and the terminology may be unfamiliar. Accor- managerial action. On a more general level, dingly, in Table 17.1 we present a summary list the idea was presented that social responsibil- of major terms - including brief definitions - ity should be a guiding principle for corpora- used in this literature. tions.' This period also saw the publication of Howard Bowen's (1953) The Social Respon- sibilities of the Businessman, and a suggestion HISTORICAL OVERVIEW OF BUSINESS by participants in a 1955 AACSB meeting of deans that business schools offer courses AND SOCIETY SCHOLARSHIP in business-society relations and social responsibility. Significant concerns about the role of business This section of our chapter picks up the in the larger American society first arose at the story in the 1960s and continues to the present end of the 19th century, with the rise of large by briefly reviewing five major themes in the corporations and the 'robber barons'. business-society literature.' As shown in Theodore Roosevelt and other progressive Table 17.2, our discussion of these five themes politicians of the 1900s and 1910s responded highlights topics that are particularly relevant to these concerns by creating the first modern for the study of strategic management. We wave of government regulation to curb abuses, will first present an overview of the five such as the meat packing industry's scan- themes, and then examine each, particularly dalous practices, which were the subject of the first, in more detail. Our added measure of muckraker Upton Sinclair's The Jungle. The attention to the first theme reflects its founda- earliest 'management scholar' to address this tional nature.
  5. 5. Table 1 7.2 Themes in the study of business and society relations Lines of i nquiry 1 960s 1 970s 1 980s 1990s Organizing principles Business ethics Meaning of business ethics Descriptive ethics - articulation Review and application of major Review and application of (different than ethics of of ethical issues ethical theories (rights, justice, additional ethical theories i ndividuals in business?) utilitarianism) to social and ethical (esp. virtue ethics, social issues contract theory, ethic of care); ethical theory - organizational theory relationships Corp. social responsibility Existence of social Why social responsibilities Social performance - financial Principles of social responsibilities; articulation exist; categories of CSR; performance relationship responsibility; refinement of of different responsibilities principle of public measures of social responsibility performance; exemplary practices of 'socially responsible businesses' Ideology/attitudes/values Change in individuals' ethical Social and ethical values of Social/ethical values/attitudes of Comparative ethical values values over time managers; comparison to business students; models of (nationality, race, gender); those of business critics; i ndividual ethical decision empirical studies of moral manager's opinions re CSR making; organizational influences reasoning and decision making; arguments on ethical decision making in moral intensity of issues organizations Organizational processes Corp. social performance Desirability and appropriate Understanding social issues - Crisis management; public affairs managing employee beneficiaries of philanthropy; scanning the environment/ management; issues management; voluntarism; environmental social movements link to strategic planning; cause-related marketing, strategic audits/reports; environmental social auditing proposed; philanthropy; corporate affairs function; corporate growth of public affairs governance; industry ethics codes; creating and community relations self-regulation; CEO leadership; ethical cultures; issue- functions; social models of CSP specific control systems: responsiveness; advocacy diversity management, whistle advertising blower protection, ethics hot-lines, sexual harassment policies, etc. (Contd.)
  6. 6. Table 17.2 (Contd.) Lines of inquiry 1 960s 1 970s 1 980s 1 990s Stakeholder management Stakeholder concept, analysis and Stakeholder partnerships; management prioritizing stakeholders; determinants of stakeholder tactics Social issues Minorities Hiring Purchasing from minority Advancement Diversity, anti-AA owned businesses Women Hiring Advancement, work and family Sexual harassment, elderly pressures, comparable dependent care worth, child care Community Poverty, riots Urban renewal Education, homelessness, drug Education, hiring welfare education, community impacts recipients of closings/takeovers International Corporate political Bribery Disinvestment from South Africa, Human rights of workers, local intervention in other plant safety, marketing practices community benefits, global countries operating standards Consumers Consumer rights, planned Product safety, deceptive Product quality, advertising to Liability regarding inherently obsolescence, auto safety advertising claims children harmful products, over-consumption, sex in advertising; internet marketing and privacy/security Employees Labor law violations. Wages, quality of work life, Plant closings, wage and benefit Downsizing, e-mail privacy, too wage increases layoffs, workplace safety, cuts, AIDS, privacy, whistle- much overtime, work-life free speech, employee blower protection, age and balance, CEO/worker pay assistance programs disability discrimination, ratio, religion/spirituality and nonsmoker's rights, work, disability access, domestic employee wellness, partner benefits, smoker's employee crime rights, workplace violence (ConId.)
