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Featuring a Thought Leader Commentary™
with Charles O. Holliday, Jr. Chairman and Chief Executive
Officer, DuPont
B
r
id
g
e
Pa
Pe
r
™
Company Stakeholder Responsibility:
A New Approach to CSR
R. Edward Freeman

S. Ramakrishna Velamuri
Brian Moriarty
http://www.corporate-ethics.org
http://www.corporate-ethics.org/bridgepapers.htm
http://www.corporate-ethics.org/c-freeman.htm
http://www.corporate-ethics.org/a-moriarty.htm
© 2006, Business Roundtable Institute for Corporate Ethics
Distribution Policy: Bridge Papers™ may only be displayed or
distributed in
electronic or print format for non-commercial educational use
on a royalty-
free basis. Any royalty-free use of Bridge Papers™ must use the
complete
document. No partial use or derivative works of Bridge
Papers™ may be
made without the prior written consent of the Business
Roundtable Institute
for Corporate Ethics.
A PDF version of this document can be found on the Institute
Web site at:
http://www.corporate-ethics.org/pdf/csr.pdf
Bridge PaPers™ Uniting best thinking with leading business
practice.
http://www.corporate-ethics.org/bridgepapers.htm

CoNteNtS
Foreword
...............................................................................................
.....2
introduction
..............................................................................................
2
Company stakeholder responsibility in Practice:
Four Levels of Commitment to the stakeholder approach
................... 4
Ten Principles of Company stakeholder responsibility
.........................5
a New Csr – Company stakeholder responsibility
..............................8
Thought Leader Commentary™ with Charles O. Holliday, Jr.
...............9
about the authors
...................................................................................13
3BRIDGE PAPER™: Company Stakeholder Responsibility: A
New Approach to CSR
FoRewoRd
The Business Roundtable Institute for
Corporate Ethics is an independent
entity established in partnership with

Business Roundtable—an association
of chief executive officers of leading
corporations with a combined workforce
of more than 10 million employees and
$4.5 trillion in annual revenues—and
leading academics from America’s best
business schools. The Institute, which
is housed at the Darden Graduate
School of Business Administration,
brings together leaders from business
and academia to fulfill its mission to
renew and enhance the link between
ethical behavior and business practice
through executive education programs,
practitioner-focused research and
outreach.
Institute Bridge Papers™ put the
best thinking of academic and business
leaders into the hands of practicing
managers. Bridge Papers™ convey
concepts from leading edge academic
research in the field of business ethics
in a format that today’s managers
can integrate into their daily business
decision making.
Company Stakeholder Responsibility:
A New Approach to CSR is an Institute
Bridge PaperTM based on the research of
R. Edward Freeman and S. Ramakrishna
Velamuri. Based on a stakeholder
approach, this paper outlines a new
capability for organizations to develop.
The accompanying interview with

Charles O. Holliday, Jr., Chairman
and Chief Executive Officer, DuPont,
provides a CEO perspective on how
to embed a Company Stakeholder
Responsibility mindset across the
enterprise and in a firm’s overall value
proposition.
4 Business Roundtable Institute for Corporate Ethics
iNtRoduCtioN
Assume that the CEO of a well-
respected corporation is asked the
following: “Your company’s products
improve consumers’ lives. Suppliers
want to do business with your company
because they benefit from this
relationship. Employees really want
to work for your company, and are
satisfied with their remuneration and
professional development. And, you’re a
good citizen in the communities where
you are located; among other things,
you pay taxes on the profits you make.
You compete hard but fairly. You also
make an attractive return on capital
for shareholders and other financiers.
However, are you socially responsible?”
If a company like the aforementioned
organization is enriching the lives of its
stakeholders, then asking the additional
question of whether or not it is “socially

responsible” simply makes no sense—it
is a meaningless question. If a firm is
doing all the things that this company
does, then it deserves to be applauded
and offered as an example for other firms
to emulate. If it is not doing them as
satisfactorily as particular stakeholders
think it ought, then these stakeholders
could perhaps offer to help it do them
better, rather than appeal to actions and
responsibilities that lie outside its day to
day activities.
By talking of business and social
responsibility as if they are two separate
things, we unintentionally promote the
idea that they involve discrete thought
processes and activities. The challenge
is to promote a different way of doing
business that integrates considerations of
business, ethics, and society.
Herein lies the problem with
“Corporate Social Responsibility.”
Corporate social responsibility (CSR)
reinforces the “separation thesis”—the
idea that we can separate “business”
from “ethics or society.” This separation
is an idea that reaches very deeply into
Western culture. It is reinforced by the
disciplines of business, by our major
theoretical frameworks in management,
and by many executives and business
thinkers themselves. At its worst it
generates an absolutely destructive idea

of capitalism—that capitalism is about
“anything goes.” After all, the theory
says, “it’s just business.” Viewed in
this way, corporate social responsibility
becomes an “add-on” to ameliorate the
supposedly harsh consequences of this
view of capitalism.
Let us go back to the example of
the previously described corporation.
By hiring employees, has it done
something that is “for the business?”
The answer to that question is a
resounding and unqualified, “Yes.” Has
it done something that is “for society?”
The answer to that question is also a
resounding, “Yes.” So, how do matters
of employment count—in the social
ledger or the business ledger? A similar
argument can be made for customers,
communities, suppliers and financiers.
These individuals and organizations are
all full-fledged members of society—if
they benefit in their dealings with a
company, then society benefits too,
directly and indirectly.
Corporate social responsibility is
often about seeming to “do good works.”
And, while there is certainly nothing
wrong with doing more good, there can
be an implication that companies need
to do good works because the underlying
structure of business is not good, or
morally neutral. This is a destructive
idea—it fails to recognize the central role

