000 Hello, welcome to the Unit III discussion. And the d.docx

0:00
Hello, welcome to the Unit III discussion. And the discussion
will focus primarily
0:06
on corporate responsibility by picking a company and looking at
their website, or
0:11
you can even use books if you have any of those, or trade
magazines, the library
0:16
for example. The idea here is not to invest a lot of time in
researching, but the
0:21
idea is to get a nice company which can give you more feedback
and information on
0:28
how they implement the corporate responsibility. Some deal
with more services,
0:34
some deal with how to impact saving environment, or how to
reduce their footprint. Others
0:40
actually give specific funding to certain charities and causes.
The idea
0:46
here is to sit there and get a very good concept of what they do
and see if their
0:50
strategy is working, or not. Does it help with what they're
intended goals are; and
0:55

what are their goals? Are they there for a tax break? Are they
there for public
0:58
relations? Are they there truly to make a difference? And there
may be blends of
1:02
that, of those goals, there might be something to
1:06
explore. Then sit there and think about well, how does this
strategy work, and would it work with
1:11
other places, or does it not work?
1:13
It is specific to that company? So it's a just a good discussion
you may have run into
1:17
companies, as a consumer, or may have worked for companies.
For example I
1:21
worked for Amazon.com, and there's a lot of things that they
have done over the
1:26
years for incentive programs for charities, like the Smile
program. I also
1:32
started the global program of the Green Amazon.com, which
was later changed to
1:36
Amazon Green, which was a strictly business concept of how to
save the
1:42
environment, or to lessen the impact of the company on the
environment, based on
1:46
business principles of profit. So there's different types of ways
of doing that.

1:49
But if you were to read about the program they don't talk about
that. So,
1:53
that might be something to explore as well. So, the idea here is
when you're
1:57
doing the discussion, you do your own research, or bring your
own experiences into
2:03
It. But also look at other people's stories and some of their ideas
and then
2:07
maybe discuss how those things could work and
2:09
ebb and flow in different situations. Thank you, and if you need
any help please
2:13
reach out to your professor of the class.
Should Firms Go “Beyond
Profits”? Milton Friedman
versus Broad CSR1
MARK S. SCHWARTZ AND DAVID SAIIA
ABSTRACT
When attempting to articulate the nature and scope of

corporate social responsibility (CSR), a variety of opin-
ions emerge. The primary CSR issue appears to be:
Should firms go “beyond profits”? In order to address
this normative question, this article will explore the theo-
retical underpinnings of CSR and its practical applica-
tion. Part one of the paper begins by discussing common
CSR definitions. Part two outlines the CSR debate in
terms of the “narrow view” of CSR (as represented by
Milton Friedman) versus the “broad view” (i.e., beyond
profits). Part three applies both the narrow and broad
approaches to CSR in analyzing two classic business and
society cases: (1) the Ford Pinto; and (2) Merck’s river
blindness pill. The article concludes with a proposed
synthesis of the CSR approaches discussed.
Mark S. Schwartz is an Associate Professor, Law, Governance
& Ethics, School of Adminis-
trative Studies, Faculty of Liberal Arts and Professional
Studies, York University, Toronto,
Ontario, Canada. E-mail: [email protected] David Saiia is an
Associate Professor, Strategic
Management & Sustainability, Palumbo-Donahue School of
Business, Duquesne University,
Pittsburgh, PA. E-mail: [email protected]
Business and Society Review 117:1 1–31
© 2012 Center for Business Ethics at Bentley University.
Published by Blackwell Publishing,
350 Main Street, Malden, MA 02148, USA, and 9600
Garsington Road, Oxford OX4 2DQ, UK.
INTRODUCTION
M

ost people today, whether they are students, manag-
ers, or employees, have heard something about the
notion of corporate social responsibility (CSR), whether
in the business community, the media, or even within popular
culture. For example, the most popular movie of all time,
Avatar, focuses on the purpose of the corporation and its obli-
gations toward society with respect to the displacement of
indig-
enous people in order to extract valuable resources. A search in
2011 on Google revealed over 12 million hits for the term “cor-
porate social responsibility.” However, despite the ubiquity of
the
CSR term, what CSR means and whether it has relevance in the
business world elicits varied responses. There are a multitude of
different definitions for CSR and, not surprisingly, a
correspond-
ing range regarding the appropriate scope and nature of a firm’s
social responsibilities.2
The appropriate definition and scope of CSR becomes much
more problematic when real business case examples are consid-
ered. For example, when Google abided by Chinese law by
filtering
the content found through its google.cn search engine (e.g.,
“Tiananmen Square”), was Google acting in a socially
responsible
manner?3 When UBS Bank decided to spend shareholders’
money
to voluntarily cut its carbon emissions to address global
warming
when there is no legal obligation to do so, was this socially
respon-
sible, or socially irresponsible?4 Should a beer firm like
Heineken
provide expensive human immunodeficiency virus/acquired

immunodeficiency syndrome (HIV/AIDS) medication to its
African
employees and their dependents, when it is not expected to be
of
overall direct or even indirect financial benefit to the firm?5
Are
there some firms, such as tobacco giant Philip Morris, that
should
not even be selling a product that is regarded as both addictive
and
dangerous (i.e., when used as intended it can be deadly)?6 Is it
socially responsible for a publicly traded ice cream
manufacturer
such as Ben and Jerry’s (known for its explicit social mission)
to
refuse an offer by Unilever to buy its stock at a 25 percent
premium
by insisting that Unilever continue its practice of donating 7.5
percent of pretax profits to charity?7 Should a public company
be
commended or can it be criticized for donating funds to assist
victims following a natural disaster?8
2 BUSINESS AND SOCIETY REVIEW
To address such practical questions and to provide a theoreti-
cal framework for resolving them, this article will discuss prin-
ciples that offer guidance about the nature and scope of CSR.
To
do so, part one of this article will provide and discuss several
definitions of CSR. Part two will outline the CSR debate in
terms
of the “narrow—neoclassical economic view” (as represented by
Milton Friedman) versus a “broad view” (i.e., beyond profits) of

CSR. Part three will apply both the narrow and broad
approaches
in analyzing two classic business and society cases: (1) the Ford
Pinto; and (2) the Merck river blindness pill. Based on an
analysis
of the two cases, the article concludes with a proposed synthesis
of the narrow and broad views of CSR to help business and
society academics as well as managers better navigate through
the often incongruous landscape of CSR.
While much has already been written on the CSR debate, and
in particular with respect to Milton Friedman’s position, this
article attempts to address a glaring gap in the CSR literature:
the
lack of application of Friedman’s theoretical position as well as
the broad version of CSR to actual business cases.9 It is argued
that only by applying both positions to actual business cases
and
observing the practical outcome of such an application can one
best determine a personal position on the CSR theoretical
debate.
PART ONE: CSR DEFINITIONS
An appropriate place to start to work through the discussion and
debate over CSR is to arrive at an acceptable definition.
Unfortu-
nately, most agree that there is no single established definition
for
CSR. Moreover, it is also commonly accepted that CSR should
simply be viewed as a social construction, particularly when
one
looks at definitions from around the world.10 For example, the
International Standards Organization has indicated that: “What
constitutes ‘social responsibility’ . . . is difficult to define . . .
there

is no single authoritative definition of the term ‘corporate/
organizational social responsibility’ . . .”11 Others go further
by
suggesting that: “. . . ‘corporate social responsibility’ is
inherently
vague and ambiguous, both in theory and in practice.”12 What
then are some of the definitions of CSR that have been
proposed?
Here is a sampling of CSR definitions to consider:
3SCHWARTZ AND SAIIA
• The idea of social responsibilities supposes that the corpora-
tion has not only economic and legal obligations but also
certain responsibilities to society that extend beyond these
obligations;13
• Social responsibility is the obligation of decision makers to
take
actions that protect and improve the welfare of society as a
whole along with their own interests;14 and
• The social responsibility of business encompasses the eco-
nomic, legal, ethical, and discretionary [i.e., philanthropic]
expectations that society has of organizations at a given point
in time.15
Due to the wide range of CSR definitions in existence, a search
for commonality can be potentially instructive. After examining
various definitions, Buchholtz suggests that there are five key
elements found in most definitions of CSR16:
1. Corporations have responsibilities that go beyond the pro-
duction of goods and services at a profit.

2. These responsibilities involve helping to solve important
social problems, especially those they have helped create.
3. Corporations have a broader constituency than stockholders
alone.
4. Corporations have impacts that go beyond simple market-
place transactions.
5. Corporations serve a wider range of human values than can
be captured by a sole focus on economic values.
In other words, virtually all attempts to define the social
respon-
sibility of the corporation include the notion that corporations
have
obligations toward society beyond their economic or fiduciary
responsibilities to shareholders. Others, however, argue that this
position distorts the purpose of the corporation and free-market
capitalism. For example, consider the following CSR definitions
that have been proposed that suggest a more narrow
interpretation
of CSR:
• In the end, business has only two responsibilities—to obey the
elementary canons of every day face-to-face civility (honesty,
good faith, and so on) and to seek material gain.17
• The fiduciary duty to [the] firm’s owners is the bedrock of
capitalism, and capitalism will wither without it.18

