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HANDBOOK

of
STRATEGY AND MANAGEMENT

Edited by
ANDREW PETTIGREW,
HOWARD THOMAS
AND RICHARD WHITTINGTON

SAGE Publications
London • Thousand Oaks • New Delhi

17

What Are the Responsibilities


of Business to Society?

DAVID A. WHETTEN, GORDON RANDS


and PAUL GODFREY

Some readers might be wondering: Why powerful, organization-bending social forces is


include a chapter on business ethics and social at the heart of business and society scholarship.
responsibility in a handbook on strategy and Given that the term used to characterize this
management? Our short answer is that we see area of focus, `business and society', denotes the
many benefits from greater integration study of relationships, it should not be surpris-
between business and society scholarship and ing that scholarship in this area has specialized
more mainstream approaches to the study of in the subject of external relations management.
strategy and management. Following are three Business strategy scholars interested in this sub-
supporting arguments, each associated with a ject can learn a great deal about the categorical
major section of our chapter. arguments used to justify the claims regarding
First, organizational science scholarship, what constitutes a firm's legitimate responsibil-
broadly defined, can benefit from a better ities. In particular, scholars who tend to focus on
understanding of the history of thought regard- the instrumental aspects of external relations
ing the troubling matter of business responsi- involving suppliers, channels of distribution,
bilities. We offer two brief examples. unions, etc., can gain a better understanding of
Although debates regarding the control and the full range of relationships firms must man-
accountability of organizations have receded age, including those external claims made on
into the background of organizational scholar- firm resources that are represented as `moral
ship, generally, this subject continues to ener- obligations'. In addition, the recent theoretical
gize much of the scholarship on business and work pertaining to stakeholder relations has the
society relations. When these scholars scan the advantage of being more bi-directional in orien-
business landscape they `see' social activists tation than the dominant inside-out models of
and special interest groups expending tremen- customer relations, supplier relations, etc., that
dous energy changing business practices that populate the broader organizations literature.
i mpact society in ways they see as adverse. The first section of our chapter details the
Whether one agrees with the activists' intentions history of scholarship on business and society
or not, they are undeniably exerting increasingly relations, showing how the number and variety
greater pressure on, and in many cases control of claims regarding corporate social responsibil-
over. the strategies and actions of firms. ity have increased through the years, and how
Achieving a better understanding of these the scholarship on stakeholder relations has

374 HANDBOOK OF STRATEGY AND MANAGEMENT

Table 1 7.1 Business and society terminology


Term Definition
Attitudes Situation-specific beliefs
Behavioral intentions Planned actions
Behaviors Actions
Corporate social performance Actual behavior regarding social issues (may be used to refer either to responses,
outcomes and impacts of responses, or the entire set of inputs, throughputs,
and outputs resulting in social impacts of corporate behavior); a stakeholder's
assessment of the degree of acceptability of a company's social responses
Corporate social responses Actions taken by a company that are intended to or actually do impact a
social issue
Corporate social responsibility Societal expectations of corporate behavior; a behavior that is alleged by a
stakeholder to be expected by society or morally required and is therefore
justifiably demanded of a business
Corporate social responsiveness Processes of responding to social demands
Descriptive ethics Description of the actions engaged in and how these compare to societal moral
expectations
Duties An action which is obligatory in order to protect the right of another
Ethical, moral Behavior consistent with principles that define what is good or bad
Ethics The study of moral obligations and behavior; a set of principles or rules that
judges or guides decisions made or actions taken by individuals or groups
Justice Fairness in treatment; various forms exist including distributive (allocation of
benefits and burdens associated with some action), compensatory (providing
recompense for harm suffered), retributive (imposing punishment for wrong
behavior), and procedural (establishment of/adherence to/consequences of
following administrative rules)
Morality Questions of fundamental right/wrong action (good/bad as opposed to
correctlincorrect)
Negative rights Those rights which a person will enjoy unless interfered with (the duty is one of
' negative action', i.e., non-interference in the other party's enjoyment of the
right), e.g., life and liberty. The creation of harm frequently involves
interfering with negative rights, and negative rights have primary importance
in ethics
Normative ethics Articulation/prescription of desirable behavior or a desirable principle on which
to make moral decisions
Positive rights Those rights which a person can sometimes enjoy only if others take action to
see that it is provided (the duty is one of 'positive action', i.e., provision of the
entitlement), e.g., food for the starving, shelter for the homeless. The
production of social good frequently involves the provision of positive rights,
and positive rights have secondary importance in ethics
Rights Things to which an individual is entitled either by virtue of citizenship or
humanity
Utilitarianism The philosophical theory which states that the morally best action is that which
produces the greatest net benefits for society as a whole
Values Fundamental preferences for outcomes or modes of existence, which are used as
a guide for making decisions

emerged as a prominent framework for under- Business and society scholars have identified
standing the process by which external claims four generic responsibilities of business. These
are presented, investigated, and negotiated. encompass a wide spectrum of `duties',
Second, the obligatory dimension of the including creating wealth, obeying laws and
myriad and often conflicting litmus tests of regulations, avoiding harm, and ameliorating
social responsibility facing contemporary social ills. Firms attempting to discharge these
firms raises some vexing conceptual chal- responsibilities confront a multitude of dilem-
lenges that should appeal to organizational mas, arising both within and between the four
theorists interested in the general subject of responsibility categories. The conceptual and
organizational dilemmas and paradoxes. practical conundrums associated with this

