HANDBOOKof

STRATEGY AND MANAGEMENT

Edited byANDREW PETTIGREW,

HOWARD THOMASAND RICHARD WHITTINGTON

SAGE PublicationsLondon • Thousand Oaks • New Delhi

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 categoricalmajor section of our chapter. arguments used to justify the claims regarding

First, organizational science scholarship, what constitutes a firm's legitimate responsibil-broadly defined, can benefit from a better ities. In particular, scholars who tend to focus 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 ofand special interest groups expending tremen- customer relations, supplier relations, etc., thatdous energy changing business practices that populate the broader organizations literature.impact 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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HANDBOOK OF STRATEGY AND MANAGEMENT

Table 1 7.1 Business and society terminologyTerm

Definition

Attitudes

Situation-specific beliefsBehavioral intentions

Planned actionsBehaviors

Actions

Corporate social performance

Actual behavior regarding social issues (may be used to refer either to responses,

outcomes and impacts of responses, or the entire set of inputs, throughputs,and outputs resulting in social impacts of corporate behavior); a stakeholder'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 thereforejustifiably demanded of a business

Corporate social responsiveness

Processes of responding to social demandsDescriptive ethics

Description of the actions engaged in and how these compare to societal moralexpectations

Duties

An action which is obligatory in order to protect the right of anotherEthical, 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 offollowing 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 decisions

Positive rights

Those rights which a person can sometimes enjoy only if others take action tosee 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 amelioratingsocial 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

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 ofspace 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 ofBefore 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

include 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 ofHoward 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 SCHOLARSHIP

of 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 ofmuckraker Upton Sinclair's The Jungle. The

attention to the first theme reflects its founda-earliest 'management scholar' to address this

tional nature.

Table 1 7.2 Themes in the study ofbusiness and society relationsLines of i nquiry

1 960s

1 970s 1 980s 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 theoriesi ndividuals in business?)

utilitarianism) to social and ethical

(esp. virtue ethics, socialissues

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 ofof different responsibilities

principle of public

measures of socialresponsibility

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;

i ndividual 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 issuesorganizations

Organizational processesCorp. 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; environmentalsocial 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, ethicshot-lines, sexual harassmentpolicies, etc.

(Contd.)

Table 17.2 (Contd.)

Lines of inquiry

1 960s

1 970s

1 980s

1 990sStakeholder management

Stakeholder concept, analysis and

Stakeholder partnerships;management

prioritizing stakeholders;determinants of stakeholdertactics

Social issuesMinorities

Hiring

Purchasing from minority

Advancement

Diversity, anti-AAowned businesses

Women

Hiring

Advancement, work and family

Sexual harassment, elderlypressures, comparable

dependent careworth, child care

Community

Poverty, riots

Urban renewal

Education, homelessness, drug

Education, hiring welfareeducation, community impacts

recipientsof closings/takeovers

International Corporate political Bribery Disinvestment from South Africa, Human rights of workers, localintervention in other plant safety, marketing practices community benefits, globalcountries

operating standardsConsumers

Consumer rights, planned

Product safety, deceptive

Product quality, advertising to

Liability regarding inherentlyobsolescence, auto safety

advertising claims

children

harmful products,over-consumption, sex inadvertising; internet marketingand privacy/security

Employees

Labor law violations.

Wages, quality of work life,

Plant closings, wage and benefit

Downsizing, e-mail privacy, toowage increases

layoffs, workplace safety,

cuts, AIDS, privacy, whistle-

much overtime, work-lifefree speech, employee

blower protection, age and

balance, CEO/worker payassistance programs

disability discrimination,

ratio, religion/spirituality andnonsmoker's rights,

work, disability access, domesticemployee wellness,

partner benefits, smoker'semployee crime

rights, workplace violence(ConId.)

Table 17.2 (Contd.)

Lines of inquiry

1 960s

1 970s

1 980s 1 990sEnvironment

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;l egitimacy of corporate

corporations; social

deregulation attempts;

comparative public policy;political activities

regulatory policies;

privatization of govt.

international regulationregulation's impact on

services; pro-business govt.business

activity; corporate PACs;regulatory compliance

Business political activity I mplications for business Political contributions/ Political action in other countries;of governmental response scandals; corporate corporate political strategy andto social unrest

crime

competitive advantage

THE RESPONSIBILITIES 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 contributeshould 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

impacts 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 important 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, andfocuses 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-governmentfield-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 intoCorporate 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 throughThe third theme, social issues, examines the laws and regulations) - that we place it in its

specific concerns expressed by various stake- own category. For this reason, this theme 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

380

HANDBOOK OF STRATEGYAND MANAGEMENT

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 governmentand 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 decide

law, 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

impacted by the normal operating activities ofof 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 Responsibility

social 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 ofsocially and economically stronger society

societal demands). These three elementsmore conducive to business success; would

were considered by Sethi (1975) to bei mprove corporate reputation among existing

proscriptive, prescriptive, and anticipative,and potential customers; would help attract

respectively.and retain high quality employees; and had the

Building on this conceptual work, 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 aThis 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 ofsibility 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

THE RESPONSIBILITIES OF BUSINESS

381

specific issue. The economic responsibility of

indicators, most notably the Kinder,the firm is to take those actions regarding the

Lydenberg, Domini & Co. (KLD) index. 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 issueis 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 ofavoid 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 ofport exists for the view that CSP and economic

Maine, Patagonia, South Shore Bank ofperformance 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

38 2

HANDBOOK OF STRATEGYAND MANAGEMENT

faculty with a rich training in ethics. In the

guideline for academic analysis, its limitations1 950s and 1960s scholars wondered whether

for management practice should be fairly obvi-business ethics was anything more than indi-

ous - few managers have the time, under-vidual ethics applied in a business setting.

standing, or energy to perform this type ofGuiding 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 newcal 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 Valuesused 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 decisionsAs 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, stemmingthe 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, waswere 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 aboutlems, 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 ofoften 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 oftheories (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]-two 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).

