hand book strat & mgmt

8/8/2019 Hand Book Strat & Mgmt

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17

What Are the Responsibilitiesof Business to Society?

DAVID A. WHETTEN, GORDON RANDSand PAUL GODFREY

Some readers might be wondering: Why powerful, organization-bending social forces isinclude a chapter on business ethics and social at the heart of business and society scholarship.responsibility in a handbook on strategy and Given that the term used to characterize thismanagement? Our short answer is that we see area of focus, `business and society', denotes themany benefits from greater integration study of relationships, it should not be surpris-between business and society scholarship and ing that scholarship in this area has specializedmore mainstream approaches to the study of in the subject of external relations management.strategy and management. Following are three Business strategy scholars interested in this sub-supporting arguments, each associated with a ject can learn a great deal about the categorical

major section of our chapter. arguments used to justify the claims regardingFirst, organizational science scholarship, what constitutes a firm's legitimate responsibil-broadly defined, can benefit from a better ities. In particular, scholars who tend to focus onunderstanding of the history of thought regard- the instrumental aspects of external relationsing the troubling matter of business responsi- involving suppliers, channels of distribution,bilities. We offer two brief examples. unions, etc., can gain a better understanding of

Although debates regarding the control and the full range of relationships firms must man-accountability of organizations have receded age, including those external claims made oninto the background of organizational scholar- firm resources that are represented as `moralship, generally, this subject continues to ener- obligations'. In addition, the recent theoreticalgize much of the scholarship on business and work pertaining to stakeholder relations has thesociety relations. When these scholars scan the advantage of being more bi-directional in orien-business landscape they `see' social activists tation than the dominant inside-out models of and special interest groups expending tremen- customer relations, supplier relations, etc., thatdous energy changing business practices that populate the broader organizations literature.i mpact society in ways they see as adverse. The first section of our chapter details theWhether one agrees with the activists' intentions history of scholarship on business and societyor not, they are undeniably exerting increasingly relations, showing how the number and varietygreater pressure on, and in many cases control of claims regarding corporate social responsibil-over. the strategies and actions of firms. ity have increased through the years, and howAchieving a better understanding of these the scholarship on stakeholder relations has


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374 HANDBOOK OF STRA TEGY A ND MANA GEMENT

Table 1 7.1 Business and society terminologyTerm DefinitionAttitudes Situation-specific beliefsBehavioral intentions

Planned actionsBehaviors ActionsCorporate social performance Actual behavior regarding social issues (may be used to refer either to responses,

outcomes and impacts of responses, or the entire set of inputs, throughputs,and outputs resulting in social impacts of corporate behavior); a stakeholder'sassessment of the degree of acceptability of a company's social responses

Corporate social responses Actions taken by a company that are intended to or actually do impact asocial issue

Corporate social responsibility Societal expectations of corporate behavior; a behavior that is alleged by astakeholder to be expected by society or morally required and is therefore

justifiably demanded of a businessCorporate social responsiveness Processes of responding to social demandsDescriptive ethics Description of the actions engaged in and how these compare to societal moral

expectationsDuties An action which is obligatory in order to protect the right of another

Ethical, moral Behavior consistent with principles that define what is good or badEthics The study of moral obligations and behavior; a set of principles or rules that

judges or guides decisions made or actions taken by individuals or groupsJustice Fairness in treatment; various forms exist including distributive (allocation of

benefits and burdens associated with some action), compensatory (providingrecompense for harm suffered), retributive (imposing punishment for wrongbehavior), and procedural (establishment of/adherence to/consequences of following administrative rules)

Morality Questions of fundamental right/wrong action (good/bad as opposed tocorrectlincorrect)

Negative rights Those rights which a person will enjoy unless interfered with (the duty is one of ' negative action', i.e., non-interference in the other party's enjoyment of theright), e.g., life and liberty. The creation of harm frequently involvesinterfering with negative rights, and negative rights have primary importancein ethics

Normative ethics Articulation/prescription of desirable behavior or a desirable principle on whichto make moral decisionsPositive rights Those rights which a person can sometimes enjoy only if others take action to

see that it is provided (the duty is one of 'positive action', i.e., provision of theentitlement), e.g., food for the starving, shelter for the homeless. Theproduction of social good frequently involves the provision of positive rights,and positive rights have secondary importance in ethics

Rights Things to which an individual is entitled either by virtue of citizenship orhumanity

Utilitarianism The philosophical theory which states that the morally best action is that whichproduces the greatest net benefits for society as a whole

Values Fundamental preferences for outcomes or modes of existence, which are used asa guide for making decisions

emerged as a prominent framework for under- Business and society scholars have identifiedstanding the process by which external claims four generic responsibilities of business. Theseare presented, investigated, and negotiated. encompass a wide spectrum of duties',

Second, the obligatory dimension of the including creating wealth, obeying laws andmyriad and often conflicting litmus tests of regulations, avoiding harm, and ameliorating social responsibility facing contemporary social ills. Firms attempting to discharge thesefirms raises some vexing conceptual chal- responsibilities confront a multitude of dilem-lenges that should appeal to organizational mas, arising both within and between the fourtheorists interested in the general subject of responsibility categories. The conceptual andorganizational dilemmas and paradoxes. practical conundrums associated with this


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THE RESPONSIBILITIES OF BUSINESS 375

classification of corporate social responsibili- issue was scientific management pioneerties are the focus of the second section of our Henry Gantt, who in 1919 advocated thatchapter. companies should serve society (Wren, 1979).

Finally, the business and society literature Four years later, English businessman Olivercontains numerous intriguing leads for new Sheldon included this argument in his 'philo-areas of investigation in related areas of man- sophy of management'. More specifically,agement scholarship. Whereas the purpose of Sheldon suggested that every manager neededthe first section is to expose readers with a to adopt three principles:general interest in organizations to the busi-ness and society literature, the purpose of this (1) 'that the policies, conditions, and methodsfinal section is to suggest opportunities for of industry shall conduce to communal well-boundary-spanning collaboration on topics being'; (2) that 'management shall endeavor tohitherto unstudied. Hence, the final section of interpret the highest moral sanction of theour chapter has a distinct forward-looking ori- community as a whole' in applying social jus-entation, inviting readers to consider a variety tice to industrial practice; and (3) that 'man-of research ideas stimulated by our reading of agement ... take the initiative ... in raising thethe business and society literature. Given our general ethical standard and conception of

space limitations, we have opted to introduce social justice'. (Wren, 1979: 207)a wide variety of topics rather than exploring ahandful in detail. This is consistent with our The incorporation of social concerns inoverall objective of inviting the broadest pos- management education came after the Secondsible range of readers to become more familiar World War. Dean Donald David of the Harvardwith this literature and to add their theoretical Graduate School of Business Administrationand methodological perspectives to the con- suggested in a Harvard Business Review arti-temporary discussions in this field regarding cle (1949) that business involvement in com-some of the most practically challenging and munity and public affairs must be a qualityintellectually interesting issues facing tomor- promoted by business education. From 1952row's business executives. to 1958 a series of articles on the subject of

Before proceeding, we are concerned that business and society appeared in HBR.because many readers will be new to the According to Paul (1987: 8), `the basic themebusiness-society literature (within which we of much of this work is the necessity for the

i nclude the business ethics literature), some of individual to integrate personal values andthe terminology may be unfamiliar. Accor- managerial action. On a more general level,dingly, in Table 17.1 we present a summary list the idea was presented that social responsibil-of major terms - including brief definitions - ity should be a guiding principle for corpora-used in this literature. tions.' This period also saw the publication of

Howard Bowen's (1953) The Social Respon-sibilities of the Businessman, and a suggestion

HISTORICAL OVERVIEW OF BUSINESS by participants in a 1955 AACSB meeting

AND SOCIETY SCHOLARSHIPof deans that business schools offer coursesin business-society relations and socialresponsibility.

Significant concerns about the role of business This section of our chapter picks up thein the larger American society first arose at the story in the 1960s and continues to the presentend of the 19th century, with the rise of large by briefly reviewing five major themes in thecorporations and the 'robber barons'. business-society literature.' As shown inTheodore Roosevelt and other progressive Table 17.2, our discussion of these five themespoliticians of the 1900s and 1910s responded highlights topics that are particularly relevantto these concerns by creating the first modern for the study of strategic management. Wewave of government regulation to curb abuses, will first present an overview of the fivesuch as the meat packing industry's scan- themes, and then examine each, particularlydalous practices, which were the subject of the first, in more detail. Our added measure of muckraker Upton Sinclair's The Jungle. The attention to the first theme reflects its founda-earliest 'management scholar' to address this tional nature.