  7. 7. Table 17.2 (Contd.) Lines of inquiry 1 960s 1 970s 1 980s 1 990s Environment Air, water, noise pollution; Toxic waste, solid waste, Global warming, recycling, energy conservation; acid rain, ozone depletion, recycled content, pollution endangered species environmental racism prevention, disclosure, biodiversity, sprawl, sustainable development Stockholders Greenmail. golden parachutes CEO compensation Business-government relations Government action Determinants and Federal chartering of Economic deregulation; social international trade policies; l egitimacy of corporate corporations; social deregulation attempts; comparative public policy; political activities regulatory policies; privatization of govt. international regulation regulation's impact on services; pro-business govt. business activity; corporate PACs; regulatory compliance Business political activity I mplications for business Political contributions/ Political action in other countries; of governmental response scandals; corporate corporate political strategy and to social unrest crime competitive advantage
  8. 8. THE RESPONSIBILITIES OF BUSINESS 379 Business and Society Themes on the business enterprise by agents of social change? Research in this area involves The first theme, organizing principles, exam- description of social problems, and of the cor- ines the basis for claims that corporations porate activities that give rise to or contribute should act on social and ethical issues. In a to the exacerbation of these problems. This sense, authors addressing this theme are stream of research tends to be descriptive and answering the `why' question of business and issue specific. Unlike the literature in the prin- society relations - Why should firms be good ciples category it tends to focus on the specific corporate citizens? Within this broad theme are i mpacts of the harm and the mechanisms by three major streams of scholarship: business which it occurs, rather than making a philo- ethics, corporate social responsibility (CSR), sophical or strategic case for why companies and ideology/values/attitudes. Each of these should respond to the issue. Unlike the litera- streams claims kinship to different disciplines: ture in the processes category, it tends to business ethics is based in philosophy, ideology/ describe practices of companies that are values/attitudes is based in psychology and framed in issue specific terms rather than in sociology, and CSR is based in sociology and relational or functional terms. In addition, management. The three streams are inter- when corporate practices are described, the related. Individuals have values, attitudes and focus is on how they increase or lessen the ideologies that influence, and are the product harm done, rather than on their intended of, the issues they pay attention to and the effects, in terms of the development of the decisions they make. These beliefs shape, and issue or the company's relationships with the are influenced by, their views regarding what concerned stakeholders. As noted above, unlike corporations should do. Individuals articulate the business-government relations literature, these values in terms of claims that businesses the stakeholders involved have no direct, legiti- have certain social responsibilities - often mate coercive power over the corporation. It is framed as ethical responsibilities or moral i mportant to point out that fewer business and obligations. To make these claims obligatory, society scholars currently emphasize this actors weave in the scholarship and thinking theme in their writings than did in the past - of major moral systems or philosophies, as much of the literature in this area now stems well as legal and economic reasoning. from sociology, political science, and journal- The second theme, organizational processes, ism, including the general, business, and focuses on firms' responses to claims that they social advocacy press. Although it is an ' ought' to act in certain ways. Literature on important source perspective in this field, it is this subject focuses on the 'how' question that seldom the focus of actual scholarship. has been central to the business and society The fourth theme, business-government field-How do firms manage their interactions relations, focuses on activities directed at with the external environment? The major business by government (such as regulation streams of scholarship within this area are cor- and trade policies), and on activities directed porate social performance, corporate social at government by business (such as lobbying responsiveness, issues management, crisis and PAC contributions). To the extent that management, stakeholder management, and government is just another stakeholder group, corporate governance. These streams have it should be managed by a process like public their roots in business strategy and policy, affairs (under theme 2). To the extent that organizational behavior, organizational theory, government is concerned about specific issues psychology, sociology and political science. scholarship on this topic spills over into Corporate social performance (CSP) has theme 3. However, government is such a become the dominant stream within this cate- powerful stakeholder - different in degree gory, but stakeholder management has rapidly (size and power vis-a-vis other stakeholders) grown in prominence. and kind (it can enforce its demands through The third theme, social issues, examines the laws and regulations) - that we place it in its specific concerns expressed by various stake- own category. For this reason, this theme can holders. Scholarship on this theme addresses be viewed as a specific focus on a unique the 'what' component of business and society ' who' in business and society relations, relations - What are the specific claims made Scholars in this area commonly study both
  9. 9. 380 HANDBOOK OF STRATEGYAND MANAGEMENT governmental and business actions, making of the concept will be explored in some detail separation of these interactions awkward. in the third section of this chapter. Put simply, These scholars frequently have different train- Friedman argued that the proper social respon- ing than those who study the interactions of sibility of business is to focus on wealth cre- business with other social stakeholders. The ation, and to leave other social institutions to root disciplines of business-government rela- solve social problems. Other critics charged tions scholars tend to be political science, eco- that giving business the power to address nomics and law. issues traditionally reserved for government and charitable organizations would be damag- ing to the concept of a pluralistic society Theme 1: Organizing (Levitt 1958). Principles - ` Why' This challenge to the CSR concept resulted in attempts in the 1970s to build a stronger, The pioneers in the business-society field more logically grounded and articulated came from many disciplines, but most case for the adoption of CSR. Preston and notably from economics, political science, Post (1975) looked for a principle to decide law, and business policy. In part because of what issues a company was obliged to respond their professional background, as well as the to. They articulated the `principle of public nature of public discourse, the search for responsibility', which argues that a business principles to guide business in its relationship should deal with the social issues that are with society was framed primarily in terms i mpacted by the normal operating activities of of corporate social responsibility (CSR), the company. This principle suggests, for rather than ethics or values - although these example, that an automobile manufacturer has latter topics have been of great signifi- the responsibility to address issues such as cance. Because of CSR's prominence, we auto safety, vehicular air pollution, and the will focus primarily on spend most of our impacts of its manufacturing plant activities effort detailing this concept. Readers inter- on the local community, while it has no ested in an extensive discussion of the evolu- responsibility to become engaged in activi- of the CSR concept are advised to see ties such as philanthropic support for the Car arroll (1999). arts. Sethi (1975) suggested that corporate Corporate Social Responsibility social responsibility (or performance) had three logically distinct elements: social The early advocates for CSR (Bowen, 1953; obligation (responsibility to obey the law), Davis, 1967; Votaw and Sethi, 1969) social responsibility (congruence with pre- advanced many pragmatic arguments on vailing societal norms, values and expecta- behalf of CSR. These included the ideas that tions), and social responsiveness (development CSR activities: would help limit increases in of policies, programs and capabilities that government regulation; would develop a would minimize adverse consequences of socially and economically stronger society societal demands). These three elements more conducive to business success; would were considered by Sethi (1975) to be i mprove corporate reputation among existing proscriptive, prescriptive, and anticipative, and potential customers; would help attract respectively. and retain high quality employees; and had the Building on this conceptual work, Carroll potential to turn social problems into business (1979) suggested another approach to estab- opportunities. Arguments that business had a lishing principles of social responsibility. He moral obligation to help society were also attempted to defuse the economic responsibil- advanced, but were not generally articulated in ity vs social responsibility argument by as much detail. acknowledging that economic profitability is a This growing acceptance in the late l 950s fundamental social responsibility of business. and the l 960s of the concept of social respon- Carroll articulated three other categories of sibility within both business and business edu- responsibility: legal, ethical and discretionary. cation elicited a vigorous attack on the He argued that these four categories could concept, led by conservative economist Milton serve as principles for managers deciding how Friedman. Friedman's (1962, 1970) criticisms to meet their social responsibility regarding a