THE RESPONSIBILITIES OF BUSINESS 375

classification of corporate social responsibili- issue was scientific management pioneer


ties are the focus of the second section of our Henry Gantt, who in 1919 advocated that
chapter. companies should serve society (Wren, 1979).
Finally, the business and society literature Four years later, English businessman Oliver
contains numerous intriguing leads for new Sheldon included this argument in his 'philo-
areas of investigation in related areas of man- sophy of management'. More specifically,
agement scholarship. Whereas the purpose of Sheldon suggested that every manager needed
the first section is to expose readers with a to adopt three principles:
general interest in organizations to the busi-
ness and society literature, the purpose of this (1) 'that the policies, conditions, and methods
final section is to suggest opportunities for of industry shall conduce to communal well-
boundary-spanning collaboration on topics being'; (2) that 'management shall endeavor to
hitherto unstudied. Hence, the final section of interpret the highest moral sanction of the
our chapter has a distinct forward-looking ori- community as a whole' in applying social jus-
entation, inviting readers to consider a variety tice to industrial practice; and (3) that 'man-
of research ideas stimulated by our reading of agement ... take the initiative ... in raising the
the business and society literature. Given our general ethical standard and conception of
space limitations, we have opted to introduce social justice'. (Wren, 1979: 207)
a wide variety of topics rather than exploring a
handful in detail. This is consistent with our The incorporation of social concerns in
overall objective of inviting the broadest pos- management education came after the Second
sible range of readers to become more familiar World War. Dean Donald David of the Harvard
with this literature and to add their theoretical Graduate School of Business Administration
and methodological perspectives to the con- suggested in a Harvard Business Review arti-
temporary discussions in this field regarding cle (1949) that business involvement in com-
some of the most practically challenging and munity and public affairs must be a quality
intellectually interesting issues facing tomor- promoted by business education. From 1952
row's business executives. to 1958 a series of articles on the subject of
Before proceeding, we are concerned that business and society appeared in HBR.
because many readers will be new to the According to Paul (1987: 8), `the basic theme
business-society literature (within which we of much of this work is the necessity for the
i nclude the business ethics literature), some of individual to integrate personal values and
the terminology may be unfamiliar. Accor- managerial action. On a more general level,
dingly, in Table 17.1 we present a summary list the idea was presented that social responsibil-
of major terms - including brief definitions - ity should be a guiding principle for corpora-
used in this literature. tions.' This period also saw the publication of
Howard Bowen's (1953) The Social Respon-
sibilities of the Businessman, and a suggestion
HISTORICAL OVERVIEW OF BUSINESS
by participants in a 1955 AACSB meeting
of deans that business schools offer courses
AND SOCIETY SCHOLARSHIP
in business-society relations and social
responsibility.
Significant concerns about the role of business This section of our chapter picks up the
in the larger American society first arose at the story in the 1960s and continues to the present
end of the 19th century, with the rise of large by briefly reviewing five major themes in the
corporations and the 'robber barons'. business-society literature.' As shown in
Theodore Roosevelt and other progressive Table 17.2, our discussion of these five themes
politicians of the 1900s and 1910s responded highlights topics that are particularly relevant
to these concerns by creating the first modern for the study of strategic management. We
wave of government regulation to curb abuses, will first present an overview of the five
such as the meat packing industry's scan- themes, and then examine each, particularly
dalous practices, which were the subject of the first, in more detail. Our added measure of
muckraker Upton Sinclair's The Jungle. The attention to the first theme reflects its founda-
earliest 'management scholar' to address this tional nature.

Table 1 7.2 Themes in the study of business and society relations


Lines of i nquiry 1 960s 1 970s 1 980s 1990s
Organizing principles
Business ethics Meaning of business ethics Descriptive ethics - articulation Review and application of major Review and application of
(different than ethics of of ethical issues ethical theories (rights, justice, additional ethical theories
i ndividuals in business?) utilitarianism) to social and ethical (esp. virtue ethics, social
issues contract theory, ethic of care);
ethical theory - organizational
theory relationships
Corp. social responsibility Existence of social Why social responsibilities Social performance - financial Principles of social
responsibilities; articulation exist; categories of CSR; performance relationship responsibility; refinement of
of different responsibilities principle of public measures of social
responsibility performance; exemplary
practices of 'socially
responsible businesses'
Ideology/attitudes/values Change in individuals' ethical Social and ethical values of Social/ethical values/attitudes of Comparative ethical values
values over time managers; comparison to business students; models of (nationality, race, gender);
those of business critics; i ndividual ethical decision empirical studies of moral
manager's opinions re CSR making; organizational influences reasoning and decision making;
arguments on ethical decision making in moral intensity of issues
organizations
Organizational processes
Corp. social performance Desirability and appropriate Understanding social issues - Crisis management; public affairs managing employee
beneficiaries of philanthropy; scanning the environment/ management; issues management; voluntarism; environmental
social movements link to strategic planning; cause-related marketing, strategic audits/reports; environmental
social auditing proposed; philanthropy; corporate affairs function; corporate
growth of public affairs governance; industry ethics codes; creating
and community relations self-regulation; CEO leadership; ethical cultures; issue-
functions; social models of CSP specific control systems:
responsiveness; advocacy diversity management, whistle
advertising blower protection, ethics
hot-lines, sexual harassment
policies, etc.
(Contd.)