THE RESPONSIBILITIES OF BUSINESS

38 3

and Hofstede (1980) for insight and instrumen-

1974). From these works, especially those oftation (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 socialing 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 taskand 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). Thissubject that we now turn as we examine the

trend was also reflected in actual corporateorganizational processes theme.

practice, as reflected in the proliferation ofpublic 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 Frederick1 970s 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 oftions 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 1 976 at least 39 other arti-

ties these issues invite, and select the mode ofcles 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

384

HANDBOOK OF STRATEGYAND MANAGEMENT

two decades (Miles, 1987; Mitnick, 1993; managing issues (Clarkson, 1995). SomeRands, 1991; Strand, 1983; Swanson, 1995, scholars (Waddock and Graves, 1997a) have1 999: Wartick and Cochran, 1985; Wood,

suggested that the quality of relationships with1 991). The models developed by Strand,

a broad set of primary (economic) and sec-Rands, and Mitnick differ from the others in

ondary (social) stakeholders may in fact bethat they frame the CSP process in systems

synonymous with the quality of managementtheory terms of inputs (demands for CSR),

generally. Hence, several scholars (Clarkson,throughputs (responsiveness processes), and

1995; Waddock and Graves, 1997a; Wood andoutputs (actions which affect social issues).

Jones, 1995) have suggested that stakeholderWhile not firmly grounded in a systems frame-

theory provides the basis for adequately under-work, Wood (1991) is the most well known

standing and assessing CSP.CSP model and has become a widely used ref-

Given the increasing emphasis on stake-erence tool on this topic. CSP now serves for

holder relations, it is important to draw atten-many as an overarching framework for the

tion to the literature on stakeholder tactics.business-society field.

Scholarship in this area has focused on theCSP models are lacking in two areas, how- i nfluence strategies employed by various

ever. First, the models fail to adequately spec- stakeholder groups to shape corporate practiceify relationships between key constructs. This (Frooman, 1999). As such, it complements thefailure impedes the development of testable firm-centric, inside-out orientation of stake-hypotheses that would further advance schol- holder theory. The combination provides thearship regarding relationships between and conceptual foundation for a bi-directionalamong issues, stakeholders, principles, pro- study of stakeholder relations. Consistent withcesses, and outcomes. Second, the models this broadened view of stakeholders, Woodfail to effectively integrate normative perspec- and Jones (1995) note that stakeholders playtives into their descriptive focus (Swanson, three fundamental roles regarding CSP: they1 999). Possible outcomes of this lack of are the source of CSP expectations, they arenormative-descriptive integration include: affected by company actions, and they evalu-reinforcing the notion that business and ethics ate how well companies meet CSP expecta-are distinct and incompatible domains - the tions. In addition, they are frequently` separation thesis' - (Wicks, 1996); reducing considered by managers during the processthe value of CSP models to practicing man- of developing and implementing socialagers; and inhibiting the development of a responses. Thus, in systems terms, stakehold-coherent theory of business and society ers are critical providers of inputs, explicit and(Swanson, 1999).

implicit factors in throughput processes, pri-Stakeholder theory (Freeman, 1984) emerged

mary recipients of outputs, and predominantin the 1980s not as a theory, but rather as a

sources of feedback.useful concept for communicating the need to

Just as the number of social issues facingmanage relationships with persons and organi-

business has increased, so have the number ofzations concerned with social issues, not

tactics available to and utilized by stakeholderjust those concerned with economic issues

activists, as indicated in Table 17.3. In part,identified by strategy scholars such as Porter

this is an outcome of the conservative revolu-(1980). In the 1990s, however, the stakeholder

tion (and to a lesser extent the GOP control ofconcept moved toward a more complete

the US Congress throughout much of thetheory, and became a leading competitor to the

1990s). Lobbying for new laws and regula-CSP framework for theoretical dominance.

tions was unproductive in that political cli-Numerous scholars have elaborated stake-

mate, so stakeholders had to devise new waysholder theory by developing models for identi-

that were more congruent with the prevailingfying and prioritizing stakeholders (Mitchell

i deology. Within the business and societyet al., 1997) and applying network theory to

field, although the breadth of tactics has beenstakeholder theory (Rowley, 1997). Manag-

noted, little research has focused on in depthing relationships with stakeholders is in-

investigation of specific tactics, or on thecreas-ingly being viewed as a more robust

implications of the choice of tactics for subse-means of conceptualizing or studying com-

quent corporate response. There are signs thatpanies' actions in the social realm than is

this deficiency is beginning to be addressed.