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Table 17.2 Themes in the study of business and society relationsLines of inquiry 1960s 1970s 1980s 1990sOrganizing principles

Business ethics Meaning of business ethics Descriptive ethics - articulation Review and application of major Review and application of (different than ethics of of ethical issues ethical theories (rights, justice, additional ethical theoriesindividuals in business?) utilitarianism) to social and ethical (esp. virtue ethics, social

issues contract theory, ethic of care);ethical theory - organizationaltheory relationships

Corp. social responsibility Existence of social Why social responsibilities Social performance - financial Principles of socialresponsibilities; articulation exist; categories of CSR; performance relationship responsibility; refinement of of different responsibilities principle of public measures of social

responsibility performance; exemplarypractices of 'sociallyresponsible businesses'

Ideology/attitudes/values Change in individuals' ethical Social and ethical values of Social/ethical values/attitudes of Comparative ethical valuesvalues over time managers; comparison to business students; models of (nationality, race, gender);

those of business critics; individual ethical decision empirical studies of moralmanager's opinions re CSR making; organizational influences reasoning and decision making;arguments on ethical decision making in moral intensity of issues

organizationsOrganizational processes

Corp. social performance Desirability and appropriate Understanding social issues - Crisis management; public affairs managing employeebeneficiaries of philanthropy; scanning the environment/ management; issues management; voluntarism; environmentalsocial movements link to strategic planning; cause-related marketing, strategic audits/reports; environmental

social auditing proposed; philanthropy; corporate affairs function; corporategrowth of public affairs governance; industry ethics codes; creatingand community relations self-regulation; CEO leadership; ethical cultures; issue-functions; social models of CSP specific control systems:responsiveness; advocacy diversity management, whistleadvertising blower protection, ethics

hot-lines, sexual harassmentpolicies, etc.

(Contd.)


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Table 17.2 (Contd.)Lines of inquiry 1 960s 1 970s 1 980s 1 990s

Stakeholder management Stakeholder concept, analysis and Stakeholder partnerships;

management prioritizing stakeholders;

determinants of stakeholder

tactics

Social issues

Minorities Hiring Purchasing from minority Advancement Diversity, anti-AAowned businesses

Women Hiring Advancement, work and family Sexual harassment, elderly

pressures, comparable dependent care

worth, child care

Community Poverty, riots Urban renewal Education, homelessness, drug Education, hiring welfare

education, community impacts recipients

of closings/takeovers

International Corporate political Bribery Disinvestment from South Africa, Human rights of workers, local

intervention in other plant safety, marketing practices community benefits, global

countries operating standards

Consumers Consumer rights, planned Product safety, deceptive Product quality, advertising to Liability regarding inherently

obsolescence, auto safety advertising claims children harmful products,

over-consumption, sex in

advertising; internet marketing

and privacy/security

Employees Labor law violations. Wages, quality of work life, Plant closings, wage and benefit Downsizing, e-mail privacy, too

wage increases layoffs, workplace safety, cuts, AIDS, privacy, whistle- much overtime, work-life

free speech, employee blower protection, age and balance, CEO/worker pay

assistance programs disability discrimination, ratio, religion/spirituality andnonsmoker's rights, work, disability access, domestic

employee wellness, partner benefits, smoker's

employee crime rights, workplace violence

(ConId.)


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Table 17.2 (Contd.)Lines of inquiry 1960s 1970s 1980s 1990s

Environment Air, water, noise pollution; Toxic waste, solid waste, Global warming, recycling,energy conservation; acid rain, ozone depletion, recycled content, pollutionendangered species environmental racism prevention, disclosure,

biodiversity, sprawl,sustainable development

Stockholders Greenmail. golden parachutes CEO compensationBusiness-government

relationsGovernment action Determinants and Federal chartering of Economic deregulation; social international trade policies;

legitimacy of corporate corporations; social deregulation attempts; comparative public policy;political activities regulatory policies; privatization of govt. international regulation

regulation's impact on services; pro-business govt.business activity; corporate PACs;

regulatory complianceBusiness political activity Implications for business Political contributions/ Political action in other countries;

of governmental response scandals; corporate corporate political strategy andto social unrest crime competitive advantage


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THE RESPONSIBIL ITIES OF BUSINESS 379

Business and Society Themes on the business enterprise by agents of socialchange? Research in this area involves

The first theme, organizing principles, exam- description of social problems, and of the cor-ines the basis for claims that corporations porate activities that give rise to or contribute

should act on social and ethical issues. In a to the exacerbation of these problems. Thissense, authors addressing this theme are stream of research tends to be descriptive andanswering the `why' question of business and issue specific. Unlike the literature in the prin-society relations - Why should firms be good ciples category it tends to focus on the specificcorporate citizens? Within this broad theme are i mpacts of the harm and the mechanisms bythree major streams of scholarship: business which it occurs, rather than making a philo-ethics, corporate social responsibility (CSR), sophical or strategic case for why companiesand ideology/values/attitudes. Each of these should respond to the issue. Unlike the litera-streams claims kinship to different disciplines: ture in the processes category, it tends tobusiness ethics is based in philosophy, ideology/ describe practices of companies that arevalues/attitudes is based in psychology and framed in issue specific terms rather than insociology, and CSR is based in sociology and relational or functional terms. In addition,management. The three streams are inter- when corporate practices are described, therelated. Individuals have values, attitudes and

focus is on how they increase or lessen theideologies that influence, and are the product harm done, rather than on their intendedof, the issues they pay attention to and the effects, in terms of the development of thedecisions they make. These beliefs shape, and issue or the company's relationships with theare influenced by, their views regarding what concerned stakeholders. As noted above, unlikecorporations should do. Individuals articulate the business-government relations literature,these values in terms of claims that businesses the stakeholders involved have no direct, legiti-have certain social responsibilities - often mate coercive power over the corporation. It isframed as ethical responsibilities or moral i mportant to point out that fewer business andobligations. To make these claims obligatory, society scholars currently emphasize thisactors weave in the scholarship and thinking theme in their writings than did in the past -of major moral systems or philosophies, as much of the literature in this area now stemswell as legal and economic reasoning. from sociology, political science, and journal-

The second theme, organizational processes, ism, including the general, business, and

focuses on firms' responses to claims that they social advocacy press. Although it is an' ought' to act in certain ways. Literature on important source perspective in this field, it isthis subject focuses on the 'how' question that seldom the focus of actual scholarship.has been central to the business and society The fourth theme, business-government field-How do firms manage their interactions relations, focuses on activities directed atwith the external environment? The major business by government (such as regulationstreams of scholarship within this area are cor- and trade policies), and on activities directedporate social performance, corporate social at government by business (such as lobbyingresponsiveness, issues management, crisis and PAC contributions). To the extent thatmanagement, stakeholder management, and government is just another stakeholder group,corporate governance. These streams have it should be managed by a process like publictheir roots in business strategy and policy, affairs (under theme 2). To the extent thatorganizational behavior, organizational theory, government is concerned about specific issuespsychology, sociology and political science. scholarship on this topic spills over into

Corporate social performance (CSP) has theme 3. However, government is such abecome the dominant stream within this cate- powerful stakeholder - different in degreegory, but stakeholder management has rapidly (size and power vis-a-vis other stakeholders)grown in prominence. and kind (it can enforce its demands through

The third theme, social issues, examines the laws and regulations) - that we place it in itsspecific concerns expressed by various stake- own category. For this reason, this theme canholders. Scholarship on this theme addresses be viewed as a specific focus on a uniquethe 'what' component of business and society ' who' in business and society relations,relations - What are the specific claims made Scholars in this area commonly study both


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380 HAN DBOOK OF STRA TEGYA ND MANA GEMENT

governmental and business actions, making of the concept will be explored in some detailseparation of these interactions awkward. in the third section of this chapter. Put simply,These scholars frequently have different train- Friedman argued that the proper social respon-

ing than those who study the interactions of sibility of business is to focus on wealth cre-business with other social stakeholders. The ation, and to leave other social institutions toroot disciplines of business-government rela- solve social problems. Other critics chargedtions scholars tend to be political science, eco- that giving business the power to addressnomics and law. issues traditionally reserved for government

and charitable organizations would be damag-

Theme 1: Organizing ing to the concept of a pluralistic society(Levitt 1958).