New Approach to CSR
In short, if you take a “creating value
for stakeholders” approach to business,
and if you acknowledge that ethics
and values are as important in these
relationships as they are in our other
relationships with one another, then the
idea of “corporate social responsibility”
is superfluous. A conceptual scheme
that separates the social responsibilities
of a corporation from its business
responsibilities has long outlived its
usefulness.
It is time to replace “corporate social
responsibility” with an idea of “company
stakeholder responsibility,” assigning a
different meaning to CSR.3 This is not
just semantics, but a new interpretation
of the very purpose of CSR. “Company”
signals that all forms of value creation
and trade—all businesses—need to be
involved. “Stakeholder” goes back to
the first paragraph of this paper and
suggests that the main goal of CSR is to
create value for key stakeholders. And
“Responsibility” implies that we cannot
separate what we do in the workplace
from ethics.4

business plays globally in improving the
well-being and prosperity of hundreds
of millions of people. And, it can cause
companies to act in bad faith and get
involved in matters where they have little
expertise.
This is not Milton Friedman’s
argument that the only social responsi-
bility is to increase profits; rather it is a
practical matter—giving money to the
opera doesn’t make up (in any moral
sense) for short-changing customers
or communities.1 We need to focus on
how value is created in the basic business
proposition. How does this company
make customers, suppliers, communities,
employees, and financiers better off?
Capitalism is a system of social coop-
eration—a system of working together to
create value for each other, value which
none of us could create on our own. In
this sense, business is already an enter-
prise with moral ramifications. Seeing it
any other way can lead to dangerous so-
cial policies, and to the tarnishing of the
one institution—business—that still has
to play a central role in lifting hundreds
of millions of more people out of poverty
across the globe.
The second problem with corporate
social responsibility is that it is focused
on “corporate” social responsibility.
Why is it not called “business social

responsibility?” The focus on “corporate”
implies that corporations, due to their
size and success and perhaps their
shareholding pattern, have to shoulder
responsibilities that smaller and more
closely held businesses do not. Why?
This view is highly problematic when
companies with fewer than 50 employees
employ more than three times the
number of U.S. workers (47,347,000)
than companies that have 1,000 or more
employees (15,138,000).2
A conceptual scheme that sepa-
rates the social responsibilities
of a corporation from its busi-
ness responsibilities has long
outlived its usefulness.
CompANy StAkeholdeR
ReSpoNSibility
iN pRACtiCe:
Four levels of Commitment to
the Stakeholder Approach5
Company stakeholder responsibility
requires that companies be committed to
a stakeholder approach to management
on the following four levels.
Level 1 - Basic Value Proposition
At this most basic level, the entrepreneur

or manager needs to understand how the
firm can make the customer better off,
and simultaneously offer an attractive
value proposition to employees, suppliers,
communities, and financiers.
• How do we make our stakeholders
better off?
• What do we stand for?
Level 2 - sustained stakeholder
cooperation
The competitive, macro-economic,
regulatory, and political environments
are so dynamic they necessitate constant
revision of the initial stakeholder
arrangements. Each revision upsets
the delicate balance struck in the
basic value propositions to various
stakeholders. Managers must have a deep
understanding of how these trade-offs
affect each stakeholder, the amount of
sacrifice a given stakeholder will accept,
and how these current sacrifices can be
compensated.
• What are the principles or values
on which we base our everyday
engagement with stakeholders?
Level 3 - an understanding of broader
societal issues
Today’s managers must recognize
and respond to a rising number of
international issues, without the moral

compass of the nation, state or religion
as a guide. Managers may need to take
positions on issues that apparently are
not purely business related. A pro-
active attitude is necessary towards all
stakeholder groups, both primary, i.e.,
those that have direct business dealings
with the company, and secondary, such
as NGOs and political activists, who can
affect the operations of the company.
• Do we understand how our basic
value proposition and principles
fit or contradict key trends and
opinions in society?
Level 4 – ethical leadership
Recent research points to a strong
connection between ethical values and
positive firm outcomes such as sustained
profitability and high innovation.7
Proactive ethical leadership is possible
only if there exists a deep understanding
of the interests, priorities, and concerns
of the stakeholders.
• What are the values and principles
that inform my leadership?
• What is my sense of purpose? What
do I stand for as a leader?
There are 10 general principles that
collectively develop a “mindset”
necessary for entrepreneurs and managers
to understand and practice all four levels

of Company Stakeholder Responsibility.
New Approach to CSR
teN pRiNCipleS oF
CompANy StAkeholdeR
ReSpoNSibility
(1) Bring stakeholder interests together
over time.
The very idea of managing for stake-
holders is that the process of value
creation is a joint process. Companies
need to show returns to its shareholders,
meet obligations to debt holders, banks,
and others. Profits don’t conflict with
other stakeholders—they are a scorecard
indicating how well the company is
managing the whole set of stakeholder
relationships. Managers must keep these
stakeholder interests in balance, hopefully
mutually reinforcing each other.
The online auction firm eBay
constantly updates its user interface
and back office processes to meet the
expectations and desires of multiple
stakeholder groups—in particular,
people who use the site to buy and
sell goods. The company’s ability to
consistently meet the needs of a broad
range of consumers and sellers—from

small startups to leading national retail
operations—has also been of great
benefit to the firm’s shareholders, with
the stock price increasing roughly 400%
from 1999 to 2006.
(2) recognize that stakeholders are real
and complex people with names, faces
and values.
We often make assumptions that
business people are only in it for their
own narrowly defined self-interest. Most
human beings are more complicated.
Most of us do what we do because we
are both self-interested and interested in
others. Business works in part because of
the urge to create things with others and
for others.
Employees are far more motivated
to give their time, energy and creativity
when they believe in their firm’s overall
mission and goals. The firm in turn needs
to live its values.
For example, Merck’s stated mission is
“to provide society with superior products
and services by developing innovations
and solutions that improve the quality
of life and satisfy customer needs, and to
provide employees with meaningful work
and advancement opportunities, and
investors with a superior rate of return.” 8
Led by CEO Roy Vagelos, in 1987