Table 17.2 (Contd.)


Lines of inquiry 1 960s 1 970s 1 980s 1 990s

Stakeholder management Stakeholder concept, analysis and Stakeholder partnerships;


management prioritizing stakeholders;
determinants of stakeholder
tactics

Social issues

Minorities Hiring Purchasing from minority Advancement Diversity, anti-AA


owned businesses
Women Hiring Advancement, work and family Sexual harassment, elderly
pressures, comparable dependent care
worth, child care
Community Poverty, riots Urban renewal Education, homelessness, drug Education, hiring welfare
education, community impacts recipients
of closings/takeovers
International Corporate political Bribery Disinvestment from South Africa, Human rights of workers, local
intervention in other plant safety, marketing practices community benefits, global
countries operating standards
Consumers Consumer rights, planned Product safety, deceptive Product quality, advertising to Liability regarding inherently
obsolescence, auto safety advertising claims children harmful products,
over-consumption, sex in
advertising; internet marketing
and privacy/security
Employees Labor law violations. Wages, quality of work life, Plant closings, wage and benefit Downsizing, e-mail privacy, too
wage increases layoffs, workplace safety, cuts, AIDS, privacy, whistle- much overtime, work-life
free speech, employee blower protection, age and balance, CEO/worker pay
assistance programs disability discrimination, ratio, religion/spirituality and
nonsmoker's rights, work, disability access, domestic
employee wellness, partner benefits, smoker's
employee crime rights, workplace violence

(ConId.)

Table 17.2 (Contd.)


Lines of inquiry 1 960s 1 970s 1 980s 1 990s
Environment Air, water, noise pollution; Toxic waste, solid waste, Global warming, recycling,
energy conservation; acid rain, ozone depletion, recycled content, pollution
endangered species environmental racism prevention, disclosure,
biodiversity, sprawl,
sustainable development
Stockholders Greenmail. golden parachutes CEO compensation
Business-government
relations
Government action Determinants and Federal chartering of Economic deregulation; social international trade policies;
l egitimacy of corporate corporations; social deregulation attempts; comparative public policy;
political activities regulatory policies; privatization of govt. international regulation
regulation's impact on services; pro-business govt.
business activity; corporate PACs;
regulatory compliance
Business political activity I mplications for business Political contributions/ Political action in other countries;
of governmental response scandals; corporate corporate political strategy and
to social unrest crime competitive advantage

THE RESPONSIBILITIES OF BUSINESS 379

Business and Society Themes on the business enterprise by agents of social


change? Research in this area involves
The first theme, organizing principles, exam- description of social problems, and of the cor-
ines the basis for claims that corporations porate activities that give rise to or contribute
should act on social and ethical issues. In a to the exacerbation of these problems. This
sense, authors addressing this theme are stream of research tends to be descriptive and
answering the `why' question of business and issue specific. Unlike the literature in the prin-
society relations - Why should firms be good ciples category it tends to focus on the specific
corporate citizens? Within this broad theme are i mpacts of the harm and the mechanisms by
three major streams of scholarship: business which it occurs, rather than making a philo-
ethics, corporate social responsibility (CSR), sophical or strategic case for why companies
and ideology/values/attitudes. Each of these should respond to the issue. Unlike the litera-
streams claims kinship to different disciplines: ture in the processes category, it tends to
business ethics is based in philosophy, ideology/ describe practices of companies that are
values/attitudes is based in psychology and framed in issue specific terms rather than in
sociology, and CSR is based in sociology and relational or functional terms. In addition,
management. The three streams are inter- when corporate practices are described, the
related. Individuals have values, attitudes and focus is on how they increase or lessen the
ideologies that influence, and are the product harm done, rather than on their intended
of, the issues they pay attention to and the effects, in terms of the development of the
decisions they make. These beliefs shape, and issue or the company's relationships with the
are influenced by, their views regarding what concerned stakeholders. As noted above, unlike
corporations should do. Individuals articulate the business-government relations literature,
these values in terms of claims that businesses the stakeholders involved have no direct, legiti-
have certain social responsibilities - often mate coercive power over the corporation. It is
framed as ethical responsibilities or moral i mportant to point out that fewer business and
obligations. To make these claims obligatory, society scholars currently emphasize this
actors weave in the scholarship and thinking theme in their writings than did in the past -
of major moral systems or philosophies, as much of the literature in this area now stems
well as legal and economic reasoning. from sociology, political science, and journal-
The second theme, organizational processes, ism, including the general, business, and
focuses on firms' responses to claims that they social advocacy press. Although it is an
' ought' to act in certain ways. Literature on important source perspective in this field, it is
this subject focuses on the 'how' question that seldom the focus of actual scholarship.
has been central to the business and society The fourth theme, business-government
field-How do firms manage their interactions relations, focuses on activities directed at
with the external environment? The major business by government (such as regulation
streams of scholarship within this area are cor- and trade policies), and on activities directed
porate social performance, corporate social at government by business (such as lobbying
responsiveness, issues management, crisis and PAC contributions). To the extent that
management, stakeholder management, and government is just another stakeholder group,
corporate governance. These streams have it should be managed by a process like public
their roots in business strategy and policy, affairs (under theme 2). To the extent that
organizational behavior, organizational theory, government is concerned about specific issues
psychology, sociology and political science. scholarship on this topic spills over into
Corporate social performance (CSP) has theme 3. However, government is such a
become the dominant stream within this cate- powerful stakeholder - different in degree
gory, but stakeholder management has rapidly (size and power vis-a-vis other stakeholders)
grown in prominence. and kind (it can enforce its demands through
The third theme, social issues, examines the laws and regulations) - that we place it in its
specific concerns expressed by various stake- own category. For this reason, this theme can
holders. Scholarship on this theme addresses be viewed as a specific focus on a unique
the 'what' component of business and society ' who' in business and society relations,
relations - What are the specific claims made Scholars in this area commonly study both