The Economist magazine in a special report on CSR relies on
such definitions to argue that broader CSR takes organizations
outside their proper role and essentially represents a waste of
shareholders’ money. Consider the following statement from the
report: “If efforts to do good become a distraction from the core
business they may actually be downright irresponsible. After
all, a
socially conscious but bankrupt business is no good to
anyone.”19
While the Economist recognizes the growth of the broader CSR
movement, it also states its concern: “The followers in the CSR
industry are many . . . their real motive is public relations and
the
telltale sign is that the person responsible for CSR sits in the
corporate communications department.”20
Thus, the definitions of CSR appear to fall under two general
schools of thought, those who argue that business is only obli-
gated to make profits within the boundaries of minimal legal
and
ethical compliance and those who argue that there are broader
responsibilities.21
PART TWO: THE THEORETICAL DEBATE
A more complete understanding of the seemingly binary
positions
on the CSR debate over whether firms should go “beyond the
bottom line” must be achieved to advance our analysis. For
those
teaching and studying CSR, as well as for business leaders, the
question of whether business firms should “go beyond profits”
is
a significant one. For example, it has been suggested that the
CSR

position established by business students and future managers
early on may be a determining factor in their most important
business decisions made throughout their careers.22 While there
are many different ways for the debate over CSR to be set up,
the
following article will address the debate question as “Friedman”
versus “Broad CSR.” The reason for setting up the debate in
this
manner is that almost all academics agree that the narrow
version
of CSR is best represented by the Nobel Prize-winning
economist
Milton Friedman,23 in contrast to those academic theorists,
man-
agers, and their firms who take a broader approach to CSR.24
5SCHWARTZ AND SAIIA
Friedman’s Position
So what is the narrow or neo-classical economic view of CSR?
And
why does Milton Friedman best represent the narrow view?
Milton
Friedman’s position was outlined in his famous article entitled
“The Social Responsibility of Business Is to Increase Its
Profits,”
published in 1970 in the New York Times Magazine. This
article
summarizes his views set out earlier in his less often cited book
Capitalism and Freedom published in 1962. The first key state-
ment on CSR, which can be found in Friedman’s book, reads as
follows: “[In a free society] . . . there is one and only one social
responsibility of business—to use its resources and engage in

activities designed to increase its profits so long as it stays
within
the rules of the game, which is to say, engages in open and free
competition without deception or fraud.”25 The second well-
known
quote found in Friedman’s 1970 New York Times Magazine
article
reads as follows: “[The responsibility of a corporate execu-
tive] . . . is to conduct the business in accordance with [the
owners’] desires, which generally will be to make as much
money
as possible while conforming to the basic rules of the society,
both
those embodied in law and those embodied in ethical
custom.”26
Taken collectively, Friedman’s position might thus be summa-
rized as follows: A corporation’s only social responsibility is
“to
make as much money as possible” (i.e., maximize profits) while
conforming to the “rules of the game” or “basic rules of the
society”
in which the firm is operating which include: (1) obeying the
“law”;
(2) conforming to “ethical custom” (i.e., business norms where
you
do business); and (3) acting “without deception or fraud.”
Actions
that are considered anticompetitive in nature (i.e., firms must
engage in “open and free competition”) would also presumably
be
considered reprehensible by Friedman, even if legally
permissible
in a given jurisdiction.
Misunderstanding Friedman: Make a Profit or

Maximize Profit?
Before assessing Friedman’s interpretation of CSR, some
aspects
of Friedman’s position require additional clarification. First,
Fried-
man’s claim that firms should “make as much money as
possible”
clearly means maximize profits, rather than just make a profit.
For example, a firm would be obligated according to Friedman
to
legally pollute as much as possible, assuming that this was the
profit maximizing alternative.27 Second, it is not necessarily
the
case that managers must maximize profit. The obligation is con-
tingent on stockholders’ “desires,” which are according to
Fried-
man “. . . generally will be to make as much money as
possible”28
[emphasis added]. It could be, for example, that shareholders of
a
given company will explicitly (e.g., through the company’s
Charter,
mission, or shareholder resolutions) or implicitly (e.g., by pur-
chasing shares of a company in which they are aware has a
mission statement indicating that maximizing profit is not the
priority of the company) give their managers authority to act in
ways that would not necessarily maximize profit. It is also not
clear whether the obligation only applies in countries that
possess

legitimately elected representative governments with a
legitimate
and functioning legal system, as opposed to rogue governments
(e.g., dictatorships).
Friedman’s Limits to Maximizing Profits
Some opine that the obligation of firms according to Friedman
is
to maximize profit, giving profits priority above everything
else.29
In other words, this interpretation suggests that Friedman does
not place any additional constraints on the firm relative to profit
maximization. However, this is an incomplete and misleading
reading of Friedman.
For example, Friedman makes it clear that firms cannot break
the law in order to maximize profit, or even to avoid
bankruptcy.
Although not explicitly stated, it might also be the case that
abiding by the law according to Friedman includes acting in a
manner that avoids lawsuits. Deception and fraud (even if not
captured by the legal system) would also not be considered
acceptable to Friedman, suggesting that firms have an
obligation
to act in a trustworthy (i.e., honest) manner.30
Friedman also indicates that firms must abide by “ethical
custom,” but unfortunately he does not define the concept:
“[Friedman] does not entirely spell out what he believes the
scope
of ‘ethical custom’ to be.”31 Some such as Grant suggest a very
narrow interpretation of “ethical custom” as being equivalent to
the law.32 Silver views “ethical custom” as simply
encompassing

7SCHWARTZ AND SAIIA
each of Friedman’s constraints (i.e., law, deception, and open
competition).33 Shaw, however, suggests that ethical custom
was
intended by Friedman as a broader constraint to include
“. . . truth-telling and promise-keeping, fidelity, fairness, and
doing no harm.”34 Cosans goes even further and based on
Fried-
man’s notion of freedom would also include Kantian ethics and
utilitarianism as being part of “ethical custom.”35 Our
interpreta-
tion falls between these extremes, in that “ethical custom” was
intended by Friedman to merely refer to the industry norms in
the
locale where one is doing business and in this respect might go
beyond the law in some instances. Any other broader interpreta-
tion of ethical custom (or “rules of the game” or “rules of the
society”) would render Friedman’s prescription to maximize
profits
meaningless, in that almost any corporate action that did not
focus on profits could be justified on the basis of such
additional
ethical principles.
After taking into account all of Friedman’s constraints (i.e.,
follow the law, abide by ethical custom/industry norms, and
avoid deception/fraud), it could be argued that Friedman may
not
in fact represent the end of the spectrum for the “narrow”
version
of CSR. One could imagine the argument being raised that firms
should be entitled to break the law (e.g., minor laws such as

municipal bylaws) under certain circumstances (e.g., to avoid
bankruptcy or when the law is never or rarely enforced or has
little community support). Friedman also appears to assume that
the law always has an ethical justification (or is merely amoral
in
nature), while in some cases, legislation, or the results of com-
plying with such legislation, might be deemed unethical,
thereby
ethically justifying its violation (e.g., Apartheid laws in South
Africa). It might also be argued that firms should be permitted
to
engage in deception in order to succeed in business (i.e., when
deception is the norm in business such as during
negotiations36).
Nonetheless, overall, Friedman can still be understood as repre-
senting one end of the CSR continuum.
It is important to realize that at no point does Friedman indi-
cate that business has no social responsibilities. The title to his
1970 article (“The Social Responsibility of Business Is to
Increase
Its Profits”) makes this quite clear. Rather, business (or really
the
managers of a business according to Friedman) has only one
responsibility: to maximize profit while still following the rules
of
the game or of the society in which it does business. This is
why
Friedman should more properly be described as representing the
“narrow” version of CSR. Despite this fact, several scholars
have

referred to Friedman when they argue that firms have no social
responsibilities, or just economic ones.37 As demonstrated from
the discussion above, however, Friedman recognizes constrained
corporate social responsibilities that go beyond the bottom line.
Friedman’s Logic
While numerous arguments and theoretical constructs38 support
Milton Friedman’s position, the following are arguably the most
critical:
• managers are agents of shareholders and thus spending
shareholders’ money in a nonprofit maximizing manner
imposes taxes upon them without their consent;
• companies pursuing profits ultimately leads to social utility
maximization;
• policy decisions are better left to government;
• shareholders or managers can still personally give to charity;
and
• firms can engage in so-called broader “socially responsible”
activity but only if it maximizes shareholder wealth.
These arguments will now be discussed. First, Friedman’s
primary argument with respect to his version of appropriate
CSR
is that managers are hired (and paid) to act as the fiduciary
agents of their principals (i.e., stockholders/owners) for the
purpose of increasing their wealth. This should be considered an
ethical argument, given that shareholders also have moral
rights,
captured as the moral right to “property” acquired through their
investment in the firm. This moral right then creates an

obligation
on directors and managers of the firm not to infringe this right
by
misappropriating or “stealing” from the shareholders’ property
(e.g., by giving to charity). This might be considered the
strongest
or most potent of Friedman’s arguments and the most difficult
to
argue against. He states: “The executive is exercising a distinct
‘social responsibility,’ rather than serving as an agent of the
stockholders . . . only if he spends the money in a different way
than they would have spent it.”39 Friedman states that spending
9SCHWARTZ AND SAIIA
shareholders’ money without their consent is a form of unautho-
rized taxation on shareholders: “But if [the executive spends
money in a different way than the stockholders would have
spent
it] . . . he is in effect imposing taxes, on the one hand, and
decid-
ing how the tax proceeds shall be spent, on the other.”40
Friedman
even notes the potential consequences of executives not acting
as
the stockholders’ agent: “. . . whether he wants to or not, can
[the
executive] get away with spending his stockholders’ . . .
money?
Will not the stockholders fire him?”41
There are several other important arguments supporting Fried-
man’s position on CSR. Friedman is ultimately taking a
utilitarian

approach42 (i.e., “the greatest good for the greatest number”)
and
seems to take into account the best interests of society in
addition
to the best interests of the firm. Similar to eighteenth-century
moral philosopher Adam Smith, who many consider the father
of
modern capitalism, it is only when business firms focus on their
own best interests that ultimately the best interests of society
(including customers and employees) are served.43 Despite the
many deficiencies leveled against utilitarianism, such an
approach
clearly broadens the potential appeal of Friedman’s position
(although Friedman would not support an action based on
utilitar-
ian arguments if it was not in the firm’s best self-interest as
well).
Friedman’s view that government officials, rather than execu-
tives, are the only legitimate parties to make social decisions
(e.g.,
regarding “pollution” or “training the hard-core unemployed”)
is
also attractive, in that society’s best interests are still protected
by
those most qualified to do so. In any event, according to Fried-
man, executives are always entitled to spend from their own
pockets if they wish to give charity to various social causes. For
example, when individuals like Bill Gates or Warren Buffet
decide
to give away billions of dollars of their personal wealth to char-
ity,44 this would be considered completely acceptable by
Friedman
(as opposed to when the firms they own, such as Microsoft or
Berkshire Hathaway, give to charity).

