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The boundaries of strategiccorporate social responsibilityGeoffrey P. LantosProfessor of Business Administration, Stonehill College,North Easton, Massachusetts, USA

Keywords Corporate strategy, Social responsibility, Roles, Stakeholders, Ethics

Abstract Reviews the development of the corporate social responsibility (CSR) conceptand its four components: economic, legal, ethical and altruistic duties. Discusses different

perspectives on the proper role of business in society, from profit making to community

service provider. Suggests that much of the confusion and controversy over CSR stemfrom a failure to distinguish among ethical, altruistic and strategic forms of CSR. On the

basis of a thorough examination of the arguments for and against altruistic CSR, concurswith Milton Friedman that altruistic CSR is not a legitimate role of business. Proposesthat ethical CSR, grounded in the concept of ethical duties and responsibilities, is

mandatory. Concludes that strategic CSR is good for business and society. Advises thatmarketing take a lead role in strategic CSR activities. Notes difficulties in CSR practice

and offers suggestions for marketers in planning for strategic CSR and for academicresearchers in further clarifying the boundaries of strategic CSR.

Introduction

It is no news that today's business organizations are expected to exhibitethical behavior and moral management. However, over the past half century

the bar has been steadily raised. Now, not only are firms expected to be

virtuous, but also they are being called to practice ``social responsibility'' or

``corporate citizenship''(Carroll, 2000, p. 187), accepting some

accountability for societal welfare. Marketers, as boundary spanners

responsible for the enterprise's dealings with various publics, have a primary

interest in, and should take a major role in, defining and implementing their

firm's social responsibility efforts. Unfortunately, too frequently marketers

still focus solely on their products and markets while neglecting the social

impact of their activities (Flores, 2001).

Perhaps this is because the concept of corporate social responsibility (CSR)

is a fuzzy one with unclear boundaries and debatable legitimacy. The

purpose of this paper is to clarify the CSR concept by offering an historical

perspective on CSR, reviewing the different viewpoints on the role of

business in society, and distinguishing three types of CSR: ethical, altruistic

and strategic, thereby establishing parameters for its practice. I argue that for

any organization ethical CSR (avoiding societal harms) is obligatory, for a

publicly-held business altruistic CSR (doing good works at possible expense

to stockholders) is not legitimate, and that companies should limit their

philanthropy to strategic CSR (good works that are also good for the

business). I conclude with suggestions for marketers and others responsible

for strategic CSR as well as for further research.

The legitimacy of CSR relates to a set of fundamental and crucial questions:Why do corporations exist? Should enterprises also be concerned with their

social performance as well as economic results? If so, what does it mean to

be ``socially responsible''? Should economic performance be sacrificed for

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Corporate socialresponsibility

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An executive summary for

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readers can be found at the

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social performance? To whom do businesses owe ``responsibilities'' (a.k.a.

``duties'' or ``obligations'')? What kinds of activities and programs should

CSR include? To what extent should social responsibility activities consume

the company's precious resources? How can we measure social performance

and thereby know when companies have fulfilled their societal obligations?

What are the interests of consumer marketers in CSR efforts? This paper will

offer suggestions for answering these questions based on a synthesis and

analysis of the literature, while recognizing that empirical research is needed

for definitive answers to many.

History of CSR

Society's rising expectations for business

The notion that business has duties to society is firmly entrenched, although

in the past several decades there has been a revolution in the way people

view the relationship between business and society. Carroll (1979) and other

researchers believe that we should judge corporations not just on their

economic success, but also on non-economic criteria. Carroll (1979)

proposed a popular four-part definition of CSR, suggesting that corporations

have four responsibilities or ``four faces'' (Carroll, 2000, p. 187) to fulfill to

be good corporate citizens: economic, legal, ethical and philanthropic (which

I call ``altruistic'' or ``humanitarian'' CSR). I believe that much of the

uncertainty about the legitimacy and domain of CSR stems from failure todistinguish the ethical and philanthropic dimensions as well as from the

misguided notion that it is somehow objectionable for business to prosper

from good works (what I call ``strategic CSR'').

Economic responsibilities. Ever since the industrial revolution, we have

depended on business as a major economic institution for producing

want-satisfying goods and services; providing jobs and fair pay for workers;

seeking raw materials supplies; discovering new resources, technological

improvements, and products; paying taxes for public needs; generating the

investment capital necessary for economic growth; all while earning a profit

for the owners and serving as an investment opportunity. Previously, if a firm

did all of this while obeying the law, it was praised.

The eighteenth-century Scottish philosopher Adam Smith, in The Wealth of

Nations, provided us with a framework for modern business and its

relationship to society. Smith proposed that capitalism, by encouraging the

pursuit of gain and efficiency, works to create greater wealth than any other

economic system, and maximizes liberty by allowing individuals freedom of

choice in employment, purchases, and investments, thereby benefiting the

common good. Endeavoring to beat one's rivals, and toiling to produce

better work to earn the next promotion, if done ethically, will result in high

personal development and therefore excellent use of one's time and talents

and the firm's treasury (Johnson, 1990). The manager's role is to act as a

fiduciary or trustee to a principal, the owners or shareholders, being their

steward in effectively and efficiently managing the organization's assets.Economic responsibility. Economic responsibility, then, is to be profitable

for principals by delivering a good quality product at a fair price is due to

customers. Novak (1996) more fully delineated a set of seven economic

responsibilities. These are to:

(1) satisfy customers with goods and services of real value;

(2) earn a fair return on the funds entrusted to the corporation by its

investors;

Four-part definition of CSR

Framework

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(3) create new wealth, which can accrue to non-profit institutions which own

shares of publicly-held companies and help lift the poor out of poverty as

their wages rise;

(4) create (and, I would add, maintain) new jobs;

(5) defeat envy though generating upward mobility and giving people the

sense that their economic conditions can improve;

(6) promote innovation; and

(7) diversify the economic interests of citizens so as to prevent the tyrannyof the majority.

I call these duties economic CSR. Societal expectations in this realm have

appeared to hold steady over the years.

Legal responsibilities. Legal duties entail complying with the law and

playing by the rules of the game. Laws regulating business conduct are

passed because society does not always trust business to do what is right.

However, laws have certain shortcomings to ensure responsible behavior:

they are of limited scope (they cannot cover every possible contingency);

merely provide a floor or moral minimum for business conduct; are reactive,

telling us what ought not to be done, rather than proactive, telling us what

ought to be done; and might be followed involuntarily out of fear ofpunishment rather than voluntarily out of internal moral conviction.

Ethical responsibilities. Ethical duties overcome the limitations of legal

duties. They entail being moral, doing what is right, just, and fair; respecting

peoples'' moral rights; and avoiding harm or social injury as well as

preventing harm caused by others (Smith and Quelch, 1993). Ethical

responsibilities those policies, institutions, decisions, or practices that are

either expected (positive duties) or prohibited (negative duties) by members

of society, although they are not necessarily codified into law (Carroll,

2001). They derive their source of authority from religious convictions,

moral traditions, humane principles, and human rights commitments (Novak,

1996). Today, virtually all members of the business system agree, at least intheory (although, unfortunately, often not in practice) with this third set of

``social responsibilities''. I call ethical duties ethical CSR.

Prior to the 1960s, business ethics was not a major concern of business

people. Rather, it was left to theologians to discuss issues of fair wages,

unfair labor practices, and the morality of capitalism. The Protestant work

ethic taught people to work hard and be successful this was the essence of

business' social responsibility.