Merck decided to develop, produce and
distribute millions of doses of a medicine
to treat river blindness—a terrible fly-
borne parasitic illness affecting tens of
millions of the world’s poorest people
in the African and Asiatic tropics.9 This
was an extraordinary action, because
Merck did it free-of-charge—the people
in need of the drug could not afford it.
In so doing, Merck lived its value of
“preserving and improving human life,”
and showed all of its stakeholders that
the core purpose of the company was
alive in practice.
(3) seek solutions to issues that satisfy
multiple stakeholders simultaneously.
Issues and problems come at
managers from many sources, in many
forms. Managers need to find ways to
develop programs, policies, strategies,
even products and services that satisfy
multiple stakeholders simultaneously.
The first step in that process is to
actually recognize the need to look for
simultaneous solutions.
In developing new products, Sun
Microsystems focuses on both customer
needs and environmental impact. When
the company launched its Sun Fire x64
servers, the product consumed about one
third the energy and cost half as much

as comparably configured servers—while
providing one-and-a-half times the
performance. Sun was able to offer its
customers great value—with the bonus
of cheaper energy costs—by having a
sustainability mindset in their product
development.10
(4) engage in intensive communication
and dialogue with stakeholders—not
just those who are friendly.
Obviously we need intensive
dialogue through multiple methods
with customers, suppliers, employees,
and shareholders, but communities,
the media, critics, and other secondary
stakeholders count as well. Critics are
especially important dialogue members—
they represent unmet market needs.
After declining to issue a corporate
responsibility report for three years,
Nike decided to issue a comprehensive
report in 2005. As part of this process,
Nike invited experts from academia,
trade unions, NGOs and the investment
community to help them shape a report
that for the first time not only listed the
company’s 700 active contract factories,
but also graded each of these factories in
terms of safety and labor conditions.11

Within a span of months, Nike trans-
formed itself from being a routine
target of these secondary stakeholder
groups to a leading model of corporate
transparency.
(5) Commit to a philosophy of
voluntarism—manage stakeholder
relationships yourself, rather than
leaving it to government.
The challenge for managers is to
reorient their thinking and managerial
processes voluntarily to be more
responsive to stakeholders. A situation
where a solution to a stakeholder
problem is imposed by a government
agency or the courts must almost
invariably be seen as a managerial failure.
Spurred on by Warren Buffett, the
widely-admired Chief Executive of
Berkshire Hathaway and corporate
investor, the Coca-Cola Company and
The Washington Post Company have
been leaders in the movement to count
stock option grants to employees as
compensation. Both companies began
reporting these awards as compensation
in 2002, well before the U.S. Securities
and Exchange Commission began to
consider requiring similar reporting
measures in January, 2006.12
(6) generalize the marketing approach.
We need to “over-invest” on

understanding stakeholder needs,
using marketing techniques to segment
stakeholders to develop a better
understanding of their individual needs
and using marketing research tools to
understand the multi-attribute nature
of most stakeholder groups. “Investing”
may be in terms of more time, more
energy, or whatever the relevant resource
that is required by a given stakeholder
group.
Johnson & Johnson ( J&J) is one
of the biggest investors in terms of
proactively assessing stakeholders’ needs
and taking the pulse of their firm’s
reputation among various groups. By
all accounts this investment has shown
The very idea of managing
for stake-holders is that the
process of value creation is a
joint process.
New Approach to CSR
great dividends in the company’s brand
strength, with J&J garnering the top
ranking in Harris Interactive National
Corporate Reputation Survey for seven
consecutive years.13

(7) Never trade off the interests
of one stakeholder versus another
continuously over time.
Just as many successful companies
think in terms of “how to serve the
customer” or “how to serve the
employees,” it is possible to generalize
this philosophy to “how to serve our
stakeholders.”
Consider the example of a company
that trades off the interests of customers
in order to maintain its stock value
for shareholders. In August of 2000,
Firestone recalled millions of their
tires deemed to be defective. Firestone
managers had been aware of the
problems associated with this product for
years before they became public, but they
had chosen “to settle cases confidentially,
one at a time, making it difficult for
consumer watchdogs or government
regulators to discern a pattern that
could have pointed to a broad public
safety issue.”14 When these settlements
became public, the Firestone brand was
essentially destroyed.
(8) Negotiate with primary and
secondary stakeholders.
If a group or individual can affect a
company or be affected by a company
then there needs to be some interaction

and some strategic thinking. In our
relatively free and open society, the
consequences of not negotiating with a
broad range of stakeholders is that they
use the political process to “negotiate”
indirectly by pressuring government to
enact a set of rules that is not likely to be
optimal to company interests.
(9) Constantly monitor and redesign
processes to make them better serve
stakeholders.
In today’s world no one “gets it right”
all the time. Whatever your interactions
and strategies are with stakeholders, they
can always be improved.
Penske Truck Leasing owns 216,000
trucks in 750 locations. Because
Penske’s back office processes were not
centralized, customers would receive
accounts payable calls from 10 or more
different agents and often the calls would
continue well after payment had been
received. This process was not only highly
inefficient for Penske, it was terribly
annoying for their customers. After the
company outsourced and centralized
several of its back office processes,
customers with payments 38 days past
due receive a single phone call about
their invoice, delinquent payments have
been reduced and the staffing for this
area has been cut by 30%.15

(10) act with purpose that fulfills
commitments to stakeholders. act
with aspiration towards fulfilling your
dreams and theirs.
Businesses can have a purpose.
Purpose is inspirational. The Grameen
Bank wants to eliminate poverty. Fannie
Mae seeks to make housing affordable
to people at every income level. ITT
Industries tries to make products that
improve people’s lives. All of these
In today’s world no one “gets it
right” all the time. Whatever
your interactions and strategies
are with stakeholders, they can
always be improved.
organizations have to generate profits, or
else they cannot pursue their purposes.
And, they cannot generate profits or
fulfill their purpose without intense
engagement with their stakeholders.
A New CSR—CompANy
StAkeholdeR
ReSpoNSibility
Corporate Social Responsibility has
outlived its usefulness, because it is

flawed in two respects. First, it promotes
the “separation thesis,” the idea that
business issues and social issues can be
dealt with separately. This endorses the
destructive idea that the underlying
structure of business is either not good
or is morally neutral. A stakeholder
approach acknowledges the intertwined
nature of economic, political, social,
and ethical issues. Centered in the
practice of management, it provides the
manager with a pragmatic framework for
action. The second flaw with Corporate
Social Responsibility is its focus on
corporations. Social responsibility does
not only apply to corporations—it
applies to all organizational forms. A
stakeholder approach applies as much
to an entrepreneurial start-up and to a
mid-sized closely-held firm as it does to
a corporation with diffuse ownership.
Based on a stakeholder approach,
a distinct CSR—Company Stakeholder
Responsibility—outlines a new capability
for organizations to develop.
A stakeholder approach applies
as much to an entrepreneurial
start-up and to a mid-sized
closely-held firm as it does to
a corporation with diffuse
ownership.