  10. 10. THE RESPONSIBILITIES OF BUSINESS 381 specific issue. The economic responsibility of indicators, most notably the Kinder, the firm is to take those actions regarding the Lydenberg, Domini & Co. (KLD) index. This issue that helped the firm make money. The index of social performance currently mea- legal responsibility of the business on the issue sures performance on 10 different social issue is to obey whatever laws existed regarding the areas (community, diversity, employees, issue. The precise nature of the ethical and dis- product, environment, non-US operations, cretionary responsibilities is more vague, in nuclear power, military contracting, alcohol/ part because Carroll offered differing explana- tobacco/gambling, and `other') for all of the tions of them in different writings (Carroll, S&P 500, and is available on a longitudinal 1979, 1991). Ethical responsibilities consist basis. Several studies of the KLD database either in doing what society expects on the have concluded that, despite some weaknesses, issue or in doing whatever is necessary to it is a far more accurate and reliable measure of avoid causing harm. Discretionary responsi- social performance than its predecessors bilities (or philanthropic responsibilities, as (Sharfinan, 1993; Stank, 1993; Waddock and they were later referred to) consist of taking Graves, 1997b). actions not expected of the firm by society, or In the 1990s, attention also turned back to actions which bring about social benefits. The articulating theoretically sound and practical differences in Carroll's earlier, more prag- principles for CSR. Wood (1991) drew from matic, formulation of these responsibilities previous CSR research to suggest three funda- and his later, more theoretically based, formu- mental principles. At the institutional level, the lation reflects growth in the influence of ethics legitimacy of business as an institution depends on the CSR concept, which we discuss shortly. upon proper use, rather than abuse, of its power. In the 1980s and 1990s, much of the CSR At the organizational level, the business should research focused on the relationship between minimize harmful impacts stemming from its corporate social performance and financial per- normal operating activities. At the individual formance. This attention reflected both the level, managers should utilize whatever indi- increased empirical orientation of the field, as vidual discretion they may have to benefit well as the desire to empirically test (or for society. These principles, Wood argued, pro- many, to provide support for) the claim that vide logically defensible guidelines which man- good corporate citizens would be good eco- agers can use to determine what issues they nomic performers. Over 50 such studies have should respond to and in what ways. been done, and several reviews and meta- Many CSR scholars in the 1990s have called analyses of this literature have been conducted attention to and described the exemplary prac- (Ullmann, 1985; Griffin and Mahon, 1997; tices of so-called `socially responsible busi- Preston and O'Bannon, 1997; Roman et al., nesses' (SRBs) (Altman and Post, 1995). These 1999; Wood and Jones, 1995; Frooman, 1997). organizations, generally relatively young small The empirical results are mixed. In general, the to midsize companies, publicly state their studies suggest a somewhat positive association commitment to CSR, particularly to engage in between CSR and financial performance, activities which can be regarded as falling in although the causal nature of the relationship is Carroll's (1979) discretionary category. The unclear. At the very least, relatively little sup- Body Shop, Ben & Jerry's, Odwalla, Tom's of port exists for the view that CSP and economic Maine, Patagonia, South Shore Bank of performance are negatively related. However, Chicago, and Hanna Andersson are among the many of these studies are methodologically companies whose exemplary commitment to weak and the robustness of their findings is thus CSR have been widely recognized. However, in doubt. For example, Wood and Jones (1995) critics argue that when one considers the full attribute some of the ambiguity in these results range of corporate activity, few companies to a mismatching of independent and dependent deserve the SRB label (see Entine, 1994 for an variables and the lack of available data on the- application of this argument to the Body Shop). oretically relevant intervening variables. Scholars have increasingly attempted to Ethics refine measures of social performance. Single issue, single measure studies have been sup- The sub-field of business ethics has benefited planted by measures which use multiple from an increasing presence of business
  11. 11. 38 2 HANDBOOK OF STRATEGYAND MANAGEMENT faculty with a rich training in ethics. In the guideline for academic analysis, its limitations 1 950s and 1960s scholars wondered whether for management practice should be fairly obvi- business ethics was anything more than indi- ous - few managers have the time, under- vidual ethics applied in a business setting. standing, or energy to perform this type of Guiding ethical principles were often religi- detailed comparative analysis. ously based (Johnson, 1957). As CSR focused In the 1990s, additional ethical theories on organizational actions regarding externally entered the field and attracted substantial inter- generated social demands, ethics to some est: chief among these are social contracts degree focused on individual actions within theory (Donaldson and Dunfee, 1994), virtue the company. Such topics include falsification ethics (Solomon, 1992), and the ethics of care of expense reports and other records, dishon- or feminist ethics (Liedtka, 1996). Virtue esty, theft and extortion, etc. To some degree ethics represents a qualified return to the this distinction between social and ethical 1960s treatments of business ethics as individ- issues continues, particularly as this subject is ual ethics, but with a firmer philosophical treated in textbooks. But recognition that ethi- grounding. Recent scholarship also asks a new cal considerations apply to external social question: do ethical business practices lead to issues grew, and in the 1970s many studies competitive advantages? (Hosmer, 1994; identified and catalogued the ethical questions Quinn and Jones, 1995.) involved in a wide variety of personal and organizational issues. These works were often Ideology, Attitudes and Values used in conjunction with the pedagogical question: What should be done in this situation This component focuses on the beliefs that in order to be ethical? individuals hold which shape their decisions As ethicists began to write and teach in the and behaviors. As such it is based in psycho- business-society area, the tools of normative logy, sociology, and social psychology. In the ethical analysis entered the discussion. During 1960s a key question in this area, stemming the 1980s, the ethical theories of utilitarian- from such ethical fiascos as the electrical ism, rights, and justice (Cavanagh et al., 1981) price fixing scandals of the 1950s, was were applied to business situations. Philo- whether individual managers' ethical values sophers and non-philosophers alike began to were in decline (Baumhart, 1961). In the apply these theories to organizational and 1970s attention to the role of values in deci- individual behaviors, as well as to social prob- sion making led to a number of studies about lems, to determine if an ethical responsibility the values of executives (Ostlund, 1977), exists in conjunction with a particular issue, employees (Collins and Ganotis, 1973) and and, if so, what is the nature of the organiza- social activists (Sturdivant, 1977). The focus tion's or individual's obligations. While the on executives' attitudes continued in the 1980s application of ethical analysis fostered a more with studies examining whether executives' rigorous analysis of social responsibility attitudes toward types of social responsibilities claims, these theories did not end the debate might be related to company social perfor- about business ethics. While rights theory is mance (Aupperle et al., 1985). In the 1980s preferred by most business ethicists, there is and 1990s a number of studies examined the hardly a general consensus on this matter. social and ethical values and attitudes of busi- Recognizing that different ethical principles ness students (see Glenn, 1992, for a review of often yield conflicting implications for action, these studies) in an attempt to deter mine a common recommendation is that potential whether ethics education had an impact on decisions be analyzed using each of the major ethical values and attitudes. Another area of theories (Velasquez et al., 1983). Ifa course of increased attention in the 1990s was compara- action is adjudged ethical by all of the tive studies of ethical values and decision theories, it can be confidently engaged in. making in companies and societies around the However, if no course of action passes all world (Al-Kazemi and Zajac, 1999; Batten theoretical screens, the decision-maker must et al., 1997; Nakano, 1997). choose among those options that pass one or Scholars interested in empirically invest]- two screens, or continue to search for addi- gating ethics and values looked to studies such tional options. While this is a reasonable as those of Rokeach (1973), England (1967).
