1. HANDBOOKof STRATEGY AND MANAGEMENTEdited by ANDREW PETTIGREW, HOWARD THOMAS AND RICHARD WHITTINGTON SAGE Publications London Thousand Oaks New Delhi

2. 17What Are the Responsibilities of Business to Society?DAVID A. WHETTEN, GORDON RANDSand PAUL GODFREY Some readers might be wondering: Whypowerful, organization-bending social forces isinclude a chapter on business ethics and socialat 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 seearea 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 aject 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 ofAlthough 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 `moral ship, generally, this subject continues to ener-obligations'. In addition, the recent theoretical gize much of the scholarship on business and work pertaining to stakeholder relations has the society relations. When these scholars scan theadvantage of being more bi-directional in orien- business landscape they `see' social activists tation than the dominant inside-out models of and special interest groups expending tremen-customer relations, supplier relations, etc., that dous energy changing business practices that populate the broader organizations literature. i mpact society in ways they see as adverse. The first section of our chapter details the Whether one agrees with the activists' intentionshistory of scholarship on business and society or not, they are undeniably exerting increasinglyrelations, showing how the number and variety greater pressure on, and in many cases control of claims regarding corporate social responsibil- over. the strategies and actions of firms. ity have increased through the years, and how Achieving a better understanding of thesethe scholarship on stakeholder relations has 3. 374HANDBOOK OF STRATEGY AND MANAGEMENTTable 1 7.1Business and society terminologyTermDefinitionAttitudesSituation-specific beliefsBehavioral intentionsPlanned actionsBehaviorsActionsCorporate social performance Actual behavior regarding social issues (may be used to refer either to responses, outcomes and impacts of responses, or the entire set of inputs, throughputs, and outputs resulting in social impacts of corporate behavior); a stakeholder's assessment of the degree of acceptability of a company's social responsesCorporate social responses Actions taken by a company that are intended to or actually do impact a social issueCorporate social responsibilitySocietal expectations of corporate behavior; a behavior that is alleged by a stakeholder to be expected by society or morally required and is thereforejustifiably demanded of a business Corporate social responsiveness Processes of responding to social demands Descriptive ethicsDescription of the actions engaged in and how these compare to societal moral expectations DutiesAn action which is obligatory in order to protect the right of another Ethical, moralBehavior consistent with principles that define what is good or bad EthicsThe study of moral obligations and behavior; a set of principles or rules that judges or guides decisions made or actions taken by individuals or groups JusticeFairness in treatment; various forms exist including distributive (allocation of benefits and burdens associated with some action), compensatory (providing recompense for harm suffered), retributive (imposing punishment for wrong behavior), and procedural (establishment of/adherence to/consequences of following administrative rules) Morality Questions of fundamental right/wrong action (good/bad as opposed to correctlincorrect) Negative rightsThose 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 involves interfering with negative rights, and negative rights have primary importance in ethics Normative ethics Articulation/prescription of desirable behavior or a desirable principle on whichto make moral decisions Positive rightsThose 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 decisionsemerged as a prominent framework for under- Business and society scholars have identified standing the process by which external claims four generic responsibilities of business. These are presented, investigated, and negotiated.encompass a wide spectrum of `duties',Second, the obligatory dimension of theincluding creating wealth, obeying laws and myriad and often conflicting litmus tests ofregulations, avoiding harm, and ameliorating social responsibility facing contemporary social ills. Firms attempting to discharge these firms raises some vexing conceptual chal- responsibilities confront a multitude of dilem- lenges that should appeal to organizational mas, arising both within and between the four theorists interested in the general subject ofresponsibility categories. The conceptual and organizational dilemmas and paradoxes.practical conundrums associated with this 4. THE RESPONSIBILITIES OF BUSINESS 375classification of corporate social responsibili- issue was scientific management pioneerties are the focus of the second section of ourHenry Gantt, who in 1919 advocated thatchapter. companies should serve society (Wren, 1979). Finally, the business and society literatureFour 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 ofSheldon suggested that every manager neededthe first section is to expose readers with ato 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 forof industry shall conduce to communal well-boundary-spanning collaboration on topicsbeing'; (2) that 'management shall endeavor tohitherto unstudied. Hence, the final section ofinterpret 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 introducesocial justice'. (Wren, 1979: 207)a wide variety of topics rather than exploring a handful in detail. This is consistent with our The incorporation of social concerns 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 Harvard with 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 andmunity and public affairs must be a quality intellectually interesting issues facing tomor- promoted by business education. From 1952 row's business executives.to 1958 a series of articles on the subject 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 theme business-society literature (within which weof much of this work is the necessity for the i nclude the business ethics literature), some of individual to integrate personal values and the terminology may be unfamiliar. Accor- managerial action. On a more general level, dingly, in Table 17.1 we present a summary list the idea was presented that social responsibil- of major terms - including brief definitions -ity should be a guiding principle for corpora- used in this literature.tions.' This period also saw the publication of Howard Bowen's (1953) The Social Respon- sibilities of the Businessman, and a suggestion HISTORICAL OVERVIEW OF BUSINESS by participants in a 1955 AACSB meeting of deans that business schools offer coursesAND SOCIETY SCHOLARSHIP in business-society relations and social responsibility. Significant concerns about the role of businessThis section of our chapter picks up the in the larger American society first arose at the story in the 1960s and continues to the present end of the 19th century, with the rise of large by briefly reviewing five major themes in the corporations and the 'robber barons'. business-society literature.' As shown in Theodore Roosevelt and other progressiveTable 17.2, our discussion of these five themes politicians of the 1900s and 1910s respondedhighlights topics that are particularly relevant to these concerns by creating the first modernfor the study of strategic management. We wave of government regulation to curb abuses, will first present an overview of the five such as the meat packing industry's scan- themes, and then examine each, particularly dalous practices, which were the subject of the first, in more detail. Our added measure of muckraker Upton Sinclair's The Jungle. Theattention to the first theme reflects its founda- earliest 'management scholar' to address this tional nature. 5. Table 1 7.2 Themes in the study of business and society relations Lines of i nquiry 1 960s1 970s 1 980s 1990s Organizing principlesBusiness ethicsMeaning of business ethicsDescriptive ethics - articulation Review and application of major Review and application of (different than ethics of of ethical issues ethical theories (rights, justice, additional ethical theories i ndividuals in business?)utilitarianism) to social and ethical(esp. virtue ethics, social issues contract theory, ethic of care);ethical theory - organizationaltheory relationships Corp. social responsibilityExistence of social Why social responsibilitiesSocial performance - financialPrinciples of socialresponsibilities; articulation exist; categories of CSR; performance relationship responsibility; refinement ofof different responsibilitiesprinciple of publicmeasures of social responsibilityperformance; exemplary practices of 'sociallyresponsible businesses' Ideology/attitudes/valuesChange in individuals' ethicalSocial and ethical values of Social/ethical values/attitudes ofComparative ethical valuesvalues over timemanagers; comparison tobusiness students; models of(nationality, race, gender);those of business critics; i ndividual ethical decisionempirical studies of moralmanager's opinions re CSRmaking; organizational influences reasoning and decision making;argumentson ethical decision making inmoral intensity of issues organizations Organizational processes Corp. social performance Desirability and appropriateUnderstanding social issues -Crisis management; public affairs managing employeebeneficiaries of philanthropy;scanning the environment/management; issues management;voluntarism; environmentalsocial movementslink to strategic planning;cause-related marketing, strategicaudits/reports; environmentalsocial auditing proposed;philanthropy; corporateaffairs function; corporategrowth of public affairs governance; industry ethics codes; creatingand community relationsself-regulation; CEO leadership; ethical cultures; issue-functions; socialmodels of CSP specific control systems:responsiveness; advocacydiversity management, whistleadvertising blower protection, ethicshot-lines, sexual harassmentpolicies, etc. (Contd.) 