Principles - ` Why' This challenge to the CSR concept resulted

The pioneers in the business-society fieldin attempts in the 1970s to build a stronger,

came from many disciplines, but mostmore logically grounded and articulated

notably from economics, political science, case for the adoption of CSR. Preston andPost (1975) looked for a principle to decidelaw, and business policy. In part because of what issues a company was obliged to respondtheir professional background, as well as the to. They articulated the `principle of publicnature of public discourse, the search for

responsibility', which argues that a businessprinciples to guide business in its relationship should deal with the social issues that arewith society was framed primarily in terms i mpacted by the normal operating activities of of corporate social responsibility (CSR), the company. This principle suggests, forrather than ethics or values - although these example, that an automobile manufacturer haslatter topics have been of great signifi- the responsibility to address issues such ascance. Because of CSR's prominence, we auto safety, vehicular air pollution, and thewill focus primarily on spend most of our impacts of its manufacturing plant activitieseffort detailing this concept. Readers inter- on the local community, while it has noested in an extensive discussion of the evolu- responsibility to become engaged in activi-

Carof the CSR concept are advised to see ties such as philanthropic support for thearroll (1999). arts. Sethi (1975) suggested that corporate

Corporate Social Responsibilitysocial responsibility (or performance) hadthree logically distinct elements: social

The early advocates for CSR (Bowen, 1953; obligation (responsibility to obey the law),Davis, 1967; Votaw and Sethi, 1969) social responsibility (congruence with pre-advanced many pragmatic arguments on vailing societal norms, values and expecta-behalf of CSR. These included the ideas that tions), and social responsiveness (developmentCSR activities: would help limit increases in of policies, programs and capabilities thatgovernment regulation; would develop a would minimize adverse consequences of socially and economically stronger society societal demands). These three elementsmore conducive to business success; would were considered by Sethi (1975) to beimprove corporate reputation among existing proscriptive, prescriptive, and anticipative,and potential customers; would help attract respectively.and retain high quality employees; and had the Building on this conceptual work, Carrollpotential to turn social problems into business (1979) suggested another approach to estab-

opportunities. Arguments that business had a lishing principles of social responsibility. Hemoral obligation to help society were also attempted to defuse the economic responsibil-advanced, but were not generally articulated in ity vs social responsibility argument byas much detail. acknowledging that economic profitability is a

This growing acceptance in the late l 950s fundamental social responsibility of business.and the l 960s of the concept of social respon- Carroll articulated three other categories of sibility within both business and business edu- responsibility: legal, ethical and discretionary.cation elicited a vigorous attack on the He argued that these four categories couldconcept, led by conservative economist Milton serve as principles for managers deciding howFriedman. Friedman's (1962, 1970) criticisms to meet their social responsibility regarding a
http://awkward.in/http://awkward.in/http://awkward.in/http://awkward.in/


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specific issue. The economic responsibility of indicators, most notably the Kinder,the firm is to take those actions regarding the Lydenberg, Domini & Co. (KLD) index. Thisissue that helped the firm make money. The index of social performance currently mea-legal responsibility of the business on the issue sures performance on 10 different social issue

is to obey whatever laws existed regarding the areas (community, diversity, employees,issue. The precise nature of the ethical and dis- product, environment, non-US operations,cretionary responsibilities is more vague, in nuclear power, military contracting, alcohol/ part because Carroll offered differing explana- tobacco/gambling, and other') for all of thetions of them in different writings (Carroll, S&P 500, and is available on a longitudinal1979, 1991). Ethical responsibilities consist basis. Several studies of the KLD databaseeither in doing what society expects on the have concluded that, despite some weaknesses,issue or in doing whatever is necessary to it is a far more accurate and reliable measure of avoid causing harm. Discretionary responsi- social performance than its predecessorsbilities (or philanthropic responsibilities, as (Sharfinan, 1993; Stank, 1993; Waddock andthey were later referred to) consist of taking Graves, 1997b).actions not expected of the firm by society, or In the 1990s, attention also turned back toactions which bring about social benefits. The articulating theoretically sound and practicaldifferences in Carroll's earlier, more prag- principles for CSR. Wood (1991) drew frommatic, formulation of these responsibilities previous CSR research to suggest three funda-and his later, more theoretically based, formu- mental principles. At the institutional level, thelation reflects growth in the influence of ethics legitimacy of business as an institution dependson the CSR concept, which we discuss shortly. upon proper use, rather than abuse, of its power.

In the 1980s and 1990s, much of the CSR At the organizational level, the business shouldresearch focused on the relationship between minimize harmful impacts stemming from itscorporate social performance and financial per- normal operating activities. At the individualformance. This attention reflected both the level, managers should utilize whatever indi-increased empirical orientation of the field, as vidual discretion they may have to benefitwell as the desire to empirically test (or for society. These principles, Wood argued, pro-many, to provide support for) the claim that vide logically defensible guidelines which man-good corporate citizens would be good eco- agers can use to determine what issues theynomic performers. Over 50 such studies have should respond to and in what ways.been done, and several reviews and meta- Many CSR scholars in the 1990s have calledanalyses of this literature have been conducted attention to and described the exemplary prac-(Ullmann, 1985; Griffin and Mahon, 1997; tices of so-called socially responsible busi-Preston and O'Bannon, 1997; Roman et al., nesses' (SRBs) (Altman and Post, 1995). These1999; Wood and Jones, 1995; Frooman, 1997). organizations, generally relatively young smallThe empirical results are mixed. In general, the to midsize companies, publicly state theirstudies suggest a somewhat positive association commitment to CSR, particularly to engage inbetween CSR and financial performance, activities which can be regarded as falling inalthough the causal nature of the relationship is Carroll's (1979) discretionary category. Theunclear. At the very least, relatively little sup- Body Shop, Ben & Jerry's, Odwalla, Tom's of port exists for the view that CSP and economic Maine, Patagonia, South Shore Bank of performance are negatively related. However, Chicago, and Hanna Andersson are among themany of these studies are methodologically companies whose exemplary commitment toweak and the robustness of their findings is thus CSR have been widely recognized. However,

in doubt. For example, Wood and Jones (1995) critics argue that when one considers the fullattribute some of the ambiguity in these results range of corporate activity, few companiesto a mismatching of independent and dependent deserve the SRB label (see Entine, 1994 for anvariables and the lack of available data on the- application of this argument to the Body Shop).oretically relevant intervening variables.

Scholars have increasingly attempted to Ethicsrefine measures of social performance. Singleissue, single measure studies have been sup- The sub-field of business ethics has benefitedplanted by measures which use multiple from an increasing presence of business


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38 2 HANDBOOK OF STRA TEGY A ND MANA GEMENT

faculty with a rich training in ethics. In the guideline for academic analysis, its limitations1950s and 1960s scholars wondered whether for management practice should be fairly obvi-business ethics was anything more than indi- ous - few managers have the time, under-

vidual ethics applied in a business setting. standing, or energy to perform this type of Guiding ethical principles were often religi- detailed comparative analysis.ously based (Johnson, 1957). As CSR focused In the 1990s, additional ethical theorieson organizational actions regarding externally entered the field and attracted substantial inter-generated social demands, ethics to some est: chief among these are social contractsdegree focused on individual actions within theory (Donaldson and Dunfee, 1994), virtuethe company. Such topics include falsification ethics (Solomon, 1992), and the ethics of careof expense reports and other records, dishon- or feminist ethics (Liedtka, 1996). Virtueesty, theft and extortion, etc. To some degree ethics represents a qualified return to thethis distinction between social and ethical 1960s treatments of business ethics as individ-issues continues, particularly as this subject is ual ethics, but with a firmer philosophicaltreated in textbooks. But recognition that ethi- grounding. Recent scholarship also asks a new cal considerations apply to external social question: do ethical business practices lead toissues grew, and in the 1970s many studies competitive advantages? (Hosmer, 1994;identified and catalogued the ethical questions Quinn and Jones, 1995.)

involved in a wide variety of personal andorganizational issues. These works were often Ideology, Attitudes and Values used in conjunction with the pedagogicalquestion: What should be done in this situation This component focuses on the beliefs thatin order to be ethical? individuals hold which shape their decisions