New Approach to CSR
ten principles for Company Stakeholder Responsibility
1. Bring stakeholder interests together over time.
2. recognize that stakeholders are real and complex people with
names, faces and values.
3. Seek solutions to issues that satisfy multiple stakeholders
simultaneously.
4. engage in intensive communication and dialogue with
stakeholders not just those who are “friendly”.
5. Commit to a philosophy of voluntarism—manage
stakeholder relationships yourself, rather than leaving it
to government.
6. generalize the marketing approach.
7. Never trade off the interests of one stakeholder versus
another continuously over time.
8. Negotiate with primary and secondary stakeholders.
9. Constantly monitor and redesign processes to better
serve stakeholders.
10. Act with purpose that fulfills commitments to
stakeholders.
act with aspiration toward your dreams and theirs.

Q: How do you identify your stakeholders
and balance their interests in today’s
rapidly changing environment? How can
business leaders best engage stakeholders
who may be critics of their firm or
industry?
Charles O. Holliday, Jr.: We have
traditionally identified four stakeholder
groups important to DuPont—
shareholders, customers, employees
and society. We fully understand the
shareholders are the owners. Their best
interest is served by the other three. At
different times in our history, emphasis
has shifted among those stakeholders.
But that set provides us with an enduring
template for identifying and engaging the
people and groups who are vital to the
continued success of our enterprise. We
balance their various interests by listening
and through dialog. We regularly poll our
employees to find out how they see the
company and how they feel about their
ability to contribute to its growth. Our
public affairs and issue scans enable us to
maintain a good sense of the trends and
developments important to stakeholder
groups.
I personally participate in conferences
and other events where I am able to
state our company’s position relative to
public issues and to talk with others who

approach the same issues from different
points of view. So while we rely to a great
extent on information that we gather,
there is really no substitute for some first-
hand interaction with leaders in other
sectors, whether friends or critics.
Q: How else does the company embed
the Company Stakeholder Responsibility
mindset, discussed in this Bridge Paper,
across the enterprise in its overall value
proposition?
Holliday: First, DuPont is a leader
in terms of Company Stakeholder
Responsibility through safety. For more
than 200 years, DuPont has placed a
concern for safety above all others. We
have the most stringent and effective
safety policies in our industry, which
our trading partners, suppliers, and even
competitors use as a benchmark. In 2000,
we created a safety consulting business
now worth over $100 million annually
to provide training, certification and
development around safety issues.
Charles O. Holliday, Jr.
A thought leAdeR CommeNtARy™ with
Charles o. holliday, Jr., Chairman and Chief executive
Officer, DuPont
There is really no substitute for
some first-hand interaction
with leaders in other sectors,
whether friends or critics.

New Approach to CSR
Second, the shift of DuPont’s
products from a chemical basis to
a biological basis has allowed our
products to have a substantially
smaller footprint on the environment.
Having a diversity of disciplines as the
foundation of our science allows us to
invent and manufacture products that
are both innovative and socially and
environmentally responsible. Our regard
for the environment is what will allow
DuPont to thrive and survive in our third
century.
Q: DuPont has an over-200 year-old
legacy supporting its core values of safety
and health, environmental stewardship,
ethics, and respect for people. In
particular, DuPont is well-known for
its “safety moments” that are deeply
engrained in all DuPont employees. How
would you advise corporate leaders whose
companies don’t have such a long legacy
and want to build similar lasting core
values?
Holliday: Because our core values have
been part of our company’s culture for so
long, it’s hard for us to imagine operating
without being able to consistently refer

back to the values that drive us. As we
moved through a historic transformation
of the company in the past eight years,
we indicated that everything was open
to change except our core values. What’s
more we measure and gauge our progress
opposite those values with a lively set
of metrics that employees have access
to. For example, any employee can see
our statistics on year-to-date safety
and environmental performance every
day by clicking on a link accessible
through our daily electronic newsletter.
In every written letter or video message
to employees I make some mention of
core value performance – and in those
rare few instances when I didn’t, I heard
about it! Our core values work for us.
They make us a more desirable company
to do business with or have operating
in your back yard. They give us a set of
standards that make good and capable
people want to work for DuPont. They
give real backbone to interaction with
our stakeholders.
For us, core values are central to our
identity of who we are as DuPont, and
they are the link through the generations
of DuPont employees over our 204
year history. For companies that don’t
have a set of values that can help them
accomplish that, I would recommend
that they take the time to understand

and identify what values inform their
behaviors and underlie their operating
principles and the way they do business.
Once those values have been identified
you have to drive them everyday in what
you say and what you do. You have to act
in a way that proves beyond a doubt that
they are true non-negotiables. You have
to measure your performance against
them, and where you don’t measure up,
your stakeholders have to see you make
the necessary adjustments to get on track
and stay there.
Q: You have been at DuPont for 36
years. During that career progression,
As we moved through a
historic transformation of
the company in the past eight
years, we indicated that
everything was open to
change except our core values.
what are some defining moments that
have contributed to both your own
and DuPont’s current approach to
sustainability?
Holliday: As a company, we have learned
from scientific insights into the safety
of our products and from changes

in environmental laws. In the 1970s,
DuPont was the world’s largest producer
of CFCs. As CFCs became more closely
linked to environmental change, we
started the process of eliminating CFCs
from our product offerings.
As a global leader in sustainable
business practices, DuPont now works
to direct the chemical industry toward
developing more environmentally and
socially friendly products. We influence
the chemical industry most by constantly
setting the bar higher on what is
expected of a chemical company, by
creating more biology-based products,
and by considering the needs of the
communities our business affects. For
example, DuPont is the world’s leading
producer of soy protein, which is now
being used in various products that were
traditionally chemically-based, such as
printers ink.
Personally, I have learned more from
interacting with our many talented
employees – engineers, scientists, manag-
ers, front-line plant workers, and others
– based in over seventy countries. Inter-
action with leaders of other companies
and with U.S. and international govern-
ment leaders has also taught me a great
deal. There are various trade and develop-
ment organizations DuPont is part of.
Recently, I represented DuPont at meet-
ings of the World Business Council for