6. Table 17.2(Contd.) Lines of inquiry1 960s1 970s1 980s1 990sStakeholder managementStakeholder concept, analysis and Stakeholder partnerships; managementprioritizing stakeholders; determinants of stakeholder tacticsSocial issuesMinorities HiringPurchasing from minority Advancement Diversity, anti-AAowned businesses WomenHiring Advancement, work and familySexual harassment, elderly pressures, comparable dependent care worth, child care CommunityPoverty, riotsUrban renewalEducation, homelessness, drug Education, hiring welfare education, community impactsrecipients of closings/takeovers InternationalCorporate political BriberyDisinvestment from South Africa,Human rights of workers, localintervention in otherplant safety, marketing practices community benefits, globalcountriesoperating standards ConsumersConsumer rights, plannedProduct safety, deceptiveProduct quality, advertising to Liability regarding inherentlyobsolescence, auto safety advertising claims childrenharmful products, over-consumption, sex in advertising; internet marketing and privacy/security EmployeesLabor law violations. Wages, quality of work life, Plant closings, wage and benefitDownsizing, e-mail privacy, toowage increaseslayoffs, workplace safety, cuts, AIDS, privacy, whistle- much overtime, work-lifefree speech, employeeblower protection, age andbalance, CEO/worker payassistance programsdisability discrimination,ratio, religion/spirituality and nonsmoker's rights, work, disability access, domestic employee wellness,partner benefits, smoker's employee crimerights, workplace violence (ConId.) 7. Table 17.2 (Contd.) Lines of inquiry 1 960s1 970s 1 980s1 990sEnvironmentAir, water, noise pollution; Toxic waste, solid waste,Global warming, recycling, energy conservation; acid rain, ozone depletion,recycled content, pollution endangered species environmental racism prevention, disclosure, biodiversity, sprawl, sustainable development Stockholders Greenmail. golden parachutes CEO compensation Business-government relations Government action Determinants andFederal chartering ofEconomic deregulation; socialinternational trade policies; l egitimacy of corporatecorporations; social deregulation attempts;comparative public policy; political activitiesregulatory policies; privatization of govt.international regulation regulation's impact on services; pro-business govt. business activity; corporate PACs;regulatory compliance Business political activity I mplications for businessPolitical contributions/Political action in other countries;of governmental response scandals; corporate corporate political strategy andto social unrest crime competitive advantage 8. THE RESPONSIBILITIES OF BUSINESS379 Business and Society Themeson the business enterprise by agents of socialchange? Research in this area involvesThe 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 arestream of research tends to be descriptive andanswering the `why' question of business andissue specific. Unlike the literature in the prin-society relations - Why should firms be goodciples category it tends to focus on the specificcorporate citizens? Within this broad theme are i mpacts of the harm and the mechanisms bythree major streams of scholarship: businesswhich it occurs, rather than making a philo-ethics, corporate social responsibility (CSR),sophical or strategic case for why companiesand ideology/values/attitudes. Each of theseshould 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 andrelational or functional terms. In addition, management. The three streams are inter- when corporate practices are described, the related. Individuals have values, attitudes andfocus is on how they increase or lessen the ideologies that influence, and are the product harm done, rather than on their intended of, the issues they pay attention to and the effects, in terms of the development of the decisions they make. These beliefs shape, andissue or the company's relationships with the are influenced by, their views regarding whatconcerned stakeholders. As noted above, unlike corporations should do. Individuals articulatethe business-government relations literature,these values in terms of claims that businessesthe stakeholders involved have no direct, legiti-have certain social responsibilities - often mate coercive power over the corporation. It isframed as ethical responsibilities or morali mportant to point out that fewer business andobligations. To make these claims obligatory,society scholars currently emphasize thisactors weave in the scholarship and thinking theme in their writings than did in the past -of major moral systems or philosophies, as much of the literature in this area now stemswell as legal and economic reasoning.from sociology, political science, and journal-The second theme, organizational processes,ism, including the general, business, andfocuses on firms' responses to claims that theysocial 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 thatseldom the focus of actual scholarship.has been central to the business and societyThe fourth theme, business-governmentfield-How do firms manage their interactionsrelations, focuses on activities directed atwith the external environment? The majorbusiness by government (such as regulationstreams of scholarship within this area are cor-and trade policies), and on activities directed porate social performance, corporate socialat government by business (such as lobbying responsiveness, issues management, crisisand PAC contributions). To the extent that management, stakeholder management, andgovernment is just another stakeholder group, corporate governance. These streams have it should be managed by a process like public their roots in business strategy and policy, affairs (under theme 2). To the extent that organizational behavior, organizational theory,government is concerned about specific issues psychology, sociology and political science. scholarship on this topic spills over into Corporate social performance (CSP) has theme 3. However, government is such a become the dominant stream within this cate- powerful stakeholder - different in degree gory, but stakeholder management has rapidly (size and power vis-a-vis other stakeholders) grown in prominence. and kind (it can enforce its demands through The third theme, social issues, examines the laws and regulations) - that we place it in its specific concerns expressed by various stake-own category. For this reason, this theme can holders. Scholarship on this theme addresses be viewed as a specific focus on a unique the 'what' component of business and society ' who' in business and society relations, relations - What are the specific claims madeScholars in this area commonly study both 9. 