Mr. James W. Mckie (1922-2007) applied his expertise in the field of Industrial Organization and developed in this area to become one of the leading scholars on its applications to energy economics. His research is as relevant today as it was when it was originally published as he employed an investigative style that began with a meticulous assessment of the institutional structures of the different industries under study and then analyzed the influence of these industrial features on a variety of economic outcomes.
He postulates the classic view of social responsibility as follows:
- The primary criteria of business performance are economic efficiency and growth in the production of goods and services, including improvements in technology and innovation in goods and services.
- Economic behavior is separate and distinct from other types of behavior, and business organizations are distinct from other organizations, even though the same individuals may be involved in business and non-business affairs. Business organizations do not serve the same goals as other organizations in a pluralistic society.
- The primary goal and motivating force for business organizations is profit. The firm attempts to make as large a profit as it can, thereby maintaining its efficiency and taking advantage of available opportunities to innovate and contribute to growth. (1.)
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Introduction
In the Classic View, corporations should engage in purely economic activity and be judged in purely economic terms – social concerns are unimportant, but they should be left to other societal institutions. Mr. Edward Mason (1899-1992), was interested in industrial organization, also called industrial economy, and created the paradigm SCP (Structure Conduct Performance) and what is called the structuralist school of Harvard. He described the problem of the modern corporation as, “America is a society of large corporations…whose management is in the hands of a few thousand men. Who selected these men, if not to rule over us, at least to exercise vast authority, and to whom are they responsible?” (2.)
The Classical View is a response to this problem that recognizes corporate power must be harnessed to a larger social good if it is not to become tyrannical. In part, confining corporations to economic ends is intended to limit their role in society so as to preserve other kinds of institutions – both public and private. Business activity is justified partly on the ground that it secures the well-being of society as a whole; yet, this justification also depends on the ability of the rest of society to create the necessary conditions for the invisible hand to operate and to address social problems without the aid of business.
Thus, what is the underlying inference?
Milton Friedman (1912-2006) was an American economist, statistician, and writer who taught at the University of Chicago for more than three decades. He was a recipient of the 1976 Nobel Prize in Economic Sciences, and is known for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. He speaks of the “rules of the game” by which he means “open and free competition, without deception or fraud.” (3.)
Theodore Levitt (1925-2006) was an American economist and professor at Harvard Business School; editor of the Harvard Business Review; an editor who was especially noted for increasing the Review’s circulation and for popularizing the term globalization; and in 1983, he proposed a definition for corporate purpose – rather than merely making money, it is to create and keep a customer. Mr. Levitt states, “aside from seeking material gain, business has only one responsibility, and that is to obey the elementary canons of everyday, face-to-face civility (honesty, good faith, etc.) (4.)
Indeed, a certain level of ethical conduct is necessary for the invisible hand to operate and for a business activity to take place at all. The “rules of the game” and “face-to-face” civility do not impose inconsequential constraints on business; rather, the prohibition against deception and fraud obligates corporations to deal fairly with employees, customers, and the public as well as to avoid sharp sales practices, misleading advertising, and the like.
One can argue that it may be in the best interests of a corporation to operate above the moral minimum of the market – adherence only to the moral minimum leaves a corporation open to pressure from society and government regulation. By internalizing the expectations of society, corporations retain control over decision-making and avoid the costs of government regulation.
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Corporations have become so large and powerful that they are not effectively restrained by market forces and government regulation, as the aforementioned invisible hand argument assumes. Some self-imposed restraint of a voluntary assumption of greater social responsibility is necessary for a corporate activity to secure the public welfare.
One of the first and most prominent writers of Corporate Social Responsibility was Mr. Keith Davis – who later wrote extensively about this topic in his business and society textbook, later revisions, and articles. He set forth his definition of Social Responsibility by arguing that “it refers to businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest.” (5.)
In 1960, Mr. Davis suggested that social responsibility refers to businesses’ decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest, stating, “In the long run, those who do not use power in a manner which society considers responsible will tend to lose it.” (6.) Thus, the need for greater social responsibility by corporations is an inevitable result of their increasing size and influence in American society.