  12. 12. THE RESPONSIBILITIES OF BUSINESS 38 3 and Hofstede (1980) for insight and instrumen- 1974). From these works, especially those of tation (Frederick and Weber, 1987). But these Ackerman (1973) and Paluszek (1973), it psychologically and managerially based became apparent that many companies had values instruments were not found to be espe- been grappling with how to effectively man- cially helpful, and in the 1980s and 1990s a age corporate social responsibility issues major shift in this literature occurred. Scholars during the 1960s. Ackerman (1973) suggested moved away from descriptive studies of that a three-stage process was typically associ- values and attitudes presumed to be important ated with effective corporate social perfor- in decision making and towards psychological mance: social obligations were recognized and theories of ethical reasoning - including con- policies developed; staff specialists were hired ceptual models of individual ethical decision and substantial learning about the problem making in organizations. Kohlberg's (1981) occurred; and line managers assumed respon- theory of moral reasoning has been widely sibility for social policy implementation, usu- used in studies of managers' and business stu- ally accompanied by changes in resource dents' moral reasoning (Weber, 1990; Elm allocations and rewards. and Nichols, 1993). Trevino (1986) developed This trend suggested a shift in the field from a model of ethical decision making incorporat- identifying a general set of corporate social ing aspects of both the individual and the responsibilities to describing processes organization. Victor and Cullen (1988) inves- whereby firms could become more socially tigated the ethical climate of organizations, responsive to the social issues in their task and how this affected individuals' ethical deci- environment. For example, research during sion making. Jones' (1991) model calls particu- this period focused on topics like identifying lar attention to the moral intensity of the issue and forecasting social issues (Wilson, 1974), that is the focus of an ethical decision. This creating social responsibility officials (Eilbirt scholarship attempts to move values and atti- and Parket, 1973), issues management (Chase, tudes research away from social responsibility 1977), social reporting (Butcher, 1973), and brings it into closer alignment with ethics. changes in organizational structures and sys- It also offers the potential to offer descriptive tems (Steiner, 1975), reforming corporate evidence and prescriptive suggestions for governance through changing board composi- actually managing ethical and social behavior tion (Blumberg, 1974), and a revival of the and performance within the firm. It is to this call for social auditing (Bauer, 1973). This subject that we now turn as we examine the trend was also reflected in actual corporate organizational processes theme. practice, as reflected in the proliferation of public affairs departments responsible for public relations, community relations, corpo- Theme 2: Organizational rate philanthropy, issues management, crisis Processes - `How' management, advocacy advertising, and gov- ernmental relations and lobbying (Post et al., The CSR literature of the 1950s, 1960s, and 1 983). By the end of the decade Frederick 1 970s focused on establishing the case for the (1978, 1995) suggested that corporate social existence of corporate social responsibility. responsiveness (CSR2) had replaced social However, other than Bowen's (1953) proposal responsibility (CSR1) as the key topic in that companies conduct a social audit, the business-society scholarship. literature had little to say about how corpora- Carroll (1979) brought these two facets of tions should be managed in order to fulfill CSR (social responsibility and social respon- these responsibilities. In 1971 the first article siveness) together in a model of corporate focusing on managing for social responsibility social performance (CSP). He proposed that appeared in a business journal, suggesting the effective performance in this arena required creation of committees of senior officers and managers to: reflect on the issues their compa- of departments of social affairs (Mazis and nies face, identify types of social responsibili- Green. 1971). By 1 976 at least 39 other arti- ties these issues invite, and select the mode of cles focusing on social issue management responsiveness (reactive, defensive, accom- process topics had appeared, which were col- modative, proactive) they will pursue. This lected in two volumes (Carroll, 1977; Sethi, model motivated CSP research for the next
  13. 13. 384 HANDBOOK OF STRATEGYAND MANAGEMENT t wo decades (Miles, 1987; Mitnick, 1993; managing issues (Clarkson, 1995). Some Rands, 1991; Strand, 1983; Swanson, 1995, scholars (Waddock and Graves, 1997a) have 1 999: Wartick and Cochran, 1985; Wood, suggested that the quality of relationships with 1 991). The models developed by Strand, a broad set of primary (economic) and sec- Rands, and Mitnick differ from the others in ondary (social) stakeholders may in fact be that they frame the CSP process in systems synonymous with the quality of management theory terms of inputs (demands for CSR), generally. Hence, several scholars (Clarkson, throughputs (responsiveness processes), and 1995; Waddock and Graves, 1997a; Wood and outputs (actions which affect social issues). Jones, 1995) have suggested that stakeholder While not firmly grounded in a systems frame- theory provides the basis for adequately under- work, Wood (1991) is the most well known standing and assessing CSP. CSP model and has become a widely used ref- Given the increasing emphasis on stake- erence tool on this topic. CSP now serves for holder relations, it is important to draw atten- many as an overarching framework for the tion to the literature on stakeholder tactics. business-society field. Scholarship in this area has focused on the CSP models are lacking in two areas, how- i nfluence strategies employed by various ever. First, the models fail to adequately spec- stakeholder groups to shape corporate practice ify relationships between key constructs. This (Frooman, 1999). As such, it complements the failure impedes the development of testable firm-centric, inside-out orientation of stake- hypotheses that would further advance schol- holder theory. The combination provides the arship regarding relationships between and conceptual foundation for a bi-directional among issues, stakeholders, principles, pro- study of stakeholder relations. Consistent with cesses, and outcomes. Second, the models this broadened view of stakeholders, Wood fail to effectively integrate normative perspec- and Jones (1995) note that stakeholders play tives into their descriptive focus (Swanson, three fundamental roles regarding CSP: they 1 999). Possible outcomes of this lack of are the source of CSP expectations, they are normative-descriptive integration include: affected by company actions, and they evalu- reinforcing the notion that business and ethics ate how well companies meet CSP expecta- are distinct and incompatible domains - the tions. In addition, they are frequently ` separation thesis' - (Wicks, 1996); reducing considered by managers during the process the value of CSP models to practicing man- of developing and implementing social agers; and inhibiting the development of a responses. Thus, in systems terms, stakehold- coherent theory of business and society ers are critical providers of inputs, explicit and (Swanson, 1999). i mplicit factors in throughput processes, pri- Stakeholder theory (Freeman, 1984) emerged mary recipients of outputs, and predominant in the 1980s not as a theory, but rather as a sources of feedback. useful concept