380 HANDBOOK OF STRATEGYAND MANAGEMENT

governmental and business actions, making of the concept will be explored in some detail
separation of these interactions awkward. in the third section of this chapter. Put simply,
These scholars frequently have different train- Friedman argued that the proper social respon-
ing than those who study the interactions of sibility of business is to focus on wealth cre-
business with other social stakeholders. The ation, and to leave other social institutions to
root disciplines of business-government rela- solve social problems. Other critics charged
tions scholars tend to be political science, eco- that giving business the power to address
nomics and law. issues traditionally reserved for government
and charitable organizations would be damag-
ing to the concept of a pluralistic society
Theme 1: Organizing
(Levitt 1958).
Principles - ` Why' This challenge to the CSR concept resulted
in attempts in the 1970s to build a stronger,
The pioneers in the business-society field more logically grounded and articulated
came from many disciplines, but most case for the adoption of CSR. Preston and
notably from economics, political science, Post (1975) looked for a principle to decide
law, and business policy. In part because of what issues a company was obliged to respond
their professional background, as well as the to. They articulated the `principle of public
nature of public discourse, the search for
responsibility', which argues that a business
principles to guide business in its relationship should deal with the social issues that are
with society was framed primarily in terms i mpacted by the normal operating activities of
of corporate social responsibility (CSR), the company. This principle suggests, for
rather than ethics or values - although these example, that an automobile manufacturer has
latter topics have been of great signifi- the responsibility to address issues such as
cance. Because of CSR's prominence, we auto safety, vehicular air pollution, and the
will focus primarily on spend most of our impacts of its manufacturing plant activities
effort detailing this concept. Readers inter- on the local community, while it has no
ested in an extensive discussion of the evolu- responsibility to become engaged in activi-
of the CSR concept are advised to see ties such as philanthropic support for the
Car
arroll (1999). arts. Sethi (1975) suggested that corporate
Corporate Social Responsibility social responsibility (or performance) had
three logically distinct elements: social
The early advocates for CSR (Bowen, 1953; obligation (responsibility to obey the law),
Davis, 1967; Votaw and Sethi, 1969) social responsibility (congruence with pre-
advanced many pragmatic arguments on vailing societal norms, values and expecta-
behalf of CSR. These included the ideas that tions), and social responsiveness (development
CSR activities: would help limit increases in of policies, programs and capabilities that
government regulation; would develop a would minimize adverse consequences of
socially and economically stronger society societal demands). These three elements
more conducive to business success; would were considered by Sethi (1975) to be
i mprove corporate reputation among existing proscriptive, prescriptive, and anticipative,
and potential customers; would help attract respectively.
and retain high quality employees; and had the Building on this conceptual work, Carroll
potential to turn social problems into business (1979) suggested another approach to estab-
opportunities. Arguments that business had a lishing principles of social responsibility. He
moral obligation to help society were also attempted to defuse the economic responsibil-
advanced, but were not generally articulated in ity vs social responsibility argument by
as much detail. acknowledging that economic profitability is a
This growing acceptance in the late l 950s fundamental social responsibility of business.
and the l 960s of the concept of social respon- Carroll articulated three other categories of
sibility within both business and business edu- responsibility: legal, ethical and discretionary.
cation elicited a vigorous attack on the He argued that these four categories could
concept, led by conservative economist Milton serve as principles for managers deciding how
Friedman. Friedman's (1962, 1970) criticisms to meet their social responsibility regarding a