Table 1 7.3 Examples of'stakeholder • tactics by decade

1960s

1970s

1980s 1 990sProtests/demonstrations

Federal chartering proposals

Issue specific codes of conduct

Corporate practices-oriented partnershipsLobbying for laws/regulations

CSR-based boycotts

Social investing and consuming

CSR awardsProxy resolutions

Suing government agencies

Encouraging whistle-blowing

Multi-stakeholder negotiationsUnionization/strikes

PACs/endorsements by other social activists

Lobbying against social deregulation

Independent certification of productsLabor 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

subsidiesbased on CSR activities

Internet-based activismWorker ownership

38o

J-L4NDBOOK OF STRATEGY AND MANAGEMENT

For example, Frooman (1999) uses resource trade treaties such as NAFTA, WTO, anddependence theory to examine the conditions the proposed Multilateral Agreement onunder which stakeholders are likely to select Investments (MAI); sexual orientation issueslour different types of influence strategies.

(such as domestic partner benefits andIn conclusion, as corporate practice related

nondiscrimination on the basis of sexualto CSP has evolved, research on organiza-

orientation); workplace violence and its rela-tional processes has both expanded and

tionship to free speech and privacy rights;i mproved. New corporate practices/research

international social justice issues (for example,topics include strategic philanthropy, cause-

workers' rights in sweat shops, the impact onrelated marketing, industry self-regulation,

minorities of corporate practices allowed byCSP-related executive leadership behaviors,

majority-controlled governments); and thecreation of ethical cultures, management of

significance of religion and spirituality in thenew corporate functions (such as environ-

workplace.mental affairs departments), creation of

Through four decades, business-societyethics codes, partnerships with social activist

scholars have documented and analyzed thesestakeholders, corporate social and environ-

various issues, increasingly in the context ofmental auditing and reporting, corporate

building or testing theories. The emergence ofgovernance, and various issue specific control

a stronger theoretical perspective and moresystems and mechanisms. Research on these

sophisticated analytical tools, combined withtopics generally follows the pattern of docu-

an ever-growing list of challenging issues,menting current practice, then explaining

bodes well for the future of scholarship invariance in these practices, including their

this area.effectiveness as tools for managing the socialenvironment.

Theme 4: Business-GovernmentRelations -'A Unique Who'

Theme 3: Social Issues -'What'Because government differs in kind from other

Whereas stakeholder relations focuses on the

stakeholders, business-government relationsdynamics of relationships between firms and

has been treated as a special case, or form, oftheir stakeholders, scholarship on social issues

stakeholder relations in the business and societyhas focused on the content, or purpose, of

field. The business-government literature hasthese relationships. An external group's con-

focused on three basic topics: the actions ofcem about a social issue is often the generative

government to affect business, companies' non-force that propels them to declare a stake, or

political responses to government activity, andinterest, in a firm's capacities and competen-

the political involvement of business.cies. As Table 17.2 indicates, new social

In the 1960s and 1970s social regulationissues emerged during each of the past four

increased and the implications of this trend fordecades. Since most of these remain with us,

business generated a fair amount of descriptivethe number of social issues with which busi-

attention, as well as theoretical attentionness must deal is very large. The anti-

(Mitnick, 1980). Business-society researchersregulatory mood of the 1980s did little to slow

also examined existing control efforts bythis pattern, and may have even increased the

government and generated proposals thatexpectation that corporations would voluntar-

government adopt new means of controllingily address social issues since little new regu-

business behavior. Schwartz (1974) proposedl ation emerged during that period. The

that the federal government charter corpora-likelihood of new issues continuing to emerge

tions and use the attendant power to moreis great, and several that have emerged during

strictly require socially beneficial corporatethe 1990s are likely to grow in importance.

action. A more recent example is an examina-Among these are environmental issues (such

tion of the growing movement to reduce oras sustainable consumption and industrial ecol-

eliminate the federal government's subsidiesogy); work and family issues (such as support

of corporations (Stevens et al., 1995). In thefor nursing mothers and those caring for elderly

1 990s. however, an analysis of the business-parents); national sovereignty implications of

society relationship from the perspective of

THE RESPONSIBILITIES OF BUSINESS

387

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 ofmarily 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 When 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 ofThe 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

l obbying 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 the 1980sof 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

imports. Research on political tactics during(1995) has recently reoriented these discus-

the 1990s has continued to examine the use ofsions 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

involvement 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 ofThe study of the means by which and con- international regulatory regimes, such as the

ditions under which corporations attempt to Montreal protocol to limit ozone depletioninfluence 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. Why firms participate in CPA has strategies. These offer the potential forbeen, she suggests. the most commonly

increasing the rigor of research on this topic.

388

HANDBOOK OF STRATEGYAND MANAGEMENT

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 totrends 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 eachperspective.

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 avariety of vexing conceptual challenges thatwhile 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

l urk beneath the surface of most contemporarynarrow 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-terma given point in time' (1979: 500). As shown in earnings, governmental regulations and lawsTable 17.4, we have broadened two of his cate- have been historically seen as a necessarygories 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 fairlythat the model assumes that economic responsi-

recent proposals to experiment with newbilities are most fundamental, followed by

forms of business regulations: market incen-legal. 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 onwhich they rum the hierarchy upside down,

pollution have advocated various forms ofbefore 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 ofeconomic responsibilities, and benevolence.

market incentives include pollution charges,Ferrell et al. (2000) meanwhile retain Carroll's

tradeable permit systems, deposit refunds and

Table 17.4 A comparison of husiness'responsibilities to societyType of responsibility

Common description

Focus of i mperative

Claim on business

_

Conceptual dilemma

Legal responsibility:

' Doing what is required'

Legal requirements

Obligatory

Market efficiency versus regulationobey 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 anddischarge 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