As ethicists began to write and teach in the and behaviors. As such it is based in psycho-business-society area, the tools of normative logy, sociology, and social psychology. In theethical analysis entered the discussion. During 1960s a key question in this area, stemming the 1980s, the ethical theories of utilitarian- from such ethical fiascos as the electricalism, rights, and justice (Cavanagh et al., 1981) price fixing scandals of the 1950s, was

were applied to business situations. Philo- whether individual managers' ethical valuessophers and non-philosophers alike began to were in decline (Baumhart, 1961). In theapply these theories to organizational and 1970s attention to the role of values in deci-individual behaviors, as well as to social prob- sion making led to a number of studies about

lems, to determine if an ethical responsibility the values of executives (Ostlund, 1977),exists in conjunction with a particular issue, employees (Collins and Ganotis, 1973) andand, if so, what is the nature of the organiza- social activists (Sturdivant, 1977). The focustion's or individual's obligations. While the on executives' attitudes continued in the 1980sapplication of ethical analysis fostered a more with studies examining whether executives'rigorous analysis of social responsibility attitudes toward types of social responsibilitiesclaims, these theories did not end the debate might be related to company social perfor-about business ethics. While rights theory is mance (Aupperle et al., 1985). In the 1980spreferred by most business ethicists, there is and 1990s a number of studies examined thehardly a general consensus on this matter. social and ethical values and attitudes of busi-Recognizing that different ethical principles ness students (see Glenn, 1992, for a review of often yield conflicting implications for action, these studies) in an attempt to deter minea common recommendation is that potential whether ethics education had an impact ondecisions be analyzed using each of the major ethical values and attitudes. Another area of theories (Velasquez et al., 1983). Ifa course of increased attention in the 1990s was compara-action is adjudged ethical by all of the tive studies of ethical values and decisiontheories, it can be confidently engaged in. making in companies and societies around theHowever, if no course of action passes all world (Al-Kazemi and Zajac, 1999; Battentheoretical screens, the decision-maker must et al., 1997; Nakano, 1997).choose among those options that pass one or Scholars interested in empirically invest]-t wo screens, or continue to search for addi- gating ethics and values looked to studies suchtional options. While this is a reasonable as those of Rokeach (1973), England (1967).


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THE RESPONSIBILITIES OF BUSINESS 38 3

and Hofstede (1980) for insight and instrumen- 1974). From these works, especially those of tation (Frederick and Weber, 1987). But these Ackerman (1973) and Paluszek (1973), itpsychologically and managerially based became apparent that many companies hadvalues instruments were not found to be espe- been grappling with how to effectively man-cially helpful, and in the 1980s and 1990s a age corporate social responsibility issuesmajor shift in this literature occurred. Scholars during the 1960s. Ackerman (1973) suggestedmoved away from descriptive studies of that a three-stage process was typically associ-values and attitudes presumed to be important ated with effective corporate social perfor-in decision making and towards psychological mance: social obligations were recognized andtheories of ethical reasoning - including con- policies developed; staff specialists were hiredceptual models of individual ethical decision and substantial learning about the problemmaking in organizations. Kohlberg's (1981) occurred; and line managers assumed respon-theory of moral reasoning has been widely sibility for social policy implementation, usu-used in studies of managers' and business stu- ally accompanied by changes in resourcedents' moral reasoning (Weber, 1990; Elm allocations and rewards.and Nichols, 1993). Trevino (1986) developed This trend suggested a shift in the field froma model of ethical decision making incorporat- identifying a general set of corporate social

ing aspects of both the individual and the responsibilities to describing processesorganization. Victor and Cullen (1988) inves- whereby firms could become more sociallytigated the ethical climate of organizations, responsive to the social issues in their task and how this affected individuals' ethical deci- environment. For example, research duringsion making. Jones' (1991) model calls particu- this period focused on topics like identifyinglar attention to the moral intensity of the issue and forecasting social issues (Wilson, 1974),that is the focus of an ethical decision. This creating social responsibility officials (Eilbirtscholarship attempts to move values and atti- and Parket, 1973), issues management (Chase,tudes research away from social responsibility 1977), social reporting (Butcher, 1973),and brings it into closer alignment with ethics. changes in organizational structures and sys-It also offers the potential to offer descriptive tems (Steiner, 1975), reforming corporateevidence and prescriptive suggestions for governance through changing board composi-actually managing ethical and social behavior tion (Blumberg, 1974), and a revival of theand performance within the firm. It is to this call for social auditing (Bauer, 1973). This

subject that we now turn as we examine the trend was also reflected in actual corporateorganizational processes theme. practice, as reflected in the proliferation of

public affairs departments responsible forpublic relations, community relations, corpo-

Theme 2: Organizational rate philanthropy, issues management, crisisProcesses - How' management, advocacy advertising, and gov-

ernmental relations and lobbying (Post et al.,The CSR literature of the 1950s, 1960s, and 1 983). By the end of the decade Frederick 1970s focused on establishing the case for the (1978, 1995) suggested that corporate socialexistence of corporate social responsibility. responsiveness (CSR2) had replaced socialHowever, other than Bowen's (1953) proposal responsibility (CSR1) as the key topic inthat companies conduct a social audit, the business-society scholarship.literature had little to say about how corpora- Carroll (1979) brought these two facets of tions should be managed in order to fulfill CSR (social responsibility and social respon-these responsibilities. In 1971 the first article siveness) together in a model of corporatefocusing on managing for social responsibility social performance (CSP). He proposed thatappeared in a business journal, suggesting the effective performance in this arena requiredcreation of committees of senior officers and managers to: reflect on the issues their compa-of departments of social affairs (Mazis and nies face, identify types of social responsibili-Green. 1971). By 1976 at least 39 other arti- ties these issues invite, and select the mode of cles focusing on social issue management responsiveness (reactive, defensive, accom-process topics had appeared, which were col- modative, proactive) they will pursue. Thislected in two volumes (Carroll, 1977; Sethi, model motivated CSP research for the next


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Table 1 7.3 Examples of'stakeholder tactics by decade1960s 1970s 1980s 1990s

Protests/demonstrations Federal chartering proposals Issue specific codes of conduct Corporate practices-oriented partnerships

Lobbying for laws/regulations CSR-based boycotts Social investing and consuming CSR awardsProxy resolutions Suing government agencies Encouraging whistle-blowing Multi-stakeholder negotiations

Unionization/strikes PACs/endorsements by other social activists Lobbying against social deregulation Independent certification of products

Labor PACs/endorsements Labor-management partnerships Cause-related event partnerships for CSR practices targeting retailersCommunity issue partnerships ' Monkey-wrenching'Ballot initiatives Lobbying against corporateCalls for product labeling subsidies

based on CSR activities Internet-based activismWorker ownership


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both partners has been relatively uncommon. studied question, and is the one most likely toBusiness and society researchers focus pri- examine the nature and implications of marily on the description or analysis of corpo- government activities. Where (local, state orrate political activity aimed at effecting such federal governments; legislative, executivegovernment actions (Christensen, 1995), leav- or regulatory agency; etc.) CPA takes placeing to political scientists and/or the popular has received little separate attention apartpress the task of examining government's from its relationship to why CPA occurs.actions and reactions. This has the unfortunate W hen CPA takes place also has been studiedresult of leaving some potentially significant primarily in the context of why firms engagegovernment experiments, such as the substitu- in political activity. The question of whichtion of market-based incentives (pollution firms (who) engage in CPA has also beentaxes, tradable emission permits) for tradi- studied extensively, and researchers havetional command and control regulations, rela- found that a large number of firm andtively unstudied by business and society industry characteristics are related to poli-scholars. tical involvement. Finally, the question of

The major decision firms face regarding how firms engage in political activity hasnonpolitical responses to government activity also received a great deal of researchis whether or not to comply with a government attention.regulation. Research on this topic has tended Getz (1997) has noted the opportunisticto fall under the topics of corporate crime or rather than systematic nature of this research,illegal corporate behavior (Baucus and Near, in that it has focused on political tactics and1991; Clinard and Yeager, 1980) and its flip political issues that have been in the publicside, regulatory compliance. The illegal cor- eye. For example, in the 1970s researchersporate behavior literature has studied both the focused on tactics like direct companyantecedents and consequences of illegal lobbying activities and direct political contri-behavior. The smaller literature studying com- butions, and on political issues, such as envi-pliance has primarily focused on the question ronmental, consumer, and safety. In the1980s of what induces firms to comply with laws and the focus was on grassroots lobbying, traderegulations. Variables studied have included associations, and political action committees,

factors such as environmental munificence as well as on issues like economic deregula-and dynamism, firm size, industry, and past tion and government protection from foreignbehavior (Baucus and Near, 1991). Baron i mports. Research on political tactics during(1995) has recently reoriented these discus- the 1990s has continued to examine the use of sions by suggesting that firms tend to integrate PACs, as well as the formation of politicaltheir market and non-market activities. This coalitions containing firms from severalsuggestion makes the separability of political industries. In terms of research on politicaland product-market strategies problematic, issues in the 1990s, corporate politicaland if correct, would seem to require strategy i nvolvement in trade issues has receivedscholars to pay close attention to business- attention (Rehbein and Schuler, 1 997; government relations. Schuler, 1996), as well as the development of