There is one final important misconception regarding Fried-
man’s position. Can a firm give to social causes (e.g., engage in
charitable giving) under any circumstances? The answer is
clearly
yes, but going back to our starting point, this would only be the
case when the firm or its executives can argue that by doing so
the firm is maximizing profits (e.g., through customer goodwill,
employee morale, recruitment, and retention).45 When this is
the
case, Friedman would not only permit such activity but mandate
it, with the caveat that such activity should not take place under
the “cloak” of CSR. For example, if a firm engages in
philanthropy
(e.g., community assistance) based on self-interest while
pretend-
ing to be “socially responsible,” this may violate Friedman’s
pro-
hibition against deception or fraud.
Beyond Profits: The “Broad CSR” Position
Contrary to Friedman’s views, another position at or near the
other
end of the CSR continuum is referred to here as the “broad
CSR”
position. This position on the CSR continuum is an amalgam of
evolving principles that have been a work in progress for
several
decades.46 The principles underlying and justifying the broader
CSR approach have been developed by theorists in several busi-
ness and society fields including business ethics, stakeholder

man-
agement, sustainability (i.e., triple bottom line), and corporate
citizenship.47 While broad CSR was popularized by firms such
as
The Body Shop (which has been criticized over the years as a
firm
that in fact was not socially responsible or ethical48) as well as
Ben
and Jerry’s Ice Cream, it has recently been reflected in a more
robust form by companies such as Patagonia, Stonyfield Farms,
and Interface Carpets. The position in essence is the following:
Business should do more than make money—companies have
additional ethical obligations (i.e., beyond Friedman’s ethical
crite-
ria) and/or philanthropic obligations (e.g., helping to solve
social
problems).49
The first aspect of the position is that firms have ethical obli-
gations that go beyond those suggested by Milton Friedman. For
example, Friedman’s ethical obligations as discussed above are
quite limited. The broad CSR position, however, would go
further
and require firms to take into account additional ethical con-
straints. While there is sure to be debate as to what these ethical
obligations should consist of, based on a review of the business
ethics literature,50 the following moral standards (i.e., ethical
values or principles) should also be taken into account:
1) universal core ethical values: (1) trustworthiness (i.e., in
addition to honesty, also promise-keeping, integrity, and
11SCHWARTZ AND SAIIA

transparency); (2) responsibility (i.e., accountability, accept
fault, fix mistakes, and apologize); (3) caring (i.e., avoid
unnecessary harm and do good when of relatively little cost
to oneself); (4) citizenship (i.e., in addition to obeying the law,
also assist the community and protect the environment);
2) utilitarianism (i.e., act in ways that lead to greatest net good
for all those who are affected, even if not in the best interest
of the firm);
3) Kantianism (i.e., put yourself in the other person’s shoes,
respect/do not exploit others);
4) moral rights (i.e., in addition to protecting the property rights
of the shareholders, also respect the rights to life, health,
and safety of nonshareholder stakeholders); and
5) justice/fairness (i.e., procedural justice in terms of unbiased
decision making, compensatory justice when others are
harmed, distributive justice in terms of distributing benefits
and burdens based on relevant criteria, and societal justice
in terms of ensuring the greatest benefit to the least
advantaged).
Of course, many difficulties remain in attempting to apply these
additional ethical constraints. For example, many of the moral
standards will conflict with each other, and it has never been
established which standard or standards should take priority.51
To somewhat assuage this concern, the broader CSR position
simply suggests that firms have an obligation to attempt to
respect such ethical values or principles as they pursue mission-
driven objectives including an adequate profit margin. Another
important feature of the broad CSR position is that theoretical
room is given for firms to engage in a range of philanthropic
activities, in other words, helping to solve social problems.

Firms
can and possibly should undertake such activities, even when by
doing so their profit margins are sacrificed for other mission-
driven CSR objectives.
What is important with respect to understanding the broad
CSR position is that even if one rejects the philanthropic
obliga-
tion, one is still in the broad CSR camp if he or she holds that
firms merely have additional ethical obligations beyond Fried-
man’s. In other words, if one is not completely and consistently
in
line with all of Friedman’s views, he or she should be
considered
to fall closer along the continuum toward the broad CSR
position.
This assertion provides a useful guidepost for business decision
makers attempting to navigate the straits between the theory and
practice of CSR.
Arguments Supporting the Broad CSR Position
The following summarizes the key arguments supporting the
broad CSR position, along the CSR continuum, supported by
many different theorists52:
• the “rules of the society” or the “rules of the game” have
changed (i.e., societal expectations for firms have increased
since 1970 as the relationship and the position of business in
society has evolved);

• corporations have made claims to citizenship within society
and must therefore consider their impacts on nonowner
stakeholders;
• shareholders’ desires often go beyond the bottom line;
• shareholders have moral obligations toward society;
• managers are engaged to make all manner of policy decisions
under uncertainty;
• corporations have the power and ability to make important
contributions toward solving societal issues; and
• society cannot rely solely on government to enact legislation
to protect their own citizens from all possible actions or harm
caused by corporations.
These arguments can be explained as follows. The first argu-
ment is that even according to Friedman’s criterion that firms
must follow the “rules of the society” or the “rules of the
game,”
firms now have additional ethical and/or philanthropic obliga-
tions. For example, corporations in many societies have been
granted rights akin to its citizens and must therefore consider
the
impacts of their actions on affected stakeholders. Paying
corporate
taxes is not sufficient to pay for all the negative externalities
(e.g.,
pollution, outsourced labor, and catastrophic failure such as oil
spills) that firms cause and for which they may not be held fully
accountable. Second, shareholders’ desires often go beyond
mere
bottom line considerations. Evidence for this fact is the growing
ethical and socially responsible movement, which takes into

account corporate ethical and socially responsible (e.g., philan-
thropic or environmentally sustainable) activity.53 Third, share-
holders themselves have ethical obligations with respect to the
impacts caused by the firms they own through investment. Just
because the law may limit the legal liability of shareholders to
the
extent of their investment does not mean that shareholders bear
no moral responsibility for how the firm’s assets are used.54
Fourth, in terms of Friedman’s concern over the ability of man-
agers to make policy decisions, by the same logic one could
argue
that managers are required to make difficult decisions under
uncertainty, and therefore are qualified to make policy decisions
regarding the stakeholders their firms are affecting and, indeed,
often do.55 Fifth, because corporations have the power and
ability to make a difference within the society that supports the
firm’s prosperity, they have a responsibility to do so.56 Finally,
what if the government of the country a firm is operating within
is not able, willing, or knowledgeable enough to protect its own
citizens? In such cases, the particular firm arguably inherits
additional ethical obligations with respect to protecting its
stakeholders.
PART THREE: APPLICATION OF CSR TO CASE STUDIES
While there are many other classic critiques of Friedman (e.g.,
Davis,57 Stone,58 and Mulligan59), at this point, one might
attempt
to answer the following question: “Of the two positions,
Friedman
versus ‘broad CSR,’ which is more persuasive?” To further

parse
this question, it is instructive to analyze actual business cases to
see how each of the two positions translate into action. One
could
ask two questions: (1) How would Milton Friedman versus an
executive operating according to broad CSR resolve the
dilemma?;
and (2) Do I agree with the outcome based on my theoretical
position (Friedman or broad CSR)? While individuals may
initially
feel comfortable with their theoretical CSR position, once con-
fronted with the application of their position to actual case
studies and obliged to defend their position, individuals may
feel
morally compelled to shift their initial positions. The following
two
classic cases will be used in this manner to further explore the
CSR debate: (1) the Ford Pinto; and (2) Merck and river
blindness.
The Ford Pinto60
In the early 1970s, the Ford Motor Company faced intense com-
petition from German and Japanese small compact car imports.
In an effort to quickly develop a competing model, Ford
condensed
the typical period of time to develop its new car, the Ford Pinto,
from 3 1/2 years down to 2 years. As a result, a design flaw
occurred that was not recognized prior to the tooling and the
manufacturing plant set-up process. It was only during subse-
quent crash testing that Ford discovered that the Pinto’s fuel
tank

could rupture during a rear-end impact even at speeds under 25
miles an hour; leaking fuel could then possibly ignite, causing
an
explosion. To make changes to the design at that point in time
would cost Ford $11 per vehicle, with 12.5 million vehicles
needing to be recalled. Thus, the total cost to Ford would have
been $137.5 million to fix the Pinto. Changing the design would
also have resulted in less trunk space, which would have had a
negative effect on Pinto sales. Ford predicted that as a result of
the defect, 180 people could die, 180 people could suffer
serious
burns, and 2,100 vehicles could be destroyed by fire. Using
1971
figures from the US National Highway Traffic Safety
Administra-
tion, the cost of a life to society (i.e., someone killed in a car
accident) was estimated to be $200,000 (about $2 million per
life
today61), and for a serious burn, the cost estimate was $67,000.
These figures included elements such as future productivity
losses, medical costs, victim’s pain and suffering, and legal
costs.
Thus, the total cost to society of not recalling the Pinto was
$49.5
million (180 deaths ¥ $200,000 + 180 serious burns ¥ $67,000 +
2,100 vehicles ¥ $700). There was no legal requirement to recall
the Pinto, since despite the defect Ford was still in compliance
with all legal safety requirements, and the Pinto was
comparable
in safety to competitors’ vehicles. Should Ford recall and fix
the
Pinto? What would Milton Friedman say?
Friedman would argue that it would be socially irresponsible for
Ford to recall the vehicle. This would be based on the
assumption

that recalling the Pinto would cost Ford more than all of the
long-term direct and indirect impacts on the firm by continuing
to
sell its potentially dangerous defective vehicle. Friedman would
most likely not even apply the entire $200,000 figure, as this
includes additional costs to society. He would only include
those
costs that directly or indirectly negatively affected the interests
of
Ford (e.g., lawsuits, diminished reputation, lost sales, and lower
employee morale). In terms of Friedman’s additional
constraints,
Ford was acting within the law and within ethical custom (i.e.,
within acceptable US automobile industry norms at that time).
The only issue would be acting without deception, which would
require Ford at a minimum to disclose the defect to the US
government if not to the consumers directly (although the con-
sumers would still be required to pay for fixing the vehicle).
One
might try to argue that according to Friedman, Ford might even
be required to spend its own money ensuring that its customers
were aware of the defect.
The broad CSR approach, on the other hand, would go beyond
mere disclosure and require a recall to be paid for by Ford.
Because Ford was responsible for the design flaw, it cannot sell
a
car knowing that there is an avoidable risk, especially one
includ-
ing the possibility of death, beyond what one would normally
assume at that time when purchasing a car. Ford must act in a

trustworthy manner and treat the customer with respect. In addi-
tion, by not recalling the car, Ford would clearly be violating
the
moral rights to health and safety of its customers.
What Happened?
Ford did nothing for 7 years until 1978 when under pressure
from
the media, government, and legal cases, the firm recalled 1.5
million Pintos built between 1970 and 1976. In total, 27 people
died from accidents involving the Ford Pinto. One commentator
suggests that when taking into account the millions of vehicles
that were produced, the Pinto was still just as safe a vehicle as
any other.62 Despite the legal costs and damage to its
reputation,
the decision not to recall and fix the Pinto, even in hindsight,
appears to have been the long-term profit maximizing decision
for
Ford and thus consistent with Friedman’s CSR position.
Merck and River Blindness63
In 1978, Dr. Roy Vagelos, head of research for the
pharmaceutical
firm Merck & Co., faced a difficult dilemma. One of his
research-
ers informed him that he believed he had found a cure to a
worldwide disease called river blindness. The disease was
caused
by a parasitic worm carried by tiny black flies that bite people.