Beginning in the 1960s ethical issues in business were raised on an

unprecedented scale. There was a heightened realization that repressive labor

practices could be found at even some of the most admired corporations,

unsafe products were being sold, the business system was taking a toll on thenatural environment, society was not succeeding in elevating those most

economically deprived, bribery was occurring on an international scale, and

morality was being compromised in the pursuit of money and power. Liberal

consumerist media portrayed business as evil, implying that almost any

business activity is morally reprehensible. Consequently, we heard consumer

outcries against insensitive and immoral business practices. As a reaction to

the negative publicity, by the mid-1970s, the concept of raising corporate

USA's consciousness was in vogue in both corporate boardrooms and

Shortcomings of laws

Protestant work ethic

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college classrooms. The idea was that enterprises should not single-mindedly

pursue profit without regard to morality.

Thus, since the 1970s, society's expectations of business ethics have been

climbing. Unlike yesteryear, productivity alone is no longer considered

sufficient morally to justify a business organization. Also important is how

wealth generation affects non-economic aspects of society, such as the

welfare of employees, customers, and other members of the business system,

as well as other outside groups and the natural environment.

Altruistic responsibilities. Carroll's discretionary or philanthropicresponsibility ``giving back'' time and money in the forms of voluntary

service, voluntary association and voluntary giving is where most of the

controversy over the legitimacy of CSR lies. Over the past half century,

business increasingly has been judged not just by its economic and its moral

performance, but also by its social contributions. Henry Ford II identified

this when he spoke at the Harvard Business School as far back as 1969: ``The

terms of the contract between industry and society are changing . . . Now we

are being asked to serve a wider range of human values and to accept an

obligation to members of the public with whom we have no commercial

transactions'' (Chewning et al., 1990, p. 207).

CSR actually has its roots in the thinking of early twentieth century

theologians and religious thinkers, who suggested that certain religious

principles could be applied to business activities. For example, Andrew

Carnegie devised a classic twofold statement of CSR based on religious

thinking. First, was the charity principle, which required more fortunate

individuals to assist less fortunate members of society. However, by the

1920s community needs outgrew the wealth of even the most generous

wealthy individuals, with the result that some people expected business

organizations to contribute their resources to charities aiding the unfortunate.

Second, was the stewardship principle, a biblical doctrine that requires

businesses and wealthy individuals to see themselves as stewards or

caretakers, not just of shareholders' financial resources, but also of society's

economic resources, holding their property in trust for the benefit of society

as a whole.

Thus, there was a concern for the macro-level outcome of business decisions

in ways that went beyond the loyal agent's argument that a manager's duty is

solely to serve the employer loyally by contributing to profit maximization.

Now, it was suggested that stewardship of the corporation's resources

somehow be melded with a view of stewardship of society's resources to

more broadly serve society. Business was said to have stewardship

responsibilities not just to shareholders, but also to so-called ``stakeholders''

(a.k.a. constituencies or publics), notably employees, customers,

competitors, suppliers, distributors, the local community in which the

enterprise operates, the general public, and the natural environment. When

corporations make business decisions they have both short- and long-termeffects on many sectors of society.

During the latter half of twentieth century there arose the idea of the

corporate social contract, which today underlies the CSR concept. Given the

sometimes adverse effects of business decision making on society as well as

corporate reliance on society, the notion of an implied corporate social

contract was conceived by social and economic theorists. This contract spells

out society's expectations of business as well as (although much less

discussed) business' expectations of society. The social contract theory of

Controversy over thelegitimacy of CSR

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business is widely held today by both business ethicists and business

decision makers (Bowie, 1983).

The corporate social contract concerns a firm's indirect societal obligations

and resembles the ``social contract'' between citizens and government

traditionally discussed by philosophers who identified the reciprocal

obligations of citizen and state. Originally, this social contract focused solely

on economic responsibilities. Social progress and quality-of-life

advancement were assumed to be a by-product of economic growth.

Business' social responsibility was to maximize profits, subject to the

constraints of the law. Private business had no accountability for the general

conditions of life or the specific conditions in local communities (Anshen,

1988).

This new social contract postulated that social progress should weigh equally

in the balance with economic progress. The idea that corporations as

organizations have ``social responsibility'' and obligations tying them to a

wider society became popular in the 1950s, and continued through the 1960s

and 1970s, when US businesses rapidly gained in size and power (Davis,

1983). Several groups were responsible for this heightened social

consciousness, including the feminist movement and those advocating for

the mentally and physically challenged, for native people, and for minorities.

Much of the public embraced the concerns of these groups becauseunfortunate events brought the realization that some special-interest groups

were worth listening to, such as environmentalists, consumer advocates and

anti-apartheid supporters.

Thus, it was suggested that business, as a social institution, should join

with other social structures like the family, educational system and

religious institutions, to help enhance life and meet needs (Chewning et

al., 1990). Whereas in Adam Smith's model, property was owned by

individuals who directly decided how it was to be used, the modern

corporation is characterized by professional managers who make decisions

on behalf of the stockholder owners, and these decisions affect tens of

thousands of citizens (Miller and Ahrens, 1993). Moreover, corporations

need the resources of society if they are to survive and thrive. Corporatetaxes are supposedly not sufficient to pay for these resources, and so the

corporation should, out of a duty of gratitude, assist in solving social

problems (Bowie, 1995)[1]. Moreover, multinational corporations control

a tremendous amount of economic and productive resources, such as

technology, finances, and labor power on a scale that no adequate

accounting of their duties should ignore (Lippke, 1996). Therefore, social

contract theorists feel these resources should have some use beyond

producing more brands of household cleaners for consumers and wealth

for stockholders. The corporate social contract holds that business and

society are equal partners, each enjoying a set of rights and having

reciprocal responsibilities.

According to social contract thinking, the enterprise's responsibilities shouldbe commensurate with its economic, social and political power (Bowie,

1983; Davis, 1983; Lippke, 1996). Some even say that, because of its size

and special legal status, the modern corporation should be considered as a

public institution, a creature of the state, rather than a private organization,

so that it can be held to a higher legal and moral accountability than the

traditional business enterprise. In any case, social responsibility proponents

argue that corporations must be held to higher standards of social

responsibility than mere individuals (Miller and Ahrens, 1993). However, the

``Social contract''

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social contract is a rather vague concept, however, as it is not written in one

place, varies from one region to another, changes as society changes

(Chewning et al., 1990), and does not specify to what extent the corporation

should be considered a public vs a private enterprise and how that might vary

with the size of the enterprise.

Concern about CSR prevailed through the ``kinder and gentler'' 1990s, due

to the growing recognition that governments had failed to solve many social

problems as well as the diminished scope of governments (Smith, 2001).

Also, for most of the period since 1960, disposable incomes and leisure timehave been sufficiently high to allow the public to focus on issues beyond

earning a living. Additionally, due to advances in satellite communications,

which have allowed virtually ``live'' coverage of worldwide problems, the

thinking of the North American public has become less inner directed and

parochial, and more sensitive to the shortcomings of business exposed by

wide-ranging investigative reporters.

Interest in doing good for society regardless of its impact on the bottom line

is what I call altruistic or humanitarian CSR. I shall argue that genuine

philanthropy, rather than that which is public relations driven, is not proper

for corporate responsibilities to practice. On the other hand, philanthropic

CSR used as a marketing tool to enhance the firm's image what I callstrategic CSR is legitimate since it helps achieve the firm's financial

obligations.

Defining CSR

According to proponents of CSR, then, the large US corporation is inherently

a social institution as well as economic enterprise, and so businesses should

weigh the social consequences of their activities, balancing carefully

conflicting responsibilities to various stakeholders. CSR has been variously

defined as:

An organization's obligation to maximize its positive impact and minimize its

negative effects in being a contributing member to society, with concern for

society's long-run needs and wants. CSR means being a good steward of society'seconomic and human resources ( Journal of Consumer Marketing, 2001).

The obligations of the firm to its stakeholders people and groups who can affect

or a who are affected by corporate policies and practices. These obligations go

beyond legal requirements and the company's duties to its shareholders.

Fulfillment of these obligations is intended to minimize any harm and maximize

the long-run beneficial impact of the firm on society (Bloom and Gundlach, 2001,

p. 142).