The study of the means by which and con- i nternational regulatory regimes, such as theditions under which corporations attempt to Montreal protocol to limit ozone depletioni nfluence government was pioneered by ( Getz, 1993). Also receiving increased atten-Epstein (1969), who identified 25 questions tion have been political strategies of multina-regarding business-government relations. tional corporations in different countries andRecent reviews of the corporate political under different political regimes (Boddewynactivity literature include those by Getz and Brewer, 1994; Hillman and Keim, 1995).(1997), Mahon and McGowan (1996), Looking to the future, Oberman (1993) andShaffer (1995) and Vogel (1996). Getz Hillman and Hitt (1999) have developed(1997) describes the scope of corporate polit- typologies of political tactics predictingi cal activity (CPA) research using the jour- which tactics will most likely be used in whatnalistic questions of why, where, when, who contexts and in support of what politicaland how. W hy firms participate in CPA has strategies. These offer the potential forbeen, she suggests. the most commonly i ncreasing the rigor of research on this topic.


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388 HAN DBOOK OF STRA TEGYA ND MANA GEMENT

In conclusion, our objective in this brief categories but prioritize their order as legal,overview of the business and society literature ethical, economic, philanthropic (discretionary).

2

has been to expose management and strategy In one way or another this simple hierarchicalscholars to the key themes and intellectual framework continues to give form and shape to

trends within this subfield of organizational contemporary discussions of business' respon-studies. We will now narrow our focus and sibility to society. We will briefly review theconcentrate on the core question that has both contemporary arguments supporting each claimenergized and confounded scholarship on this regarding what constitutes these responsibilitiestopic for decades: just what are business' and highlight the fundamental conceptual issue,responsibilities to society? framed here as a dilemma, at the core of each

perspective.Our purpose in invoking this particular ana-

WHAT ARE BUSINESS' l ytical frame is to encourage management andRESPONSIBILITIES TO SOCIETY? strategy scholars to more closely examine a

variety of vexing conceptual challenges that while they are particularly prominent and trou-

Having reviewed the evolution of thinking blesome in the business and society literatureon business and society relations, we now lurk beneath the surface of most contemporary narrow our focus. Within the context of the four scholarly accounts of managerial and organiza-major themes described in the preceding section, tional actions.this question is primarily a matter of principle.

That is, answers reflect competing paradigmaticarguments regarding whether (and if so, then Legal Responsibility: Obeywh) , ) businesses should attend to expectations Laws and Regulationsoriginating outside the realm of business.

We organize our discussion using the four Legal regulations are considered to be society'stypes of business responsibilities proposed by 'safety net' for regulating business activity.Carroll (1979). Carroll postulated that, `The Given the widespread evidence that marketsocial responsibility of business encompasses forces and moral persuasion are not sufficientthe economic, legal, ethical, and discretionary to curb the harmful externalities resulting fromexpectations that society has of organizations at business leaders' myopic focus on short-term

a given point in time' (1979: 500). As shown in earnings, governmental regulations and laws Table 17.4, we have broadened two of his cate- have been historically seen as a necessary gories to reflect a more contemporary 'Institu- buffer between business and society. However,tional' perspective and to make the categories as we mentioned earlier, a reduction in the ratemore consistent. It is important for our purposes of growth of business regulation is one of theto underscore Carroll's conclusion that what enduring legacies of the conservative politicalconstitutes a social responsibility of business is revolution. Therefore, very little attention hasa decision made by society, not by business. been paid to this position in the `what is busi-

As noted in the previous section, Carroll's ness' responsibility' debate since that era.model of social responsibility has exhibited a However, there is some evidence that thisremarkable degree of resilience, although it has trend line may be reaching a deflection point.its critics. One of the most common criticisms is We'll briefly mention three examples of fairly that the model assumes that economic responsi- recent proposals to experiment with new bilities are most fundamental, followed by forms of business regulations: market incen-l egal. ethical and discretionary responsibilities tives, federal chartering of corporations, and( Kang and Wood, 1995; Swanson, 1999). Kang international regulations.and Wood (1995) offer an alternative view, in Many proponents of stronger controls on

which they rum the hierarchy upside down, pollution have advocated various forms of before re-conceiving it in different terms, in market-based incentives in preference to tradi-

which moral responsibilities are framed as most tional 'command-and-control' regulationimportant, followed by social responsibilities, (Stavins and Whitehead, 1992). Examples of economic responsibilities, and benevolence. market incentives include pollution charges,Ferrell et al. (2000) meanwhile retain Carroll's tradeable permit systems, deposit refunds and


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Table 17.4 A comparison of husiness'responsibilities to society Type of responsibility Common description Focus of imperative Claim on business _ Conceptual dilemmaLegal responsibility: ' Doing what is required' Legal requirements Obligatory Market efficiency versus regulation

obey laws and regulations effectivenessEconomic responsibility: ' Doing well' Owners' rights Obligatory Accuracy versus generality of the

maximize shareholder wealth 'rules of the game'Moral responsibility: ' Doing what is expected' Moral obligations Obligatory Conflicting moral standards and

discharge moral duties ('not doing harm') expectationsSocial responsibility: ' Doing what is desired/ Citizenship Discretionary instrumental justification for 'doing

go beyond obligatory doing good' responsibilities good'responsibilities


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390 HANDBOOK OF STRA TEGY A ND MA NA GEMENT

user fees. The nature of these mechanisms, are the Montreal Protocol adopted in 1987 tounder which companies incur greater financial eliminate certain ozone-depleting chemicals,costs for greater amounts of pollution, encour- and the 1998 Kyoto global warming treaty. Aages companies to engage in innovation in major impediment to the use of internationalorder to reduce costs. In contrast, traditional regulations is that no acknowledged enforce-regulations, by specifying exactly what actions ment body exists, so the implementation andare to be taken to limit pollution, can actually enforcement of these regulations is dependentdiscourage innovation. In addition, market upon action by individual countries.incentive mechanisms encourage firms to con- The legal responsibility position wrestlestinue reducing pollution even after the level of with a core management dilemma, familiar topollution that is permitted by regulations is strategy scholars, namely the tradeoff betweenattained. Various applications of this approach effectiveness and efficiency. The critique of are being experimented with in both the US the traditional form of government regulationand Europe, including elements of the 1 990 is that it is inefficient for business, govern-Clean Air Act and the recently formulated merit, and society. Because they permit greaterglobal warming treaty. An example of an flexibility and require less oversight, marketapplication outside of the environmental arena

incentives are championed as a more efficientis the proposal to bestow favorable tax treat- form of regulation. However, numerous con-ment on corporations that voluntarily engage cerns have been raised regarding the effective-i n socially responsible practices, such as limit- ness of market-based forms of regulation. Foring CEO/worker pay ratios to a certain level example, some environmentalists oppose this( Kuttner, 1 996). approach because it doesn't carry the same

The federal chartering of businesses has degree of moral sanction. They are concernedbeen advocated by those who believe that gov- that the underlying objective of protecting theernment needs greater leverage over the actions environment will be overshadowed by debatesof business (Mokhiber, 1998). If all firms were over pricing mechanisms, etc. They view thefederally chartered, then government could prospect of an extremely wealthy firm being revoke a company's charter (and thus its right willing to pay a severe financial penalty forto exist) if it engaged in a pattern of egregious producing high levels of pollution as an unten-behavior. While states currently have this able proposition. They also point out that in

power, the economic benefits they derive from order for the market form of deterrence toissuing charters or from being the home of a work, prices have to be right. Given that pric-large corporation discourages them from using ing is inherently a trial-and-error process, they this power. Advocates of this form of regula- worry that if the initial prices are too low totion argue that government simply can't levy produce the expected results, government offi-big enough fines to deter businesses from cials will lack the political will to raise the fees.engaging in a class of reprehensible offenses Business and government leaders havethat generate significant financial gains. They expressed related concerns about the unknownbelieve that nothing short of the threat of losing aspects of this new approach. For example,the right to operate as a business will be suffi- although business leaders complain about thecient to prevent these social disasters. current form of regulation, they know how the

Recently, there has been an increase in the current system works and they have learneddemands for international business regulation how to operate successfully within this set of (Post et al.. 1996). Advocates argue that even parameters. Therefore, although they, in gen-i f the world's major trading nations agree on a eral, prefer market solutions over governmentcommon set of ethical standards and business solutions, many business leaders are uncom-regulations, given that contracts are generally fortable with the uncertainty inherent inawarded to the lowest bidder and that pollution switching to an entirely new form of regula-knows no boundaries, the only guarantee that tion. The same type of ambivalence can beharmful business activities occurring in any observed among government officials. On thegiven country aren't allowed to affect one hand. they see merit in off-loading anmembers of societies half way around the extremely unpleasant, unpopular, and onerousglobe is to create a minimal set of intema- oversight responsibility. But, they too aretional business regulations. Notable examples uncertain about the implications of trading a


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known set of goals, responsibilities, competen- these critiques into two broad dilemmas facingcies, etc., for a new approach whose potential advocates of the maximize shareholderto regulate is unproven and whose implica- wealth' position. These dilemmas are linked to

tions for regulators are unknown. the corresponding summary statement in thepreceding paragraph.