THE RESPONSIBILITIES OF BUSINESS 381

specific issue. The economic responsibility of indicators, most notably the Kinder,
the firm is to take those actions regarding the Lydenberg, Domini & Co. (KLD) index. This
issue that helped the firm make money. The index of social performance currently mea-
legal responsibility of the business on the issue sures performance on 10 different social issue
is to obey whatever laws existed regarding the areas (community, diversity, employees,
issue. The precise nature of the ethical and dis- product, environment, non-US operations,
cretionary responsibilities is more vague, in nuclear power, military contracting, alcohol/
part because Carroll offered differing explana- tobacco/gambling, and `other') for all of the
tions of them in different writings (Carroll, S&P 500, and is available on a longitudinal
1979, 1991). Ethical responsibilities consist basis. Several studies of the KLD database
either in doing what society expects on the have concluded that, despite some weaknesses,
issue or in doing whatever is necessary to it is a far more accurate and reliable measure of
avoid causing harm. Discretionary responsi- social performance than its predecessors
bilities (or philanthropic responsibilities, as (Sharfinan, 1993; Stank, 1993; Waddock and
they were later referred to) consist of taking Graves, 1997b).
actions not expected of the firm by society, or In the 1990s, attention also turned back to
actions which bring about social benefits. The articulating theoretically sound and practical
differences in Carroll's earlier, more prag- principles for CSR. Wood (1991) drew from
matic, formulation of these responsibilities previous CSR research to suggest three funda-
and his later, more theoretically based, formu- mental principles. At the institutional level, the
lation reflects growth in the influence of ethics legitimacy of business as an institution depends
on the CSR concept, which we discuss shortly. upon proper use, rather than abuse, of its power.
In the 1980s and 1990s, much of the CSR At the organizational level, the business should
research focused on the relationship between minimize harmful impacts stemming from its
corporate social performance and financial per- normal operating activities. At the individual
formance. This attention reflected both the level, managers should utilize whatever indi-
increased empirical orientation of the field, as vidual discretion they may have to benefit
well as the desire to empirically test (or for society. These principles, Wood argued, pro-
many, to provide support for) the claim that vide logically defensible guidelines which man-
good corporate citizens would be good eco- agers can use to determine what issues they
nomic performers. Over 50 such studies have should respond to and in what ways.
been done, and several reviews and meta- Many CSR scholars in the 1990s have called
analyses of this literature have been conducted attention to and described the exemplary prac-
(Ullmann, 1985; Griffin and Mahon, 1997; tices of so-called `socially responsible busi-
Preston and O'Bannon, 1997; Roman et al., nesses' (SRBs) (Altman and Post, 1995). These
1999; Wood and Jones, 1995; Frooman, 1997). organizations, generally relatively young small
The empirical results are mixed. In general, the to midsize companies, publicly state their
studies suggest a somewhat positive association commitment to CSR, particularly to engage in
between CSR and financial performance, activities which can be regarded as falling in
although the causal nature of the relationship is Carroll's (1979) discretionary category. The
unclear. At the very least, relatively little sup- Body Shop, Ben & Jerry's, Odwalla, Tom's of
port exists for the view that CSP and economic Maine, Patagonia, South Shore Bank of
performance are negatively related. However, Chicago, and Hanna Andersson are among the
many of these studies are methodologically companies whose exemplary commitment to
weak and the robustness of their findings is thus CSR have been widely recognized. However,
in doubt. For example, Wood and Jones (1995) critics argue that when one considers the full
attribute some of the ambiguity in these results range of corporate activity, few companies
to a mismatching of independent and dependent deserve the SRB label (see Entine, 1994 for an
variables and the lack of available data on the- application of this argument to the Body Shop).
oretically relevant intervening variables.
Scholars have increasingly attempted to Ethics
refine measures of social performance. Single
issue, single measure studies have been sup- The sub-field of business ethics has benefited
planted by measures which use multiple from an increasing presence of business

38 2 HANDBOOK OF STRATEGYAND MANAGEMENT

faculty with a rich training in ethics. In the guideline for academic analysis, its limitations
1 950s and 1960s scholars wondered whether for management practice should be fairly obvi-
business ethics was anything more than indi- ous - few managers have the time, under-
vidual ethics applied in a business setting. standing, or energy to perform this type of
Guiding ethical principles were often religi- detailed comparative analysis.
ously based (Johnson, 1957). As CSR focused In the 1990s, additional ethical theories
on organizational actions regarding externally entered the field and attracted substantial inter-
generated social demands, ethics to some est: chief among these are social contracts
degree focused on individual actions within theory (Donaldson and Dunfee, 1994), virtue
the company. Such topics include falsification ethics (Solomon, 1992), and the ethics of care
of expense reports and other records, dishon- or feminist ethics (Liedtka, 1996). Virtue
esty, theft and extortion, etc. To some degree ethics represents a qualified return to the
this distinction between social and ethical 1960s treatments of business ethics as individ-
issues continues, particularly as this subject is ual ethics, but with a firmer philosophical
treated in textbooks. But recognition that ethi- grounding. Recent scholarship also asks a new
cal considerations apply to external social question: do ethical business practices lead to
issues grew, and in the 1970s many studies competitive advantages? (Hosmer, 1994;
identified and catalogued the ethical questions Quinn and Jones, 1995.)
involved in a wide variety of personal and
organizational issues. These works were often Ideology, Attitudes and Values
used in conjunction with the pedagogical
question: What should be done in this situation This component focuses on the beliefs that
in order to be ethical? individuals hold which shape their decisions
As ethicists began to write and teach in the and behaviors. As such it is based in psycho-
business-society area, the tools of normative logy, sociology, and social psychology. In the
ethical analysis entered the discussion. During 1960s a key question in this area, stemming
the 1980s, the ethical theories of utilitarian- from such ethical fiascos as the electrical
ism, rights, and justice (Cavanagh et al., 1981) price fixing scandals of the 1950s, was
were applied to business situations. Philo- whether individual managers' ethical values
sophers and non-philosophers alike began to were in decline (Baumhart, 1961). In the
apply these theories to organizational and 1970s attention to the role of values in deci-
individual behaviors, as well as to social prob- sion making led to a number of studies about
lems, to determine if an ethical responsibility the values of executives (Ostlund, 1977),
exists in conjunction with a particular issue, employees (Collins and Ganotis, 1973) and
and, if so, what is the nature of the organiza- social activists (Sturdivant, 1977). The focus
tion's or individual's obligations. While the on executives' attitudes continued in the 1980s
application of ethical analysis fostered a more with studies examining whether executives'
rigorous analysis of social responsibility attitudes toward types of social responsibilities
claims, these theories did not end the debate might be related to company social perfor-
about business ethics. While rights theory is mance (Aupperle et al., 1985). In the 1980s
preferred by most business ethicists, there is and 1990s a number of studies examined the
hardly a general consensus on this matter. social and ethical values and attitudes of busi-
Recognizing that different ethical principles ness students (see Glenn, 1992, for a review of
often yield conflicting implications for action, these studies) in an attempt to deter mine
a common recommendation is that potential whether ethics education had an impact on
decisions be analyzed using each of the major ethical values and attitudes. Another area of
theories (Velasquez et al., 1983). Ifa course of increased attention in the 1990s was compara-
action is adjudged ethical by all of the tive studies of ethical values and decision
theories, it can be confidently engaged in. making in companies and societies around the
However, if no course of action passes all world (Al-Kazemi and Zajac, 1999; Batten
theoretical screens, the decision-maker must et al., 1997; Nakano, 1997).
choose among those options that pass one or Scholars interested in empirically invest]-
two screens, or continue to search for addi- gating ethics and values looked to studies such
tional options. While this is a reasonable as those of Rokeach (1973), England (1967).