for communicating the need to Just as the number of social issues facing manage relationships with persons and organi- business has increased, so have the number of zations concerned with social issues, not tactics available to and utilized by stakeholder just those concerned with economic issues activists, as indicated in Table 17.3. In part, i dentified by strategy scholars such as Porter this is an outcome of the conservative revolu- (1980). In the 1990s, however, the stakeholder tion (and to a lesser extent the GOP control of concept moved toward a more complete the US Congress throughout much of the theory, and became a leading competitor to the 1990s). Lobbying for new laws and regula- CSP framework for theoretical dominance. tions was unproductive in that political cli- Numerous scholars have elaborated stake- mate, so stakeholders had to devise new ways holder theory by developing models for identi- that were more congruent with the prevailing fying and prioritizing stakeholders (Mitchell i deology. Within the business and society et al., 1997) and applying network theory to field, although the breadth of tactics has been stakeholder theory (Rowley, 1997). Manag- noted, little research has focused on in depth ing relationships with stakeholders is in- investigation of specific tactics, or on the creas-ingly being viewed as a more robust implications of the choice of tactics for subse- means of conceptualizing or studying com- quent corporate response. There are signs that panies' actions in the social realm than is this deficiency is beginning to be addressed.
  14. 14. Table 1 7.3 Examples of'stakeholder • tactics by decade 1960s 1970s 1980s 1 990s Protests/demonstrations Federal chartering proposals Issue specific codes of conduct Corporate practices-oriented partnerships Lobbying for laws/regulations CSR-based boycotts Social investing and consuming CSR awards Proxy resolutions Suing government agencies Encouraging whistle-blowing Multi-stakeholder negotiations Unionization/strikes PACs/endorsements by other social activists Lobbying against social deregulation Independent certification of products Labor PACs/endorsements Labor-management partnerships Cause-related event partnerships for CSR practices targeting retailers Community issue partnerships ' Monkey-wrenching' Ballot initiatives Lobbying against corporate Calls for product labeling subsidies based on CSR activities Internet-based activism Worker ownership
  15. 15. 38o J-L4NDBOOK OF STRATEGY AND MANAGEMENT For example, Frooman (1999) uses resource trade treaties such as NAFTA, WTO, and dependence theory to examine the conditions the proposed Multilateral Agreement on under which stakeholders are likely to select Investments (MAI); sexual orientation issues l our different types of influence strategies. (such as domestic partner benefits and In conclusion, as corporate practice related nondiscrimination on the basis of sexual to CSP has evolved, research on organiza- orientation); workplace violence and its rela- tional processes has both expanded and tionship to free speech and privacy rights; i mproved. New corporate practices/research international social justice issues (for example, topics include strategic philanthropy, cause- workers' rights in sweat shops, the impact on related marketing, industry self-regulation, minorities of corporate practices allowed by CSP-related executive leadership behaviors, majority-controlled governments); and the creation of ethical cultures, management of significance of religion and spirituality in the new corporate functions (such as environ- workplace. mental affairs departments), creation of Through four decades, business-society ethics codes, partnerships with social activist scholars have documented and analyzed these stakeholders, corporate social and environ- various issues, increasingly in the context of mental auditing and reporting, corporate building or testing theories. The emergence of governance, and various issue specific control a stronger theoretical perspective and more systems and mechanisms. Research on these sophisticated analytical tools, combined with topics generally follows the pattern of docu- an ever-growing list of challenging issues, menting current practice, then explaining bodes well for the future of scholarship in variance in these practices, including their this area. effectiveness as tools for managing the social environment. Theme 4: Business-Government Relations -'A Unique Who' Theme 3: Social Issues -'What' Because government differs in kind from other Whereas stakeholder relations focuses on the stakeholders, business-government relations dynamics of relationships between firms and has been treated as a special case, or form, of their stakeholders, scholarship on social issues stakeholder relations in the business and society has focused on the content, or purpose, of field. The business-government literature has these relationships. An external group's con- focused on three basic topics: the actions of cem about a social issue is often the generative government to affect business, companies' non- force that propels them to declare a stake, or political responses to government activity, and interest, in a firm's capacities and competen- the political involvement of business. cies. As Table 17.2 indicates, new social In the 1960s and 1970s social regulation issues emerged during each of the past four increased and the implications of this trend for decades. Since most of these remain with us, business generated a fair amount of descriptive the number of social issues with which busi- attention, as well as theoretical attention ness must deal is very large. The anti- ( Mitnick, 1980). Business-society researchers regulatory mood of the 1980s did little to slow also examined existing control efforts by this pattern, and may have even increased the government and generated proposals that expectation that corporations would voluntar- government adopt new means of controlling ily address social issues since little new regu- business behavior. Schwartz (1974) proposed l ation emerged during that period. The that the federal government charter corpora- likelihood of new issues continuing to emerge tions and use the attendant power to more is great, and several that have emerged during strictly require socially beneficial corporate the 1990s are likely to grow in importance. action. A more recent example is an examina- Among these are environmental issues (such tion of the growing movement to reduce or as sustainable consumption and industrial ecol- eliminate the federal government's subsidies ogy); work and family issues (such as support of corporations (Stevens et al., 1995). In the for nursing mothers and those caring for elderly 1 990s. however, an analysis of the business- parents); national sovereignty implications of society relationship from the perspective of