First, the tradeoff between accuracy and gen-Economic Responsibility: erality. Weick (1979) observed that theoretical

Maximize Shareholder Wealth propositions can be classified as simple, gen-eral, or accurate. In addition, he argued that

This is the traditional view of business respon- because it is logically impossible for a state-sibility, commonly attributed to Milton ment to be simple, general, and accurate, theseFriedman's classic New Y ork Times Magazine attributes are, as a set, incommensurable.article, `The social responsibility of business Applying this logic to Friedman's 'rules of theis to make profits' (1970). Advocates of this game', critics have argued that although thisposition argue that the ultimate decision crite- general and simple statement is adequate as aria in business affairs is the interests of the boundary condition for the maximize share-owners - the shareholders. Their agents holder wealth proposition, its lack of accuracy(senior managers) are expected to maximize makes it unacceptable as a practical guide forprofits, within the `rules of the game'. From discharging moral responsibilities.this perspective, the firm has but one stake- Initially, Friedman proposed that the rulesholder - stockholders - and they have but one of the game included laws and ethical stan-interest - financial gain. Therefore, if man- dards. However, in his later writings he arguedagers engage in `socially responsible actions' in favor of restricting legal encumbrances onthat reduce the return to shareholders they are business (Friedman and Friedman, 1980),in effect levying a tax on the company's which places the bulk of the responsibility forassets. Furthermore, by appointing themselves restraining the excesses of business on unspeci-as de facto policy makers they subvert the fied ethical standards and moral principles.rightful control of the market place. As such, Advocates of the moral responsibility position' doing good' is always at the expense of have insisted that matters this important` doing well', and, therefore, it is not only bad shouldn't be passed off this casually - moral-

for business it is also bad for society. Why? ity is too important to be summarily dismissedBecause, shareholder advocates claim (using with a forward definition. Although they don'tutilitarian logic) that the `greatest good for the fault Friedman for not providing a definitivegreatest number' results from business doing set of ethical rules, they fear that his simplewhat business does best - creating wealth that and general treatment of the subject marginal-through lawful and appropriate means like izes the role of ethics in the minds of practi-wages and taxes enables other social institu- tioners. The expressed need for adding greatertions (families, governments, and churches) to specificity and clarity to the rules of thedo what they do best - attending to the chart- game' is reflected in the search for the Holytable needs of society. Grail of business ethics - a definitive moral

In summary, the Friedmanesque view of credo for business. As we will discuss in morebusiness and society relations can be reduced to detail shortly, although this quest has nottwo statements: The responsibility of business yet accomplished its avowed objective, theis to make money, and management should crusaders involved in this effort are both

stay focused on this goal. as long as they are numerous and zealous.playing by the rules. If a corporation engages Second, the tradeoff between core and com-in socially beneficial practices that add value prehensive. It is clear that Friedman wasto the firm that is simply good economics. (As focusing on the core objective of business- tosuch, these practices should not be heralded as generate wealth. However, when wealth gen-evidence of socially-enlightened management.) eration is proposed as a comprehensive state-

This view of business and society relations ment of business practice, critics consider thishas been criticized on several fronts (Wartick an impoverished view of business' role inand Cochran, 1985; Sethi. 1999; Baumol. society. They argue that placing all other organi-1991). We have chosen to synthesize many of zational intentions and effects secondary to the
http://goal.as/http://goal.as/


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392 HANDBOOK OF STRATEGYAND MANAGEMENT

wealth-creation i mperative of business and utility. Quinn and Jones' (1995) moralincreases the risk that devotees of Friedman's rule book is less expansive: avoiding harm tophilosophy will intentionally or unintention- others, respecting the autonomy of others,

ally precipitate social calamities because of avoiding lying, and honoring agreements. In what they have been trained not to see' in an ambitious statement of the `universal moralterms of their firm's web of embedded inter- minimum' that should regulate all businessdependence.' activity in any national or cultural setting,

To better inform discussions about this Donaldson (1989) proposes a list of 10 funda-broader set of issues, it is useful to note that mental international individual rights, includ-these two broad critiques of the economic ing such things as freedom of physicalresponsibility position have served as the movement, nondiscriminatory treatment, sub-defining issues for the moral responsibility sistence, and freedom of speech.and social responsibility positions, respec- An encyclical letter from Pope John Paul II,tively. In the next section we will summarize ' Centesimus Annus', represents one of thethe efforts by the advocates of the moral most comprehensive and articulate efforts toresponsibility position to remove the vague- establish a moral code for business activity.ness from Friedman's notion of the `rules of Following is an excerpt from this 114 pagethe game'. Then, in the following section on document, written by one of the foremost social responsibility, we will examine the posi- moral authorities of our time.tion that responsible businesses, like citizens,should do more than the bare minimum to The Church acknowledges the legitimaterole

advance the goals of the larger society. of profit as an indication that a business isfunctioning well. When a firm makes a profit,this means productive factors have been prop-

Moral Responsibility: erly employed and corresponding human

Discharge Moral Dutiesneeds have been duly satisfied. But profitabil-ity is not the only indicator of a firm's condi-

This position challenges the presumption of tion. It is possible for the financial accounts toprivilege underlying the shareholder wealth be in order, and yet for the people - who make

position. Rather than granting economic activ- up the firm's most valuable asset - to beity an exemption from basic ethical obliga- humiliated and their dignity offended. Besides

tions, this perspective characterizes business being morally inadmissible, this will eventu-and markets (like all other forms of human ally have negative repercussions on the firm's

activity) as social artifacts, consisting of economic efficiency. In fact, the purpose of a

socially constructed and sustained 'practices' business firm is not simply to make a profit,( Wicks, 1996; Freeman and Gilbert, 1988). By but is to be found in its existence as a

corrnmu-

stressing the commonality between businessnit of persons who in various ways are

activity and other forms of human endeavor, endeavouring to satisfy their basic needs, and

advocates bring economic activity under the who form a particular group at the service of jurisdiction of fundamental moral principles the whole society. Profit is a regulator of theand responsibilities. Given that no social insti- life of a business, but it is not the only one:

tution can legitimately claim that their contri- other human and moral factors must also be

bution to society is uniquely exempted from considered which, in the long term, are at least

the moral codes required to sustain the corn- equally important for the life of a business.

mon good, then all institution-specific goals.(1991: 68-9) (italics in the original text)

rules, or requirements must be subordinated to The dilemmas associated with the moralcommon moral law. This is an essential responsibility position that we feel have therequirement for sustainable social action. greatest relevance for organizational scholars

There have been several attempts to codify are rooted in the social nature of moral codes,the moral rules of the road' that under-gird all i ncluding their creation, their enactment, andbusiness activity. For example, DeGeorge their enforcement. Several organizational schol-(1990), following the lead of Velasquez et al_ ars have examined the social context conducive(1983), proposed a normative code' that to on-the-job moral behavior, including theencompasses three principles - rights, justice, effects of ethics statements, ethics committees.