Once a person was infected, the worm would reproduce,
releasing
millions of microscopic offspring that eventually travel
throughout
the body invading the eyes of its host, leading to blindness. It
was
estimated that the problem affected over 35 developing
countries
around the world, threatening blindness to about 85 million
people living mainly in Africa, the Middle East, and Latin
America.
In 1978, the World Health Organization estimated that about 18
million were infected by the parasite, with approximately
340,000
people already blind due to the disease. At that point in time,
Merck, a public company, was one of the largest drug
companies
in the world, with approximately $2 billion in sales and a net
income of over $300 million annually. Most of the firm’s
current
revenues came from two drugs whose patents were about to
expire, meaning that discovering new drugs through research
was
a priority for the firm. The expected cost to develop the river
blindness drug was in the tens of millions of dollars. The
problem,
however, was that few people who would use the drug could
afford
to pay for it. In addition, there was a risk that in developing the
drug, if any new side effects were discovered, the reputation
and
sales of Merck’s similar and profitable veterinary drug could be
negatively affected. Furthermore, if a human version of the drug
were developed and distributed as a philanthropic act, it could
easily end up on the black market and negatively affect the sales
of the veterinary drug. Merck could more effectively spend its

financial resources on other potential drugs that would actually
have a chance of making a profit (e.g., cancer drugs). Clearly,
developing a drug for river blindness, while potentially
benefiting
the company indirectly through the effect of the decision on its
employees (e.g., morale, recruitment, and retention), would not
be
a profit maximizing action for the firm. How would Milton
Fried-
man handle this dilemma? What about the broad CSR approach?
Because making the drug was not a long-term profit maximizing
decision, Friedman would obviously not condone making the
drug.64 Friedman might still allow for Merck to give away its
propri-
etary information on the drug to another company, nonprofit
orga-
nization, or government, which might then further develop the
drug, unless doing so would negatively affect the financial
interests
of Merck. However, clearly making the drug with all of the
financial
risks, versus spending the money on more financially promising
drugs, would not be the socially responsible decision as defined
by
Friedman. In fact, as a corporate philanthropic act, it might be
considered to be “stealing” from the shareholders. There is no
legal
obligation to make the drug, no deception or fraud is involved,
and
the ethical norm at the time was clearly not to develop drugs for

free. According to Friedman, should people therefore have to go
blind? No, but this has to be the responsibility of governments
or
nonprofit organizations, not that of a public company. If all
phar-
maceutical firms were obligated to develop promising drugs that
cannot be sold, very soon there would be no more
pharmaceutical
firms left to develop drugs for anyone. The only way Friedman
might justify making the drug is based on the firm’s unofficial
philosophy or motto, which apparently was stated by former
chair-
man George Merck, the son of the founder, in 1950 as follows:
“We
try never to forget that medicine is for people. It is not for the
profits. The profits follow, and if we have remembered that,
they
have never failed to appear. The better we have remembered it,
the
larger they have been.”65 According to this line of argument, if
Merck did not make the drug (especially when no one else was
willing or able to make it), the firm would be acting contrary to
its
motto, and thereby potentially in a deceptive manner to its
inves-
tors and employees. While Merck’s motto may cast some doubt,
Friedman’s position on this matter seems clear in that Merck
cannot produce and distribute this drug as an act of charity.
So what about the broad CSR approach? How would this
approach be different? From an ethical perspective beyond
Fried-
man’s ethical criteria, in terms of caring (e.g., doing good when
of
relatively little cost to oneself), the drug should be made. The
financial circumstances still need to be taken into account, but

Merck could afford to make the drug at this time. In terms of
utilitarianism, or the greatest good for the greatest number, the
saving millions of people from blindness substantially
outweighed
any cost to the shareholders. Indeed, the drug would save
numer-
ous communities from the huge cost of lost labor and the cost of
care for the blind. In terms of philanthropy, it might be argued
that as a pharmaceutical firm, there is an expectation that drugs
should sometimes be developed despite the lack of a financial
return. This expectation appears to exist, for example, in terms
of
HIV/AIDS drugs in Africa and other developing countries.66
This case can be problematic for followers of Milton Friedman.
Individuals faced with this situation may try to justify the
decision
to make the drug based on the presumed long-term indirect
financial benefits to Merck. While the argument for indirect
finan-
cial benefit can be made based on the facts of the case, the lack
of any direct financial return, in addition to the business risks,
makes it very difficult to support from a Friedman perspective.
For those who indicate that they are Friedmanites but would
nevertheless make the drug, they must struggle to defend their
position and may realize that they are not as committed to
Fried-
man as they previously thought.
What Happened?
Merck decided to make the drug. The firm believed other

organiza-
tions or governments would fund the distribution of the drug.
However, no one stepped forward, so Merck decided to also
fund
the distribution of the drug into the future, forever. Eventually,
millions of people were prevented from contracting river
blindness,
and it is no longer considered to be a worldwide disease.67 In
terms
of the financial return to Merck, the main benefit appears to be
the
recruitment of top research scientists over the years due to the
river blindness story, yet it is not clear that one could use this
indirect financial benefit to justify making the drug as a profit
maximizing decision.68
Table 1 summarizes the two cases regarding how Friedman
versus the broad CSR approach would apply based on the
criteria
articulated above.
An application of Friedman to the Ford and Merck cases may
demonstrate to some that his criteria are not completely accept-
able. Of course, the same could possibly be said regarding an
initial
preference for the broad CSR position.69 The point, however, is
that
it is indeed incumbent on business professionals and business
students to not only develop a personal position on CSR, but
also to
be able to defend it upon application to real business cases.
DISCUSSION AND CONCLUSION
It is a matter of choice whether instructors of business and
society,

business ethics, or CSR express their own personal views on the
CSR debate, or even require their students to take and defend a
position. For example, Harvard Business School during its
manda-
tory MBA “Leadership and Corporate Accountability” course
holds
a debate over the narrow CSR approach (i.e., “the shareholder
maximization perspective”) versus the broad CSR approach
(i.e.,
“multiple stakeholder perspective”). Rather than require
students
to take a position: “The goal of the session is not to pigeon-hole
students, but rather to help them understand the strengths and
weaknesses, as well as the assumptions and limitations, of each
perspective.”70 There may be good reasons to hold back
expressing
an opinion, given that the instructor’s own personal views could
skew the debate in the classroom. Nevertheless, our own view is
that in addition to discussing the merits and concerns of both
sides
to the debate, students should ultimately be required to take a
CSR
position and defend it, particularly with respect to its
application to
real business cases. In addition, the instructor’s own personal
position should also be expressed, once students have been
given
an opportunity to debate the issue themselves. In this way,
people
have to confront the totality and, in some cases, the finality of
real

consequences that flow from their CSR position.
So where do we stand between Friedman and the broad CSR
approach? In many respects, there is much to be said in support
TABLE 1 Summary of Friedman versus the Broad Corporate
Social Responsibility (CSR) Approach
Criteria
Ford—No
Recall
Merck—Make
Drug
Friedman Maximize profit Yes No
Legal Yes Yes
Ethical custom Yes Yes
No deception Yes Yes
OVERALL Yes No
Broad CSR Core values No Yes
Utilitarianism Yes Yes
Kantianism No Yes
Rights No Yes
Justice No Yes
Philanthropy N/A Yes
OVERALL No Yes
of Milton Friedman. His argument that managers are fiduciary
agents of their principals, the shareholders, is his most compel-

ling argument about the proper interpretation of CSR. It is con-
sistent and fair that philanthropy is not an “obligation” for
public
corporations. Instead, philanthropy can only be considered an
obligation when it is based on economic (e.g., strategic philan-
thropy71) and/or ethically consistent reasons.72
Where Friedman can be questioned (and the source of our most
serious concerns) is regarding the extent of the ethical
obligations
he ascribes to the firm. Requiring firms to avoid deception and
fraud is certainly necessary but insufficient to match their
pivotal
role within society. A review of the Ford Pinto case above
demon-
strates the risks involved with such a position and the harm that
can result from such a narrow view. If certain actions would be
considered unethical for an individual citizen, they should also
be
considered unethical when enacted on behalf of a firm,
especially
because corporations have been granted the equivalent rights of
an
individual citizen by the US Supreme Court. Just as in law,
where
there are situations (e.g., fraud) whereby one can pierce the
“corpo-
rate veil” that typically grants protection for shareholders from
unlimited financial liability, one should be able to pierce what
might be called the “morality veil” (which typically protects
share-
holders, executives, and managers from moral responsibility) in
situations involving unethical activity by the firm. In other
words, if
a shareholder personally instructs their agent to only act in
ways

that will benefit themselves, but by doing so others are
intention-
ally harmed, the shareholder is morally accountable for the
actions
of the agent. The agent should have a professional moral
obligation
not to act unethically and should not be able to justify such
actions
on the basis of: “I did what was necessary to maximize the
interests
of my principal.” Following this line of reasoning, shareholders
should not expect managers of their companies to act in ways
that
they themselves would find unethical, and managers should not
justify unethical behavior based on some misguided notion that
the
business environment is a place where societal ethical standards
must be abrogated to serve the financial objectives of their
princi-
pals (or their own personal self-interest).
The more difficult issue to resolve then becomes: “What addi-
tional ethical obligations do firms possess?” As discussed
above,
and despite the potential difficulties and conflicts that may arise
in their application, there are five primary moral standards as
identified in business ethics literature by which all business
firms
should attempt to abide (or at least not clearly violate): (1) core
values (i.e., trustworthiness, responsibility, caring, and citizen-
ship); (2) utilitarianism; (3) Kantianism; (4) moral rights; and