The intelligent and objective concern for the welfare of society that restrains

individual and corporate behavior from ultimately destructive activities, no matter

how immediately profitable, and leads in the direction of positive contributions to

human betterment, variously as the latter may be defined (Andrews, quoted in

Hartman, 1998, p. 243).

In summary, CSR entails the obligation stemming from the implicit ``social

contract'' between business and society for firms to be responsive to

society's long-run needs and wants, optimizing the positive effects and

minimizing the negative effects of its actions on society. Note the focus on

both minimizing harms (ethical CSR) and promoting benefits for society

(altruistic CSR if the firm does not reciprocally benefit and strategic CSR if

management plans for the firm to profit too).

Philanthropic CSR

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Conflicting pressures for CSR

Social responsibility is a balancing act: business must balance economic

performance, ethical performance, and social performance, and the balance

must be achieved among various stakeholders. This suggests a dual bottom

line with economic criteria and noneconomic criteria. In fact, many

companies have multiple objectives. For instance, at Ben & Jerry's

employees are evaluated on both financial contribution and social

contribution to the community.

In the twenty-first century the public demands that businesses make social

issues a part of their strategies. Today, managers continually meet demands

from various stakeholder groups to devote resources to CSR. Such pressures

come from constituencies enumerated above, even including some

stockholders, especially institutional shareholders (McWilliams and Siegel,

2001). Examples of employee pressures include recognition of certain

employee rights in the workplace, including provisions for worker health and

safety as well as nondiscrimination in hiring, firing and promotion; tying pay

to performance; a zero-layoff policy; family-friendly leave programs; and

stock ownership by employees. Consumer pressures include withholding

price increases to cover rising costs, production of safe products, and greater

amounts of consumer information. Community and environmental pressures

encompass ensuring that the business' operations do not threaten the safety

of the local community, giving financial assistance to minority

neighborhoods, providing special training and jobs for the hard-core

unemployed, investing in pollution-abatement equipment, contributing to

charitable and not-for-profit organizations, and making executives available

to serve without compensation on public boards or other non-business

assignments. The mandate is clear: ``Decades of studying business' corporate

social performance lead one to conclude that corporate citizenship is real it

is expected of business by the public, and it is manifestedby many excellent

companies'' (Carroll, 2000, p. 187, italics in the original).

Yet, at the same time, there is the competing pressure for improved financial

performance from institutional investors, notably mutual and pension fund

managers, who have a fiduciary duty to their investors to earn a maximum

return on investment. The wealth of many US households is now closely tied

to the stock market, and so corporate managers are under the gun by both

individual and institutional investors to do whatever it takes to increase the

stock price (Boatright, 1999). This leads to the push and pull of forces

arguing for strict profit maximization vs those pushing for better social

performance.

We should note that such a dilemma does not exist to a great extent within

privately-owned businesses (sole proprietorship or partnership) since there is

no issue of economic agency where the manager, as a loyal agent of his or

her employer or stockholders, has a duty to maximize profits for them. The

owners of an unincorporated business are accountable only to one another

regarding their business performance; they are not subject to the market forcorporate control. They may define their mission and goals of their

organization as they wish. For instance, no one takes issue with the

well-known fact that Tom's of Maine engages in many practices that

voluntarily restrict profit in order to promote the general welfare[2].

The controversy over CSR arises when publicly-held companies undertake

``socially responsible'' activities that might restrict profits. Although there

are different types of corporations with differing perspectives, such as

family, closely held, not-for-profit, and public, this paper will take the

Balancing act

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perspective of the publicly-held corporation since the debate over CSR

generally rages in companies held by many individual and institutional

investors, where ownership is divided from management, control, and

responsibility. Some managers disdain demands for CSR, believing that such

efforts clash with profit maximization and the interests of shareholders,

whom they believe have primacy above all other stakeholders.

Popular perspectives on business' role in society

Table I shows a spectrum of opinions regarding the appropriate role of

business in society. At one end are those who say business only has aneconomic responsibility to make a profit while obeying the law (the pure

profit-making view or economic CSR). In the middle are people who simply

want corporate management to be more sensitive to the societal impact of

their decisions, especially regarding potential harms to stakeholders (the

socially aware view or ethical CSR). At the other end of the spectrum are

those who want to see corporations actively involved in programs which can

ameliorate various social ills, such as by providing employment

opportunities for everyone, improving the environment, and promoting

worldwide justice, even if it costs the shareholders money (the community

service view or altruistic CSR). At one end of the spectrum the basic concern

is with economic values such as productivity and efficiency, while avoiding

social involvement. At the other end of the spectrum the primary concern issocietal welfare even at the expense of profits (Miller and Ahrens, 1993).

Another way of envisioning the spectrum is that at one end is property rights

theory the corporation is viewed as the private property of its stockholders,

while at the other end the social institution theory the firm is considered a

public institution sanctioned by the state for some social good (Boatright,

1999). A moderate and relatively recent view which now dominates thinking

in financial economics and public law the contactual theory of the firm

holds that a company's assets are provided by many groups in addition to

shareholders, such as employees, customers, suppliers, and the like, and so

the company arises from the property rights and right of contract of every

corporate constituency, not just stockholders (Boatright, 1999).

The pure profit-maximizing view

The most extreme position on economic CSR was taken by Carr (1996) in

his classic Harvard Business Review article ``Is business bluffing ethical?''.

Carr said that the sole purpose of business is to turn out a product at a profit.

Owing to the prevalence of competition and negotiation, he viewed business

people as having a lower set of moral standards than those in the rest of

Author Position on business' role in society

Albert Carr Pure profit-making view economic CSR: business has lower

standards of ethics than society and no social responsibility

other than obedience to the law

Milton Friedman Constrained profit-making view economic CSR: businessshould maximize shareholder wealth, obey the law, and be

ethical

R. Edward Freeman Socially aware view ethical CSR: Business should be sensitive

to potential harms of its actions on various stakeholder groups

Archie Carroll Community service view/corporate social performance

perspective altruistic CSR: business must use its vast resources

for social good

Table I. Spectrum of viewpoints on the role of business in society

Property rights theory



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society have. He argued that business has the impersonal nature of an

isolated game, like poker, in which anything goes within the accepted rules

of the game (legally set by the government and the courts). Thus, the lower

business ethics standards permit things like misstatement and concealment of

pertinent facts during negotiations, lying about one's age on a resume,

automobile companies' neglect of car safety in short, ``bluffing'', i.e.

deception. Those who do not play by the ``rules of the game'' will not be

very successful in business. One's duties to the employer as a loyal agent

override other moral obligations. Carr's only standard of social responsibility

above economics was obedience to the law.

However, almost all commentators agree that business as a game is a bad

metaphor. Whereas games are isolated from the rest of our lives, business is

an integral part of society. Also, business competition is not always

voluntary, and there are other involuntary players, namely the firm's various

stakeholders.

Carr subscribed to the all-too-common fallacy that the morality of one's

business life should be compartmentalized from the morality of the rest of

one's life. However, the dichotomy between one's business life and personal

life is nonexistent. One cannot partition life into work and personal, or

business and pleasure. Nothing that we spend so much time and energy on

can be separate from the rest of our lives (Johnson, 1990). To ignore this andto encourage us to develop a different and sometimes contradictory set of

priorities, preferences, and values on the job can produce schizophrenia and

multiple personalities, a Dr Jekyll and Mr Hyde phenomenon (Sikula, 1996).

Contrary to the pure profit-maximizing view, there is nothing special about

business that somehow sets it apart from our ordinary ethical obligations.

Businesspeople are not professionals with a different set of moral standards.