380HANDBOOK OF STRATEGYAND MANAGEMENT governmental and business actions, making of the concept will be explored in some detail separation of these interactions awkward. in the third section of this chapter. Put simply, These scholars frequently have different train- Friedman argued that the proper social respon- ing than those who study the interactions ofsibility of business is to focus on wealth cre- business with other social stakeholders. Theation, and to leave other social institutions to root disciplines of business-government rela- solve social problems. Other critics charged tions scholars tend to be political science, eco- that giving business the power to address nomics and law. issues traditionally reserved for government and charitable organizations would be damag- ing to the concept of a pluralistic societyTheme 1: Organizing (Levitt 1958). Principles - ` Why' This challenge to the CSR concept resulted in attempts in the 1970s to build a stronger, The pioneers in the business-society field more logically grounded and articulatedcame from many disciplines, but most case for the adoption of CSR. Preston and notably from economics, political science, Post (1975) looked for a principle to decidelaw, and business policy. In part because ofwhat issues a company was obliged to respond their professional background, as well as theto. They articulated the `principle of public nature of public discourse, the search forresponsibility', which argues that a business principles to guide business in its relationship should deal with the social issues that are with society was framed primarily in terms i mpacted by the normal operating activities of of corporate social responsibility (CSR),the company. This principle suggests, for rather than ethics or values - although theseexample, that an automobile manufacturer has latter topics have been of great signifi- the responsibility to address issues such as cance. Because of CSR's prominence, we auto safety, vehicular air pollution, and the will focus primarily on spend most of ourimpacts of its manufacturing plant activities effort detailing this concept. Readers inter-on the local community, while it has no ested in an extensive discussion of the evolu-responsibility to become engaged in activi- of the CSR concept are advised to see ties such as philanthropic support for the Car arroll (1999).arts. Sethi (1975) suggested that corporateCorporate Social Responsibilitysocial responsibility (or performance) had three logically distinct elements: social The early advocates for CSR (Bowen, 1953; obligation (responsibility to obey the law), Davis, 1967; Votaw and Sethi, 1969) social responsibility (congruence with pre- advanced many pragmatic arguments onvailing societal norms, values and expecta- behalf of CSR. These included the ideas thattions), and social responsiveness (development CSR activities: would help limit increases in of policies, programs and capabilities that government regulation; would develop awould minimize adverse consequences of socially and economically stronger societysocietal demands). These three elements more conducive to business success; would were considered by Sethi (1975) to be i mprove corporate reputation among existingproscriptive, prescriptive, and anticipative, and potential customers; would help attract respectively. and retain high quality employees; and had theBuilding on this conceptual work, Carroll potential to turn social problems into business (1979) suggested another approach to estab- opportunities. Arguments that business had alishing principles of social responsibility. He moral obligation to help society were alsoattempted to defuse the economic responsibil- advanced, but were not generally articulated in ity vs social responsibility argument by as much detail. acknowledging that economic profitability is 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 of sibility within both business and business edu- responsibility: legal, ethical and discretionary. cation elicited a vigorous attack on theHe argued that these four categories could concept, led by conservative economist Milton serve as principles for managers deciding how Friedman. Friedman's (1962, 1970) criticismsto meet their social responsibility regarding a 10. THE RESPONSIBILITIES OF BUSINESS381 specific issue. The economic responsibility of indicators, most notably the Kinder,the firm is to take those actions regarding the Lydenberg, Domini & Co. (KLD) index. This issue that helped the firm make money. Theindex of social performance currently mea- legal responsibility of the business on the issuesures performance on 10 different social issue is to obey whatever laws existed regarding theareas (community, diversity, employees, issue. The precise nature of the ethical and dis-product, environment, non-US operations, cretionary responsibilities is more vague, innuclear 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 longitudinal 1979, 1991). Ethical responsibilities consistbasis. Several studies of the KLD database either in doing what society expects on thehave concluded that, despite some weaknesses,issue or in doing whatever is necessary toit 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 takingGraves, 1997b).actions not expected of the firm by society, orIn the 1990s, attention also turned back toactions which bring about social benefits. Thearticulating theoretically sound and practicaldifferences in Carroll's earlier, more prag-principles for CSR. Wood (1991) drew frommatic, formulation of these responsibilitiesprevious 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 CSRAt the organizational level, the business shouldresearch focused on the relationship betweenminimize 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, asvidual discretion they may have to benefit well as the desire to empirically test (or for society. These principles, Wood argued, pro- many, to provide support for) the claim thatvide logically defensible guidelines which man- good corporate citizens would be good eco- agers can use to determine what issues they nomic performers. Over 50 such studies haveshould respond to and in what ways. been done, and several reviews and meta-Many CSR scholars in the 1990s have called analyses of this literature have been conducted attention to and described the exemplary prac- (Ullmann, 1985; Griffin and Mahon, 1997;tices of so-called `socially responsible busi- Preston and O'Bannon, 1997; Roman et al., nesses' (SRBs) (Altman and Post, 1995). These1999; Wood and Jones, 1995; Frooman, 1997).organizations, generally relatively young small The empirical results are mixed. In general, theto midsize companies, publicly state their studies suggest a somewhat positive association commitment to CSR, particularly to engage in between CSR and financial performance,activities which can be regarded as falling in although the causal nature of the relationship is Carroll's (1979) discretionary category. The unclear. At the very least, relatively little sup-Body Shop, Ben & Jerry's, Odwalla, Tom's of port exists for the view that CSP and economicMaine, Patagonia, South Shore Bank of performance are negatively related. However,Chicago, and Hanna Andersson are among the many of these studies are methodologicallycompanies whose exemplary commitment to weak and the robustness of their findings is thus CSR have been widely recognized. However, in doubt. For example, Wood and Jones (1995)critics argue that when one considers the full attribute some of the ambiguity in these resultsrange of corporate activity, few companies to a mismatching of independent and dependent deserve the SRB label (see Entine, 1994 for an variables and the lack of available data on the-application of this argument to the Body Shop). oretically relevant intervening variables. Scholars have increasingly attempted toEthics refine measures of social performance. Single issue, single measure studies have been sup-The sub-field of business ethics has benefited planted by measures which use multiplefrom an increasing presence of business 11. 38 2 HANDBOOK OF STRATEGYAND MANAGEMENT faculty with a rich training in ethics. In theguideline for academic analysis, its limitations 1 950s and 1960s scholars wondered whetherfor management practice should be fairly obvi- business ethics was anything more than indi-ous - few managers have the time, under- vidual ethics applied in a business setting.standing, or energy to perform this type of Guiding ethical principles were often religi- detailed comparative analysis. ously based (Johnson, 1957). As CSR focused In the 1990s, additional ethical theories on organizational actions regarding externallyentered the field and attracted substantial inter- generated social demands, ethics to someest: chief among these are social contracts degree focused on individual actions within theory (Donaldson and Dunfee, 1994), virtue the company. Such topics include falsificationethics (Solomon, 1992), and the ethics of care of expense reports and other records, dishon- or feminist ethics (Liedtka, 1996). Virtue esty, theft and extortion, etc. To some degreeethics represents a qualified return to the this distinction between social and ethical 1960s treatments of business ethics as individ- issues continues, particularly as this subject is ual ethics, but with a firmer philosophical treated in textbooks. But recognition that ethi-grounding. Recent scholarship also asks a new cal considerations apply to external social question: do ethical business practices lead 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 oftenIdeology, Attitudes and Valuesused in conjunction with the pedagogicalquestion: What should be done in this situationThis component focuses on the beliefs thatin order to be ethical?individuals hold which shape their decisions As ethicists began to write and teach in theand behaviors. As such it is based in psycho-business-society area, the tools of normativelogy, 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 towere 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 responsibilitythe 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 focus tion's or individual's obligations. While the on executives' attitudes continued in the 1980sapplication of ethical analysis fostered a morewith studies examining whether executives' rigorous analysis of social responsibilityattitudes toward types of social responsibilities claims, these theories did not end the debate might be related to company social perfor- about business ethics. While rights theory is mance (Aupperle et al., 1985). In the 1980s preferred by most business ethicists, there isand 1990s a number of studies examined the hardly a general consensus on this matter.social and ethical values and attitudes of busi- Recognizing that different ethical principles ness students (see Glenn, 1992, for a review of often yield conflicting implications for action,these studies) in an attempt to deter mine a common recommendation is that potential whether ethics education had an impact on decisions be analyzed using each of the major ethical values and attitudes. Another area of theories (Velasquez et al., 1983). Ifa course ofincreased attention in the 1990s was compara- action is adjudged ethical by all of thetive studies of ethical values and decision theories, it can be confidently engaged in. making in companies and societies around the However, if no course of action passes allworld (Al-Kazemi and Zajac, 1999; Batten theoretical screens, the decision-maker mustet al., 1997; Nakano, 1997). choose among those options that pass one orScholars interested in empirically invest]- two screens, or continue to search for addi-gating ethics and values looked to studies such tional options. While this is a reasonableas those of Rokeach (1973), England (1967). 