(5)
justice/fairness.
Friedman’s ethical criteria are consistent to an extent with
relativism (i.e., if based on the ethical norms of the industry)
and
ethical egoism (i.e., maximize the firm’s profit). In addition,
Fried-
man’s ethical criteria also conform to the honesty component of
trustworthiness (in terms of avoiding deception), utilitarianism
(although only when the overall greatest net benefit to society is
the result of focusing on the firm’s interests—which
theoretically
only works under conditions of perfect competition and
transpar-
ency), and the moral property rights of the shareholders. The
remaining moral standards, however, are not considered and
therefore would never be applied by Friedman, unless they
somehow ultimately contribute to the best interests of the firm
(i.e., egoism) or are specifically stated by the corporate charter
or
a shareholder declaration.
At a minimum, Friedman’s position certainly runs into difficul-
ties when one attempts to apply it to firms that are doing busi-
ness in countries with corrupt regimes, dictatorships, and/or
impaired abilities to enforce legal standards. In such countries,
one cannot rely on governments to protect their own citizens, as
these governments are typically focused only on the immediate
challenge of maintaining order and control. In such cases, com-
panies may have an ethical obligation not to enter or to refuse
to
do business in such countries, or to do so only when through
constructive engagement73 the firm can ensure that a mini-
mum ethical threshold of societal and human rights is being
maintained.74

Furthermore, in terms of the cases analyzed, Ford was morally
responsible for recalling its Pinto from the moment it
discovered
the fatal design flaw. As seen in the Merck case, however, it
could
be argued on the basis of the moral standards of utilitarianism
and/or caring, that Merck, especially as a pharmaceutical firm,
was morally obligated under such circumstances to develop the
river blindness drug, when it could afford to do so and no one
else
was prepared to develop and distribute the drug it had invented.
In the case of Ford, no consent was required from shareholders
to engage in our recommended actions. However, in the case of
Merck, there would need to be at least implicit authorization
from
shareholders to engage in such actions. The implicit consent can
be obtained in several ways, such as through a formal mission
statement (e.g., Ben & Jerry’s) that is publicized and easily
acces-
sible using current technology (e.g., via the firm’s web site). It
was
not clear, however, whether Merck’s motto (“Medicine is for
people, not for profits . . .”) was widely known by its
shareholders
at the time of the case.
Eventually, mechanisms may be established, whereby share-
holders can more directly be involved in decisions by their
firms
that would not necessarily maximize share value. In a sense,

this
process has already started via the increasing number of share-
holder resolutions that are now taking place.75 Another US
legisla-
tive development in several states (e.g., Maryland) has led to
the
possibility of “benefit corporations” being established, whereby
company directors who make reasonable business judgments
that
include social and environmental values (which can be an
explicit
part of the firm’s charter) are protected against legal action.76
While
not completely addressing Friedman’s concerns, by obtaining
shareholder approval, Friedman’s primary concern regarding
man-
agers acting as agents in the best interests of their principals
(i.e.,
the shareholders) is mitigated. At a minimum, even Friedman
would arguably support the use of nonfinancial reporting (e.g.,
social, environmental, and sustainability reports), despite their
expense, if such reporting is deemed to be necessary by market
and
nonmarket stakeholders to know what practices the firm is
engag-
ing in (i.e., for the firm to be acting in a nondeceptive manner)
and
to then be able to judge the firm accordingly.
In conclusion, while Friedman’s views on corporate philan-
thropy (especially when conducted without the explicit or
implicit
consent of the shareholders) have validity, his ethical
constraints,
while necessary, are insufficient for business to properly fulfill
its

responsibilities toward society. In other words, it is only when
firms are fulfilling their economic, legal, and ethical obligations
(i.e., beyond Friedman’s ethical constraints) that they can be
said to be “socially responsible.” As such, we would suggest
that
our theoretical approach is a reasonable synthesis between
Friedman’s narrow CSR approach and a broader CSR position.
One might therefore call our position “FPME,” or “Friedman
Plus
More Ethics.”
Applying FPME (in an albeit cursory manner) to the cases ini-
tially presented above, Google should be prepared to remain
outside of China (e.g., based on moral rights). UBS Bank should
cut its carbon emissions (e.g., based on utilitarianism),
Heineken
should provide HIV/AIDS medication to its African employees
and
their dependents (e.g., based on caring), and Philip Morris
should
cease selling cigarettes (e.g., based on moral rights and
Kantian-
ism). Ben & Jerry’s or other public firms, however, would
require
shareholder consent (explicit or implicit) before engaging in
non-
strategic (e.g., noneconomic) philanthropy, including donations
fol-
lowing a natural disaster.
The “Friedman versus broad CSR debate” is an important one,

and one’s position on CSR, in particular for business
professionals,
can have significant consequences in terms of the positive or
negative impact of one’s business decisions on society. Boards
of
directors, chief executive officers, executives, and managers all
need to be cognizant of their own personal theoretical CSR
position
and how this may be affecting their business decisions on behalf
of
the firm or its shareholders. The debate over CSR will of course
not
disappear in the near future, and one should expect that the
notion
of CSR will certainly provoke further reflection and discussion
for
those most involved in shaping and making business decisions
in a
dynamic and increasingly global society.
NOTES
1. This article is revised from “Should firms go ‘beyond
profits’?”
(ch. 3) in M. S. Schwartz, Corporate Social Responsibility: An
Ethical
Approach (Peterborough, ON: Broadview Press, 2011): 51–86.
2. See, for example: A. Dahlsrud, “How corporate social
responsibility
is defined: An analysis of 37 definitions,” Corporate Social
Responsibility
and Environmental Management 15 (2008): 1–13; and M. V.
Marrewijk,
“Concepts and definitions of CSR and corporate sustainability,”
Journal

of Business Ethics 44, 2/3 (2003): 95–105.
3. See “Google to end censorship in China over cyber attacks,”
The
Guardian, January 13, 2010,
http://www.guardian.co.uk/technology/
2010/jan/12/google-china-ends-censorship, accessed February 2,
2011.
4. See F. Oberholzer-Gee, “UBS and climate change: Warming
up to
global action?” 2007, Harvard Business School Case (9-707-
511).
5. See D. Barrett and D. Ballou, “Heineken NV: Workplace
HIV/AIDS
programs in Africa (A)” (2003), Harvard Business School Case
(9-303-063).
6. See M. S. Schwartz, “The ‘ethics’ of ethical investing,”
Journal of
Business Ethics 43, 3(2003): 195–214.
7. See M. J. Schill, “Ben & Jerry’s homemade,” June 27, 2000,
Darden Case no. 1364, http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=234691, accessed February 2, 2011.
8. See N. Hsieh, “Voluntary codes of conduct for multinational
corporations: Coordinating duties of rescue and justice,”
Business Ethics
Quarterly 16, 2(2006): 119–135. For an example, see P. Delean,
“Credit

card companies waive fees on donations to Haiti,” Canwest
News
Service (January 15, 2010),
http://www.canada.com/news/Credit+card+
companies+waive+fees+donations+Haiti/2447354/story.html,
accessed
February 2, 2011.
9. One of the few attempts was made by Cosans when he
applied
Friedman’s approach to Enron, Wal-Mart, and SUVs. See C.
Cosans,
“Does Milton Friedman support a vigorous business ethics?”
Journal of
Business Ethics 87 (2009): 391–399.
10. See A. Dahlsrud, “How corporate social responsibility is
defined:
An analysis of 37 definitions”; G. Thomas and M. Nowak,
“Corporate
social responsibility: A definition,” GBS Working Paper no. 62,
Perth,
Australia: Curtin University of Technology (2006).
11. See “Perceptions and definitions of social responsibility,”
Interna-
tional Institute for Sustainable Development (2004),
http://www.iisd.org/
pdf/2004/standards_definitions.pdf, at p. 1, accessed February
2, 2011.
12. P. R. P. Coelho, J. E. McClure, and J. A. Spry, “The social
responsibility of corporate management: A classical critique,”
American
Journal of Business 18, 1(2003): 15–24 at p.15.

13. J. W. McGuire, Business and Society (New York: McGraw-
Hill,
1963): 144.
14. K. Davis and R. L. Blomstrom, Business and Society (3rd
ed.)
(New York: McGraw-Hill, 1975).
15. A. B. Carroll, “A three dimensional conceptual model of
corporate
social performance.” Academy of Management Review 4
(1979): 497–505
at p. 500.
16. R. A. Buchholz, “Corporate responsibility and the good
society:
From economics to ecology,” Business Horizons (1991,
July/August):
19–31 at p. 19.
17. T. Levitt, “The dangers of social responsibility,” Harvard
Business
Review 36, 5(1958): 41–50 at p. 48.
18. P. R. P. Coelho, J. E. McClure, and J. A. Spry, “The social
responsibility of corporate management: A classical critique” at
p. 15.
19. The Economist, “The Next Question,” (January 19, 2008): 8.
20. The Economist, “Do It Right,” (January 19, 2008): 19.
21. For those who take a broader approach to CSR, see K. R.

Andrews, “Can the best corporations be made moral?” Harvard
Business
Review (May–June, 1973): 57–64; A. B. Carroll, Business and
Society:
Managing Corporate Social Performance (Boston: Little, Brown
and
Company, 1981); K. Davis and R. L. Blomstrom, Business and
Society.
(3rd ed.) (New York: McGraw-Hill, 1975); E. M. Epstein, “The
corporate
social policy process: Beyond business ethics, corporate social
responsi-
bility, and corporate social responsiveness,” California
Management
Review 29, 3(1987): 99–114; and J. W. McGuire, Business and
Society
(New York: McGraw-Hill, 1963).
22. For example, one might consider the case of Jeffrey
Skilling,
former CEO of Enron. See J. LeBoutillier, “From Harvard to
Enron”
(January 10, 2002),
http://archive.newsmax.com/archives/articles/
2002/1/10/162639.shtml, accessed February 2, 2011; and R. R.
Sims
and J. Brinkmann, “Enron ethics (or: Culture matters more than
codes),”
Journal of Business Ethics 45, 3(2003): 243–256.
23. See M. V. Marrewijk, “Concepts and definitions of CSR and
cor-
porate sustainability” at p. 96.
24. The best known firm (although also one of most
controversial)

that initially represented the broader CSR approach is The Body
Shop. See The Body Shop, “Values & Campaigns,” http://www.
thebodyshop.co.uk/_en/_gb/values-campaigns/index.aspx,
accessed
February 2, 2011. The Body Shop position was the result of the
views of
founder Anita Roddick. See
http://www.anitaroddick.com/books.php,
accessed February 2, 2011. Ms. Roddick passed away at age 64
in 2007,
while Milton Friedman passed away at age 94 in 2006, only
several
months before Ms. Roddick.
25. See M. Friedman, Capitalism and Freedom (Chicago:
University of
Chicago Press, 1962): at p. 133. This quote is referred to again
by
Friedman at the very end of his 1970 article “The social
responsibility
of business is to increase its profits,” New York Times
Magazine at
p. 126.
26. M. Friedman, “The social responsibility of business is to
increase
its profits,” New York Times Magazine, 1970 in T. L.
Beauchamp and
N. E. Bowie, Ethical Theory and Business (7th ed) (Upper
Saddle River,
NJ: Pearson/Prentice Hall, 2004) at p. 52.

