Issues and Definitions

An Overview of the Argument
Some Definitions
Management
Managerial Organizations
Society
Social Involvement
Public Policy
Summary

The social responsibility of business is to increase its profits.

Milton Friedman

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It is the duty of the man of wealth to consider all surplus revenues,.... as trust funds, which he is called upon to administer.... for his poorer brethren,.... doing for them better than they would or could do for themselves.

Andrew Carnegie

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The duty of business in a democracy is.... to follow the social obligations which are defined by the whole community....

Howard Bowen

What is, in fact, the purpose and role of private business management in our society? Is it, as Friedman contends, simply to meet the tests of the marketplace and thereby "increase its profits"? Or is it, as Bowen argues, to meet a wide range of social performance goals "defined by the whole community"? Even a casual scanning of current business periodicals and corporate press releases suggests that the latter viewpoint is gradually replacing the former. As a recent Fortune article notes, "The doctrine that business has responsibilities 'beyond business'.... is still picking up steam."

But changes in official corporate rhetoric, and a wide variety of specific policy initiatives and activities on the part of individual corporations and industries, do not dispose of the basic questions themselves. Indeed, the more seriously one takes the idea that balance sheets and income statements do not provide a fully comprehensive basis for evaluating corporate social performance, the more one returns to the basic issues—the social purpose of business activity, the directions and limits of corporate involvement in society, and the objectives and standards to be achieved.

Evidently it is not possible for individual corporations, even very large ones, to take an active role in every sphere of economic and social life. On the other hand, the alternatives of complete withdrawal, mere charitable activity, or ad hoc response to specific demands and crises are equally unsatisfactory. Lectured from every viewpoint and confronted with an avalanche of prescriptions and criticisms, the business community is understandably confused and defensive. Little wonder that the whole problem of business involvement in society and what to do about it has come to be referred to as "the corporate dilemma."

AN OVERVIEW OF THE ARGUMENT

In this book we present an analysis of "corporate dilemma" and suggest a basis for resolving it. Our analysis is focused on two fundamental social processes. One is the process of management itself; that is, the process of organizing and directing the individual organizational units that perform productive tasks within, and for the benefit of, the larger society. In our own society most of these organizational units are private businesses, and by far the largest part of private business activity is conducted by corporations of substantial size. Hence, managerial processes and problems characteristic of the larger corporate business organization are our primary concern.

The second element in our analysis is the public policy process. Through the public policy process the members of society—individuals, organizations, and interest groups—identify issues of public concern, explore conflicting viewpoints, negotiate and bargain, and—if a resolution is reached—establish objectives and select means of obtaining them. In the ongoing process the structure of government and the political mechanism of society are of central importance. Yet, in both origin and impact, the process itself extends far beyond the boundaries of legislative action and direct governmental activity. In particular, since private business organizations account for much of the character and activity of society as a whole, they are also important stimuli, participants, and respondents within the public policy process itself.

Both the public policy process and the managerial process are well-established areas of academic study and practical activity. Social decision making has been a principal topic in philosophy since the days of Plato and forms the primary subject matter of modern political science. Private business management has been recognized as an important area of teaching and research for at least a century. Yet the idea that there may be— perhaps even must be—a normal and mutually sustaining relationship between the two processes is relatively new and somewhat controversial, at least in the United States. The traditional American view has been that the public and private sectors of economic life are separate and distinct and that there is a "natural predominance of private enterprise in the economic sphere and ... subordinate role of public initiative in any situation other than manifest national emergency."

Of course, this traditional separation of public and private roles in economic life is itself both a reflection of and a basis for public policy. The delegation of most of the economic tasks of society to independent private enterprises is a social decision of the first magnitude; and many large and powerful business entities have arisen specifically in response to public policy decisions. (One thinks particularly of the railroads and the aerospace industries.) Then, once established, business enterprises have inevitably come to participate in the public policy process in pursuit of their own private organizational advantages and goals. At the same time, the expanding role of government and governmental protection of other groups within society—such as labor unions, consumers, and taxpayers—has resulted in a counter-penetration of public policy into the activities of private management.

The fact of frequent and varied interpenetration and interdependence between private management and public policy is now generally recognized. However, this fact continues to give rise to expressions of surprise and alarm, both by business executives confronted with new public concerns and requirements and by social critics concerned over the prominent role of business interests in political life. Further, instances of interpenetration and interdependence are commonly regarded as exceptions—each based upon special circumstances—to the general rule of independence between micro-managerial and macro-societal decision processes.

Our own analysis takes, and attempts to justify, a different viewpoint....