THE RESPONSIBILITIES OF BUSINESS 38 3

and Hofstede (1980) for insight and instrumen- 1974). From these works, especially those of
tation (Frederick and Weber, 1987). But these Ackerman (1973) and Paluszek (1973), it
psychologically and managerially based became apparent that many companies had
values instruments were not found to be espe- been grappling with how to effectively man-
cially helpful, and in the 1980s and 1990s a age corporate social responsibility issues
major shift in this literature occurred. Scholars during the 1960s. Ackerman (1973) suggested
moved away from descriptive studies of that a three-stage process was typically associ-
values and attitudes presumed to be important ated with effective corporate social perfor-
in decision making and towards psychological mance: social obligations were recognized and
theories of ethical reasoning - including con- policies developed; staff specialists were hired
ceptual models of individual ethical decision and substantial learning about the problem
making in organizations. Kohlberg's (1981) occurred; and line managers assumed respon-
theory of moral reasoning has been widely sibility for social policy implementation, usu-
used in studies of managers' and business stu- ally accompanied by changes in resource
dents' moral reasoning (Weber, 1990; Elm allocations and rewards.
and Nichols, 1993). Trevino (1986) developed This trend suggested a shift in the field from
a model of ethical decision making incorporat- identifying a general set of corporate social
ing aspects of both the individual and the responsibilities to describing processes
organization. Victor and Cullen (1988) inves- whereby firms could become more socially
tigated the ethical climate of organizations, responsive to the social issues in their task
and how this affected individuals' ethical deci- environment. For example, research during
sion making. Jones' (1991) model calls particu- this period focused on topics like identifying
lar attention to the moral intensity of the issue and forecasting social issues (Wilson, 1974),
that is the focus of an ethical decision. This creating social responsibility officials (Eilbirt
scholarship attempts to move values and atti- and Parket, 1973), issues management (Chase,
tudes research away from social responsibility 1977), social reporting (Butcher, 1973),
and brings it into closer alignment with ethics. changes in organizational structures and sys-
It also offers the potential to offer descriptive tems (Steiner, 1975), reforming corporate
evidence and prescriptive suggestions for governance through changing board composi-
actually managing ethical and social behavior tion (Blumberg, 1974), and a revival of the
and performance within the firm. It is to this call for social auditing (Bauer, 1973). This
subject that we now turn as we examine the trend was also reflected in actual corporate
organizational processes theme. practice, as reflected in the proliferation of
public affairs departments responsible for
public relations, community relations, corpo-
Theme 2: Organizational rate philanthropy, issues management, crisis
Processes - `How' management, advocacy advertising, and gov-
ernmental relations and lobbying (Post et al.,
The CSR literature of the 1950s, 1960s, and 1 983). By the end of the decade Frederick
1 970s focused on establishing the case for the (1978, 1995) suggested that corporate social
existence of corporate social responsibility. responsiveness (CSR2) had replaced social
However, other than Bowen's (1953) proposal responsibility (CSR1) as the key topic in
that companies conduct a social audit, the business-society scholarship.
literature had little to say about how corpora- Carroll (1979) brought these two facets of
tions should be managed in order to fulfill CSR (social responsibility and social respon-
these responsibilities. In 1971 the first article siveness) together in a model of corporate
focusing on managing for social responsibility social performance (CSP). He proposed that
appeared in a business journal, suggesting the effective performance in this arena required
creation of committees of senior officers and managers to: reflect on the issues their compa-
of departments of social affairs (Mazis and nies face, identify types of social responsibili-
Green. 1971). By 1 976 at least 39 other arti- ties these issues invite, and select the mode of
cles focusing on social issue management responsiveness (reactive, defensive, accom-
process topics had appeared, which were col- modative, proactive) they will pursue. This
lected in two volumes (Carroll, 1977; Sethi, model motivated CSP research for the next