390

HANDBOOK OF STRATEGYAND MANAGEMENT

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 ofare 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-in 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 sameThe federal chartering of businesses has degree of moral sanction. They are concerned

been advocated by those who believe that gov- that the underlying objective of protecting 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 beingrevoke 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 inpower, 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, theythis 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 theRecently, there has been an increase in the current system works and they have learned

demands for international business regulation how to operate successfully within this set of(Post et al.. 1996). Advocates argue that even parameters. Therefore, although they, in gen-i f the world's major trading nations agree on a eral, prefer market solutions over 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

THE RESPONSIBILITIES OF BUSINESS

391

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 totions 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 theoreticalMaximize 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 York 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 moralIn 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 bothstay focused on this goal. as l ong as they are

numerous and zealous.playing by the rules. If a corporation engages

Second, the tradeoff between core and com-i n socially beneficial practices that add value

prehensive. It is clear that Friedman 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 this

has 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-

1 991). We have chosen to synthesize many of

zational intentions and effects secondary to the

392

HANDBOOK OF STRATEGYAND MANAGEMENT

wealth-creation imperative 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. Inwhat 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 foremostsocial 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 legitimate roleadvance 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 humanDischarge Moral Duties

needs have been duly satisfied. But profitabil-i ty 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 makeposition. 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. Besidestions, 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'sactivity) as social artifacts, consisting of economic efficiency. In fact, the purpose of asocially constructed and sustained 'practices' business firm is not simply to make a profit,(Wicks, 1996; Freeman and Gilbert, 1 988). By but is to be found in its existence as a corrnmu-stressing the commonality between business nit of persons who in various ways areactivity and other forms of human endeavor,

endeavouring to satisfy their basic needs, andadvocates bring economic activity under the

who form a particular group at the service ofjurisdiction 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 bebution to society is uniquely exempted from

considered which, in the long term, are at leastthe 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 scholarsThere 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 including 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.

THE RESPONSIBILITIES OF BUSINESS

393

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 andThe 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 societyIn 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. Fororganizational 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 ofmentally 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, ifring 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 defectiveThese alternatives highlight a core dilemma decision makers (Frederick, 1995). Work in this

in 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 ofperil, 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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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 `doingrequirements. 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 avoidinga 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 theSocial Responsibility: Go

implication 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 thelocal arts council or symphony guild.

There are numerous forms of the social (dis-

The passionate commitment shared by manycretionary) 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 vexinglegal 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 ofThe difference between negative and posi-

i nvoking 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 ofbusiness responsibilities (Swanson. 1 995:

using instrumental arguments to justify moralVelasquez, 1992). Negative rights are those

positions.rights that a person will enjoy unless interfered

Given the avowed purpose of the socialwith. Therefore, the resulting moral duty

responsibility advocates to influence business

THE RESPONSIBILITIES OF BUSINESS

395

practice, it is not surprising to find many of their

expectations, then managers feel justified inespoused positions buttressed by instrumental

abandoning their commitment to sociallyjustifications. 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 ofics 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 theLogically, 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 (Waddockvalued. 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 ofDonaldson 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 from

equity), that is increasingly being used bydescription 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

396

HANDBOOK OF STRATEGY AND MANAGEMENT

Friedman (1970) to be perfectly appropriate

of business, for example, the effectiveness ofand justifiable, simply on economic grounds.

government regulation versus the efficiency ofBut 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 ofattention 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 ato 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 oflegal, economic, moral, and social responsibil- strategy and management, we have chosen toities. 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 together

enlightened 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

THE RESPONSIBILITIES 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 time 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 informationabout 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 irresponsiblefirms - those that are regularly cited (given

Earlier, 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 thatknown 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 ofquestions 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

1 996). Given the skepticism expressed bythe core question: Are SRBs a type of effec-

some (Entine, 1994) regarding the level oftive organization, or does the addition of the

commitment exhibited in companies profess-moral imperative fundamentally change their

i ng 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 conundrums, likeand strategy scholars because it would identify

the following.the extent to which, and in what ways, SRBs

How does one distinguish between SRBrequire modifications of our standard, main-

practices that are intended to burnish a firm'sstream organizing models and principles.'

i mage, by enhancing its reputation, and thoseBefore leaving this topic, we want to draw that emanate from an organization's identity?

attention to an intriguing variation. Although How can we determine if a firm's SRB claimsthe theory development literature emphasizes are truly foundational (constitutional)? Wouldthe importance of using variables, rather than we expect to observe different SRB practicesvalues of a variable (for example, height, i n firms whose SRB claims appear to be moti-

rather than tall or short) (Whetten, 1 989). vated by reputation-enhancement versusmany of our theories in organizational science

i dentity-articulation?