The constrained profit-maximizing view

The best-known argument for a purely profit-based position on CSR was laid

out by neoclassical economist Milton Friedman of the conservative Chicago

School of Economics, although Adam Smith was probably the first to

espouse this perspective (Hartman, 1998). Outlined in Friedman's 1960 tomeCapitalism and Freedom as well as in his seminal 1970 article ``The social

responsibility of business is to increase its profits'' (Friedman, 1996),

Friedman's ``custodian-of-wealth model'' asserted that, ``[In] a free economy

. . . there is one and only one social responsibility of business to use its

resources and to engage in activities designed to increase its profit so long as

it stays within the rules of the game, which is to say, engages in open and

free competition without deception and fraud'' (Friedman, 1996, p. 245), i.e.

act subject to the constraints of the law and morality. Like Carr, Friedman

too advocated just economic values, not social values, which he felt lie

beyond the company's mandate to maximize shareholder value while acting

legally, ethically and (unlike Carr) honestly. He felt that solving social

problems is part of the role of government and social agencies, not the role ofbusiness. Friedman advised corporate managers to avoid interjecting

personal values into matters such as environmental concerns or community

interests if shareholder wealth is threatened. Thus, for instance, the

responsible manager will close or relocate plants whenever he/she can

improve the profitability of his/her operations by so doing, even if this causes

hardship to employees. In marketing, ``buyer beware'' is the tocsin.

Friedman recognized legal and ethical responsibilities for business, and so

his conception of economic CSR goes further than Carr's, to include a fairly

Integral part of society

Purely profit-based position



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extensive range of moral duties to other stakeholders: maintaining open and

free competition, abiding by the rule of law, avoiding deception and fraud,

and exemplifying fair play within the rules of the game (Boatright, 1999).

This is important to note since many of his disciples as well as his critics

claim that he advocated a bare-knuckled, no-holds-barred business

environment. Likewise, Levitt (1983), even earlier in his 1958 Harvard

Business Review article ``The dangers of social responsibility'', said that the

only social responsibility of business beyond seeking material gain is ``to

obey the elementary canons of everyday face-to-face civility (honesty, good

faith, and so on)'' (Levitt, 1983, p. 86). Corporate managers, businessschools, and the financial community embraced this dictum, and to this day

some still do.

The socially aware view and the stakeholder model of CSR

What Friedman ignored was that a businessperson's decisions in the ethical

and social responsibility realms can affect many different people, groups and

institutions, which, in turn, can influence the organization's wellbeing.

Whereas, Friedman said that the primary stakeholder of concern in business

decision making is the stockholders/owners, subscribers to the idea of a

corporate social contract also take the short- and long-term interests of other

parties into account. Social contract theorists observe that business decisions

often impact large numbers of individuals, groups or institutions, i.e.stakeholders. Stakeholders include: any individuals or groups affected by the

organization's actions, policies, and decisions (they have a stake in outcome

of the company's decisions), as well as any individual or group who is vital

to the survival and success of the enterprise (Freeman, 2001).

The stakeholder model is a reaction to Friedman's shareholder paradigm,

where no entity other than shareholders has a claim on the business.

Stakeholder theory explains that there is more than just a relationship

between an agent who has fiduciary responsibility to a principal there are

also third parties to whom the corporation owes morally significant

non-fiduciary obligations. ``These duties exist because, like stockholders,

these other stakeholders also make investments in enterprises: employees

invest their time and intellectual capital, customers invest their trust andrepeated business, communities provide infrastructure and education for

future employees as well as tax support, and so on'' (Graves et al., 2001,

p. 17). In other words, we need to go beyond profit maximization to

trusteeship, or the multifiduciary stakeholder concept, whereby management

sees itself as responsible for achieving balance among all stakeholders'

interests (Goodpaster, 1996), especially in avoiding harm to any groups or

rectifying any injuries caused. In fact, today's corporate mission statements

often pay homage to contribution to society in addition to the traditional

product, market and technology dimensions (Rae and Wong, 1996).

How many stakeholder groups and individuals there are depends on whom

you ask. However, stakeholders can be envisioned as existing at four levels.

First, is the systemic/macroenvironmental/general environment level largersocietal factors, including the entire business system, the social system, plus

society at large, which consists of institutions and forces, such as economic,

legal, political, technological, natural, media and sociocultural forces. The

second level of stakeholders is the corporation's microenvironment/

operating/task environment its immediate environment, consisting of

exchange relationship partners (such as suppliers and distributors), plus

competitors, customers, the local community, and the financial community

(stockholders, bondholders, and creditors). A third level of stakeholders is

Primary stakeholder

Four levels



11/36

found within the business organization, notably superiors, subordinates and

other employees and labor unions. The final level of stakeholder is

significant others of business decision makers, such as peers, family, friends,

etc.

The community service view

This most-developed version of CSR demands that corporations help

alleviate ``public welfare deficiencies'', i.e. problems such as drugs, poverty,

crime, illiteracy, underfunded educational institutions, chronic

unemployment, etc. (Brenkert, 1996). Whereas, the economic, legal andethical obligations are mandatory, philanthropic responsibility is desired by

society, i.e. it is optional in that it is not expected with the same degree of

moral force (Carroll, 2001) since corporations are not causally responsible

for the deficient conditions they are attempting to rectify. However, there are

increasing pressures and rising expectations for such altruistic CSR because

there has been a decline in the social institutions that have traditionally tied

communities together, namely, families, religious organizations and

neighborhoods, along with higher mobility, and so it many people believe

that it is business' obligation to help fill the void (Carroll, 2001).

Distinctions needed: ethical CSR vs altruistic CSR vs strategic CSR

To decide on the parameters and legitimacy of CSR for a publicly-heldenterprise, we need to draw distinctions between three different types of CSR

a business can practice. Although the threefold classification of CSR I

propose does not explicitly appear in the literature, there appear to be three

mutually exclusive types of CSR based on their nature (required vs optional)

and purpose (for stakeholders' good, the firm's good, or both): ethical CSR,

altruistic CSR, and strategic CSR. Ethical CSR is morally mandatory and

goes beyond fulfilling a firm's economic and legal obligations, to its

responsibilities to avoid harms or social injuries, even if the business might

not benefit from this. There is nothing especially commendable about this

level of fulfillment of ``social responsibilities'' since it is what is ordinarily

expected in the realm of morality. Ethical CSR entails a ``negative

injunction'' to avoid and correct activities that injure others (Simon et al.,1983, p. 87).

Some would say that CSR is most noble when it fulfills alleged altruistic

responsibilities. Altruistic (humanitarian, philanthropic) CSR involves

contributing to the common good at the possible, probable, or even definite

expense of the business. Humanitarian CSR has firms go beyond preventing

or rectifying harms they have done (ethical CSR) to assuming liability for

public welfare deficiencies that they have not caused. This includes actions

that morality does not mandate but which are beneficial for the firm's

constituencies although not necessarily for the company. This is the pursuit

of ``affirmative duties'', i.e. the affirmative pursuit of some good (Simon

et al., 1983, p. 87). However, like Friedman, I shall conclude that altruisticCSR, although appearing noble and virtuous, lies outside of the firm's proper

scope of activities. It is probably for this reason that altruistic CSR is

probably relatively rare (Smith and Quelch, 1993).

Strategic CSR the fulfillment of a firm's ``social welfare responsibilities''

is, however, admirable since it creates a win-win situation in which both the

corporation and one or more stakeholder groups benefit. I shall focus

primarily on the nature and problems of strategic CSR, which I believe most

firms practice instead of humanitarian CSR, whether they profess to or not.

``Public welfare

deficiencies''

Altruistic responsibilities



12/36

Ethical CSR

The nature of ethical CSR

Ethical CSR involves fulfilling the firm's ethical duties. This is ``social

responsibility'' in the sense that a corporation is morally responsible to any

individuals or groups where it might inflict actual or potential injury

(physical, mental, economic, spiritual and emotional) from a particular

course of action. Even when the two parties to a transaction are not harmed

others parties (stakeholders) might be.