384 HANDBOOK OF STRATEGYAND MANAGEMENT

t wo decades (Miles, 1987; Mitnick, 1993; managing issues (Clarkson, 1995). Some
Rands, 1991; Strand, 1983; Swanson, 1995, scholars (Waddock and Graves, 1997a) have
1 999: Wartick and Cochran, 1985; Wood, suggested that the quality of relationships with
1 991). The models developed by Strand, a broad set of primary (economic) and sec-
Rands, and Mitnick differ from the others in ondary (social) stakeholders may in fact be
that they frame the CSP process in systems synonymous with the quality of management
theory terms of inputs (demands for CSR), generally. Hence, several scholars (Clarkson,
throughputs (responsiveness processes), and 1995; Waddock and Graves, 1997a; Wood and
outputs (actions which affect social issues). Jones, 1995) have suggested that stakeholder
While not firmly grounded in a systems frame- theory provides the basis for adequately under-
work, Wood (1991) is the most well known standing and assessing CSP.
CSP model and has become a widely used ref- Given the increasing emphasis on stake-
erence tool on this topic. CSP now serves for holder relations, it is important to draw atten-
many as an overarching framework for the tion to the literature on stakeholder tactics.
business-society field. Scholarship in this area has focused on the
CSP models are lacking in two areas, how- i nfluence strategies employed by various
ever. First, the models fail to adequately spec- stakeholder groups to shape corporate practice
ify relationships between key constructs. This (Frooman, 1999). As such, it complements the
failure impedes the development of testable firm-centric, inside-out orientation of stake-
hypotheses that would further advance schol- holder theory. The combination provides the
arship regarding relationships between and conceptual foundation for a bi-directional
among issues, stakeholders, principles, pro- study of stakeholder relations. Consistent with
cesses, and outcomes. Second, the models this broadened view of stakeholders, Wood
fail to effectively integrate normative perspec- and Jones (1995) note that stakeholders play
tives into their descriptive focus (Swanson, three fundamental roles regarding CSP: they
1 999). Possible outcomes of this lack of are the source of CSP expectations, they are
normative-descriptive integration include: affected by company actions, and they evalu-
reinforcing the notion that business and ethics ate how well companies meet CSP expecta-
are distinct and incompatible domains - the tions. In addition, they are frequently
` separation thesis' - (Wicks, 1996); reducing considered by managers during the process
the value of CSP models to practicing man- of developing and implementing social
agers; and inhibiting the development of a responses. Thus, in systems terms, stakehold-
coherent theory of business and society ers are critical providers of inputs, explicit and
(Swanson, 1999). i mplicit factors in throughput processes, pri-
Stakeholder theory (Freeman, 1984) emerged mary recipients of outputs, and predominant
in the 1980s not as a theory, but rather as a sources of feedback.
useful concept for communicating the need to Just as the number of social issues facing
manage relationships with persons and organi- business has increased, so have the number of
zations concerned with social issues, not tactics available to and utilized by stakeholder
just those concerned with economic issues activists, as indicated in Table 17.3. In part,
i dentified by strategy scholars such as Porter this is an outcome of the conservative revolu-
(1980). In the 1990s, however, the stakeholder tion (and to a lesser extent the GOP control of
concept moved toward a more complete the US Congress throughout much of the
theory, and became a leading competitor to the 1990s). Lobbying for new laws and regula-
CSP framework for theoretical dominance. tions was unproductive in that political cli-
Numerous scholars have elaborated stake- mate, so stakeholders had to devise new ways
holder theory by developing models for identi- that were more congruent with the prevailing
fying and prioritizing stakeholders (Mitchell i deology. Within the business and society
et al., 1997) and applying network theory to field, although the breadth of tactics has been
stakeholder theory (Rowley, 1997). Manag- noted, little research has focused on in depth
ing relationships with stakeholders is in- investigation of specific tactics, or on the
creas-ingly being viewed as a more robust implications of the choice of tactics for subse-
means of conceptualizing or studying com- quent corporate response. There are signs that
panies' actions in the social realm than is this deficiency is beginning to be addressed.

Table 1 7.3 Examples of'stakeholder • tactics by decade


1960s 1970s 1980s 1 990s
Protests/demonstrations Federal chartering proposals Issue specific codes of conduct Corporate practices-oriented partnerships
Lobbying for laws/regulations CSR-based boycotts Social investing and consuming CSR awards
Proxy resolutions Suing government agencies Encouraging whistle-blowing Multi-stakeholder negotiations
Unionization/strikes PACs/endorsements by other social activists Lobbying against social deregulation Independent certification of products
Labor PACs/endorsements Labor-management partnerships Cause-related event partnerships for CSR practices targeting retailers
Community issue partnerships ' Monkey-wrenching'
Ballot initiatives Lobbying against corporate
Calls for product labeling subsidies
based on CSR activities Internet-based activism
Worker ownership