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in-house ethics advisors, ethics audits, ethics moral voice is likely to be marginalized astraining programs, and so forth (Smith and unknown, impractical and, therefore, irrelevant.Carroll, 1984; Trevino, 1986; Weber, 1993). Although the dilemma involving moral and

The most commonly examined source of effective organizational practices has notorganizational influence on moral behavior is received much attention in the business andorganizational culture, or climate (Victor and society literature, it is related to a conundrumCullen, 1988; Toffler, 1986; Trevino, 1990). that has been the focus of considerable debate:Summarizing these studies, Frederick finds, the apparent 'contradiction-by-definition' rela-' Ethics is essentially an experiential phenome- tionship between a firm's economic and moralnon, so that finding ways to affect one's work- duties. A standard technique for resolvinging experience is more likely to have moral dilemmas and paradoxes is to invoke a frame-impact than exhortations to adopt abstract changing moderator, such as time intervals, orphilosophic principles, laudable as they may levels of analysis. The later has figured promi-be' (1995: 242). nently in the efforts of business and society

In reading this literature, one is left wonder- scholars to develop an 'integrated' view of ing, Given what we know about "effective" business' moral and economic duties. For

organizational practices, is there anything example, Wood (1991) argues that differentunique about their "moral" counterparts?' For levels of analysis, or organization, incur differ-example, referring to the preceding quote from ent forms of social responsibility, and further-Frederick, wouldn't we expect to hear basi- more, she believes there is a natural order tocally the same sentiments from an expert on these nested requirements. The observationimproving productivity, or quality, or cus- that businesses have 'nested' responsibilities totomer satisfaction? society echoes Freeman and Gilbert's (1988)

If we assume that our 'best practice' man- argument that all organizations sanctioned by aagement processes are agnostic - what is society must support the underlying normativebeing implemented, and for what purpose, rules that make social intercourse possible.does not significantly affect how it should be More specifically, they propose that it is onlyimplemented - then the primary obstacle after a business has satisfied its common oblig-inhibiting the widespread adoption of the ations as a member of society (to support andmoral responsibility position is lack of inter- sustain foundational moral/ethical principles)

est. If, on the other hand, we conclude that that it should focus on its institution-specificorganizational practices legitimated by the responsibilities (to generate wealth) (see Quinnmoral imperative are inherently and funda- and Jones, 1995, for an excellent summary of mentally different from practices legitimated this general argument).by the effectiveness imperative, then not only Another dilemma that figures prominently inmay 'effective managers' be unskilled as this literature involves compliance with codes' moral managers', but in addition the blur- of ethics. It is widely recognized that many, if ring of this distinction (in discourse and in not most, unethical decisions in business are thepractice) will likely exacerbate this 'folly of result of conflicting obligations and priorities,ignorance'. rather than manifestations of morally defective

These alternatives highlight a core dilemma decision makers (Frederick, 1995). Work in thisin the business and society field - the tradeoff area has examined inter-role conflicts (Wicks,between feasibility of moral practice and dis- 1996) as well as inter-group conflicts (Wood,tinctiveness of moral practice. Their common 1991). Individuals sucked into the vortex of peril, reflected in the respective extreme posi- incompatible moral force fields often feel liketions, is straightforward: If moral management they are 'damned if they do and damned if theypractices are characterized as just another form don't'. These conflicting force fields can takeof organizational best practices, then their the form of incompatible codes of conduct gov-adoption is facilitated by the assurance of erring the home office of a multinational cor-familiarity, but justifications used to support poration and a field operation in a differentthese practices must yield their 'moral high country. They can also manifest themselves asground'. On the other hand, if moral practices conflicting norms regarding social intercourse,are treated as wholly separate from, even anti- in general. versus codes of conduct pertainingthetical to, standard business practice, then the to a specific type of business transaction.


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394 HANDBOOK OF STRATEGY AND MANAGEMENT

Various strategies have been proposed for involves `negative action' - non-interferenceresolving the potentially paralyzing tension in the enjoyment of a right. The common ter-associated with seemingly incompatible ethical minology for violating this duty is doing requirements. Invoking the levels of analysis harm'. In contrast, positive rights are thosemoderator to reconcile seemingly contradictory rights that a person can enjoy only if they aremoral and economic duties, Donaldson and provided by someone else. The common ter-Dunfee (1994) propose an `integrative social minology for enabling someone to enjoy posi-contracts theory', that specifies two require- tive rights is `doing good'. If a business doesments for an ethical contract. First, it must con- not provide an entitlement, it is creating harm.form to the universal `hypernorms' that apply If it does not provide a privilege (benefit) thento all contracts among economic participants. it is not, by definition, creating harm, but itSecond, it must be consistent with the local, or also isn't doing good. As reflected in the medi-` micro', ethical specifications within an eco- cal creed, `First do no harm', moral philoso-nomic community (an industry, an organization, phy places greater importance on avoiding a market). Using different levels of analysis harm than on doing good. Hence, the distinc-fulcrum for logical leverage. Wicks (1996) tion between business' obligatory (moral)argues that there has been an excessive empha- responsibility to avoid harm, and its discre-sis on creating a shared moral organizational tionary (social) responsibility to do good.culture at the expense of helping individuals As noted in our historical overview, the termbetter understand how their personal moral sen- philanthropy was used by Carroll (1991) in hissibilities should be used as guidelines for deter- later description of discretionary socialmining what constitutes a moral business responsibilities. However, over time the dis-practice. In brief, he argues that personal moral cretionary aspect of business' responsibility tocodes should take precedence over organiza- do more than avoid causing harm has proventional codes of conduct, because the latter are problematic for those who see the need for ourtoo easily corrupted by other organizational most powerful and resourceful organizationsresponsibilities. to address pressing social issues like improv-

ing literacy, caring for the homeless, and pro-tecting the environment. They bridle at the

Social Responsibility: Go i mplication that corporate support for founda-Beyond Fulfilling Basic tional social goods is classified as philan-Obligations to Society thropy, which is equated with support for the

l ocal arts council or symphony guild. There are numerous forms of the social (dis- The passionate commitment shared by many cretionary) responsibility position, but they all business and society scholars to increase theacknowledge the need for firms to go beyond ` clout' of the social responsibility claims onsimply meeting their economic, moral, and the business enterprise highlights a vexing legal responsibilities. While some tend to dilemma in this literature. On the one hand, itadvantage one set of obligatory responsibili- is unacceptable to relegate important socialties over others (Ferrell et al., 2000; Kang and responsibilities to the status of discretionary.

Wood, 1 995), all accept the inherent legiti- But, on the other hand, efforts to enhance themacy of all obligatory claims on the enterprise authority of these claims by aligning themof business. However, advocates of the social with business' obligatory moral, legal, or eco-responsibility position generally hold that for a nomic duties tends to yield illogical or unveri-

business to only do the bare minimum is no fiable arguments. Space does not permit amore responsible than it is for a citizen to only detailed analysis of the logical and empiricaldo what is minimally required. problems resulting from the practice of

The difference between negative and posi- invoking the authority of each of the threetive rights in philosophy is pivotal to the dis- categories of obligatory duties. Therefore.tinction between obligatory and discretionary we will focus on the overarching fallacy of business responsibilities (Swanson. 1 995: using instrumental arguments to justify moral

Velasquez, 1992). Negative rights are those positions.rights that a person will enjoy unless interfered Given the avowed purpose of the social

with. Therefore, the resulting moral duty responsibility advocates to influence business
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practice, it is not surprising to find many of their expectations, then managers feel justified inespoused positions buttressed by instrumental abandoning their commitment to socially

justifications. For example, Hosmer (1994) responsible business practices.argues that ethical firm behavior fosters trust Before closing this discussion of socialamong stakeholders, which in turn generates responsibility, we wish to draw attention to ancommitment, which is manifest as increased emerging effort to finesse the use of instru-organizational support.' An alternative form of mental arguments to justify moral behavior.this argument makes the case for the instru- Recently, several scholars (Litz, 1996:mental benefits of trust within the contest of Waddock and Graves, 1997a) and practition-principle-agent relations and social contract ers (Long and Arnold, 1995; Svendsen, 1998)management (Freeman and Evan, 1990; Hill have argued that internal and external stake-and Jones, 1992; Jones, 1995). In rebuttal, crit- holders are so essential to the effectiveness of ics argue that despite their natural appeal, a company that partnering and collaboratinginstrumental justifications for moral behavior with stakeholders are essential strategic activi-are both logically and empirically suspect ties. Furthermore, they posit that the ability to(Donaldson and Preston, 1995; Quinn and do so effectively is a strategic asset - a sourceJones, 1995; Wicks, 1996; Freeman and of competitive advantage. This perspectiveGilbert, 1988). asserts that collaborating with, rather than the

Logically, the instrumental argument isn't management of , stakeholders requires a posi-supported by either the economic or moral tive, rather than a defensive or manipulative,responsibility positions. To say that one orientation toward stakeholders (Svendsen.should `do good' in order to `do well' violates 1998). Empirical evidence is used by support-a fundamental tenant of moral reasoning: ers of this position to suggest that the qualitymoral principles require no external validation of stakeholder relations may be synonymousand that moral practice should be intrinsically with the quality of management (Waddock valued. Furthermore, as noted by Friedman and Graves, 1997a).(1962), it is neither necessary nor appropriate To provide a sampler of the specifics, manyto characterize business activities that create of these partnerships have focused on environ-economic value for the firm as moral or mental issues, such as the McDonald's-ethical - it's just good economics, period. Environmental Defense Fund collaboration.