27. Although based on the notions of “freedom of the
individual” and
“voluntary exchanges” Friedman in addition to disclosure of the
act
would also require the offering of compensation for such
pollution to
those negatively affected. See M. Friedman, Capitalism and
Freedom at
p. 30 and J. S. James and F. Rassekh, “Smith, Friedman, and
self-
interest in ethical society,” Business Ethics Quarterly 10
(2000): 659–674
at p. 668.
increase
its profits,” at p. 52. See also C. Cosans, “Does Milton
Friedman support
a vigorous business ethics?” at p. 392.
29. For example, see C. Grant, “Friedman fallacies,” Journal of
Busi-
ness Ethics 10, 12(1991): 907–914 at p. 907; and S. McAleer,
“Friedman’s
stockholder theory of corporate moral responsibility,” Teaching
Business
Ethics 7 (2003): 437–451 at p. 437.
30. See P. Fleming and S. C. Zyglidopoulos, “The escalation of
decep-
tion in organizations,” Journal of Business Ethics 81 (2008):
837–850.
31. See C. Cosans, “Does Milton Friedman support a vigorous
busi-

ness ethics?” at p. 395.
32. See C. Grant, “Friedman fallacies,” Journal of Business
Ethics 10,
12(1991): 907–914 at p. 909.
33. D. Silver, “Corporate codes of conduct and the value of
autonomy,” Journal of Business Ethics 59 (2005): 3–8 at p. 4.
34. See W. H. Shaw, “Business ethics today: A survey,” Journal
of
Business Ethics 15, 5(1996): 489–500 at p. 542.
35. See C. Cosans, “Does Milton Friedman support a vigorous
busi-
ness ethics?” at p. 395. He also states that according to his
interpretation
of Friedman: “Any practice, which has a negative externality
that requires
another party to take a significant loss without consent or
compensation,
can be seen as unethical” (p. 395).
36. See A. Carr, “Is business bluffing ethical?” Harvard
Business
Review (January–February, 1968): 143–153 at p. 46.
37. See S. McAleer, “Friedman’s stockholder theory of
corporate moral
responsibility,” who states that according to Friedman “a
business’s only
responsibility is to maximize wealth for its stockholders” (p.
437).
38. In terms of theoretical support, both laissez-faire capitalism
and agency theory support Friedman’s position. See: M. C.

Jensen, and
W. Meckling, “Theory of the firm: Managerial behavior, agency
cost, and
capital structure,” Journal of Financial Economics 3 (1976):
305–360;
S. Ross, “The economy theory of the agency: The principal’s
problem,”
American Economic Review 63 (1973): 134–139.
increase
its profits” at p. 52.
40. Ibid., p. 52.
41. Ibid., p. 53.
42. See J. R. Danley, “Polestar refined: Business ethics and
political
economy,” Journal of Business Ethics 10, 12(1991): 915–933.
Danley
states: “. . . I will argue that Friedman’s argument is utilitarian”
(p. 916).
43. For example, consider the famous quote from Adam Smith’s
Wealth of Nations: “It is not from the benevolence of the
butcher, the
brewer, or the baker that we expect our dinner, but from their
regard to
their own interest.” A. Smith, An Inquiry Into the Nature and
Causes of the
Wealth of Nations (London: J.M Dent & Sons, 1975 [1776]).

See also J. S.
James and F. Rassekh, “Smith, Friedman, and self-interest in
ethical
society.”
44. As of 2007, Warren Buffet had given away $40 billion of his
personal wealth to charity, and Bill Gates $28 billion. See C. J.
Loomis,
“Warren Buffet gives away his fortune,” Fortune (June 25,
2006), http://
money.cnn.com/2006/06/25/magazines/fortune/charity1.fortune/
,
accessed February 2, 2011.
45. See M. Orlitzky, F. L. Schmidt, and S. L. Rynes, “Corporate
social
and financial performance: A meta-analysis,” Organization
Studies 24
(2003): 403–441; as well as J. D. Margolis and J. P. Walsh,
People and
Profits: The Search for a Link Between a Company’s Social and
Financial
Performance (Mahwah, NJ: Erlbaum, 2001); B. W. Husted and
J. D. J.
Salazar, “Taking Friedman seriously: Maximizing profits and
social per-
formance,” Journal of Management Studies 43, 1(2006): 75–91.
46. See A. B. Carroll, “Corporate social responsibility:
Evolution of a
definitional construct,” Business & Society 38, 3(1999): 268–
295.
47. See M. S. Schwartz and A. B. Carroll, “Integrating and
unifying

competing and complementary frameworks: The search for a
common
core in the business and society field,” Business & Society 47,
2(2008):
148–186 for an overview of the major theoretical contributions
of each
dominant business and society field.
48. See articles by J. Entine that have been very critical of The
Body
Shop, http://www.jonentine.com/the-body-shop.html, accessed
Febru-
ary 2, 2011.
49. See The Body Shop web site, http://www.thebodyshop-
usa.com,
accessed February 2, 2011 as well as founder Anita Roddick’s
book
Business As Unusual: My Entrepreneurial Journey (2005),
http://
www.anitaroddick.com/books.php, accessed February 2, 2011.
50. For a complete review, see M. S. Schwartz, “Universal
moral
values for corporate codes of ethics,” Journal of Business Ethics
59,
1(2005): 27–44. See also F. N. Brady, “A Janus-headed model
of ethical
theory: Looking two ways at business/society issues,” Academy
of Man-
agement Review 10, 3(1985): 568–576; S. Klein, “Two views of

business
ethics: A popular philosophical approach and a value based
interdisci-
plinary one,” Journal of Business Ethics 4 (1985): 71–79; P. V.
Lewis
and H. E. Speck, “Ethical orientations for understanding
business
ethics,” The Journal of Business Communication 27, 3(1990):
213–232;
and J. Cohen, “Appreciating, understanding and applying
universal
moral principles,” The Journal of Consumer Marketing 18,
7(2001): 578–
594.
51. For example consider Shaw’s view that: “. . . among moral
phi-
losophers there is no consensus about which moral theory is
best.” W. H.
Shaw, “Business ethics today: A survey,” Journal of Business
Ethics 15,
5(1996): 489–500 at p. 495.
52. See M. S. Schwartz and A. B. Carroll, “Integrating and
unifying
competing and complementary frameworks: The search for a
common
core in the business and society field,” who summarize at p. 156
the
different theoretical justifications for broader CSR which
include: moral
personhood or moral agency theory; social contract theory;
social power
theory; interpenetration theory; stakeholder theory; property
based
theory; utilitarian theory; and religious theory.

53. See M. S. Schwartz, M. Tamari, and D. Schwab, “Ethical
investing
from a Jewish perspective,” Business and Society Review 112,
1(2007):
137–161.
54. For more on the ethical responsibilities of shareholders, see
M. S.
Schwartz, M. Tamari, and D. Schwab, “Ethical investing from a
Jewish
perspective,” at pp. 146–147.
55. See T. Mulligan, “A critique of Milton Friedman’s essay
‘The social
responsibility of business is to increase its profits,’ ” Journal of
Business
Ethics 5, 4(1986): 265–269 at p. 267 and the response by W. H.
Shaw,
“Business ethics today: A survey” at p. 541.
56. This might be considered the “Spiderman” argument, based
on
the famous line in the movie that “with great power comes great
respon-
sibility.” For the original corporate “social power” argument,
see K. Davis,
“Five propositions for social responsibility,” Business Horizons
18,
3(1975): 19–24.
57. K. Davis, “The case for and against business assumption of

social responsibilities,” Academy of Management Journal 1
(1973): 312–
322.
58. See C. D. Stone, Where the Law Ends (New York: Harper
and Row
Publishers, 1975).
59. T. Mulligan, “A critique of Milton Friedman’s essay ‘The
social
responsibility of business is to increase its profits.’ ”
60. For additional facts and background, see D. A. Gioia, “Pinto
fires
and personal ethics: A script analysis of missed opportunities,”
Journal of
Business Ethics 11, 5/6(1992): 379–390; and M. S. Schwartz,
“Ford
Pinto” in Encyclopedia of Business Ethics and Society (Vol. 2),
ed. R. W.
Kolb (Thousand Oaks, CA: Sage Publications, 2008): 923–925.
61. See B. Marsh, “Putting a price on the priceless,” New York
Times (September 9, 2007),
http://www.nytimes.com/2007/09/09/
weekinreview/09marsh.html, accessed February 2, 2011, which
states
that the families of those killed on 9/11 were each compensated
about $2
million on average.
62. See “The myth of the Ford Pinto case,” G. Schwartz,
Rutgers Law
Review 43 (1991): 1013–1068,
http://www.pointoflaw.com/articles/
The_Myth_of_the_Ford_Pinto_Case.pdf, accessed February 2,

2011.
63. For additional facts on the case, see D. Bollier and S.
Weiss,
“Merck & Co. Inc (A),” (The Business Enterprise Trust,
Harvard Business
School Publishing, 1991); “Merck Mectizan Donation Program,”
http://
www.merck.com/corporate-responsibility/access/access-
developing-
emerging/mectizan-donation-riverblindness/, accessed February
2,
2011; and M. S. Schwartz, “Merck & Co. Inc.” in Encyclopedia
of Busi-
ness Ethics and Society (Vol. 3), ed. R. W. Kolb (Thousand
Oaks, CA: Sage
Publications, 2008): 1369–1370.
64. See: B. W. Husted and J. D. J. Salazar, “Taking Friedman
seri-
ously: Maximizing profits and social performance,” at p. 77.
65. See D. Bollier and S. Weiss, “Merck & Co. Inc (A),” at p. 3.
66. See R. Amado and N. M. Gewertz, “Intellectual property
and the
pharmaceutical industry: A moral crossroads between health and
prop-
erty,” Journal of Business Ethics 55, 3(2004): 295–308.
67. See “Former Merck CEO Roy Vagelos to receive Prix
Galien
Humanitarian Award for role in eliminating river blindness”
(September
4, 2007),
http://findarticles.com/p/articles/mi_m0EIN/is_2007_Sept_4/