12. THE RESPONSIBILITIES OF BUSINESS 38 3and Hofstede (1980) for insight and instrumen-1974). From these works, especially those of tation (Frederick and Weber, 1987). But these Ackerman (1973) and Paluszek (1973), it psychologically and managerially basedbecame 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 aage corporate social responsibility issues major shift in this literature occurred. Scholarsduring the 1960s. Ackerman (1973) suggested moved away from descriptive studies of that a three-stage process was typically associ- values and attitudes presumed to be importantated with effective corporate social perfor-in decision making and towards psychologicalmance: social obligations were recognized and theories of ethical reasoning - including con-policies developed; staff specialists were hiredceptual models of individual ethical decision and substantial learning about the problem making in organizations. Kohlberg's (1981)occurred; and line managers assumed respon- theory of moral reasoning has been widelysibility for social policy implementation, usu- used in studies of managers' and business stu-ally accompanied by changes in resource dents' moral reasoning (Weber, 1990; Elmallocations and rewards. and Nichols, 1993). Trevino (1986) developed This trend suggested a shift in the field from a model of ethical decision making incorporat-identifying a general set of corporate social ing aspects of both the individual and theresponsibilities to describing processes organization. Victor and Cullen (1988) inves- whereby firms could become more socially tigated the ethical climate of organizations, responsive to the social issues in their task and how this affected individuals' ethical deci-environment. For example, research during sion making. Jones' (1991) model calls particu- this period focused on topics like identifying lar attention to the moral intensity of the issue and forecasting social issues (Wilson, 1974), that is the focus of an ethical decision. Thiscreating social responsibility officials (Eilbirt scholarship attempts to move values and atti- and Parket, 1973), issues management (Chase, tudes research away from social responsibility1977), social reporting (Butcher, 1973), and brings it into closer alignment with ethics.changes in organizational structures and sys- It also offers the potential to offer descriptive tems (Steiner, 1975), reforming corporate evidence and prescriptive suggestions for governance through changing board composi- actually managing ethical and social behavior tion (Blumberg, 1974), and a revival of the and performance within the firm. It is to thiscall for social auditing (Bauer, 1973). This subject that we now turn as we examine thetrend was also reflected in actual corporate organizational processes theme. practice, as reflected in the proliferation of public affairs departments responsible for public relations, community relations, corpo-Theme 2: Organizationalrate philanthropy, issues management, crisis Processes - `How' management, advocacy advertising, and gov- ernmental relations and lobbying (Post et al., The CSR literature of the 1950s, 1960s, and 1 983). By the end of the decade Frederick 1 970s focused on establishing the case for the (1978, 1995) suggested that corporate social existence of corporate social responsibility. responsiveness (CSR2) had replaced social However, other than Bowen's (1953) proposal responsibility (CSR1) as the key topic in that companies conduct a social audit, thebusiness-society scholarship. literature had little to say about how corpora-Carroll (1979) brought these two facets of tions should be managed in order to fulfill CSR (social responsibility and social respon- these responsibilities. In 1971 the first article siveness) together in a model of corporate focusing on managing for social responsibilitysocial performance (CSP). He proposed that appeared in a business journal, suggesting theeffective performance in this arena required creation of committees of senior officers and managers to: reflect on the issues their compa- of departments of social affairs (Mazis and nies face, identify types of social responsibili- Green. 1971). By 1 976 at least 39 other arti-ties these issues invite, and select the mode of cles focusing on social issue managementresponsiveness (reactive, defensive, accom- process topics had appeared, which were col-modative, proactive) they will pursue. This lected in two volumes (Carroll, 1977; Sethi,model motivated CSP research for the next 13. 384 HANDBOOK OF STRATEGYAND MANAGEMENT t wo decades (Miles, 1987; Mitnick, 1993;managing issues (Clarkson, 1995). Some Rands, 1991; Strand, 1983; Swanson, 1995,scholars (Waddock and Graves, 1997a) 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 be that they frame the CSP process in systems synonymous with the quality of management theory terms of inputs (demands for CSR),generally. Hence, several scholars (Clarkson, throughputs (responsiveness processes), and 1995; Waddock and Graves, 1997a; Wood and outputs (actions which affect social issues).Jones, 1995) have suggested that stakeholder While not firmly grounded in a systems frame-theory provides the basis for adequately under-work, Wood (1991) is the most well knownstanding 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 forholder relations, it is important to draw atten-many as an overarching framework for thetion to the literature on stakeholder tactics.business-society field. Scholarship in this area has focused on the CSP models are lacking in two areas, how-i nfluence strategies employed by variousever. 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 andconceptual foundation for a bi-directionalamong issues, stakeholders, principles, pro-study of stakeholder relations. Consistent withcesses, and outcomes. Second, the modelsthis 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 - thetions. In addition, they are frequently` separation thesis' - (Wicks, 1996); reducingconsidered 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 societyers are critical providers of inputs, explicit and(Swanson, 1999). i mplicit factors in throughput processes, pri-Stakeholder theory (Freeman, 1984) emerged mary recipients of outputs, and predominantin the 1980s not as a theory, but rather as asources of feedback. useful concept for communicating the need toJust as the number of social issues facing manage relationships with persons and organi- business has increased, so have the number of zations concerned with social issues, not tactics available to and utilized by stakeholder just those concerned with economic issues activists, as indicated in Table 17.3. In part, i dentified by strategy scholars such as Porter this is an outcome of the conservative revolu- (1980). In the 1990s, however, the stakeholdertion (and to a lesser extent the GOP control of concept moved toward a more completethe US Congress throughout much of the theory, and became a leading competitor to the 1990s). Lobbying for new laws and regula- CSP framework for theoretical dominance.tions was unproductive in that political cli- Numerous scholars have elaborated stake-mate, so stakeholders had to devise new ways holder theory by developing models for identi-that were more congruent with the prevailing fying and prioritizing stakeholders (Mitchell i deology. Within the business and society et al., 1997) and applying network theory tofield, although the breadth of tactics has been stakeholder theory (Rowley, 1997). Manag- noted, little research has focused on in depth ing relationships with stakeholders is in-investigation of specific tactics, or on the creas-ingly being viewed as a more robust implications of the choice of tactics for subse- means of conceptualizing or studying com- quent corporate response. There are signs that panies' actions in the social realm than is this deficiency is beginning to be addressed. 