  16. 16. THE RESPONSIBILITIES OF BUSINESS 387 both partners has been relatively uncommon. studied question, and is the one most likely to Business and society researchers focus pri- examine the nature and implications of marily on the description or analysis of corpo- government activities. Where (local, state or rate political activity aimed at effecting such federal governments; legislative, executive government actions (Christensen, 1995), leav- or regulatory agency; etc.) CPA takes place ing to political scientists and/or the popular has received little separate attention apart press the task of examining government's from its relationship to why CPA occurs. actions and reactions. This has the unfortunate When CPA takes place also has been studied result of leaving some potentially significant primarily in the context of why firms engage government experiments, such as the substitu- in political activity. The question of which tion of market-based incentives (pollution firms (who) engage in CPA has also been taxes, tradable emission permits) for tradi- studied extensively, and researchers have tional command and control regulations, rela- found that a large number of firm and tively unstudied by business and society industry characteristics are related to poli- scholars. tical involvement. Finally, the question of The major decision firms face regarding how firms engage in political activity has nonpolitical responses to government activity also received a great deal of research is whether or not to comply with a government attention. regulation. Research on this topic has tended Getz (1997) has noted the opportunistic to fall under the topics of corporate crime or rather than systematic nature of this research, illegal corporate behavior (Baucus and Near, in that it has focused on political tactics and 1991; Clinard and Yeager, 1980) and its flip political issues that have been in the public side, regulatory compliance. The illegal cor- eye. For example, in the 1970s researchers porate behavior literature has studied both the focused on tactics like direct company antecedents and consequences of illegal l obbying activities and direct political contri- pliance has primarily focused on the question ronmental, consumer, and safety. In the 1980s behavior. The smaller literature studying com- butions, and on political issues, such as envi- of what induces firms to comply with laws and the focus was on grassroots lobbying, trade regulations. Variables studied have included associations, and political action committees, factors such as environmental munificence as well as on issues like economic deregula- and dynamism, firm size, industry, and past tion and government protection from foreign behavior (Baucus and Near, 1991). Baron i mports. Research on political tactics during (1995) has recently reoriented these discus- the 1990s has continued to examine the use of sions by suggesting that firms tend to integrate PACs, as well as the formation of political their market and non-market activities. This coalitions containing firms from several suggestion makes the separability of political industries. In terms of research on political and product-market strategies problematic, issues in the 1990s, corporate political scholars to pay close attention to business- attention (Rehbein and Schuler, 1 997; and if correct, would seem to require strategy i nvolvement in trade issues has received government relations. Schuler, 1996), as well as the development of The study of the means by which and con- i nternational regulatory regimes, such as the ditions under which corporations attempt to Montreal protocol to limit ozone depletion i nfluence government was pioneered by ( Getz, 1993). Also receiving increased atten- Epstein (1969), who identified 25 questions tion have been political strategies of multina- regarding business-government relations. tional corporations in different countries and Recent reviews of the corporate political under different political regimes (Boddewyn activity literature include those by Getz and Brewer, 1994; Hillman and Keim, 1995). (1997), Mahon and McGowan (1996), Looking to the future, Oberman (1993) and Shaffer (1995) and Vogel (1996). Getz Hillman and Hitt (1999) have developed (1997) describes the scope of corporate polit- typologies of political tactics predicting i cal activity (CPA) research using the jour- which tactics will most likely be used in what nalistic questions of why, where, when, who contexts and in support of what political and how. Why firms participate in CPA has strategies. These offer the potential for been, she suggests. the most commonly i ncreasing the rigor of research on this topic.
  17. 17. 388 HANDBOOK OF STRATEGYAND MANAGEMENT In conclusion, our objective in this brief categories but prioritize their order as legal,2 overview of the business and society literature ethical, economic, philanthropic (discretionary). has been to expose management and strategy In one way or another this simple hierarchical scholars to the key themes and intellectual framework continues to give form and shape to trends within this subfield of organizational contemporary discussions of business' respon- studies. We will now narrow our focus and sibility to society. We will briefly review the concentrate on the core question that has both contemporary arguments supporting each claim energized and confounded scholarship on this regarding what constitutes these responsibilities topic for decades: just what are business' and highlight the fundamental conceptual issue, responsibilities to society? framed here as a dilemma, at the core of each perspective. Our purpose in invoking this particular ana- WHAT ARE BUSINESS' l ytical frame is to encourage management and RESPONSIBILITIES TO SOCIETY? strategy scholars to more closely examine a variety of vexing conceptual challenges that while they are particularly prominent and trou- Having reviewed the evolution of thinking blesome in the business and society literature on business and society relations, we now l urk beneath the surface of most contemporary narrow our focus. Within the context of the four scholarly accounts of managerial and organiza- major themes described in the preceding section, tional actions. this question is primarily a matter of principle. That is, answers reflect competing paradigmatic arguments regarding whether (and if so, then Legal Responsibility: Obey wh),) businesses should attend to expectations Laws and Regulations originating outside the realm of business. We organize our discussion using the four Legal regulations are considered to be society's types of business responsibilities proposed by 'safety net' for regulating business activity. Carroll (1979). Carroll postulated that, `The Given the widespread evidence that market social responsibility of business encompasses forces and moral persuasion are not sufficient the economic, legal, ethical, and discretionary to curb the harmful externalities resulting from expectations that society has of organizations at business leaders' myopic focus on short-term a given point in time' (1979: 500). As shown in earnings, governmental regulations and laws Table 17.4, we have broadened two of his cate- have been historically seen as a necessary gories to reflect a more contemporary 'Institu- buffer between business and society. However, tional' perspective and to make the categories as we mentioned earlier, a reduction in the rate more consistent. It is important for our purposes of growth of business regulation is one of the to underscore Carroll's conclusion that what enduring legacies of the conservative political constitutes a social responsibility of business is revolution. Therefore, very little attention has a decision made by society, not by business. been paid to this position in the `what is busi- As noted in the previous section, Carroll's ness' responsibility' debate since that era. model of social responsibility has exhibited a However, there is some evidence that this remarkable degree of resilience, although it has trend line may be reaching a deflection point. its critics. One of the most common criticisms is We'll briefly mention three examples of fairly that the model assumes that economic responsi- recent proposals to experiment with new bilities are most fundamental, followed by forms of business regulations: market incen- l egal. ethical and discretionary responsibilities tives, federal chartering of corporations, and (Kang and Wood, 1995; Swanson, 1999). Kang international regulations. and Wood (1995) offer an alternative view, in Many proponents of stronger controls on which they rum the hierarchy upside down, pollution have advocated various forms of before re-conceiving it in different terms, in market-based incentives in preference to tradi- which moral responsibilities are framed as most tional ' command-and-control' regulation important, followed by social responsibilities, (Stavins and Whitehead, 1992). Examples of economic responsibilities, and benevolence. market incentives include pollution charges, Ferrell et al. (2000) meanwhile retain Carroll's tradeable permit systems, deposit refunds and