Sustainable Development and the World
Economic Forum.
Q: You are the Chairman of Business
Roundtable’s Environment, Technology
and the Economy Task Force, you have
served on other leadership groups like
President Bush’s National Infrastructure
Advisory Council, and you have co-
authored the book Walking the Talk,
which outlines the business case for
sustainability—what drives you to lead
change in this broader arena outside of
your own company?
Holliday: DuPont’s long history has
demonstrated to us that no company,
however strong and competitive, can
go it alone. Involvement in outside
organizations and endeavors is a way
of learning and leading. Working with
other companies, we can learn from
the rich variety of experiences that
they share. I never walk away from a
Business Roundtable meeting without
a new insight that affirms something
we’re doing or challenges me to think
in a very different way. The S.E.E.
Change initiative we kicked off a year
ago was aimed at precisely that—dozens
of companies visibly doing creative
things to work more sustainably so their
successes might trigger equally good but
different ideas among their peers. The
whole idea of sustainability as a realistic
goal for industry came about because

organizations like the World Business
Council for Sustainable Development
kept hammering away at it and offering
up real life examples.
We can lead in those areas where our
experience positions us to effect positive
change. Ultimately, all this is good for our
company and makes a lasting impression
on our stakeholders.
Q: This paper argues that business
leadership involves setting industry
New Approach to CSR
standards, not just following them. Why
is it important for firms to manage
stakeholder relationships themselves
rather than leaving it to regulatory
agencies? How can government and
business work together most effectively
to set standards that create value for
multiple stakeholders?
Holliday: The complexities and
opportunities of modern business and
industry are too great to assume that
regulation alone can get us where we
have to go. Regulation, as we have seen
historically, is not a precision tool for
change. But it can overcome inertia
and gets things going. The landmark

environmental legislation of the 1970s
and 1980s set in motion the kind of
change that in the U.S. has led to cleaner
air and water. No one doubts that. But
how would you go about regulating
sustainability? We can expect that
government will identify some pressure
points where regulatory instruments can
advance the cause. But real progress in
sustainability will come from what we
build into products and services, in the
way we design and operate our plants
and distribution networks, in the way
we think about the ultimate disposition
of the things we make, even – and
especially – in the way we direct our
research and development. It’s hard to
imagine regulatory protocols that can
encompass all of that.
Industry has to be imaginative
and proactive and show that we can
accomplish the things our stakeholders
expect of us, especially those things
that go beyond the letter of the law. We
reduced our greenhouse gas emissions
by 72 percent since 1990 because our
stakeholders expected us to be proactive
and lead in this area. Right now one
Industry has to be imaginative
and proactive and show that
we can accomplish the things
our stakeholders expect of us,
especially those things that go
beyond the letter of the law.

of the most exciting things we’re doing
at DuPont in sustainability is the
construction of a plant for a bio-based
route to a key ingredient for our Sorona®
polymer. It will be on stream this year.
To be sure, work we did in bio-refinery
development funded by the Department
of Energy helped us understand the
potential of such processes. But no one
told us we had to do it. We worked
with a business partner to make this
happen because we think this is the way
profitable businesses will operate in the
future. Our stakeholders understand this
and they expect it of DuPont.
developing ethical leadership
R. EDWARD FREEMAN is the
Academic Director of the Business
Roundtable Institute for Corporate
Ethics. He is the Elis and Signe Olsson
Professor of Business Administration
at The University of Virginia Darden
Graduate School of Business
Administration and co-Chair of
Darden’s Olsson Center for Applied
Ethics, one of the world’s leading
academic centers for the study of ethics.
S. RAMAKRISHNA VELAMURI
is an Assistant Professor of
Entrepreneurship at the IESE

Business School. He has a PhD in
Entrepreneurship, Business Ethics,
and Strategy from the Darden School
of Business and an MBA from IESE
Business School, Spain. Professor
Velamuri is also a visiting professor at
the University of Saarland in Germany,
Nile University in Egypt, and the
University of Piura in Peru. He has
previously taught at the University of
Virginia, Boston University and the
Ecole Nationale des Ponts et Chaussees.
BRIAN MORIARTY is Associate
Director for Communications at the
Business Roundtable Institute for
Corporate Ethics.
thought leadership Commentary
CHARLES O. HOLLIDAY, JR. is
the chairman of the board and chief
executive officer of DuPont. Holliday is
the 18th executive to lead the company
in more than 200 years of DuPont
history. He became CEO on February 1,
1998 and Chairman on January 1, 1999.
Holliday has been with DuPont
for more than 30 years. He started
at DuPont in the summer of 1970
at DuPont’s Old Hickory site
after receiving a B.S. in Industrial
Engineering from the University of
Tennessee. He is a licensed Professional
Engineer.