Any organization not adhering to its ethical responsibilities would be acting

as a morally irresponsible agent. Although harms cannot always be avoided,

they should be minimized where feasible. For example, when a company

decides to close or relocate a plant because the product is no longer selling or

the source of raw materials has changed, this would seem sound. While the

shift might cause temporary difficulties for some employees and their

community, it makes more efficient use of resources and therefore, benefits

society as a whole, i.e. it is the socially responsible thing to do so long as

injuries to workers are minimized as much as reasonably possible via means

such as advance notification and severance pay.

Ethical edicts must be adhered to even at the firm's expense in terms of

possible foregone profits since by definition, ethics deals with moral

standards that override self-interest. Sometimes actions need to be takenbecause they are right, not because they are profitable (Chewning et al.,

1990; Goodpaster, 1996; Miller and Ahrens, 1993). Managers of a

corporation do not have an obligation to maximize profits for shareholders

without regard to the means used. As in all social responsibility decisions,

there are tradeoffs, and with ethical CSR it is often between short-run

profitability and moral actions. For instance, money spent on product safety

or pollution control might reduce shareholder profits, but the alternative is to

threaten unethically the welfare of others in society (Boatright, 1999). As

another example, it would seem that owners of long-distance phones are

doing the morally correct thing by not charging for emergency 911 calls.

However, experience, anecdotal evidence and empirical evidence reveal that

in the long run ``good ethics is good business''. First, moral behavior buildstrust and enhances the firm's reputation, which attracts customers,

employees, suppliers and distributors, not to mention earning the public's

goodwill. Second, ethical actions minimize the cost of fines and litigation,

not to mention the bad publicity that unethical actions often attract,

especially with today's instantaneous, global communications and media.

For instance, we all know that several well-known firms came under fire for

running or letting their suppliers manage ``sweatshops'' in overseas

manufacturing facilities in order to cut costs.

Clearly, the boundaries of ethical CSR are not clear; otherwise we would not

have so many interesting ethics discussions in corporate boardrooms and

college classrooms. However, the parameters for ethical responsibilities are

beyond the scope of this paper, which focuses on why altruistic CSR iswrong and strategic CSR is right[3]. Here, I shall restrict the discussion of

ethical CSR to that of ethical responsibilities.

The nature of ethical duties and responsibilities

In order to distinguish better ethical CSR and altruistic CSR, I now survey

the moral concept of responsibility, which looms large in the ethics

literature. The terms duty and obligations are used synonymously with

responsibility, suggesting its mandatory nature. In fact, responsibility has

Ethical duties

``Good ethics is good

business''



13/36

been described as ``the cornerstone of ethics'' (Solomon, 1994, p. 114). The

term suggests both accountability and usually a position of trust and

authority (Solomon, 1994).

In the context of ethical CSR, corporations are said to have special moral

obligations to their various stakeholders outside of the organization. So as to

determine the nature of corporate duties to these constituencies, it is helpful

to understand both ordinary language and philosophers give the term

``responsibility'' three usages (Goodpaster and Matthews, 2001; Shaw and

Barry, 1992). First, there is a capability usage someone has the ability to

accomplish something. Examples would be an individual assuming

responsibility for the success of a project since it falls within his/her area of

expertise, or declaring that a marketing manager is not responsible for the

death of a brand in the marketplace since he/she had no control over the

heavy competition which contributed to the product's demise. Capability

responsibility is a major argument for humanitarian CSR the enterprise has

the resources to solve societal ills and therefore should do so.

Second, causal responsibility means that someone caused something to

happen and is, therefore, morally responsible or accountable for its

consequences. Thus, causal responsibility is most closely tied to ethical CSR

the organization is responsible for correcting harm it has done or

preventing possible damage it could cause. For example, we could say thatmanagement is responsible for the failure of the business, given its poor

planning, or that the advertisment agency is responsible for the decline in

brand awareness because their advertisements are not memorable. It can, at

times, be controversial where the boundaries for causal responsibility lie. For

example, jury verdicts in recent years have held manufacturers responsible

for injurious effects of their products. Should cigarette and gun

manufacturers be held liable for who buys their products and how they are

used, or is that the responsibility of the retailer, or perhaps (in the case of

minors) of parents? In fact, often causal responsibility is shared, not just

among members of a business but also among members of society (Solomon,

1994). Consequently, buck-passing does occur. For instance, recently

Bridgestone/Firestone and Ford fought very publicly about who was

responsible for at least 174 deaths and 700 injuries resulting from vehicles

crashing after losing tire tread, with Ford officials blaming the tires and

Bridgestone/Firestone representatives blaming Ford for dangerous trucks and

giving bad advice about tire pressure, with both sides losing consumer trust

in the process (Kiley, 2001).

Third, is role-related responsibility the duties or proper behavior that go

along with a given role or particular position within a social group or society

(Solomon, 1994). For instance, accountants are responsible for the

independence and objectivity of their judgments and must report the

financial misconduct of clients, journalists are duty-bound to print fair and

accurate accounts of newsworthy items, and marketers are obliged to serve

and satisfy their customers. A person who shirks his/her role-relatedresponsibilities is also violating standards of ethical CSR.

A complication is sometimes caused by role conflict a given role

sometimes has irreconcilable conflicting duties. Consider the salesperson

who is expected to help maximize the company's profits while

simultaneously maximizing the customer's wellbeing or engage in

prospecting while also building customer relationships, or the boss who must

keep employees loyal while criticizing them for poor performance. It is this

type of conflict that proponents of altruistic CSR set managers up for, pitting

Special moral obligations

Role-related responsibility



14/36

the shareholders against society's welfare. How does one resolve the

conflicts inherent in serving these two masters?

To answer this question we must know whether the proper or legitimate role

of a business organization is merely economic or also social. Those who

suggest that a corporation is not a private entity but rather is a public

institution that interacts with and affects many stakeholders advocate the

social role.

In addition to the proper role of business as an institution, we also need to

investigate the societal role of professionals, as business managers aregenerally considered professionals in their fields. In order to do this, we need

to distinguish general duties from special duties. General duties or civic

responsibilities are widely accepted ethical requirements for how people

should treat one another in a civilized society. They are a kind of cement to

the implied social contract that people in society all have with one another.

Examples include, ``Do no harm'' (ethical CSR) and ``If possible, do good''

(altruistic CSR). Special duties are situational we are required to do

something given our circumstances. Managers and professionals are said to

have special duties due to their privileged position within society.

In the study of professional ethics, it is often claimed that professionals have

these special duties because society has granted them various privileges,

including meaningful work experiences, high incomes, prestige, high socialstatus, work autonomy, access to massive resources, and, in many cases,

self-regulation and licensing. In turn, these privileges carry with them

various special duties or social responsibilities society expects

professionals to conduct themselves in a way that will yield some benefits to

society beyond economic and legal duties, to moral and quality-of-life

obligations. In other words, professionalism carries with it an extra burden of

accountability the special duty of ``professional reciprocity'', i.e. the social

obligation to act in ways which benefit society. Thus, the social contract

model of business can be used also to justify the social duties of business as

an institution, as well as of professionals as individuals within those

institutions.

Specifically, these special social responsibilities include provision of

nondiscriminatory access to professional services, fairness in setting fees,

service to clients in a fiduciary manner, maintenance of professional

competence, diligence and avoidance of negligence, preservation and

protection of the values of the profession, and obedience to professional

codes of conduct (e.g. the American Marketing Association Code of Ethics)

(Cottell and Perlin, 1990). A quick review of the codes of conduct in the

professions would confirm the important role attached to the notion of social

service in professional life. Every such code itemizes the social aspects of

professional work, suggesting that rendering service to society should be a

high priority in the professions. Given that the American Marketing

Association has recently established professional credentialing, such special

duties will likely become increasingly important to marketers.