14. Table 1 7.3 Examples of'stakeholder tactics by decade 1960s 1970s1980s1 990s Protests/demonstrations Federal chartering proposalsIssue specific codes of conductCorporate practices-oriented partnerships Lobbying for laws/regulations CSR-based boycottsSocial investing and consuming CSR awards Proxy resolutions Suing government agencies Encouraging whistle-blowingMulti-stakeholder negotiations Unionization/strikesPACs/endorsements by other social activists Lobbying against social deregulation Independent certification of products Labor PACs/endorsements Labor-management partnerships Cause-related event partnershipsfor CSR practices targeting retailers Community issue partnerships ' Monkey-wrenching' Ballot initiatives Lobbying against corporateCalls for product labelingsubsidiesbased on CSR activitiesInternet-based activismWorker ownership 15. 38oJ-L4NDBOOK OF STRATEGY AND MANAGEMENTFor example, Frooman (1999) uses resource trade treaties such as NAFTA, WTO, and dependence theory to examine the conditionsthe proposed Multilateral Agreement onunder which stakeholders are likely to select Investments (MAI); sexual orientation issuesl our different types of influence strategies.(such as domestic partner benefits and In conclusion, as corporate practice related nondiscrimination on the basis of sexual to CSP has evolved, research on organiza-orientation); workplace violence and its rela- tional processes has both expanded and tionship to free speech and privacy rights; i mproved. New corporate practices/research international social justice issues (for example, topics include strategic philanthropy, cause-workers' rights in sweat shops, the impact on related marketing, industry self-regulation, minorities of corporate practices allowed by CSP-related executive leadership behaviors,majority-controlled governments); and the creation of ethical cultures, management of significance of religion and spirituality in the new corporate functions (such as environ-workplace. mental affairs departments), creation ofThrough four decades, business-society ethics codes, partnerships with social activistscholars have documented and analyzed these stakeholders, corporate social and environ-various issues, increasingly in the context of mental auditing and reporting, corporate building or testing theories. The emergence of governance, and various issue specific control a stronger theoretical perspective and more systems and mechanisms. Research on thesesophisticated analytical tools, combined with topics generally follows the pattern of docu-an ever-growing list of challenging issues, menting current practice, then explainingbodes well for the future of scholarship in variance in these practices, including their this area. effectiveness as tools for managing the social environment.Theme 4: Business-Government Relations -'A Unique Who' Theme 3: Social Issues -'What'Because government differs in kind from otherWhereas stakeholder relations focuses on thestakeholders, business-government relationsdynamics of relationships between firms and has been treated as a special case, or form, of their stakeholders, scholarship on social issues stakeholder relations in the business and society has focused on the content, or purpose, of field. The business-government literature has these relationships. An external group's con-focused on three basic topics: the actions of cem about a social issue is often the generative government to affect business, companies' non- force that propels them to declare a stake, or political responses to government activity, and interest, in a firm's capacities and competen- the political involvement of business. cies. As Table 17.2 indicates, new social In the 1960s and 1970s social regulation issues emerged during each of the past fourincreased and the implications of this trend for decades. Since most of these remain with us, business generated a fair amount of descriptive the number of social issues with which busi- attention, as well as theoretical attention ness must deal is very large. The anti-( Mitnick, 1980). Business-society researchers regulatory mood of the 1980s did little to slowalso examined existing control efforts by this pattern, and may have even increased thegovernment and generated proposals that expectation that corporations would voluntar-government adopt new means of controlling ily address social issues since little new regu- business behavior. Schwartz (1974) proposed l ation emerged during that period. Thethat the federal government charter corpora- likelihood of new issues continuing to emergetions and use the attendant power to more is great, and several that have emerged during strictly require socially beneficial corporate the 1990s are likely to grow in importance.action. A more recent example is an examina- Among these are environmental issues (such tion of the growing movement to reduce or as sustainable consumption and industrial ecol-eliminate the federal government's subsidies ogy); work and family issues (such as supportof corporations (Stevens et al., 1995). In the for nursing mothers and those caring for elderly 1 990s. however, an analysis of the business- parents); national sovereignty implications of society relationship from the perspective of 16. THE RESPONSIBILITIES OF BUSINESS387both 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 popularhas received little separate attention apartpress the task of examining government'sfrom 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 significantprimarily in the context of why firms engage government experiments, such as the substitu-in political activity. The question of whichtion of market-based incentives (pollutionfirms (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 societyindustry characteristics are related to poli-scholars. tical involvement. Finally, the question of The major decision firms face regardinghow 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 tendedGetz (1997) has noted the opportunisticto fall under the topics of corporate crime orrather than systematic nature of this research,illegal corporate behavior (Baucus and Near,in that it has focused on political tactics and 1991; Clinard and Yeager, 1980) and its flippolitical issues that have been in the publicside, regulatory compliance. The illegal cor- eye. For example, in the 1970s researchers porate behavior literature has studied both thefocused on tactics like direct companyantecedents and consequences of illegal l obbying activities and direct political contri-pliance has primarily focused on the question ronmental, consumer, and safety. In the 1980s behavior. The smaller literature studying com-butions, and on political issues, such as envi-of what induces firms to comply with laws and the focus was on grassroots lobbying, trade regulations. Variables studied have includedassociations, and political action committees, factors such as environmental munificence as well as on issues like economic deregula- and dynamism, firm size, industry, and past tion and government protection from foreign behavior (Baucus and Near, 1991). Baron i mports. Research on political tactics during (1995) has recently reoriented these discus-the 1990s has continued to examine the use of sions by suggesting that firms tend to integratePACs, as well as the formation of political their market and non-market activities. Thiscoalitions containing firms from several suggestion makes the separability of politicalindustries. In terms of research on political and product-market strategies problematic,issues in the 1990s, corporate politicalscholars to pay close attention to business-attention (Rehbein and Schuler, 1 997; and if correct, would seem to require strategyi nvolvement in trade issues has receivedgovernment relations. Schuler, 1996), as well as the development of The study of the means by which and con-i nternational regulatory regimes, such as the ditions under which corporations attempt to Montreal protocol to limit ozone depletion i nfluence government was pioneered by( Getz, 1993). Also receiving increased atten- Epstein (1969), who identified 25 questions tion have been political strategies of multina- regarding business-government relations.tional corporations in different countries and Recent reviews of the corporate political under different political regimes (Boddewyn activity literature include those by Getz and Brewer, 1994; Hillman and Keim, 1995). (1997), Mahon and McGowan (1996), Looking to the future, Oberman (1993) and Shaffer (1995) and Vogel (1996). Getz Hillman and Hitt (1999) have developed (1997) describes the scope of corporate polit-typologies of political tactics predicting i cal activity (CPA) research using the jour- which tactics will most likely be used in what nalistic questions of why, where, when, who contexts and in support of what political and how. Why firms participate in CPA has strategies. These offer the potential for been, she suggests. the most commonly i ncreasing the rigor of research on this topic. 