  18. 18. Table 17.4 A comparison of husiness'responsibilities to society Type of responsibility Common description Focus of i mperative Claim on business _ Conceptual dilemma Legal responsibility: ' Doing what is required' Legal requirements Obligatory Market efficiency versus regulation obey laws and regulations effectiveness Economic responsibility: ' Doing well' Owners' rights Obligatory Accuracy versus generality of the maximize shareholder wealth 'rules of the game' Moral responsibility: ' Doing what is expected' Moral obligations Obligatory Conflicting moral standards and discharge moral duties ('not doing harm') expectations Social responsibility: ' Doing what is desired/ Citizenship Discretionary instrumental justification for 'doing go beyond obligatory doing good' responsibilities good' responsibilities
  19. 19. 390 HANDBOOK OF STRATEGYAND MANAGEMENT user fees. The nature of these mechanisms, are the Montreal Protocol adopted in 1987 to under which companies incur greater financial eliminate certain ozone-depleting chemicals, costs for greater amounts of pollution, encour- and the 1998 Kyoto global warming treaty. A ages companies to engage in innovation in major impediment to the use of international order to reduce costs. In contrast, traditional regulations is that no acknowledged enforce- regulations, by specifying exactly what actions ment body exists, so the implementation and are to be taken to limit pollution, can actually enforcement of these regulations is dependent discourage innovation. In addition, market upon action by individual countries. incentive mechanisms encourage firms to con- The legal responsibility position wrestles tinue reducing pollution even after the level of with a core management dilemma, familiar to pollution that is permitted by regulations is strategy scholars, namely the tradeoff between attained. Various applications of this approach effectiveness and efficiency. The critique of are being experimented with in both the US the traditional form of government regulation and Europe, including elements of the 1 990 is that it is inefficient for business, govern- Clean Air Act and the recently formulated merit, and society. Because they permit greater global warming treaty. An example of an flexibility and require less oversight, market application outside of the environmental arena incentives are championed as a more efficient is the proposal to bestow favorable tax treat- form of regulation. However, numerous con- ment on corporations that voluntarily engage cerns have been raised regarding the effective- i n socially responsible practices, such as limit- ness of market-based forms of regulation. For ing CEO/worker pay ratios to a certain level example, some environmentalists oppose this ( Kuttner, 1 996). approach because it doesn't carry the same The federal chartering of businesses has degree of moral sanction. They are concerned been advocated by those who believe that gov- that the underlying objective of protecting the ernment needs greater leverage over the actions environment will be overshadowed by debates of business (Mokhiber, 1998). If all firms were over pricing mechanisms, etc. They view the federally chartered, then government could prospect of an extremely wealthy firm being revoke a company's charter (and thus its right willing to pay a severe financial penalty for to exist) if it engaged in a pattern of egregious producing high levels of pollution as an unten- behavior. While states currently have this able proposition. They also point out that in power, the economic benefits they derive from order for the market form of deterrence to issuing charters or from being the home of a work, prices have to be right. Given that pric- large corporation discourages them from using ing is inherently a trial-and-error process, they this power. Advocates of this form of regula- worry that if the initial prices are too low to tion argue that government simply can't levy produce the expected results, government offi- big enough fines to deter businesses from cials will lack the political will to raise the fees. engaging in a class of reprehensible offenses Business and government leaders have that generate significant financial gains. They expressed related concerns about the unknown believe that nothing short of the threat of losing aspects of this new approach. For example, the right to operate as a business will be suffi- although business leaders complain about the cient to prevent these social disasters. current form of regulation, they know how the Recently, there has been an increase in the current system works and they have learned demands for international business regulation how to operate successfully within this set of (Post et al.. 1996). Advocates argue that even parameters. Therefore, although they, in gen- i f the world's major trading nations agree on a eral, prefer market solutions over government common set of ethical standards and business solutions, many business leaders are uncom- regulations, given that contracts are generally fortable with the uncertainty inherent in awarded to the lowest bidder and that pollution switching to an entirely new form of regula- knows no boundaries, the only guarantee that tion. The same type of ambivalence can be harmful business activities occurring in any observed among government officials. On the given country aren't allowed to affect one hand. they see merit in off-loading an members of societies half way around the extremely unpleasant, unpopular, and onerous globe is to create a minimal set of intema- oversight responsibility. But, they too are tional business regulations. Notable examples uncertain about the implications of trading a
  20. 20. THE RESPONSIBILITIES OF BUSINESS 391 known set of goals, responsibilities, competen- these critiques into two broad dilemmas facing cies, etc., for a new approach whose potential advocates of the `maximize shareholder to regulate is unproven and whose implica- wealth' position. These dilemmas are linked to tions for regulators are unknown. the corresponding summary statement in the preceding paragraph. First, the tradeoff between accuracy and gen- Economic Responsibility: erality. Weick (1979) observed that theoretical Maximize Shareholder Wealth propositions can be classified as simple, gen- eral, or accurate. In addition, he argued that This is the traditional view of business respon- because it is logically impossible for a state- sibility, commonly attributed to Milton ment to be simple, general, and accurate, these Friedman's classic New York Times Magazine attributes are, as a set, incommensurable. article, `The social responsibility of business Applying this logic to Friedman's 'rules of the is to make profits' (1970). Advocates of this game', critics have argued that although this position argue that the ultimate decision crite- general and simple statement is adequate as a ria in business affairs is the interests of the boundary condition for the maximize share- owners - the shareholders. Their agents holder wealth proposition, its lack of accuracy (senior managers) are expected to maximize makes it unacceptable as a practical guide for profits, within the `rules of the game'. From discharging moral responsibilities. this perspective, the