Altruistic CSR

The nature of altruistic CSR

The terms altruistic or humanitarian CSR I have coined to suggest genuine

optional caring, even at possible personal or organizational sacrifice.

Humanitarian CSR is Carroll's ``fourth face'' of CSR philanthropic

responsibilities to be a ``good corporate citizen'' by ``giving back'' to

society, furthering some social good, regardless of whether the firm will

General and special duties

Special social

responsibilities



15/36

financially reap what it has spiritually sown. It demands that corporations

help alleviate ``public welfare deficiencies'' (Brenkert, 1996, p. 525), such as

urban blight, drug and alcohol problems, poverty, crime, illiteracy, lack of

sufficient funding for educational institutions, inadequate moneys for the arts,

chronic unemployment and other social ills within a community or society.

The business has no ``moral obligations'', only alleged ``social obligations''

(DeGeorge, 1990, p. 168). Humanitarian CSR is based on capability

responsibility the company has the resources to be able to do social good. In

some peoples' thinking it is also founded on role-related responsibility

companies and their professionals are participants in the social contract, as wehave just seen. However, there is no causal responsibility.

Humanitarian CSR includes all philosophies, policies, procedures and

actions intended to enhance society's welfare and improve the quality of life,

and it involves linking core corporate competencies to societal and

community needs. Altruistic CSR, then, goes beyond ethics to somehow

making the world a better place by helping to solve social problems.

Unlike strategic CSR, where it is believed that the money put into good

works will yield a return on investment for the business, with altruistic CSR

this is not the motive (although the firm could conceivably benefit as a

by-product). For instance, if a firm adopts an inner-city school and pours

resources into it, there is no guarantee that the business will immediatelygain when tomorrow's workers are better educated, as they could work for

other area organizations or even move away (Singer, 2000). Or, if a firm

provides job training for the hardcore unemployed, there is no certainty that

they will be productive employees or even end up working for that

organization. Indeed, some firms can free ride off the efforts and

expenditures of other companies.

In the past decade or two we increasingly have seen such activities as

charitable contributions, community service programs, employee

voluntarism, environmentally friendly policies, executive loan programs and

various quality-of-life efforts. Regarding charitable giving, companies

increasingly strive to align charitable giving with the hearts of workers and

customers. For instance, LensCrafters donates eye exams and glasses to the

needy; Avon, with a representative force that is 98 percent women, raises

money for breast cancer research; and Ben & Jerry's gives 5 percent of

pretax profits to politically correct causes that its founders believe in, such as

antinuclear campaigns, gay rights groups, etc. Endowing universities doing

research in the firm's field is another common example of charitable giving.

In the realm of community service programs, Stride Rite opened the first

corporate on-site day care center in 1971 at the company's factory in

Roxbury, a poor section of Boston, and the nation's first on-site fitness center

for employees.

Employee volunteerism programs grew in the 1990s, including mentoring

students (e.g. some Stride Rite employees tutor inner-city students two hoursa week), painting low-income houses and distributing food to the needy.

Reasons for involving employees included increased employee mobility,

creating a desire to get to know one's coworkers quickly and community,

and the inability of local governments to keep pace with the demand for

services. For instance, at Tom's of Maine, 5 percent of an employee's work

time can be donated to community outreach at the regular pay rate. The Body

Shop requires employees to do a certain amount of community service on

company time.

Humanitarian CSR

Corporate on-site day care

center



16/36

Quality-of-life issues include rebuilding inner cities, providing job training

for the hardcore unemployed, helping renovate parks, sponsoring cleanup

programs, establishing manufacturing plants in ghetto areas, offering

seminars to high school students on how effectively to seek employment,

supporting minority business ventures, fighting illicit drug traffic, funding

cultural programs, and providing educational videos, instructors, and tutors

to public schools.

The debate over altruistic CSR

The case for altruistic CSR. There are a number of arguments for altruisticCSR, all of which contain some truth but none of which, individually or

collectively, builds a strong case for the practice. The most basic justification

for humanitarian CSR is the social contract argument previously discussed.

``Business is a major social institution that should bear the same kinds of

citizenship costs for society that an individual citizen bears'' (Davis, 1983,

p. 95). It is said that just as you and I have an obligation to take into

consideration all of the parties that we directly and significantly affect, so too

are businesses required to take into consideration all parties that they will

affect.

In the moral realm this is true. For example, businesspeople have the same

obligation to tell the truth in their advertisements that you and I do when we

are talking with strangers who stop by at a garage or a yard sale. And, just as

you have to take special care when you are dealing with children that come

by your garage sale, advertisers must take special care when designing

advertisements aimed at youth audiences. This is an argument for ethical

CSR avoiding harms or social injuries.

However, the argument does not extend to humanitarian CSR mandating

doing good works because the analogy between people as individuals and

business organizations as institutions breaks down when we discuss

providing for social welfare. First, he idea of you and I doing good works in

our role as compassionate persons as an analogy for an enterprise to also do

good work as a compassionate corporate creature is fallacious. It is true that

a ``socially responsible'' individual is one who takes active part in the

community, helps those who are less fortunate, participates in the civic life

of the community, and so forth. However, whereas human beings are

multifaceted individuals with diverse interests, corporations are formed for

limited economic ends that do not include good works and social welfare.

Second, while it is true that in US culture individuals with wealth are

expected to share it with those less fortunate (Trevino and Nelson, 1999), it

is a different story when we are talking about corporations whose

stockholders might not be particularly well-to-do and who are counting on

the funds for needs such as their retirement or college for their youngsters. It

is the individual and institutional stockholders' funds that are being

expended, not those of some amorphous creature known as ``The

Corporation''. It is true that society provides businesspeople with resourcessuch as an education, training, and other nurture. Especially executives from

less privileged backgrounds who got help from others in pulling themselves

up by their bootstraps are justified in feeling the need to ``give back''.

However, they can best do this as private individuals, not as corporate

humanitarian ambassadors.

A rebuttal to this is that when a corporation views itself as acting only with

its stockholders' financial interests in mind, stock market pressures often

result in the achievement of short-term financial interests at the expense of

Quality-of-life issues

Providing for social welfare



17/36

long-term financial and societal welfare. However, this only argues for

ethical behavior, which should not be sacrificed for ill-gotten financial gain,

not acts of charity, which Robin-Hood style rob from the rich to give to the

poor.

Another point made by champions of humanitarian CSR is that, as the two

most powerful institutions in the USA, business and government, are obliged

to address and rectify problems of social concern (``power begets

responsibility''). They say corporate philanthropy is a preferable substitute

for government welfare, or at least is necessary in the face of deficient publicwelfare, which, indeed, is partially due to corporate opposition to higher

taxes (Benkert, 1996). The public is apparently transferring its expectations

for solving social problems from failed ``Great society'' government

programs to business (Carroll, 2001). Also, humanitarian CSR is favored

over government welfare in that the aid is voluntarily, more personally and

perhaps more efficiently bestowed, whereas state contributions come via the

inefficiency and plodding pace of government bureaucracy and legislators

through faceless bureaucrats. Granted, taking money out of the cash registers

and paychecks of businesspeople to pay for inefficient, wasteful, centralized,

bloated government programs is not a good idea. However, just as

government welfare coerces taxpayers to hand over a generous portion of

their income to ``compassionate'' legislators, altruistic CSR forces

stockholders to sacrifice part of their income so managers can be ``generous''

with shareholders' funds. Moreover, there is a false dichotomy in saying that

only either business or government (neither of whose proper role is charity)

can solve social problems. We also have private individuals (many of whom

are businesspeople) and the collective efforts of these individuals through

charitable and social service organizations, foundations, and not-for-profit

organizations.