17. 388HANDBOOK OF STRATEGYAND MANAGEMENT In conclusion, our objective in this brief categories but prioritize their order as legal,2overview of the business and society literature ethical, economic, philanthropic (discretionary).has been to expose management and strategyIn 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 bothcontemporary arguments supporting each claimenergized and confounded scholarship on thisregarding 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 fourscholarly 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, `TheGiven the widespread evidence that marketsocial responsibility of business encompassesforces and moral persuasion are not sufficientthe economic, legal, ethical, and discretionaryto curb the harmful externalities resulting fromexpectations that society has of organizations atbusiness leaders' myopic focus on short-terma given point in time' (1979: 500). As shown inearnings, 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 rate more consistent. It is important for our purposes of growth of business regulation is one of the to underscore Carroll's conclusion that whatenduring legacies of the conservative political constitutes a social responsibility of business is revolution. Therefore, very little attention has a decision made by society, not by business. been paid to this position in the `what is busi- As noted in the previous section, Carroll'sness' responsibility' debate since that era. model of social responsibility has exhibited a However, there is some evidence that this remarkable degree of resilience, although it has trend line may be reaching a deflection point. its critics. One of the most common criticisms isWe'll briefly mention three examples of fairly that the model assumes that economic responsi- recent proposals to experiment with new bilities are most fundamental, followed by forms of business regulations: market incen- l egal. ethical and discretionary responsibilities tives, federal chartering of corporations, and (Kang and Wood, 1995; Swanson, 1999). Kang international regulations. and Wood (1995) offer an alternative view, in Many proponents of stronger controls on which they rum the hierarchy upside down,pollution have advocated various forms of before re-conceiving it in different terms, in market-based incentives in preference to tradi- which moral responsibilities are framed as mosttional ' command-and-control' regulation important, followed by social responsibilities,(Stavins and Whitehead, 1992). Examples of economic responsibilities, and benevolence.market incentives include pollution charges, Ferrell et al. (2000) meanwhile retain Carroll's tradeable permit systems, deposit refunds and 18. Table 17.4 A comparison of husiness'responsibilities to society Type of responsibility Common description Focus of i mperative Claim on business _Conceptual dilemma Legal responsibility: ' Doing what is required' Legal requirementsObligatory Market efficiency versus regulation obey laws and regulationseffectiveness Economic responsibility:' Doing well' Owners' rights ObligatoryAccuracy versus generality of the maximize shareholder wealth'rules of the game' Moral responsibility: ' Doing what is expected' Moral obligationsObligatoryConflicting moral standards and discharge moral duties ('not doing harm')expectations Social responsibility:' Doing what is desired/CitizenshipDiscretionary instrumental justification for 'doing go beyond obligatory doing good'responsibilities good' responsibilities 19. 390HANDBOOK OF STRATEGYAND MANAGEMENT user fees. The nature of these mechanisms,are the Montreal Protocol adopted in 1987 to under which companies incur greater financial eliminate certain ozone-depleting chemicals, costs for greater amounts of pollution, encour- and the 1998 Kyoto global warming treaty. A ages companies to engage in innovation inmajor impediment to the use of international order to reduce costs. In contrast, traditionalregulations is that no acknowledged enforce- regulations, by specifying exactly what actionsment body exists, so the implementation and are to be taken to limit pollution, can actuallyenforcement of these regulations is dependent discourage innovation. In addition, market upon action by individual countries. incentive mechanisms encourage firms to con- The legal responsibility position wrestles tinue reducing pollution even after the level of with a core management dilemma, familiar to pollution that is permitted by regulations isstrategy scholars, namely the tradeoff between attained. Various applications of this approacheffectiveness and efficiency. The critique of are being experimented with in both the US the traditional form of government regulation and Europe, including elements of the 1 990is that it is inefficient for business, govern- Clean Air Act and the recently formulatedmerit, and society. Because they permit greater global warming treaty. An example of anflexibility and require less oversight, market application outside of the environmental arena incentives are championed as a more efficient is the proposal to bestow favorable tax treat- form of regulation. However, numerous con-ment on corporations that voluntarily engagecerns have been raised regarding the effective-i n socially responsible practices, such as limit-ness of market-based forms of regulation. Foring CEO/worker pay ratios to a certain levelexample, some environmentalists oppose this( Kuttner, 1 996).approach because it doesn't carry the sameThe federal chartering of businesses hasdegree of moral sanction. They are concernedbeen advocated by those who believe that gov- that the underlying objective of protecting theernment needs greater leverage over the actions environment will be overshadowed by debatesof business (Mokhiber, 1998). If all firms were over pricing mechanisms, etc. They view thefederally chartered, then government could prospect of an extremely wealthy firm 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 egregiousproducing 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 fromorder 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 usinging 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 offensesBusiness and government leaders have that generate significant financial gains. They expressed related concerns about the unknown believe that nothing short of the threat of losingaspects of this new approach. For example, the right to operate as a business will be suffi- although business leaders complain about the cient to prevent these social disasters.current form of regulation, they know how the Recently, there has been an increase in the current system works and they have learned demands for international business regulation how to operate successfully within this set of (Post et al.. 1996). Advocates argue that evenparameters. Therefore, although they, in gen- i f the world's major trading nations agree on aeral, prefer market solutions over government common set of ethical standards and businesssolutions, many business leaders are uncom- regulations, given that contracts are generally fortable with the uncertainty inherent in awarded to the lowest bidder and that pollution switching to an entirely new form of regula- knows no boundaries, the only guarantee thattion. The same type of ambivalence can be harmful business activities occurring in anyobserved among government officials. On the given country aren't allowed to affectone hand. they see merit in off-loading an members of societies half way around theextremely unpleasant, unpopular, and onerous globe is to create a minimal set of intema- oversight responsibility. But, they too are tional business regulations. Notable examples uncertain about the implications of trading a 20. THE RESPONSIBILITIES OF BUSINESS 391 known set of goals, responsibilities, competen-these critiques into two broad dilemmas facing cies, etc., for a new approach whose potentialadvocates of the `maximize shareholder to regulate is unproven and whose implica- wealth' position. These dilemmas are linked to tions for regulators are unknown.the corresponding summary statement in thepreceding paragraph. First, the tradeoff between accuracy and gen-Economic Responsibility: erality. Weick (1979) observed that theoretical Maximize Shareholder Wealthpropositions can be classified as simple, gen- eral, or accurate. In addition, he argued thatThis is the traditional view of business respon-because it is logically impossible for a state- sibility, commonly attributed to Miltonment 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 thisgame', 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 maximizemakes 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 on that reduce the return to shareholders they arebusiness (Friedman and Friedman, 1980),in effect levying a tax on the company'swhich places the bulk of the responsibility for assets. Furthermore, by appointing themselvesrestraining the excesses of business on unspeci-as de facto policy makers they subvert thefied ethical standards and moral principles. rightful control of