Empirically, the research on the relationship A key element of collaboration has beenbetween corporate social performance and increased communication and trust betweenfinancial performance has so far yielded the parties. Disclosure and transparency areambiguous results (Wood and Jones, 1995). the key watch words in companies attemptingAs we described in our historical overview, it to build collaborative relationships with stake-is far from an established fact that socially holders, frequently expressed through theresponsible firms have a competitive advan- issuance of environmental reports, as champi-tage over social slackers. Irrespective of what oned by the Coalition for Environmentallythe numbers suggest about this relationship, Responsible Economies (CERES). The increa-some authors have expressed concern about sed attention to sustainable development hasthe practice of using empirical evidence to broadened the focus on environmental con-support a moral argument. For example, cems to include collaboration on issues of Donaldson and Preston (1995) express con- social justice or equity, and is reflected in thecems about succumbing to the naturalistic `triple bottom line' (economics, environment.

fallacy' (Moore, 1959) - moving fromequity), that is increasingly being used by

description to evaluation, from what is' to companies, particularly in Europe, and`what should be', without careful attention addressed in their 'sustainability' reportsbeing paid to the underlying explanation and (Elkington and Stibbard, 1997).analysis. In addition, they point out a practical Now we turn to the crucial, supporting argu-concern regarding the use of `descriptive justi- ments. As noted earlier, collaborative relation-fication'. If businesses adopt socially respon- ships with stakeholders can be justified on thesible practices because they believe doing basis of a purely instrumental view of businessgood will enhance their financial performance, relations (Donaldson and Preston. 1995). and.but their experience doesn't support their if profit-enhancing, would be considered by


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396 HANDBOOK OF STRA TEGY A ND MANA GEMENT

Friedman (1970) to be perfectly appropriate of business, for example, the effectiveness of and justifiable, simply on economic grounds. government regulation versus the efficiency of But the emerging argument that firm perfor- economic markets (Scott, 1995).mance will improve as a result of consistent We have chosen to highlight the theme of attention to, and concern for, the satisfaction dilemmas in this section for two reasons. First,of all stakeholders (not just primary/economic they serve as prominent intellectual topo-stakeholders) is similar to, but not the same graphical reference points for constructing aas, the 'do well as a result of fulfilling non- ' map' of the business and society literature.obligatory social responsibilities' argument This is a field of study that has chosen todiscussed above. It is actually more consistent establish its base camp astride a maze of intel-with the moral responsibility perspective, with lectual fault lines. Second, our immersion inthe 'duty claim' being provided by the ethic of this literature has sensitized us to the relativecare perspective (Liedtka, 1996). Although paucity of concern being expressed aboutthis stakeholder-collaboration approach to these critical matters within the broader intel-social responsibility obviously does not pre- lectual context of organizational science. Theclude the adoption of these practices on the proposition that the practice of organizationalbasis of their perceived instrumental benefits science, broadly defined, can benefit from a

to the firm, it does not rely on, nor tout, an better understanding of the contemporaryinstrumental justification. Said another way, study of business and society relations will bealthough proponents do not ignore the poten- more fully developed in our next section.tial instrumental benefits of these practices,they characterize them as neither necessarynor sufficient conditions for organizations FUTURE DIRECTIONSdischarging their universal moral obligation to

FOR RESEARCH AND STUDYbe prudent and judicious stewards.

In summary, this section has focused on thecore question in the business and society liter- The previous sections of this chapter provide aature: What are the responsibilities of business general overview of the CSR literature - itsto society? We have briefly reviewed contem- history and the current state of thinking.porary thought on the four leading 'answers' - Because this is a handbook for scholars of legal, economic, moral, and social responsibil- strategy and management, we have chosen to

ities. In addition, as summarized in Table 17.4, focus our final section on promising researchwe have examined various dilemmas associated leads implied by business and society scholar-with each position. These dilemmas reflect in ship, that represent promising opportunitiesvarious ways and through various forms a dis- for collaboration with scholars in other fieldstinctive, and some would argue unique, feature of organizational science. We believe this callof the business and society literature - it treats for boundary-spanning collaboration is timelyas problematic what too often the encompass- given the increased interest in business anding discipline takes for granted. Authors in this society relations within contemporary busi-area debate the utility of the prevailing eco- nesses and societies. Anticipating greaternomic model of business - worrying as much emphasis on socially responsible business prac-about what it leaves unstated as about what it tices, we present opportunities for researchexplicitly claims. They also worry about what that consider the strategic and managerialhappens when the business model 'works too challenges facing firms that are committed towell', for example, when firms successfully discharging their social responsibilities (com-create market niches with high barriers to monly referred to as socially responsible busi-entry, or when they convince employees that nesses - SRBs). One way of conceptualizingtheir personal values and interests are identical our research agenda for studying SRBs is thatto (or, at least compatible with) the company's it brings business and society scholars andgoals and practices. Their distrust of the their more mainstream counterparts togetherenlightened self-interest, self-policing. view of to examine what Weick (1979) refers to as anethical business practice has also led them to ' extreme case' within the general businessexamine the competing claims of alternative population. Following his lead, we believe that'institutional' approaches to the social control studying outlier organizations often produces


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THE RESPONSIB ILITIES OF BUSINESS 397

more insights than focusing on more typical do not cover the full range of the coreorganizations. Throughout this section we'll variables, or constructs. (When was the lastdraw attention to the significant reasons why ti me you heard a scholarly presentation onwe believe SRBs represent a particularly poor leadership, weak cultures, lousy strate-promising venue for research and theory gies, or ineffective organizations?) One of thedevelopment on business management and benefits of studying SRBs as an organizationalstrategy. population is the abundance of information

about socially irresponsible' organizations.This brings us to the proposed variation on our

Effective and/or Moral questions regarding the organizational cul-Practices tures of SRBs: Do socially irresponsible

firms - those that are regularly cited (givenEarlier, we drew attention to the lack of citations for violating government regulationsresearch on the relationship between effective and cited in the press for their irresponsibleorganizational practices and moral organiza- actions) for ignoring their social responsibi-tional practices. If managers want to foster a lities - have equally strong cultures? Self-moral culture should they basically follow the interest taken to the extreme requires that

known recipes for producing other forms of organizational actors be willing to violatestrong organizational culture? Asked a differ- legal and other regulatory statutes. To do soent way, are there any significant differences may require an extremely strong set of enablingbetween the best bets' for increasing work norms, values, and artifacts. The alternativeperformance, that are standard fare in any proposition is that socially irresponsible firmsintroductory management course, and the list have weak cultures. Because these organiza-of `how tos' for improving ethical performance? tions appear to value everything very little, theirOr, as one of the authors regularly asks his employees are left on their own to sort out theMBA students, Is there a difference between messiness of an organizational milieu awash inbeing an ethical manager in an effective organi- self-interest.zation, and an effective manager in an ethicalorganization?'

Because they speak directly to the assump- Reputation, Image and Identitytion of uniqueness that pervades the businessand society literature, it is remarkable that Questions regarding the unique constitution of questions this fundamental to a field's claim of SRBs are closely linked to the emerging inter-a unique domain have not been examined est in the theoretical distinctions between repu-more fully. Studies of socially responsible tation, image and identity, as well as theirfirms comparable to our numerous studies of respective implications for management prac-effective organizations (Collins and Porras, tice (Whetten and Godfrey, 1998; Fombrun,1 994) would provide a context for addressing 1996). Given the skepticism expressed bythe core question: Are SRBs a type of effec- some (Entine, 1994) regarding the level of tive organization, or does the addition of the commitment exhibited in companies profess-moral imperative fundamentally change their ing to support SRB principles and practices,basic constitution? The answer to this question this area represents a richly-textured contextis equally important to business management for sorting out conceptual con

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