firm has but one stake- Initially, Friedman proposed that the rules holder - stockholders - and they have but one of the game included laws and ethical stan- interest - financial gain. Therefore, if man- dards. However, in his later writings he argued agers engage in `socially responsible actions' in favor of restricting legal encumbrances on that reduce the return to shareholders they are business (Friedman and Friedman, 1980), in effect levying a tax on the company's which places the bulk of the responsibility for assets. Furthermore, by appointing themselves restraining the excesses of business on unspeci- as de facto policy makers they subvert the fied ethical standards and moral principles. rightful control of the market place. As such, Advocates of the moral responsibility position ' doing good' is always at the expense of have insisted that matters this important ` doing well', and, therefore, it is not only bad shouldn't be passed off this casually - moral- for business it is also bad for society. Why? ity is too important to be summarily dismissed Because, shareholder advocates claim (using with a forward definition. Although they don't utilitarian logic) that the `greatest good for the fault Friedman for not providing a definitive greatest number' results from business doing set of ethical rules, they fear that his simple what business does best - creating wealth that and general treatment of the subject marginal- through lawful and appropriate means like izes the role of ethics in the minds of practi- wages and taxes enables other social institu- tioners. The expressed need for adding greater tions (families, governments, and churches) to specificity and clarity to the `rules of the do what they do best - attending to the chart- game' is reflected in the search for the Holy table needs of society. Grail of business ethics - a definitive moral In summary, the Friedmanesque view of credo for business. As we will discuss in more business and society relations can be reduced to detail shortly, although this quest has not two statements: The responsibility of business yet accomplished its avowed objective, the is to make money, and management should crusaders involved in this effort are both stay focused on this goal. as l ong as they are numerous and zealous. playing by the rules. If a corporation engages Second, the tradeoff between core and com- i n socially beneficial practices that add value prehensive. It is clear that Friedman was to the firm that is simply good economics. (As focusing on the core objective of business- to such, these practices should not be heralded as generate wealth. However, when wealth gen- evidence of socially-enlightened management.) eration is proposed as a comprehensive state- This view of business and society relations ment of business practice, critics consider this has been criticized on several fronts (Wartick an impoverished view of business' role in and Cochran, 1985; Sethi. 1999; Baumol. society. They argue that placing all other organi- 1 991). We have chosen to synthesize many of zational intentions and effects secondary to the
  21. 21. 392 HANDBOOK OF STRATEGYAND MANAGEMENT wealth-creation i mperative of business and utility. Quinn and Jones' (1995) moral increases the risk that devotees of Friedman's rule book is less expansive: avoiding harm to philosophy will intentionally or unintention- others, respecting the autonomy of others, ally precipitate social calamities because of avoiding lying, and honoring agreements. In what they have been trained `not to see' in an ambitious statement of the `universal moral terms of their firm's web of embedded inter- minimum' that should regulate all business dependence.' activity in any national or cultural setting, To better inform discussions about this Donaldson (1989) proposes a list of 10 funda- broader set of issues, it is useful to note that mental international individual rights, includ- these two broad critiques of the economic ing such things as freedom of physical responsibility position have served as the movement, nondiscriminatory treatment, sub- defining issues for the moral responsibility sistence, and freedom of speech. and social responsibility positions, respec- An encyclical letter from Pope John Paul II, tively. In the next section we will summarize ' Centesimus Annus', represents one of the the efforts by the advocates of the moral most comprehensive and articulate efforts to responsibility position to remove the vague- establish a moral code for business activity. ness from Friedman's notion of the `rules of Following is an excerpt from this 114 page the game'. Then, in the following section on document, written by one of the foremost social responsibility, we will examine the posi- moral authorities of our time. tion that responsible businesses, like citizens, The Church acknowledges the legitimate role should do more than the bare minimum to of profit as an indication that a business is advance the goals of the larger society. functioning well. When a firm makes a profit, this means productive factors have been prop- Moral Responsibility: erly employed and corresponding human needs have been duly satisfied. But profitabil- Discharge Moral Duties i ty is not the only indicator of a firm's condi- tion. It is possible for the financial accounts to This position challenges the presumption of be in order, and yet for the people - who make privilege underlying the shareholder wealth up the firm's most valuable asset - to be position. Rather than granting economic activ- humiliated and their dignity offended. Besides ity an exemption from basic ethical obliga- being morally inadmissible, this will eventu- tions, this perspective characterizes business ally have negative repercussions on the firm's and markets (like all other forms of human economic efficiency. In fact, the purpose of a activity) as social artifacts, consisting of business firm is not simply to make a profit, socially constructed and sustained 'practices' but is to be found in its existence as a corrnmu- ( Wicks, 1996; Freeman and Gilbert, 1 988). By nit of persons who in various ways are stressing the commonality between business endeavouring to satisfy their basic needs, and activity and other forms of human endeavor, who form a particular group at the service of advocates bring economic activity under the the whole society. Profit is a regulator of the jurisdiction of fundamental moral principles life of a business, but it is not the only one: and responsibilities. Given that no social insti- other human and moral factors must also be tution can legitimately claim that their contri- considered which, in the long term, are at least bution to society is uniquely exempted from equally important for the life of a business. the moral codes required to sustain the corn- (1991: 68-9) (italics in the original text) mon good, then all institution-specific goals. rules, or requirements must be subordinated to The dilemmas associated with the moral common moral law. This is an essential responsibility position that we feel have the requirement for sustainable social action. greatest relevance for organizational scholars There have been several attempts to codify are rooted in the social nature of moral codes, the moral `rules of the road' that under-gird all i ncluding their creation, their enactment, and business activity. For example, DeGeorge their enforcement. Several organizational schol- (1990), following the lead of Velasquez et al_ ars have examined the social context conducive (1983), proposed a `normative code' that to on-the-job moral behavior, including the encompasses three principles - rights, justice, effects of ethics statements, ethics committees.

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