Supporters of the Classical View argue that “precisely because of the immense power of corporations, it would be dangerous to unleash it from the disciple of the market in order to achieve vaguely defined social goals.” (7.)
They further concede this is a matter for serious concern. “What seems not to be appreciated is the fact that power affects when it is used as well as when it is not used. A decision by a corporation…not to exercise its economic influence according to non-economic criteria is inevitably a moral decision and just as inevitably affects the community. The issue in the end is not whether corporations (and other organizations) should be unleashed to exert moral force in our society, but rather how critically and self-consciously they should choose to do so.” (8.)
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The Classic View assumes that business is best suited to provide for the economic well-being of the members of a society, whereas non-economic goals are best left to government and the other non-economic institutions of society. At best, this sharp division of responsibility is true only as a generalization as it does not follow that corporations have no responsibility to provide assistance. Corporations cannot attempt to solve every social problem, and therefore, some criteria are needed for distinguishing those situations in which corporations have an obligation to assist other institutions.
In their publication entitled, “Responsibilities of Corporations and Their Owners”, authors Mr. John G. Simon, Charles W. Powers, and Mr. Jon P. Gunnemann, have postulated the following with respect to distinguishing these situations:
- The urgency of the need;
- The proximity of a corporation to the need;
- The capability of a corporation to respond effectively and;
- The likelihood that the need will not be met unless a corporation acts. (9.)
A corporation has an obligation to address social problems that involve more substantial threats to the well-being of large numbers of people; that are close at hand and related someway to the corporation’s activities; that the corporation has the resources and expertise to solve; and that would likely persist without some action by the corporation.
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Closing Thoughts
Managers of a business must attend to matters beyond their immediate tasks. “The moral argument for shareholder control is founded on the assumption that a fiduciary duty to serve the shareholders’ interests serves all corporate constituencies.” (10.) This fiduciary duty does not exhaust a manager’s responsibility to meet the reasonable and legitimate expectations of society – serving the shareholders’ interests well requires attention to a corporation’s social responsibilities, and managers need discretion in deciding how to respond to demands of other constituents or stakeholder groups. Every manager is responsible for the ethical environment of the organization and for ensuring that others act ethically.
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Cited References
1. McKie, James W., “Changing Views”, Social Responsibility and the Business Predicament, Washington, DC, The Brookings Institution, 1974, Pgs. 18-19.
2. Mason, Edward S., “The Corporation in Modern Society”, New York, Atheneum, 1974, Pg. 5.
3. Friedman, Milton, “Capitalism and Freedom”, Chicago, University of Chicago Press, 1962, Pg. 133.
4. Levitt, Theodore, “The Dangers of Social Responsibility”, Harvard Business Review, 36, September-October 1958, Pg. 49.
5. Davis, Keith, “Can Business Afford to Ignore Social Responsibilities?”, California Management Review, Volume 2, Issue 3, 1960, Pgs. 70-76.
6. Davis, Keith and Blomstrom, Robert L., “Business and Society: Environment and Responsibility”, 3rd Edition, New York, McGraw Hill, 1975, Pg. 50.
7. Goodpaster, Kenneth E. and Matthews, John B., “Can a Corporation Have a Conscious?”, Harvard Business Review, Volume 60, January-February 1982, Pgs. 139-140.
8. Ibid, Pg. 140.
9. Simon, John G., Powers, Charles W., and Gunnemann, Jon P., “Responsibilities of Corporations and Their Owners”, New Haven and London, Yale University Press, 1972, Pgs. 22-25.
10. Boatright, John R., “Ethics and the Conduct of Business”, 5th Edition, Upper Saddle River, New Jersey, Pearson/Prentiss Hall, 2007, Pg. 397.
Filed under: Editorials Tagged: Analytics, Business, Business Management, Business Process, Change Management, Management, Operations Management, Strategic Management, Strategic Planning