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HANDBOOK OF STRATEGYAND MANAGEMENT

The study of SRBs also provides a fairly

socially responsible, and external stakeholdersunique opportunity to examine what Albert

increasingly have access to metrics for evaluat-and Whetten (1985) call hybrid identity organi-

ing firm performance, relative to their claims,zations. First and foremost, one wonders To

Considering this question within organiza-what extent do SRB firms represent true

tions in `basic' industries, like mining, wouldhybrid identity organizations, in the sense that

provide a nice counterpart to the heavy focustheir dual commitment to `doing good' and

in the popular press on SRBs from the con-' doing well' constitutes the core of their organi-

sumer products industry. One wonders, forzational identity? If so, then: What is the etio-

example, do mining firms that practicelogy of these firms? Is it necessary for their ` beyond compliance' environmental reclama-unique constitution to be established by the tion gain competitive advantages over rivals,founders at the time of founding? Or: How as suggested by Porter and van der Lindelikely is it that a hybrid identity can be propa- (1995), or do they simply incur more costs?gated in mature organizations by means of

Because of the commodity-like nature of these`ideology grafts'? And finally: Can we isolate industries, it would appear that ecological sus-a unique organizational hybrid identity man- tainability is unlikely to provide any notice-agement competence in these firms?

able differentiation in the firm's productoffering. These industries have particular rele-vance for the business and society field, because

Sources of Competitive

of the severity, and permanence, of potentialAdvantage

damage that could be done. Ironically, wemight find that those industries where society

Scholars in both the academic literature (Hart,

has the greatest stake in ethical behavior are1995, 1 997) and the popular press (Dalla Costa,

the least likely to be influenced by an appeal to1 998) postulate a positive relationship between

enlightened self interest.an ethical orientation and competitive advan-

There is another way in which the study oftage. For example, firms that are committed to

firm-specific competitive assets could beenvironmental sustainability often gain cost

expanded and enhanced through collaborationadvantages over rivals, because by avoiding

with business and society scholars. The bulkpollution (or other environmental degradation)

of the research on competitive advantage hasthere is less waste in the economic operations of

focused on market-oriented competenciesthe firm. Conversely, firms with strong ethical

(Hosmer, 1 994). It is self evident that firmsclaims (such as the Body Shop) may generate

also gain competitive advantages through theand sustain a clear position of valuable differ-

regulatory process, either by tempering theentiation from competitors. This differentiation

impact of regulations governing their opera-may result in a very loyal customer base. that is

tions, or by encouraging stronger regulation ofwilling, among other things, to pay significantly

their competitors. This suggests that somehigher prices for the firm's products.

firms, particularly large firms in highly visibleSidestepping for now the debate over using

and socially sensitive industries (bulk chemi-i nstrumental arguments to justify moral action.

cals, mining and extraction, agriculture), wouldwe commend SRBs as an apt setting for exam-

develop competencies related to business-ining some of the core arguments regarding

government relations. This type of indirectcompetitive advantage in the strategy literature.

effort to increase a firm's competitive advan-Specifically, does an ethical orientation, or a

tage might take the form of influencing thestated commitment to socially responsible bust-

processes pertaining to the granting ofness practices. constitute a unique, valuable,

licenses, patents, and other forms of govern-non-substitutable, and difficult to imitate source

ment approval to conduct business.of competitive advantage? (Barney, 1 991:Peteraf, 1 993.) Godfrey and Hill (1995) havenoted that much of the research on the resource-

Collaborative Strategiesbased view of strategy is hampered by the unob-servability of resources. The commitment to One of the most natural connections that canbeing an SRB seems to overcome this problem: be made between strategy and management.firms make public commitments to being

and business and society scholarship involves

THE RESPONSIBILITIES OF BUSINESS 399

the study of stakeholder relations. In reading theoretical, and clearly more controversialthe discussions of interorganizational collabo- observation. The field of business strategyration in these fields one gets the sense of two emerged into the limelight via the writing oftunnels being drilled from opposite ends of the Michael Porter (1980, 1985), who advocatedmountain. On the one side the effort is being turning many of the propositions of welfareframed as effective stakeholder relations economics on their ear. For example, welfare(Waddock and Graves, 1997a), while on the economists hold that barriers to entry in another side it is characterized as effective busi- industry impede competition, encourageness strategy (Dyer and Singh, 1998). Common monopolistic behavior, and lead to a net lossto both is the assumption that competitive in welfare over the economy as a whole.advantages accrue to firms that successfully Porter, however, advocates that firms erectimplement and manage interorganizational barriers to entry in order to enhance their ownalliances. Business and society scholars bring monopolistic position - irrespective of theto this joint scholarly venture a strong sense of welfare effects on the economy as a whole.purpose. Many of the social problems facing Current work in strategy focuses on gainingour world, from environmental degradation to competitive advantage at the level of indivi-poverty to drug use, will require interorgani- dual firms. Consequently, concern that firmszational, and even intersectoral, cooperation or industries as a whole may gain competitiveand collaboration. Strategy scholars bring advantages at the expense of the welfare of thecomplementary assets, including an in depth encompassing society is seldom expressed.understanding of how effective alliances are Korten (1996) and others writing in a morecreated and managed. Together they might popular vein have impaled much of economicsexamine questions like: Assuming that SRB (and by implication strategy) in their attacksmanagers are very responsive to stakeholder on the emerging global capitalist order. Inclaims, are the resulting stakeholder networks response, we suggest that business and societydifferent in kind from those typically studied and strategy scholars need to develop a care-by strategy scholars - both in terms of mem- fully reasoned and non-incendiary articulationbership and relationship?

of the conditions under which the pursuit ofGiven that most social problems can't be

individual firm competitive advantage leads tosolved by the private sector alone, the study of

negative outcomes for the social order as ainterorganizational relations within the con-

whole.text of SRBs necessarily expands the set of

Such an endeavor might foster a long over-collaborating organizations to include govern-

due critical examination of the economic mod-ment agencies (Feyerherm, 1993, 1994;

els underpinning much of the thinking on thisFeyerherm and Milliman, 1995; Starik and

subject. For example, while much of gameRands, 1995). Studying interorganizational

theory supports the notion that unethicalcollaboration within this setting will allow

strategies will not lead to competitive successstrategy scholars to assess the boundary condi-