In 2004, he was elected a
member of the National Academy of
Engineering. He became chairman
of Business Roundtable’s Task Force
for Environment, Technology and
Economy the same year. Holliday
is also past chairman of the World
Business Council for Sustainable
Development (WBCSD), The Business
Council and the Society of Chemical
Industry – American Section. While
chairman of the WBCSD, he co-
authored a book Walking the Talk
which details the business case for
sustainable development and corporate
responsibility.
Holliday also serves on the board
of directors of HCA and is Chair of
the Board of Directors of Catalyst. In
addition, he is chairman of the U.S.
Council on Competitiveness and is a
founding member of the International
Business Council.
Under Holliday’s direction, DuPont
established the mission to achieve
sustainable growth – increasing
shareholder and societal value while
decreasing the company’s environmental
footprint.
About the AuthoRS
http://www.corporate-ethics.org/c-freeman.htm
http://www.corporate-ethics.org/a-moriarty.htm

New Approach to CSR
NoteS
1 Milton Friedman, “The Social Responsibility of Business is
to Increase its Profits,”
The New York Times Magazine, September 13, 1970.
2 US Census Bureau, County Business Patterns 2003,
(Washington: DC, 2005), p.3.
3 The ideas in this paper have been developed with a number of
co-authors over the
years in several places. In particular see Wicks, Freeman and
Parmar (2005); Freeman
and McVea (2001); Freeman et al (2004); and Freeman et al
(2005). We are grateful
to a number of people for helpful conversations, in particular
Professors Gianfranco
Rusconi, Dr. Lorenzo Saccone, Dr. Valeria Fazio, Dr. Mette
Morsing, doctoral students
at the Copenhagen Business School doctoral consortium on
Corporate Responsibility,
numerous participants in the EABIS conference in Gent,
Professors Jeff Harrison,
Robert Phillips, and Andrew Wicks.
4 Here “ethics” is used its broadest sense to encompass
obligations to employees, and
other stakeholders. This is sometimes referred to as an
“American” usage, whereby the
“European” usage is much narrower.
5 The first three levels of commitment are explored in greater

detail in Wicks, Freeman,
and Parmar (2005). The origins of these ideas can be found in
part in Freeman (1984) in
the idea of “enterprise strategy.”
6 Haaland-Matlary, J. 2005. Kjernekar: Ethical Integrity in a
Chaotic World. IESE
Business School Alumni Magazine, 96( Jan-March): 12-15.
7 Damon, W. 2002. The Moral Advantage. Optimize. Available
on the Internet at: http://
www.optimizemag.com/issue/003/ethics.htm.
8 From the Merck Web site:
http://www.merck.com/about/mission.html.
9 Michael Waldholz, “Merck, in Unusual Gesture, Will Donate
Drug to Fight Leading
Cause of Blindness,” Wall Street Journal, Oct 22, 1987, pg. 1
10 “Sun Microsystems Sustainable Growth Initiative” in S.E.E.
Change: Examples of
How Business Roundtable Companies Are Embracing Strategies
That Promote Social
Responsibility, Improve the Environment and Grow the
Economy, Business Roundtable,
2005. This document is available on Business Roundtables Web
site at: http://www.
businessroundtable.org/pdf/SEEChange/SEEChangeCompanyPr
ograms.pdf
11 “Nike Issues FY04 Corporate Responsibility Report
Highlighting Multi-Stakeholder
Engagement and New Levels of Transparency, April 13, 2005.
This news release is
available from Nike’s Web site at:

http://www.nike.com/nikebiz/nikebiz.jhtml?page=29
12 “US SEC’s Cox details executive pay disclosure plan,”
Reuters, Jan 10, 2006. “Pros: Coke
and Others Step Up to the Challenge,” American Management
Association, http://
amanet.org//editorial/coca_cola_pros.htm.
13 Ronald J. Alsop, The 18 Immutable Laws of Corporate
Reputation: Creating, Protecting and
Repairing Your Most Valuable Asset, Wall Street Journal
Books, 2004, pp. 28-29; 52-58.
14 Penni Crabtree, “Court Orders Often Keep Companies’
Darkest Secrets Hidden,” The
San Diego Union-Tribune, September 8, 2002.
15 Pete Engardio, “Penske’s Offshore Partner in India: The
Truck-Leasing Outfit Works
with Genpact in India and Mexico to Improve Efficiency and
Customer Service,”
BusinessWeek Special Report: Outsourcing/Online Extra,
January 30, 2006.
For more information on the Business Roundtable
Institute for Corporate Ethics please visit or call
Business Roundtable Institute for Corporate Ethics
100 Darden Boulevard
Charlottesville, Virginia 22903
(434) 982.2323
[email protected]

mailto:[email protected]
1
The Social Responsibility of Business is to Increase its Profits
by Milton Friedman
The New York Times Magazine, September 13, 1970. Copyright
@ 1970 by The New
York Times Company.
When I hear businessmen speak eloquently about the "social
responsibilities of business
in a free-enterprise system," I am reminded of the wonderful
line about the Frenchman
who discovered at the age of 70 that he had been speaking prose
all his life. The
businessmen believe that they are defending free enterprise
when they declaim that
business is not concerned "merely" with profit but also with
promoting desirable "social"
ends; that business has a "social conscience" and takes seriously
its responsibilities for
providing employment, eliminating discrimination, avoiding
pollution and whatever else
may be the catchwords of the contemporary crop of reformers.
In fact they are–or would
be if they or anyone else took them seriously–preaching pure
and unadulterated socialism.
Businessmen who talk this way are unwitting puppets of the

intellectual forces that have
been undermining the basis of a free society these past decades.
The discussions of the "social responsibilities of business" are
notable for their analytical
looseness and lack of rigor. What does it mean to say that
"business" has responsibilities?
Only people can have responsibilities. A corporation is an
artificial person and in this
sense may have artificial responsibilities, but "business" as a
whole cannot be said to
have responsibilities, even in this vague sense. The first step
toward clarity in examining
the doctrine of the social responsibility of business is to ask
precisely what it implies for
whom.
Presumably, the individuals who are to be responsible are
businessmen, which means
individual proprietors or corporate executives. Most of the
discussion of social
responsibility is directed at corporations, so in what follows I
shall mostly neglect the
individual proprietors and speak of corporate executives.
In a free-enterprise, private-property system, a corporate
executive is an employee of the
owners of the business. He has direct responsibility to his
employers. That responsibility
is to conduct the business in accordance with their 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. Of
course, in some cases
his employers may have a different objective. A group of