ai_n21026644/, accessed February 2, 2011.
68. See K. Collins, “Profitable gifts a history of the Merck
Mectizan®
Donation Program and its implications for international health”
(2004),
http://muse.jhu.edu/journals/perspectives_in_biology_and_medi
cine/
v047/47.1collins.html, accessed February 2, 2011.
69. For example, Malden Mills went bankrupt after CEO Aaron
Feuer-
stein decided to remain in Lawrence, Massachusetts rather than
moving
the firm’s operations overseas, while paying his employees tens
of mil-
lions of dollars in wages despite no legal obligation to do so.
Many
initially considered Mr. Feuerstein’s actions to be exemplary of
CSR. See
T. Teal, “Not a Fool, Not a Saint,” Fortune (November 11,
1996): 201–203.
70. S. M. Datar, D. A. Garvin, and P. G. Cullen, Rethinking the
MBA:
Business Education at a Crossroads (Boston, MA: Harvard
Business
Press, 2010) at p. 160.
71. See M. E. Porter and M. R. Kramer, “Strategy and society:
The link

between competitive advantage and corporate social
responsibility,”
Harvard Business Review 84, 12(2006): 78–92.
72. See M. S. Schwartz and A. B. Carroll, “Corporate social
respon-
sibility: A three domain approach,” Business Ethics Quarterly
13, 4(2003):
503–530.
73. See S. Mena, M. De Leede, D. Baumann, N. Black, S.
Lindeman,
and L. McShane, “Advancing the business and human rights
agenda:
Dialogue, empowerment, and constructive engagement,” Journal
of Busi-
ness Ethics 93 (2010): 161–188.
74. See T. Donaldson, “Values in tension: Ethics away from
home,”
Harvard Business Review (September–October, 1996): 5–12.
75. See Social Investment Forum, “Advocacy and public policy:
Share-
holder resolutions,”
http://www.socialinvest.org/projects/advocacy/
resolutions.cfm, accessed February 2, 2011.
76. Washington Post (online). “M.D. lawmakers approve benefit
cor-
poration status,” (March 31, 2010),
http://www.washingtonpost.com/
wp-dyn/content/article/2010/03/30/AR2010033003924.html,
accessed
February 2, 2011.

Copyright of Business & Society Review (00453609) is the
property of Wiley-Blackwell and its content may
not be copied or emailed to multiple sites or posted to a listserv
without the copyright holder's express written
permission. However, users may print, download, or email
articles for individual use.
The Pyramid of Corporate
Social Responsibiiity: Toward
the Morai Management of
Organizational Stakeholders
Archie B. Carroll
F
or the better part of 30 years now, corpo-
rate executives have struggled with the
issue of the firm's responsibility to its soci-
ety. Early on it was argued by some that the
corporation's sole responsibility was to provide a
maximum financial return to shareholders. It
became quickly apparent to everyone, however,
that this pursuit of financial gain had to take
place within the laws of the land. Though social
activist groups and others throughout the 1960s

advocated a broader notion of corporate respon-
sibility, it was not until the significant social legis-
lation of the early 1970s that this message be-
came indelibly clear as a result of the creation of
the Environmental Protection Agency (EPA), the
Equal Employment Opportunity Commission
(EEOC), the Occupational Safety and Health Ad-
ministration (OSHA), and the Consumer Product
Safety Commission (CPSC).
These new governmental bodies established
that national public policy now officially recog-
nized the environment, employees, and consum-
ers to be significant and legitimate stakeholders
of business. Erom that time on, corporate execu-
tives have had to wrestle with how they balance
their commitments to the corporation's owners
with their obligations to an ever-broadening
group of stakeholders who claim both legal and
ethical rights.
This article will explore the nature of corpo-
rate social responsibility (CSR) with an eye to-
ward understanding its component parts. The
intention will be to characterize the firm's CSR in
ways that might be useful to executives who
wish to reconcile their obligations to their share-
Social responsibility
can only become
reality if more man-
agers become
moral instead of
amoral or immoral.
holders with those to

other competing groups
claiming legitimacy.
This discussion will be
framed by a pyramid of
corporate social respon-
sibility. Next, we plan
to relate this concept to
the idea of stakehold-
ers. Einally, our goal
will be to isolate the
ethical or moral compo-
nent of CSR and relate
it to perspectives that
reflect three major ethical approaches to manage-
ment—immoral, amoral, and moral. The princi-
pal goal in this final section will be to flesh out
what it means to manage stakeholders in an ethi-
cal or moral fashion.
EVOLUTION OF CORPORATE
SOCIAL RESPONSIBILITY
W hat does it mean for a corporation tobe socially responsible?
Academics andpractitioners have been striving to estab-
lish an agreed-upon definition of this concept for
30 years. In I960, Keith Davis suggested that
social responsibility refers to businesses' "deci-
sions and actions taken for reasons at least par-
tially beyond the firm's direct economic or tech-
nical interest." At about the same time, Eells and
Walton (196I) argued that CSR refers to the
"problems that arise when corporate enterprise
casts its shadow on the social scene, and the
The Pyramid of Corporate Social Responsibility 39

Figure 1
Economic and Legal Components of Corporate Social
Responsibility
Economic Components
(Responsibilities)
1. It is important to perform in a
manner consistent with
maximizing earnings per share.
2. It is important to be committed to
being as profitable as possible.
3. It is important to maintain a strong
competitive position.
4. It is important to maintain a high
level of operating efficiency.
5. It is important that a successful
firm be defined as one that is
consistently profitable.
Legal Components
(Responsibilities)
manner consistent with expecta-
tions of government and law.
2. It is important to comply with
various federal, state, and local
regulations.

3. It is important to be a law-abiding
corporate citizen.
4. It is important that a successful
firm be defined as one that fulfills
its legal obligations.
5. It is important to provide goods
and services that at least meet
minimal legal requirements.
legitimate, had to address the entire
spectrum of obligations business has to
society, including the most fundamen-
tal—economic. It is upon this four-part
perspective that our pyramid is based.
In recent years, the term corporate
social performance (CSP) has emerged
as an inclusive and global concept to
embrace corporate social responsibility,
responsiveness, and the entire spectrum
of socially beneficial activities of busi-
nesses. The focus on social performance
emphasizes the concern for corporate
action and accomplishment in the social
sphere. With a performance perspective,
it is clear that firms must formulate and
implement-social goals and programs as
well as integrate ethical sensitivity into
all decision making, policies, and ac-
tions. With a results focus, CSP suggests
an all-encompassing orientation towards
normal criteria by which we assess busi-
ness performance to include quantity,

quality, effectiveness, and efficiency.
While we recognize the vitality of the
performance concept, we have chosen
to adhere to the CSR terminology for our
present discussion. With just a slight change of
focus, however, we could easily be discussing a
CSP rather than a CSR pyramid. In any event, our
long-term concern is what managers do with
these ideas in terms of implementation.
THE PYRAMID OF CORPORATE
F
ethical principles that ought to govern the rela-
tionship between the corporation and society."
In 1971 the Committee for Economic Devel-
opment used a "three concentric circles" ap-
proach to depicting CSR. The inner circle in-
cluded basic economic functions—growth, prod-
ucts, jobs. The intermediate circle suggested that
the economic functions must be exercised with a /SOCIAL
RESPONSIBILITY
sensitive awareness of changing social values and /
priorities. The outer circle outlined newly emerg-/ T ~ l or CSR
to be accepted by a conscientious
ing and still amorphous responsibilities that busi-
ness should assume to become more actively
involved in improving the social environment.
The attention was shifted from social respon-
sibility to social responsiveness by several other
writers. Their basic argument was that the em-
phasis on responsibility focused exclusively on

the notion of business obligation and motivation
and that action or performance were being over-
looked. The social responsiveness movement,
therefore, emphasized corporate action, pro-
action, and implementation of a social role. This
was indeed a necessary reorientation.
The question still remained, however, of
reconciling the firm's economic orientation with
its social orientation. A step in this direction was
taken when a comprehensive definition of CSR
was set forth. In this view, a four-part conceptu-
alization of CSR included the idea that the corpo-
ration has not only economic and legal obliga-
tions, but ethical and discretionary (philan-
thropic) responsibilities as well (Carroll 1979).
The point here was that CSR, to be accepted as
business person, it should be framed in
such a way that the entire range of busi-
ness responsibilities are embraced. It is suggested
here that four kinds of social responsibilities con-
stitute total CSR: economic, legal, ethical, and
philanthropic. Furthermore, these four categories
or components of CSR might be depicted as a
pyramid. To be sure, all of these kinds of respon-
sibilities have always existed to some extent, but
it has only been in recent years that ethical and
philanthropic functions have taken a significant
place. Each of these four categories deserves
closer consideration.
Economic Responsibilities
Historically, business organizations were created

as economic entities designed to provide goods
and services to societal members. The profit mo-
tive was established as the primary incentive for
entrepreneurship. Before it was anything else, the
business organization was the basic economic
unit in our society. As such, its principal role was
40 Business Horizons /July-August 1991
to produce goods and services that con-
sumers needed and wanted and to make
an acceptable profit in the process. At
some point the idea of the profit motive
got transformed into a notion of maximum
profits, and this has been an enduring
value ever since. All other business re-
sponsibilities are predicated upon the eco-
nomic responsibility of the firm, because
without it the others become moot consid-
erations. Figure 1 summarizes some im-
portant statements characterizing economic
responsibilities. Legal responsibilities are
also depicted in Eigure 1, and we will
consider them next.
Legal Responsibilities
Society has not only sanctioned business
to operate according to the profit motive;
at the same time business is expected to
comply with the laws and regulations pro-
mulgated by federal, state, and local gov-
ernments as the ground ailes under which
business must operate. As a partial fulfill-

ment of the "social contract" between busi-
ness and society, firms are expected to
pursue their economic missions within the
framework of the law. Legal responsibili-
ties reflect a view of "codified ethics" in
the sense that they embody basic notions
of fair operations as established by our lawmak-
ers. They are depicted as the next layer on the
pyramid to portray their historical development,
but they are appropriately seen as coexisting with
economic responsibilities as fundamental pre-
cepts of the free enterprise system.
Ethical Responsibilities
Although economic and legal responsibilities
embody ethical norms about fairness and justice,
ethical responsibilities embrace those activities
and practices that are expected or prohibited by
societal members even though they are not codi-
fied into law. Ethical responsibilities embody
those standards, norms, or expectations that re-
flect a concern for what consumers, employees,
shareholders, and the community regard as fair,
just, or in keeping with the respect or protection
of stakeholders' moral rights.
In one sense, changing ethics or values pre-
cede the establishment of law because they be-
come the driving force behind the very creation
of laws or regulations. Eor example, the environ-
mental, civil rights, and consumer movements
reflected basic alterations in societal values and
thus may be seen as ethical bellwethers foreshad-
owing and resulting in the later legislation. In
another sense, ethical responsibilities may be

Figure 2
Ethical and Philanthropic Components of
Corporate Social Responsibility
Ethical Components
(Responsibilities)
manner consistent with expecta-
tions of societal mores and ethical
norms.
2. It is important to recognize and
respect new or evolving ethical/
moral norms adopted by society.
3. It is important to prevent ethical
norms from being compromised in
order to achieve corporate goals.
4. It is important that good corporate
citizenship be defined as doing what
is expected morally or ethically.
5. It is important to recognize that
corporate integrity and ethical
behavior go beyond mere compli-
ance with laws and regulations.
1.
2.
3.