(Axelrod, 1984; Hill, 1990), there is no pre-tions of their current models of alliances and

scription that encourages firms to go beyondjoint ventures. Specifically, this enterprise

obligatory moral, legal, and economic respon-would seek to understand how well existing

sibilities. In fact, according to game theorymodels of joint ventures and other forms of

logic SRBs may be at a disadvantage in manyinter-firm collaboration apply to different

trades (as games) because their ethical com-kinds of partnerships (between businesses and

mitment signals a strategy that can begovernment agencies) and to different types of

exploited by firms unencumbered by theseactivities (reducing poverty versus developing

commitments. While the literature on organi-a new technology).

zational trust (Barney and Hansen, 1994;Wicks et al.. 1999) argues that trust createsadvantages in trades, the progress of this liter-

The Pathological Relationship

azure has been halting to date. More impor-between Strategy and Society

tantly, these arguments are disadvantaged by al ack of empirical support-data comparable to

Our earlier comment about socially irresponsi- the years of accumulated results that buttressble firms foreshadowed this broader, more

the game theory view of business transactions.

400

HANDBOOK OF STRATEGYAND MANAGEMENT

Before leaving this topic, we need to note an

performance. While organizational theoriesinteresting counterpoint to the notion of a

typically emerge from observations of a spe-pathological relationship between strategy and

cific organizational context, the focus of thesociety. Ironically, it is reflected in the evolu-

theorist is to move beyond the limitations oftion in strategic thinking exhibited by Michael

any given context and formulate generalPorter. While the work referenced above

propositions. For example, Porter (1980) advo-arguably contains pathological elements,

cates the adoption of generic strategies of lowPorter's more recent work relies heavily on

cost or differentiation. In similar fashion, thenotions of social capital and socially beneficial

literature on managing legitimacy (Suchman,inputs and outputs to the strategy process. For

1995) provides researchers and managers withexample, in his work on inner city revitaliza-

a menu of possible strategies seemingly with-tion (Porter, 1995), he argues that the exercise

out regard to the contextual factors that mayof sound strategic thinking and the principles

make certain alternatives less efficacious thanof competitive advantage work to improve the

others. Thus, scholars live comfortably in acondition of America's inner cities. Even more

world of offering prescriptions for actionto our point, his 1998 addition to the strategy

devoid of diagnosis of the contextual richnessliterature (Porter, 1998) holds that when social

of the situation.and intellectual capital is concentrated into

Because much of the business and societygeographic clusters, businesses flourish (with

i nterface is still defined in terms of issues andconcomitant gains for the communities com-

practices, rather than general theoreticalposing the cluster).

propositions, research on how firms deal withsocial issues tends to emphasize the contextualfeatures of firm activities rather than automati-

Social Issues and

cally abstracting from specific observations toEnvironmental Niches

general formulations. The application of knowntechniques for grounded theory development

A review of Table 17.2 indicates that the bum-

(Eisenhart, 1989) can significantly extending social issues facing business have evolved

the reach of the business and society 'bottom-and expanded over time. Because of the exis-

up' understanding of the moderating effects oftence of sympathetic stakeholder and special

contextual conditions on strategizing. On theinterest groups, social issues may create

other side of the theoretical breach, themunificent niches for organizations. For

business strategy, 'top-down' view needs to beexample, firms deemed to have family-

calibrated using various social contexts to testfriendly HR practices have received a windfall

the utility of their general models. Granovetterin favorable publicity during the past decade.

(1985) shows how this type of contextualGiven how key the concept of niche is to the

analysis changes the prescriptions of strategystudy of business strategy (Porter, 1980), busi-

paradigms. He argues that the rich culturalness and society scholars can inform their

context of Japanese society voids certain pre-understanding of the emergence of social

scriptions of transaction costs economicsissues by viewing this process through the ana-

about the structuring of firm boundaries.lytical lens of niche formation. Relevantresearch questions in this vein include: Howdo social issue niches form, and how long do

Social Institutions, Population

they last? How do organizations identify and

Dynamics, and Sociallyevaluate the consequences of new niches? Do

Responsible Businessesnew issues-based niches encourage new organi-zational forms? Some of the most promising and critical

There is another way in which the concept opportunities for scholarly collaborationof niche suggests a promising opportunity for involve the application of institutional theorydiscipline-spanning collaboration. The bulk of and population ecology to the study of SRBs.research in strategy and management aims to Following are a few illustrative examples.be content free. This is consistent with the broad Activity by critical stakeholders representsscientific objective of providing generalizable an attempt to modify the organization, or attheories and models of business behavior and

least some of its actions. Applying the lens of

THE RESPONSIBILITIES OF BUSINESS

401

institutional theory (Scott, 1995) to this This type of institutional theory analysissubject highlights promising new lines of needs to be augmented by population ecologyinquiry. Given the growth and diversity of studies of the (collective) growth of thestakeholder tactics, outlined in Table 17.3. we socially responsible business organizationalneed a better understanding of how new forms form (Hannan and Freeman, 1989), and theof stakeholder activity (bad publicity, con- SRB practices diffusion process (Oliver,sumer boycott, letter writing campaigns to 1997). The business and society field wouldboard members) become legitimated. In par- benefit from a more systematic, theory-guided,ticular, it would be interesting to compare the understanding of the environmental dynamicsinstitutionalization processes of stakeholder that encourage (or discourage) the success oftactics that seek to punish firms with those that SRBs. An incentive for population ecologistsreward firms. The `socially responsible invest- to examine this population of organizations isment' mutual fund business provides an ideal the availability of rich data on the genesis ofcontext for this type of comparison, because both the new form and the niche (Stinchcombe,some funds use screens to `select out' offen- 1965). In addition, this setting provides ansive firms, whereas other funds `select in' opportunity to test the limits of our prevailingacceptable firms (Lavelle and Whetten, 1997). maxims regarding population dynamics. How