the market place. As such, Advocates of the moral responsibility position' doing good' is always at the expense of have insisted that matters this important` doing well', and, therefore, it is not only bad shouldn't be passed off this casually - moral- for business it is also bad for society. Why?ity is too important to be summarily dismissed Because, shareholder advocates claim (usingwith a forward definition. Although they don't utilitarian logic) that the `greatest good for the fault Friedman for not providing a definitive greatest number' results from business doing set of ethical rules, they fear that his simple what business does best - creating wealth that and general treatment of the subject marginal- through lawful and appropriate means likeizes the role of ethics in the minds of practi- wages and taxes enables other social institu-tioners. The expressed need for adding greater tions (families, governments, and churches) to specificity and clarity to the `rules of the do what they do best - attending to the chart- game' is reflected in the search for the Holy table needs of society.Grail of business ethics - a definitive moral In summary, the Friedmanesque view ofcredo for business. As we will discuss in more business and society relations can be reduced to detail shortly, although this quest has not two statements: The responsibility of business yet accomplished its avowed objective, the is to make money, and management shouldcrusaders involved in this effort are both stay focused on this goal. as l ong as they arenumerous and zealous. playing by the rules. If a corporation engagesSecond, the tradeoff between core and com- i n socially beneficial practices that add value prehensive. It is clear that Friedman was to the firm that is simply good economics. (As focusing on the core objective of business- to such, these practices should not be heralded asgenerate wealth. However, when wealth gen- evidence of socially-enlightened management.)eration is proposed as a comprehensive state- This view of business and society relationsment of business practice, critics consider this has been criticized on several fronts (Wartick an impoverished view of business' role in and Cochran, 1985; Sethi. 1999; Baumol.society. They argue that placing all other organi-1 991). We have chosen to synthesize many ofzational intentions and effects secondary to the 21. 392 HANDBOOK OF STRATEGYAND MANAGEMENTwealth-creation i mperative of businessand 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 ofavoiding lying, and honoring agreements. Inwhat they have been trained `not to see' inan 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 economicing such things as freedom of physical responsibility position have served as themovement, nondiscriminatory treatment, sub-defining issues for the moral responsibility sistence, and freedom of speech.and social responsibility positions, respec-An encyclical letter from Pope John Paul II, tively. In the next section we will summarize ' Centesimus Annus', represents one of the the efforts by the advocates of the moral most comprehensive and articulate efforts to responsibility position to remove the vague-establish a moral code for business activity. ness from Friedman's notion of the `rules ofFollowing is an excerpt from this 114 page the game'. Then, in the following section ondocument, written by one of the foremost social responsibility, we will examine the posi-moral authorities of our time. tion that responsible businesses, like citizens, The Church acknowledges the legitimate role should do more than the bare minimum to of profit as an indication that a business is advance the goals of the larger society. functioning well. When a firm makes a profit, this means productive factors have been prop-Moral Responsibility:erly employed and corresponding human needs have been duly satisfied. But profitabil- Discharge Moral Dutiesi ty is not the only indicator of a firm's condi- tion. It is possible for the financial accounts toThis position challenges the presumption of be in order, and yet for the people - who make privilege underlying the shareholder wealth up the firm's most valuable asset - to be position. Rather than granting economic activ- humiliated and their dignity offended. Besidesity an exemption from basic ethical obliga- being morally inadmissible, this will eventu- tions, this perspective characterizes business ally have negative repercussions on the firm'sand markets (like all other forms of human economic efficiency. In fact, the purpose of a activity) as social artifacts, consisting of business firm is not simply to make a profit, socially constructed and sustained 'practices' but is to be found in its existence as a corrnmu- ( Wicks, 1996; Freeman and Gilbert, 1 988). By nit of persons who in various ways are stressing the commonality between business endeavouring to satisfy their basic needs, and activity and other forms of human endeavor, who form a particular group at the service of advocates bring economic activity under the the whole society. Profit is a regulator of the jurisdiction of fundamental moral principles life of a business, but it is not the only one: and responsibilities. Given that no social insti- other human and moral factors must also be tution can legitimately claim that their contri- considered which, in the long term, are at least bution to society is uniquely exempted from equally important for the life of a business. the moral codes required to sustain the corn- (1991: 68-9) (italics in the original text) mon good, then all institution-specific goals. rules, or requirements must be subordinated to The dilemmas associated with the moral common moral law. This is an essentialresponsibility position that we feel have the requirement 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 i ncluding their creation, their enactment, and business activity. For example, DeGeorgetheir enforcement. Several organizational schol- (1990), following the lead of Velasquez et al_ars have examined the social context conducive (1983), proposed a `normative code' thatto on-the-job moral behavior, including the encompasses three principles - rights, justice, effects of ethics statements, ethics committees. 22. THE RESPONSIBILITIES OF BUSINESS 393in-house ethics advisors, ethics audits, ethicsmoral voice is likely to be marginalized astraining programs, and so forth (Smith andunknown, impractical and, therefore, irrelevant. Carroll, 1984; Trevino, 1986; Weber, 1993). Although the dilemma involving moral andThe most commonly examined source ofeffective organizational practices has not organizational influence on moral behavior isreceived much attention in the business and organizational culture, or climate (Victor and society literature, it is related to a conundrum Cullen, 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 abstractchanging moderator, such as time intervals, orphilosophic principles, laudable as they maylevels 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 ofing, `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 froment 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 to tomer 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 issociety must support the underlying normative being 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 only implemented - then the primary obstacleafter a business has satisfied its common oblig- inhibiting the widespread adoption of theations as a member of society (to support and moral 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-specific organizational practices legitimated by theresponsibilities (to generate wealth) (see Quinn moral imperative are inherently and funda- and Jones, 1995, for an excellent summary of mentally different from practices legitimatedthis general argument). by the effectiveness imperative, then not onlyAnother dilemma that figures prominently in may 'effective managers' be unskilled as this literature involves compliance with codes ' moral managers', but in addition the blur- of ethics. It is widely recognized that many, if ring of this distinction (in discourse and innot most, unethical decisions in business are the practice) will likely exacerbate this 'folly ofresult 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 of peril, reflected in the respective extreme posi- incompatible moral force fields often feel like tions, is straightforward: If moral management they are 'damned if they do and damned if they practices are characterized as just another form don't'. These conflicting force fields can take of organizational best practices, then their the form of incompatible codes of conduct gov- adoption is facilitated by the assurance oferring the home office of a multinational cor- familiarity, but justifications used to supportporation and a field operation in a different these practices must yield their 'moral high country. They can also manifest themselves as ground'. 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 pertaining thetical to, standard business practice, then theto a specific type of business transaction. 23. 