4.
5.
Philanthropic Components
(Responsibilities)
It is important to perform in a
manner consistent with the philan-
thropic and charitable expectations
of society.
It is important to assist the fine and
performing arts.
It is important that managers and
employees participate in voluntary
and charitable activities within their
local communities.
It is important to provide assis-
tance to private and public educa-
tional institutions.
It is important to assist voluntarily
those projects that enhance a
community's "quality of life."
seen as embracing newly emerging values and
norms society expects business to meet, even
though such values and norms may reflect a
higher standard of performance than that cur-
rently required by law. Ethical responsibilities in
this sense are often ill-defined or continually
under public debate as to their legitimacy, and
thus are frequently difñcult for business to deal

with.
Superimposed on these ethical expectations
emanating from societal groups are the implied
levels of ethical performance suggested by a
consideration of the great ethical principles of
moral philosophy. This would include such prin-
ciples as justice, rights, and utilitarianism.
The business ethics movement of the past
decade has firmly established an ethical responsi-
bility as a legitimate CSR component. Though it is
depicted as the next layer of the CSR pyramid, it
must be constantly recognized that it is in dy-
namic interplay with the legal responsibility cat-
egory. That is, it is constantly pushing the legal
responsibility category to broaden or expand
while at the same time placing ever higher ex-
pectations on businesspersons to operate at lev-
els above that required by law. Figure 2 depicts
statements that help characterize ethical responsi-
bilities. The figure also summarizes philanthropic
responsibilities, discussed next.
Figure 3
The Pyramid o f Corporate Social R e s p o n s i b i l i t y
PHILANTHROPIC
Responsibilities
Be a good corporate citizen.
Contribute resources

to the community;
improve quality of life.
ETHICAL
Responsibilities
Be ethical.
Obligation to do what is right, just,
and fair. Avoid harm.
LEGAL
Responsibilities
Obey the law.
Law is society's codification of right and wrong.
Play by the rules of the game.
ECONOMIC
Responsibilities
Be profitable.
The foundation upon which all others rest.
Philanthropic Responsibilities
Philanthropy encompasses those corporate ac-
tions that are in response to society's expectation
that businesses be good corporate citizens. This
includes actively engaging in acts or programs to
promote human welfare or goodwill. Examples of
philanthropy include business contributions of
financial resources or executive time, such as
contributions to the arts, education, or the com-

munity. A loaned-executive program that pro-
vides leadership for a community's United Way
campaign is one illustration of philanthropy.
The distinguishing feature iDetween philan-
thropic and ethical responsibilities is that the
former are not expected in an ethical or moral
sense. Communities desire firms to contribute
their money, facilities, and employee time to
humanitarian programs or purposes, but they do
not regard the firms as unethical if they do not
provide the desired level. Therefore, philan-
thropy is more discretionary or voluntary on the
part of businesses even though there is
always the societal expectation that busi-
nesses provide it.
One notable reason for making the dis-
tinction between philanthropic and ethical
responsibilities is that some firms feel they
are being socially responsible if they are
just good citizens in the community. This
distinction brings home the vital point that
CSR includes philanthropic contributions
but is not limited to them. In fact, it would
be argued here that philanthropy is highly
desired and prized but actually less impor-
tant than the other three categories of social
responsibility. In a sense, philanthropy is
icing on the cake—or on the pyramid, us-
ing our metaphor.
The pyramid of corporate social respon-
sibility is depicted in Figure 3- It portrays
the four components of CSR, beginning

with the basic building block notion that
economic performance undergirds all else.
At the same time, business is expected to
obey the law because the law is society's
codification of acceptable and unacceptable
behavior. Next is business's responsibility to
be ethical. At its most fundamental level,
this is the obligation to do what is right,
just, and fair, and to avoid or minimize
harm to stakeholders (employees, consum-
ers, the environment, and others). Finally,
business is expected to be a good corpo-
rate citizen. This is captured in the philan-
thropic responsibility, wherein business is
expected to contribute financial and human
resources to the community and to improve
the quality of life.
No metaphor is perfect, and the CSR
pyramid is no exception. It is intended to portray
that the total CSR of business comprises distinct
components that, taken together, constitute the
whole. Though the components have been
treated as separate concepts for discussion pur-
poses, they are not mutually exclusive and are
not intended to juxtapose a firm's economic re-
sponsibilities with its other responsibilities. At the
same time, a consideration of the separate com-
ponents helps the manager see that the different
types of obligations are in a constant but dy-
namic tension with one another. The most critical
tensions, of course, would be between economic
and legal, economic and ethical, and economic
and philanthropic. The traditionalist might see
this as a conflict between a firm's "concern for
profits" versus its "concern for society," but it is

suggested here that this is an oversimplification.
A CSR or stakeholder perspective would recog-
nize these tensions as organizational realities, but
focus on the total pyramid as a unified whole
and how the firm might engage in decisions.
42 Business Horizons / July-August 1991
actions, and programs that simultaneously fulfill
all its component parts.
In summary, the total corporate social re-
sponsibility of business entails the simultaneous
fulfillment of the firm's economic, legal, ethical,
and philanthropic responsibilities. Stated in more
pragmatic and managerial terms, the CSR firm
should strive to make a profit, obey the law, be
ethical, and be a good corporate citizen.
Upon first glance, this array of responsibili-
ties may seem broad. They seem to be in striking
contrast to the classical economic argument that
management has one responsibility: to maximize
the profits of its owners or shareholders. Econo-
mist Milton Friedman, the most outspoken propo-
nent of this view, has argued that social matters
are not the concern of business people and that
these problems should be resolved by the
unfettered workings of the free market system.
Friedman's argument loses some of its punch,
however, when you consider his assertion in its
totality. Friedman posited that management is "to
make as much money as possible while conform-
ing to the basic rules of society, both those em-

bodied in the law and those embodied in ethical
custom" (Friedman 1970). Most people focus on
the first part of Friedman's quote but not the
second part. It seems clear from this statement
that profits, conformity to the law, and ethical
custom embrace three components of the CSR
pyramid—economic, legal, and ethical. That only
leaves the philanthropic component for Friedman
to reject. Although it may be appropriate for an
economist to take this view, one would not en-
counter many business executives today who
exclude philanthropic programs from their firms'
range of activities. It seems the role of corporate
citizenship is one that business has no significant
problem embracing. Undoubtedly this perspec-
tive is rationalized under the rubric of enlight-
ened self interest.
We next propose a conceptual framework to
assist the manager in integrating the four CSR
components with organizational stakeholders.
CSR A N D ORGANIZATIONAL STAKEHOLDERS
T here is a natural fit between the idea ofcorporate social
responsibility and anorganization's stakeholders. The word
"social" in CSR has always been vague and lack-
ing in specific direction as to whom the corpora-
tion is responsible. The concept of stakeholder
personalizes social or societal responsibilities by
delineating the specific groups or persons busi-
ness should consider in its CSR orientation. Thus,
the stakeholder nomenclature puts "names and
faces" on the societal members who are most
urgent to business, and to whom it must be re-
sponsive.

By now most executives understand that the
term "stakeholder" constitutes a play on the word
stockholder and is intended to more appropri-
ately describe those groups or persons who have
a stake, a claim, or an interest in the operations
and decisions of the firm. Sometimes the stake
might represent a legal claim, such as that which
might be held by an owner, an employee, or a
customer who has an explicit or implicit contract.
Other times it might be represented by a moral
claim, such as when these groups assert a right to
be treated fairly or with due process, or to have
their opinions taken into consideration in an
important business decision.
Management's challenge is to decide which
stakeholders merit and receive consideration in
the decision-making process. In any given in-
stance, there may be numerous stakeholder
groups (shareholders, consumers, employees,
suppliers, community, social activist groups)
clamoring for management's attention. How do
managers sort out the urgency or importance of
the various stakeholder claims? Two vital criteria
include the stakeholders' legitimacy and their
power. From a CSR perspective their legitimacy
may be most important. From a management
efficiency perspective, their power might be of
central influence. Legitimacy refers to the extent
to which a group has a justifiable right to be
making its claim. For example, a group of 300
employees about to be laid off by a plant-closing
decision has a more legitimate claim on manage-
ment's attention than the local chamber of com-
merce, which is worried about losing the firm as

one of its dues-paying members. The stake-
holder's power is another factor Here we may
witness significant differences. Thousands of
small, individual investors, for example, wield
very little power unless they can find a way to
get organized. By contrast, institutional investors
and large mutual fund groups have significant
power over management because of the sheer
magnitude of their investments and the fact that
they are organized.
With these perspectives in mind, let us think
of stakeholder management as a process by
which managers reconcile their own objectives
with the claims and expectations being made on
them by various stakeholder groups. The chal-
lenge of stakeholder management is to ensure
that the firm's primary stakeholders achieve their
objectives while other stakeholders are also satis-
fied. Even though this "win-win" outcome is not
always possible, it does represent a legitimate
and desirable goal for management to pursue to
protect its long-term interests.
The important functions of stakeholder man-
agement are to describe, understand, analyze,
and finally, manage. Thus, five major questions
might be posed to capture the essential ingredi-
Figure 4
Stakeholder/Responsib

Stakeholders
Owners
Customers
Employees
Community
Competitors
Suppliers
Social Activist Groups
Public at Large
Others
ility Matrix
Economic
Types
Legal
of CSR
Ethical Philanthropic
ents we need for stakeholder management:
1. Who are our stakeholders?
2. What are their stakes?
3. What opportunities and challenges are

000 Hello, welcome to the Unit III discussion. And the d.docx

000 Hello, welcome to the Unit III discussion. And the d.docx

Recommended

Recommended

More Related Content

Similar to 000 Hello, welcome to the Unit III discussion. And the d.docx

Similar to 000 Hello, welcome to the Unit III discussion. And the d.docx (20)

More from aryan532920

More from aryan532920 (20)

Recently uploaded

Recently uploaded (20)

000 Hello, welcome to the Unit III discussion. And the d.docx