A final and purely pragmatic argument for humanitarian CSR is enlightened

capitalism. Being socially responsible does not necessarily mean profits will

fall indeed, they might rise because of the favorable publicity and

goodwill, enhanced employee morale leading to higher productivity, and less

government intervention, which historically has led to excessive power,tyranny, corruption, and abuse of rights (Novak, 1996). However, if business

prospers, this means we are discussing strategic CSR, nor altruistic CSR.

In short, all of the pro-altruistic CSR arguments really only hold for ethical

CSR or strategic CSR. There is no foundation for the firm acting out of

purely benevolent motives.

The case against altruistic CSR. I will now examine criticisms concerned

with what the proper role of a business organization is, the competence of

businesses to effectively contribute to societal welfare, the difficulty of

deciding what is meant by ``socially responsible'', the uncertainty over

whether business has an obligation to ``give back'', the undue influence

which companies might gain over society through their largesse, and thepossibility that philanthropic giving will put the company at a competitive

disadvantage. While the latter two arguments are flawed, together the others

build a strong position against altruistic CSR.

A set of philosophic objections concerns the proper roles of government,

corporations, and individuals in society. Some still view the enterprise as

having a purely economic role. Adam Smith's ``invisible hand'' argument

says that by giving the public a product it wants at a reasonable price,

businesses unconsciously transfer the profit motive into consumer welfare. If

Corporate philanthropy

Enlightened capitalism



18/36

a company makes a profit, employees will benefit through higher wages

(and, in some cases, through stock ownership/profit sharing), and the

company will grow, enabling it to employ more people and contribute to the

community in the form of taxes. Thus, from an economic viewpoint, it is

more beneficial for companies to continue expanding rather than giving

money away to charity and good works.

Similarly, the microeconomic theory of Pareto Optimality says that

free-market forces ensure that maximum social benefits will be achieved at

minimum social costs when each company tries to maximize profits.Society's scarce resources are used so efficiently by producing firms, and the

goods and services are distributed so effectively by competitive markets, that

it would be impossible to make any single person better off without making

some other person(s) worse off. The maximum economic benefits for society

will be produced, recognizing the full personal and social costs of that

production.

However, the assumption of Pareto Optimality breaks down if we do not

have perfect competition, where no market participants can control or

influence the marketplace, especially prices. The ``invisible hand'' model

was reasonably descriptive in an agrarian economy characterized by

commodities. However, ``modern corporations bear about as much

resemblance to Smith's self-sufficient farmers and craftspersons as today'smilitary complex bears to the Continental militia'' (Shaw and Barry, 1992,

p. 216). Today, successful companies can be less than fully efficient and less

than entirely satisfy consumer wants. In imperfect markets, companies need

to go beyond maximizing profits and consider whether their actions are

serving society by avoiding unreasonable harms, since several ways of

increasing profits actually hurt society, such as deceptive advertising,

bribery, tax evasion and price fixing.

Thus, profit is an incomplete measure of social performance and therefore a

nonaccurate measure for resource allocation (Rivoli, 1996). One reason is

externalities deleterious, unintended side effects of business activities that

result in costs to society that are not reflected in the company's cost structure

and are not considered by the neoclassical economic model. Examples of

such unintended consequences of business activity include pollution,

job-related accidents, injuries to customers by defective products, and even

the unintended societal impact of advertising (Pollay, 1986).

Since the industrial revolution, companies have attempted to internalize the

benefits and externalize the costs of their actions where feasible (Freeman,

2001). In economic theory, these are costs of production, and if they are

absorbed by the firm and factored into the prices that companies pay that

is, if they are internalized then, economists argue, the market itself takes

care of the problem. Thus, a business causing air or water pollution should

dispose of waste in an environmentally safe (albeit more expensive) way or

pay for the damage the waste does downstream. Then the price of this firm'swidgets will reflect their true social cost. Forced to pay the true cost of

pollution, instead of being able to use air and water as free resources,

companies have an incentive to stop polluting. However, the costs of

pollution control are often not internalized but passed on to workers,

consumers, and the public as spillover effects or externalities because

government fails to perform its role to police such activities.

When externalities are present, the problem of damage must be addressed

directly in business decision making, either voluntarily (ethical CSR) or via

Pareto Opitimality theory

Incomplete measure



19/36

government regulation. For instance, ``environmentally friendly'' products

reduce pollutants and waste so that pollution costs are not borne by and

charged against the profits of other companies, towns, and entities. Note that

the problem of externalities falls outside the realm of altruistic CSR.

Internalizing the externalities voluntarily might also be practicing strategic

CSR in that such companies keep government out of their decision making

(Boatright, 1999, p. 344).

Another difficulty with the economic argument is that it assumes that

producing whatever the buying public wants is good. This ignores

controversial or ``socially undesirable'' products like recreational drugs,

liquor targeted toward children and alcoholics, handguns and pornography.

Nobody but a diehard libertarian would advocate giving customers whatever

their hearts desire. For example, Wal-Mart refuses to carry CDs with lyrics

or cover art it finds offensive (and in the process probably actually satisfies a

customer group larger than teenagers their parents). Unfortunately, the

market does not always correct such abuses. But, since here we are

discussing what is morally good or bad, we are considering ethics, not

altruism.

One other systemic problem with unbridled free markets is the sometimes

exclusion of minorities and the poor. It is observed that these groups,

because they lack ownership of any of the factors of production beyond theirunskilled labor, receive inadequate income to participate in many product

markets and consequently cannot maximize their own satisfactions in any

meaningful way. In effect, there is discrimination against the needs of

segments that are too uneconomic or small to serve.

The question is, who should provide for their needs? This again raises the

question of the relative roles of business, government, and private

individuals in promoting the general good. Friedman (1996) and Levitt

(1983) seem to believe that it is government's obligation to provide for all

kinds of individual and community needs. However, the proper, limited role

of government as found in both the Bible (especially Romans 13:1-7) and the

US Constitution is to preserve peace and order, promote justice and enforce

the law, and to punish evildoers, not to provide all kinds of ``public services''and ``free lunches''. Although this suggests that government is responsible

for holding companies accountable for the harms they create (Trevino and

Nelson, 1999), civil government should not provide for welfare. Our

Founding Fathers understood that the right to ``pursue happiness'' meant that

others could not infringe on our right to obtain these things. The right to

education, health care, etc. means we have the right to obtain these, either

through our own means or with the help of others, not that the government,

or business for that matter, must provide them to us (at taxpayers' or

stockholders' coerced expense) (Ahlseen, 2000). It is the duty of individual

citizens, sometimes collectively through dedicated organizations, to provide

funds for societal needs voluntarily. Nowhere in Scripture or the Constitution

is there a call for progressive taxation and forced, governmentalredistribution of income, which Friedman's adherents feel government

should implement as an alternative to corporate benevolance (Boatright,

1999). In fact, such compulsory redistribution of income violates the Eighth

Commandment against theft (Ahlseen, 2000).

To conclude this discussion on the economic role of business, the ``Adam

Smith's invisible hand does not work'' arguments, while meritorious, are

actually irrelevant to altruistic CSR. Since these arguments concern harms,

they are relevant to ethical CSR and should be taken seriously by managers

Difficulty with the

economic argument

Who should provide forneeds?



20/36

who would like to replace the hand of government with ``the hand of

management'' (Goodpaster and Matthews, 1982, p. 74). In the case of

provision of welfare, individuals and charities provide a better option to

government and business.