persons might establish a
corporation for an eleemosynary purpose–for example, a
hospital or a school. The
manager of such a corporation will not have money profit as his
objective but the
rendering of certain services.
In either case, the key point is that, in his capacity as a
corporate executive, the manager
is the agent of the individuals who own the corporation or
establish the eleemosynary
institution, and his primary responsibility is to them.
2
Needless to say, this does not mean that it is easy to judge how
well he is performing his
task. But at least the criterion of performance is
straightforward, and the persons among
whom a voluntary contractual arrangement exists are clearly
defined.
Of course, the corporate executive is also a person in his own
right. As a person, he may
have many other responsibilities that he recognizes or assumes
voluntarily–to his family,
his conscience, his feelings of charity, his church, his clubs, his
city, his country. He ma}.
feel impelled by these responsibilities to devote part of his
income to causes he regards as
worthy, to refuse to work for particular corporations, even to
leave his job, for example,
to join his country's armed forces. Ifwe wish, we may refer to
some of these

responsibilities as "social responsibilities." But in these
respects he is acting as a principal,
not an agent; he is spending his own money or time or energy,
not the money of his
employers or the time or energy he has contracted to devote to
their purposes. If these are
"social responsibilities," they are the social responsibilities of
individuals, not of business.
What does it mean to say that the corporate executive has a
"social responsibility" in his
capacity as businessman? If this statement is not pure rhetoric,
it must mean that he is to
act in some way that is not in the interest of his employers. For
example, that he is to
refrain from increasing the price of the product in order to
contribute to the social
objective of preventing inflation, even though a price increase
would be in the best
interests of the corporation. Or that he is to make expenditures
on reducing pollution
beyond the amount that is in the best interests of the
corporation or that is required by law
in order to contribute to the social objective of improving the
environment. Or that, at the
expense of corporate profits, he is to hire "hardcore"
unemployed instead of better
qualified available workmen to contribute to the social
objective of reducing poverty.
In each of these cases, the corporate execttive would be
spending someone else's money
for a general social interest. Insofar as his actions in accord
with his "social
responsibility" reduce returns to stockholders, he is spending
their money. Insofar as his

actions raise the price to customers, he is spending the
customers' money. Insofar as his
actions lower the wages of some employees, he is spending their
money.
The stockholders or the customers or the employees could
separately spend their own
money on the particular action if they wished to do so. The
executive is exercising a
distinct "social responsibility," rather than serving as an agent
of the stockholders or the
customers or the employees, only if he spends the money in a
different way than they
would have spent it.
But if he does this, he is in effect imposing taxes, on the one
hand, and deciding how the
tax proceeds shall be spent, on the other.
This process raises political questions on two levels: principle
and consequences. On the
level of political principle, the imposition of taxes and the
expenditure of tax proceeds are
governmental functions. We have established elaborate
constitutional, parliamentary and
judicial provisions to control these functions, to assure that
taxes are imposed so far as
possible in accordance with the preferences and desires of the
public–after all, "taxation
3
without representation" was one of the battle cries of the
American Revolution. We have

a system of checks and balances to separate the legislative
function of imposing taxes and
enacting expenditures from the executive function of collecting
taxes and administering
expenditure programs and from the judicial function of
mediating disputes and
interpreting the law.
Here the businessman–self-selected or appointed directly or
indirectly by stockholders–is
to be simultaneously legislator, executive and, jurist. He is to
decide whom to tax by how
much and for what purpose, and he is to spend the proceeds–all
this guided only by
general exhortations from on high to restrain inflation, improve
the environment, fight
poverty and so on and on.
The whole justification for permitting the corporate executive to
be selected by the
stockholders is that the executive is an agent serving the
interests of his principal. This
jusfification disappears when the corporate executive imposes
taxes and spends the
proceeds for "social" purposes. He becomes in effect a public
employee, a civil servant,
even though he remains in name an employee of a private
enterprise. On grounds of
political principle, it is intolerable that such civil servants–
insofar as their actions in the
name of social responsibility are real and not just window-
dressing–should be selected as
they are now. If they are to be civil servants, then they must be
elected through a political
process. If they are to impose taxes and make expenditures to
foster "social" objectives,

then political machinery must be set up to make the assessment
of taxes and to determine
through a political process the objectives to be served.
This is the basic reason why the doctrine of "social
responsibility" involves the
acceptance of the socialist view that political mechanisms, not
market mechanisms, are
the appropriate way to determine the allocation of scarce
resources to alternative uses.
On the grounds of consequences, can the corporate executive in
fact discharge his alleged
"social responsibilities?" On the other hand, suppose he could
get away with spending the
stockholders' or customers' or employees' money. How is he to
know how to spend it? He
is told that he must contribute to fighting inflation. How is he to
know what action of his
will contribute to that end? He is presumably an expert in
running his company–in
producing a product or selling it or financing it. But nothing
about his selection makes
him an expert on inflation. Will his hold?ing down the price of
his product reduce
inflationary pressure? Or, by leaving more spending power in
the hands of his customers,
simply divert it elsewhere? Or, by forcing him to produce less
because of the lower price,
will it simply contribute to shortages? Even if he could answer
these questions, how
much cost is he justified in imposing on his stockholders,
customers and employees for
this social purpose? What is his appropriate share and what is
the appropriate share of
others?