394 HANDBOOK OF STRATEGY AND MANAGEMENT Various strategies have been proposed forinvolves `negative action' - non-interferenceresolving the potentially paralyzing tensionin the enjoyment of a right. The common ter-associated with seemingly incompatible ethicalminology for violating this duty is `doingrequirements. Invoking the levels of analysis harm'. In contrast, positive rights are thosemoderator to reconcile seemingly contradictoryrights that a person can enjoy only if they are moral 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 does ments 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, oralso isn't doing good. As reflected in the medi-` micro', ethical specifications within an eco- cal creed, `First do no harm', moral philoso- nomic community (an industry, an organization,phy places greater importance on avoiding a market). Using different levels of analysis harm than on doing good. Hence, the distinc- fulcrum for logical leverage. Wicks (1996)tion between business' obligatory (moral) argues that there has been an excessive empha-responsibility to avoid harm, and its discre- sis on creating a shared moral organizational tionary (social) responsibility to do good. culture at the expense of helping individuals As noted in our historical overview, the term better understand how their personal moral sen- philanthropy was used by Carroll (1991) in his sibilities should be used as guidelines for deter-later description of discretionary social mining what constitutes a moral businessresponsibilities. However, over time the dis- practice. In brief, he argues that personal moral cretionary aspect of business' responsibility to codes should take precedence over organiza- do more than avoid causing harm has proven tional codes of conduct, because the latter areproblematic for those who see the need for our too easily corrupted by other organizational most powerful and resourceful organizations responsibilities.to address pressing social issues like improv-ing literacy, caring for the homeless, and pro-tecting the environment. They bridle at theSocial Responsibility: Go i mplication that corporate support for founda- Beyond Fulfilling Basictional social goods is classified as philan-Obligations to Societythropy, which is equated with support for thel ocal 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 the acknowledge the need for firms to go beyond ` clout' of the social responsibility claims on simply meeting their economic, moral, andthe business enterprise highlights a vexing legal responsibilities. While some tend to dilemma in this literature. On the one hand, it advantage one set of obligatory responsibili-is unacceptable to relegate important social ties 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 the macy of all obligatory claims on the enterpriseauthority of these claims by aligning them of business. However, advocates of the socialwith business' obligatory moral, legal, or eco- responsibility position generally hold that for anomic duties tends to yield illogical or unveri- business to only do the bare minimum is no fiable arguments. Space does not permit a more responsible than it is for a citizen to onlydetailed analysis of the logical and empirical do what is minimally required. problems resulting from the practice ofThe difference between negative and posi- i nvoking the authority of each of the three tive rights in philosophy is pivotal to the dis- categories of obligatory duties. Therefore. tinction between obligatory and discretionarywe will focus on the overarching fallacy of business responsibilities (Swanson. 1 995: using instrumental arguments to justify moral Velasquez, 1992). Negative rights are thosepositions. rights that a person will enjoy unless interfered Given the avowed purpose of the social with. Therefore, the resulting moral dutyresponsibility advocates to influence business 24. THE RESPONSIBILITIES OF BUSINESS 395practice, it is not surprising to find many of their expectations, then managers feel justified inespoused positions buttressed by instrumentalabandoning their commitment to socially justifications. For example, Hosmer (1994)responsible business practices.argues that ethical firm behavior fosters trust Before closing this discussion of socialamong stakeholders, which in turn generatesresponsibility, 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 ofmental 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 contracters (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 anddo so effectively is a strategic asset - a source Jones, 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 moraltive, rather than a defensive or manipulative, responsibility positions. To say that one orientation toward stakeholders (Svendsen.should `do good' in order to `do well' violates1998). Empirical evidence is used by support- a fundamental tenant of moral reasoning:ers of this position to suggest that the quality moral principles require no external validation of stakeholder relations may be synonymous and that moral practice should be intrinsically with the quality of management (Waddock valued. Furthermore, as noted by Friedman and Graves, 1997a). (1962), it is neither necessary nor appropriateTo provide a sampler of the specifics, many to 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 relationshipA key element of collaboration has been between corporate social performance andincreased communication and trust between financial performance has so far yieldedthe parties. Disclosure and transparency are ambiguous results (Wood and Jones, 1995). the key watch words in companies attempting As we described in our historical overview, itto build collaborative relationships with stake- is far from an established fact that socially holders, frequently expressed through the responsible firms have a competitive advan- issuance of environmental reports, as champi- tage over social slackers. Irrespective of what oned by the Coalition for Environmentally the numbers suggest about this relationship,Responsible Economies (CERES). The increa- some authors have expressed concern about sed attention to sustainable development has the practice of using empirical evidence to broadened the focus on environmental con- support a moral argument. For example,cems to include collaboration on issues of Donaldson and Preston (1995) express con- social justice or equity, and is reflected in the cems about succumbing to the `naturalistic`triple bottom line' (economics, environment. fallacy' (Moore, 1959) - moving fromequity), that is increasingly being used by description to evaluation, from `what is' tocompanies, particularly in Europe, and ` what should be', without careful attentionaddressed in their 'sustainability' reports being paid to the underlying explanation and(Elkington and Stibbard, 1997). analysis. In addition, they point out a practicalNow 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 the sible practices because they believe doingbasis of a purely instrumental view of business good will enhance their financial performance,relations (Donaldson and Preston. 1995). and. but their experience doesn't support theirif profit-enhancing, would be considered by 25. 396 HANDBOOK OF STRATEGY AND MANAGEMENT Friedman (1970) to be perfectly appropriate of business, for example, the effectiveness of and justifiable, simply on economic grounds.government regulation versus the efficiency of But the emerging argument that firm perfor- economic markets (Scott, 1995). mance will improve as a result of consistentWe have chosen to highlight the theme of attention to, and concern for, the satisfaction dilemmas in this section for two reasons. First, of all stakeholders (not just primary/economicthey serve as prominent intellectual topo- stakeholders) is similar to, but not the same graphical reference points for constructing a as, the 'do well as a result of fulfilling non-' map' of the business and society literature. obligatory social responsibilities' argumentThis is a field of study that has chosen to discussed 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 in the 'duty claim' being provided by the ethic of this literature has sensitized us to the relative care perspective (Liedtka, 1996). Althoughpaucity of concern being expressed about this stakeholder-collaboration approach tothese critical matters within the broader intel- social responsibility obviously does not pre- lectual context of organizational science. The clude the adoption of these practices on theproposition that the practice of organizational basis of their perceived instrumental benefitsscience, broadly defined, can benefit from a to the firm, it does not rely on, nor tout, anbetter understanding of the contemporary instrumental 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, nor sufficient conditions for organizationsthey characterize them as neither necessaryFUTURE DIRECTIONSdischarging their universal moral obligation toFOR RESEARCH AND STUDYbe prudent and judicious stewards. In summary, this section has focused on thecore question in the business and society liter-The previous sec