Examining the development of the 'institu- does the presence of SRBs in a population oftion' of socially responsible business practices businesses impact their joint evolution? Dorepresents another important opportunity for SRBs and non-SRBs tap into different resourcecollaborative scholarship. One straight- bases? Do they have different bases of compe-forward, framing question is: How has the insti- tition? How well do our existing theories oftutionalization of this form of business been organizational forms (specialists, generalists)aided by various enabling factors? Candidates predict the competitive profile of SRBs?for investigation would include: the formationof professional associations devoted to provi-ding expertise on this topic (for example,

Strategic Human ResourceBusinesses for Social Responsibility), the

Managementarticulation and endorsement of SRB princi-ples by industry leaders (the CERES Principles, To this point we have argued that SRBs warrantthe Caux Roundtable), the emergence of spe- study because they appear to represent atypicalcialized trade publications (The Green Money organizations, in some way or another.Journal). the development of formal criteria Continuing that theme, we conclude our discus-for rating the social performance of firms sion of future opportunities for collaborative(Council on Economic Priorities, the Domini research on SRBs by drawing attention to their400 Social Index), the organization of acade- implications for our understanding of humanmic professional associations (International resource management practices. The literatureAssociation for Business and Society, on human resource management (HRM) con-European Business Ethics Network), the tinues to widen its scope to contemplate thedevelopment of specialized roles in firms. importance of human resources in the overallalong with accompanying professional associ- strategy of the firm (Barney, 1998). Applyingations (Business Ethics Officers, Public this `strategic human resources' frame of refer-Affairs Directors), support service firms pro- ence to our discussion of SRBs, we wonder: Ifviding social consulting assistance in conduct- a firm's business strategy includes a strongin- social performance audits and ethics commitment to socially responsible businesstraining (Institute of Social and Ethical practices, how does this affect the HRM prac-Accountability, Praxis Consulting Group), the tices of the firm? For example, assuming for thelegitimating endorsements of a Papal Encyc- moment that the leadership of SRBs requires alical and a White House Conference, the atten- different (or at least modified) skill set, howtion focusing impact of bad publicity (Exxon, must a firm's management development andShell) or good publicity (the Corporate career mapping functions change? Also, howConscience Awards of the Council on should compensation programs be altered toEconomic Priorities, the Business Enterprise encourage and reward both ethical behavior andTrust Awards).

ethical learning?

402

HANDBOOK OF STRATEGY AND MANA GEMENT

One particularly intriguing area of inquiry actions taken by business firms in pursuit ofinvolves the viability of management fast-track competitive advantages and profits impact theprograms in firms committed to a strong moral society in which that business operates, forcode of conduct. While much of the business of good or for ill. Similarly, society is no longera business can be learned during a fast-track a passive actor in relationship to business.rotation, ethical learning is of a different ilk. In Stakeholder and special interest groups areparticular, ethical learning may be subject to increasingly well organized, and becomingstrong time compression diseconomies more vocal and encompassing in the demands(Dierickx and Cool, 1989). Because ethical they make on businesses. As a consequence,challenges are ambiguous and fraught with management scholars and practitioners areperil, management fast-trackers may passively becoming increasingly aware of the agenda-ignore or actively avoid contact with the ethical shaping impact of these powerful voices.issues surrounding the organizational units To encourage broader participation in schol-they visit. Further, the nature of fast-track pro- arly conversations about business and societygrams means that managers will often have relations, we first examined the evolution ofmoved on before the ethical consequences of the scholarship on this broad topic. It is appar-their decisions become clear. In this light, there ent from this overview that the interdepen-appears much to investigate about how SRBs dence between business and society iscan develop managers with both a diverse and extremely complex, and the opportunity forcomplex understanding of the business and a different theoretical and methodological per-keen awareness of the ethical choices and spectives informing the analysis of this inter-dilemmas involved in running the business.

dependence is extremely rich. Debates withinAnother set of fascinating questions pertain-

this literature regarding the control anding to the strategic HRM practices of SRBs

accountability of businesses and the compo-involves the topic of executive succession.

nents of effective external relations manage-Anecdotal evidence suggests that many SRBs

ment need to inform related conversationsare founded with a specific social agenda in

scattered throughout the discipline.mind. This makes the task of finding a suitable

The narrower focus of the second section wassuccessor to the founder particularly difficult.

directed at the nature of the claims made byFor example. Ben and Jerry's had several well-

society on business. In addition to examiningpublicized miscues in their repeated efforts to

contemporary scholarship on the topics ofselect a suitable new CEO - resulting from the

economic, moral, legal, and social responsibili-difficulty of finding leaders capable of both

ties, we also explored several dilemmas associ-growing and greening the business. Given the

ated with each of the four perspectives. One ofcritical nature of executive succession for both

our purposes in highlighting the tensions withinfirm strategy and survival, strategic HR schol-

and between Carroll's categories is to encour-ars interested in this topic might consider ques-

age organizational scholars to examine theirtions like the following in a study of SRBs.

assumptions about the justifications for organi-What is the impact of these `additional' selec-

zational action. In particular, the challengestion criteria on the succession process? Does it

facing scholars who attempt to blend instru-simply mean that SRB successors must be

mental and moral justifications was highlighted.selected from within a restricted pool of candi-

The theme of bridging the substantive ques-dates? Or does it mean that the selection

tions pertaining to business' responsibilities toprocess itself is fundamentally changed? For

society and the expertise and interests of theexample. how would a head-hunter firm go

broader community of organizational scholarsabout the task of assessing (let alone certifying)

was amplified in the `implications' section.the character of prospective CEO candidates?