It should be the role of individuals, not business, to provide for such needs

since for business to go beyond profit maximization would not be in

shareholders' best interests and would constitute social engineering, an

improper corporate function. The corporation is not a welfare agency, but is

rather an economic association with specific and limited responsibilities

(Novak, 1996). Once you add social goals to the demands of serving

customers, employing workers, and making a profit for stockholders, your

business suffers and stockholders starve. Devotion of corporate resources to

social causes is contrary to an implied contract with investors to maximize

their profits and is, in effect, tantamount to stealing stockholders' money. In

effect, you are taxing the owners via deliberations that do not include their

representation (``taxation without representation'') and spending these taxes

on social causes (Benkert, 1996; Friedman, 1996). There does not appear to

be any instances of a corporation deciding which causes to support and to

what extent by polling its stockholders (Bowie, 1995). Alternatively, you

must raise the price to your consumers, thereby taxing them, or lower the

wages (price of labor) of your workers, in the process taxing them

(Friedman, 1996). Executives become unelected civil servants with thepower to tax some group(s), and corporations become government agencies,

not part of their proper economic role in the business system (Friedman,

1996.)

Although polling stockholders on proposed CSR initiatives might help solve

the problem of ``taxation without representation'', we would still end up with

unelected businesspeople substituting their judgment of what constitutes the

social good for consumers' beliefs or the views of elected policymaking

officials. Corporate responsibility for public welfare threatens to reduce,

transform, and even on occasion eliminate important aspects of public life

(Brenkert, 1996). DeGeorge (1990, p. 171) warns:

There is great danger in expecting corporations to take on themselves theproduction of public welfare, because they already have enormous power and are

not answerable for its use to the general public. Politicians are elected by the

public and are expected to have the common good as their end. We should not

expect corporations to do what they are neither competent nor organized to do.

Another cited problem with business assuming the (illegitimate) welfare role

of government and the (legitimate) welfare role of individuals is that those

needing welfare assistance tend to be the powerless. Corporate responsibility

for their wellbeing tends to perpetuate their dependency since there is no

formal relationship between the enterprise and the aid recipients, and hence

the division between the powerless and the powerful continues (Brenkert,

1996; DeGeorge, 1990). However, this argument would seem to be more

applicable to CSR in the form of outright grants and gifts rather than CSRinvolving training workers, educating children, and otherwise helping people

to help themselves (giving a man a fish vs teaching him to fish). Nonetheless,

at least with the welfare state there are safeguards and guarantees not

imposed on corporations, such as voting, representation, public hearings and

sunshine laws (Brenkert, 1990), although many political conservatives argue

that state welfare also tends to keep its recipients dependent.

The end of the matter is that altruistic social responsibility is neither in the

proper domain of business nor of government, but only of individuals, often

Role of individuals

State welfare keeps itsrecipients dependent



21/36

working collectively. The kind of help provided by these groups is on a

``small and human scale'', as President George W. Bush remarked during his

graduation speech at Notre Dame (Colson, 2001).

A second major area of concern about the properness of altruistic CSR is

competence it is objected that corporate executives are ``inept custodians'',

(Shaw and Barry, 1992), i.e. they lack the moral and social expertise and

authority to make noneconomic decisions for improving society (Freeman,

2001). Very few business people have special qualifications in defining and

acting in the public interest, with the result often being unintended

consequences of managers' well-intentioned actions. For instance, in the

mid-1990s McDonald's responded to pressures from a small but very vocal

group of noncustomer environmentalists who protested the waste of

disposable containers, labeled the McFare ``junk food'', and accused the

company of clogging US arteries and hyping high blood pressure.

Consequently, McDonald's treated the customer who has no health problems

as the exception rather than the rule. No one consulted the customer about

tasteless fries with less salt, the unpopular ``healthy'' McLean Deluxe burger

(made from seaweed extract!), and abandoning foam containers, which keep

food hot. Fortunately, the market is usually able to correct such mistakes

when customers are the victims if one business does not meet consumer

needs very well, this gives rivals the opportunity to jump in and fill the void.

However, this problem of managerial ineptness in the social realm is not

necessarily subject to market forces when the recipients of ``aid'' are outside

of the firm's business arena.

Opponents of altruistic CSR also suggest that individual initiatives are

preferable to managerial actions regarding philanthropy because what

exactly is ``socially responsible'' becomes debatable in a pluralistic society.

The question is, ``Whose agenda and values should be followed?''. For

instance, liberals and conservatives have very different viewpoints on issues

such as the value of recycling, supporting ``faith-based initiatives'',

providing ``safe sex'' education to teens, ridding the Internet of ``smut'', and

fighting for ``gay rights''. Therefore, while most ``socially responsible''

mutual funds filter out companies involved in tobacco, alcohol, and

gambling, there is little consensus on what other screens are appropriate.

Funds with a liberal worldview (e.g. the Calvert and Domini groups) tend to

shun environmentally insensitive companies, firearms producers, nuclear

power generators, or employers of child labor. At the conservative end of the

spectrum is the evangelical Christian Timothy Plan fund, which boycotts

companies that provide health benefits to the partners of gay employees and

firms that profit from pornography and abortion.

There are also so many debatable issues beyond what constitutes a worthy

cause, such as how much money should be given, whether it should be a

certain percent of corporate income (and if so, before or after taxes) or an

absolute amount, and so on. Such questions are virtually impossible to

answer to everyone's satisfaction for altruistic CSR and are even difficult forstrategic CSR, although as we shall see, in that case optimizing the bottom

line underlies all decisions. Although, if individuals are concerned about

their corporations investing in the ``wrong'' causes, they can investigate for

themselves, it appears that most are unwilling to take the time and effort to

do so.

It is generally easier to enjoin and correct an ethical wrong than it is to

prescribe affirmatively what is good for society, although drawing the line

between ethical CSR and altruistic CSR is at times difficult what some

Competence

Whose agenda and values

should be followed?



22/36

view as affirmative duties might be seen by others as correction of social

injury (Simon et al., 1983). For instance, affirmative action programs might

be seen as some as altruistic CSR to promote diversity in the workplace and,

hence, the general welfare, while others might view them as ethical CSR to

right past social injustice in treatment of minority groups.

Whether the issue is altruistic or strategic CSR, companies would be wise to

avoid controversial causes, walking a fine line between conservative and

liberal critics of philanthropic giving, as it is becoming increasingly difficult

to avoid offending at least one important constituency (Carroll, 2001). Awell-publicized example was when retailer Dayton Hudson made a

contribution to Planned Parenthood, right-to-lifers noisily stood outside the

stores cutting up their credit cards. When the retailer then contributed to

right-to-life groups in an effort to appease them, Dayton Hudson incurred the

wrath of the pro-choicers. In a similar dilemma, US West gave funds to the

Boy Scouts of America and was beat up by gay-rights activists because the

Scouts fought for their right as a private association to exclude openly

homosexual leaders. On withdrawing support from the Boy Scouts, US West

upset conservative religious groups (Carroll, 2001). Even ``safe'' groups with

broad public support can at times become controversial, such as when some

local United Way chapters withheld funds from the Boy Scouts over the

homosexual issue and rose out of favor with many conservatives. Companies

should support causes that will be favorably received by their targeted

constituencies.

Another argument against philanthropic CSR is that the notion of

``returning'' something to the community and ``giving back'' to society for

the firm's good fortune is fallacious. CSR advocates suggest that businesses

have a special obligation to do more than the rest of us, to do special things

for society or to solve society's problems. Critics reply that the obligations of

business extend no further than the obligations all human beings have to each

other. If businesses have obligations to do something for society, it is

because you and I have exactly the same obligations.

However, what this viewpoint overlooks is the previously-discussed notion

of special duties. As an economically and socially powerful institution,

perhaps business does have special obligations, as do professionals as

privileged members of society. But recall that this line of reasoning is only

valid regarding ethical CSR, not social CSR.

Another argument against philanthropic CSR is that shareholders are also

consumers, employees (increasingly so with stock options and profit

sharing), environmentalists, and community citizens, and so stockholders are

affected when corporations fail to act responsibly (Boatright, 1999).

However, this argues for ethical CSR but not philanthropic CSR since, as

private citizens. stockholders can contribute to causes of their choosing out

of their own pockets.

The final two objections to humanitarian CSR seem to have little basis infact. One concerns the undue influence over societ

The Boundaries[1]

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