And, whether he wants to or not, can he get away with spending
his stockholders',
customers' or employees' money? Will not the stockholders fire
him? (Either the present
ones or those who take over when his actions in the name of
social responsibility have
reduced the corporation's profits and the price of its stock.) His
customers and his
4
employees can desert him for other producers and employers
less scrupulous in
exercising their social responsibilities.
This facet of "social responsibility" doctrine is brought into
sharp relief when the doctrine
is used to justify wage restraint by trade unions. The conflict of
interest is naked and clear
when union officials are asked to subordinate the interest of
their members to some more
general purpose. If the union officials try to enforce wage
restraint, the consequence is
likely to be wildcat strikes, rank?and-file revolts and the
emergence of strong competitors
for their jobs. We thus have the ironic phenomenon that union
leaders–at least in the
U.S.–have objected to Government interference with the market
far more consistently
and courageously than have business leaders.
The difficulty of exercising "social responsibility" illustrates, of
course, the great virtue

of private competitive enterprise–it forces people to be
responsible for their own actions
and makes it difficult for them to "exploit" other people for
either selfish or unselfish
purposes. They can do good–but only at their own expense.
Many a reader who has followed the argument this far may be
tempted to remonstrate
that it is all well and good to speak of Government's having the
responsibility to impose
taxes and determine expenditures for such "social" purposes as
controlling pollution or
training the hard-core unemployed, but that the problems are
too urgent to wait on the
slow course of political processes, that the exercise of social
responsibility by
businessmen is a quicker and surer way to solve pressing
current problems.
Aside from the question of fact–I share Adam Smith's
skepticism about the benefits that
can be expected from "those who affected to trade for the public
good"–this argument
must be rejected on grounds of principle. What it amounts to is
an assertion that those
who favor the taxes and expenditures in question have failed to
persuade a majority of
their fellow citizens to be of like mind and that they are seeking
to attain by undemocratic
procedures what they cannot attain by democratic proced ures.
In a free society, it is hard
for "evil" people to do "evil," especially since one man's good
is another's evil.
I have, for simplicity, concentrated on the special case of the
corporate executive, except

only for the brief digression on trade unions. But precisely the
same argument applies to
the newer phenomenon of calling upon stockholders to require
corporations to exercise
social responsibility (the recent G.M crusade for example). In
most of these cases, what is
in effect involved is some stockholders trying to get other
stockholders (or customers or
employees) to contribute against their will to "social" causes
favored by the activists.
Insofar as they succeed, they are again imposing taxes and
spending the proceeds.
The situation of the individual proprietor is somewhat different.
If he acts to reduce the
returns of his enterprise in order to exercise his "social
responsibility," he is spending his
own money, not someone else's. If he wishes to spend his
money on such purposes, that
is his right, and I cannot see that there is any objction to his
doing so. In the process, he,
too, may impose costs on employees and customers. However,
because he is far less
5
likely than a large corporation or union to have monopolistic
power, any such side effects
will tend to be minor.
Of course, in practice the doctrine of social responsibility is
frequently a cloak for actions
that are justified on other grounds rather than a reason for those
actions.

To illustrate, it may well be in the long run interest of a
corporation that is a major
employer in a small community to devote resources to providing
amenities to that
community or to improving its government. That may make it
easier to attract desirable
employees, it may reduce the wage bill or lessen losses from
pilferage and sabotage or
have other worthwhile effects. Or it may be that, given the laws
about the deductibility of
corporate charitable contributions, the stockholders can
contribute more to charities they
favor by having the corporation make the gift than by doing it
themselves, since they can
in that way contribute an amount that would otherwise have
been paid as corporate taxes.
In each of these–and many similar–cases, there is a strong
temptation to rationalize these
actions as an exercise of "social responsibility." In the present
climate of opinion, with its
wide spread aversion to "capitalism," "profits," the "soulless
corporation" and so on, this
is one way for a corporation to generate goodwill as a by-
product of expenditures that are
entirely justified in its own self-interest.
It would be inconsistent of me to call on corporate executives to
refrain from this
hypocritical window-dressing because it harms the foundations
of a free society. That
would be to call on them to exercise a "social responsibility"! If
our institutions, and the
attitudes of the public make it in their self-interest to cloak
their actions in this way, I

cannot summon much indignation to denounce them. At the
same time, I can express
admiration for those individual proprietors or owners of closely
held corporations or
stockholders of more broadly held corporations who disdain
such tactics as approaching
fraud.
Whether blameworthy or not, the use of the cloak of social
responsibility, and the
nonsense spoken in its name by influential and prestigious
businessmen, does clearly
harm the foundations of a free society. I have been impressed
time and again by the
schizophrenic character of many businessmen. They are capable
of being extremely
farsighted and clearheaded in matters that are internal to their
businesses. They are
incredibly shortsighted and muddleheaded in matters that are
outside their businesses but
affect the possible survival of business in general. This
shortsightedness is strikingly
exemplified in the calls from many businessmen for wage and
price guidelines or
controls or income policies. There is nothing that could do more
in a brief period to
destroy a market system and replace it by a centrally controlled
system than effective
governmental control of prices and wages.
The shortsightedness is also exemplified in speeches by
businessmen on social
responsibility. This may gain them kudos in the short run. But it
helps to strengthen the
already too prevalent view that the pursuit of profits is wicked
and immoral and must be

curbed and controlled by external forces. Once this view is
adopted, the external forces
6
that curb the market will not be the social consciences, however
highly developed, of the
pontificating executives; it will be the iron fist of Government
bureaucrats. Here, as with
price and wage controls, businessmen seem to me to reveal a
suicidal impulse.
The political principle that underlies the market mechanism is
unanimity. In an ideal free
market resting on private property, no individual can coerce any
other, all cooperation is
voluntary, all parties to such cooperation benefit or they need
not participate. There are
no values, no "social" responsibilities in any sense other than
the shared values and
responsibilities of individuals. Society is a collection of
individuals and of the various
groups they voluntarily form.
The political principle that underlies the political mechanism is
conformity. The
individual must serve a more general social interest–whether
that be determined by a
church or a dictator or a majority. The individual may have a
vote and say in what is to be
done, but if he is overruled, he must conform. It is appropriate
for some to require others
to contribute to a general social purpose whether they wish to or
not.

Unfortunately, unanimity is not always feasible. There are some
respects in which
conformity appears unavoidable, so I do not see how one can
avoid the use of the
political mechanism altogether.
But the doctrine of "social responsibility" taken seriously would
extend the scope of the
political mechanism to every human activity. It does not differ
in philosophy from the
most explicitly collectivist doctrine. It differs only by
professing to believe that
collectivist ends can be attained without collectivist means.
That is why, in my book
Capitalism and Freedom, I have called it a "fundamentally
subversive doctrine" in a free
society, and have said that in such a society, "there is one and
only one social
responsibility of business–to use it 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."

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