Here we highlighted examples of promising,discipline-spanning, collaborative researchand theory development opportunities, placing

CONCLUSION

particular emphasis on the `macro' topics ofinterest to our readers.

It is our perception that stakeholders areThe relationship of business to the larger becoming increasingly bold in making claimssocial enterprise is not a neutral one. The

on businesses' resources, in the name of

THE RESPONSIBILITIES OF BUSINESS

403

reducing harm or doing good. Given the Their typology in turn roughly corresponds with thenumber and severity of the social issues categories of the corporate social performance model pro-

clogging the political agendas in all contempo- posed by Wood (1991). It is also influenced by the cate-

rary societies, we can expect to see increasing gories Collins (1996) used to group 497 papers presented

pressure on the largest, most powerful, and at the first six annual meetings of the International

most resourceful

Association for Business and Society (LABS) and pub-lished in the JABS Annual Proceedings. Unlike the typol-active, integral contributors to their resolution.ogies of Gerde and Wokutch, and of Collins, we do not

In addition, it is apparent that many firms consider research methodology or teaching issues in thebelieve that representing themselves as a field. Neither is our discussion based on an empiricalsocially responsible 'corporate citizen' is good review of a coherent set of papers. Rather it is an attemptfor business. Whether this pattern of increas- to present a brief overview of some of the major themesing social involvement is stimulated by the that have developed in this field over the past four decades.

push of threat or the pull of opportunity, it 2 The order of our discussion of Carroll's categories is

appears that business firms are broadening

different from his original model. This choice was guided

their list of salient decision criteria beyond the

solely by our present expository preferences and shouldnot be interpreted as a general comment on the 'proper'narrow considerations suggested by Friedman.

order of his categories.One implication of these trends is that organi-

3 Before leaving the subject of what people have beenzational scholars must become more conver- trained not to see, we would like to insert a reflexivesant with the issues and challenges associated observation. Across the length and breadth of organiza-with the social responsibilities of business. We tional science there is a general lack of concern regardingbelieve that the resulting boundary-spanning the inconsistency between the 'behavioral assumptions'conversations will both broaden and enrich underlying the prevailing models of motivation. leader-

scholarship within the field of business and ship, organizational change, etc., and the 'business

society relations and highlight opportunities

assumptions' dictating acceptable practice within the vast

for research and theory development in allied

majority of organizations for which our organizing mod-els are intended (see Hosmer, 1994, for a business andmanagement fields on vexing issues facing

society version of this critique). In contrast to the pitchedmanagers striving to discharge their firm'sbattles between notable scholars regarding the merits of

social responsibilities. These organizational adopting one unifying paradigm of 'organizing business'matters are far too important to society and to (Pfeffer, 1993; McKinley, 1995), it is curious that the fieldbusiness to be compartmentalized within our as a whole accepts without concern the dominant eco-discipline - bounded by the domain statement nomic paradigm of 'doing business'. Given this generalof a single, small, marginal field of scholar- condition, it is worth noting to our readers that there is anship. This 'very important stuff warrants the

active discourse among business and society scholars

attention of all organizational scholars. regarding the merits of accepting the net present valuemodel of business management as an unassailableassumption, or as merely one point of view (Freeman andGilbert, 1988; Gilbert, 1992).

ACKNOWLEDGEMENTS

4 Organizational behavior scholars will recognize thisas an incarnation of the 'satisfied workers produce more'

The authors wish to thank Brad Agle, Dan

instrumental argument conundrum that played itself out inthe motivation literature some time ago. Briefly, not only

Greening, Jamie Hendry, Andrew Pettigrew,

did subsequent research determine that the simple correla-Doug Schuler, Sandra Waddock, Steve tion between worker satisfaction and job performance isWartick, Jim Weber, and Donna Wood for extremely modest (this is one of the most moderated rela-their many helpful suggestions on this chapter.

tionships in our literature). it also demonstrated that thearrow' goes the opposite direction (if productive workers

are rewarded commensurate with their performance then

NOTES

they will be satisfied).5 Given our objective of fostering greater collaboration

between business and society scholars and business man-I Although many different typologies of the major

agement and strategy scholars, and given the absence ofstreams of business and society scholarship have been disconfirming information. the remainder of this section isdeveloped. we will draw primarily from one suggested by predicated upon the assumption of uniqueness. However.Gerde and Wokutch (1998) in their review of 636 Social

we have drawn attention to the need to test this assump-Issues in Management (SIM) division papers and abstracts

tion here at the beginning of this 'implications' section topublished in the Acadenn • of Management Proceedings.

emphasis its foundational significance.

404

HANDBOOK OF STRATEGYAND MANAGEMENT

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