38o J-L4NDBOOK OF STRATEGY AND MANAGEMENT

For example, Frooman (1999) uses resource trade treaties such as NAFTA, WTO, and
dependence theory to examine the conditions the proposed Multilateral Agreement on
under which stakeholders are likely to select Investments (MAI); sexual orientation issues
l our different types of influence strategies. (such as domestic partner benefits and
In conclusion, as corporate practice related nondiscrimination on the basis of sexual
to CSP has evolved, research on organiza- orientation); workplace violence and its rela-
tional processes has both expanded and tionship to free speech and privacy rights;
i mproved. New corporate practices/research international social justice issues (for example,
topics include strategic philanthropy, cause- workers' rights in sweat shops, the impact on
related marketing, industry self-regulation, minorities of corporate practices allowed by
CSP-related executive leadership behaviors, majority-controlled governments); and the
creation of ethical cultures, management of significance of religion and spirituality in the
new corporate functions (such as environ- workplace.
mental affairs departments), creation of Through four decades, business-society
ethics codes, partnerships with social activist scholars have documented and analyzed these
stakeholders, corporate social and environ- various issues, increasingly in the context of
mental auditing and reporting, corporate building or testing theories. The emergence of
governance, and various issue specific control a stronger theoretical perspective and more
systems and mechanisms. Research on these sophisticated analytical tools, combined with
topics generally follows the pattern of docu- an ever-growing list of challenging issues,
menting current practice, then explaining bodes well for the future of scholarship in
variance in these practices, including their this area.
effectiveness as tools for managing the social
environment.
Theme 4: Business-Government
Relations -'A Unique Who'
Theme 3: Social Issues -'What'
Because government differs in kind from other
Whereas stakeholder relations focuses on the stakeholders, business-government relations
dynamics of relationships between firms and has been treated as a special case, or form, of
their stakeholders, scholarship on social issues stakeholder relations in the business and society
has focused on the content, or purpose, of field. The business-government literature has
these relationships. An external group's con- focused on three basic topics: the actions of
cem about a social issue is often the generative government to affect business, companies' non-
force that propels them to declare a stake, or political responses to government activity, and
interest, in a firm's capacities and competen- the political involvement of business.
cies. As Table 17.2 indicates, new social In the 1960s and 1970s social regulation
issues emerged during each of the past four increased and the implications of this trend for
decades. Since most of these remain with us, business generated a fair amount of descriptive
the number of social issues with which busi- attention, as well as theoretical attention
ness must deal is very large. The anti- ( Mitnick, 1980). Business-society researchers
regulatory mood of the 1980s did little to slow also examined existing control efforts by
this pattern, and may have even increased the government and generated proposals that
expectation that corporations would voluntar- government adopt new means of controlling
ily address social issues since little new regu- business behavior. Schwartz (1974) proposed
l ation emerged during that period. The that the federal government charter corpora-
likelihood of new issues continuing to emerge tions and use the attendant power to more
is great, and several that have emerged during strictly require socially beneficial corporate
the 1990s are likely to grow in importance. action. A more recent example is an examina-
Among these are environmental issues (such tion of the growing movement to reduce or
as sustainable consumption and industrial ecol- eliminate the federal government's subsidies
ogy); work and family issues (such as support of corporations (Stevens et al., 1995). In the
for nursing mothers and those caring for elderly 1 990s. however, an analysis of the business-
parents); national sovereignty implications of society relationship from the perspective of

THE RESPONSIBILITIES OF BUSINESS 387

both partners has been relatively uncommon. studied question, and is the one most likely to
Business and society researchers focus pri- examine the nature and implications of
marily on the description or analysis of corpo- government activities. Where (local, state or
rate political activity aimed at effecting such federal governments; legislative, executive
government actions (Christensen, 1995), leav- or regulatory agency; etc.) CPA takes place
ing to political scientists and/or the popular has received little separate attention apart
press the task of examining government's from its relationship to why CPA occurs.
actions and reactions. This has the unfortunate When CPA takes place also has been studied
result of leaving some potentially significant primarily in the context of why firms engage
government experiments, such as the substitu- in political activity. The question of which
tion of market-based incentives (pollution firms (who) engage in CPA has also been
taxes, tradable emission permits) for tradi- studied extensively, and researchers have
tional command and control regulations, rela- found that a large number of firm and
tively unstudied by business and society industry characteristics are related to poli-
scholars. tical involvement. Finally, the question of
The major decision firms face regarding how firms engage in political activity has
nonpolitical responses to government activity also received a great deal of research
is whether or not to comply with a government attention.
regulation. Research on this topic has tended Getz (1997) has noted the opportunistic
to fall under the topics of corporate crime or rather than systematic nature of this research,
illegal corporate behavior (Baucus and Near, in that it has focused on political tactics and
1991; Clinard and Yeager, 1980) and its flip political issues that have been in the public
side, regulatory compliance. The illegal cor- eye. For example, in the 1970s researchers
porate behavior literature has studied both the focused on tactics like direct company
antecedents and consequences of illegal l obbying activities and direct political contri-

pliance has primarily focused on the question ronmental, consumer, and safety. In the 1980s
behavior. The smaller literature studying com- butions, and on political issues, such as envi-

of what induces firms to comply with laws and the focus was on grassroots lobbying, trade
regulations. Variables studied have included associations, and political action committees,
factors such as environmental munificence as well as on issues like economic deregula-
and dynamism, firm size, industry, and past tion and government protection from foreign
behavior (Baucus and Near, 1991). Baron i mports. Research on political tactics during
(1995) has recently reoriented these discus- the 1990s has continued to examine the use of
sions by suggesting that firms tend to integrate PACs, as well as the formation of political
their market and non-market activities. This coalitions containing firms from several
suggestion makes the separability of political industries. In terms of research on political
and product-market strategies problematic, issues in the 1990s, corporate political

scholars to pay close attention to business- attention (Rehbein and Schuler, 1 997;
and if correct, would seem to require strategy i nvolvement in trade issues has received

government relations. Schuler, 1996), as well as the development of


The study of the means by which and con- i nternational regulatory regimes, such as the
ditions under which corporations attempt to Montreal protocol to limit ozone depletion
i nfluence government was pioneered by ( Getz, 1993). Also receiving increased atten-
Epstein (1969), who identified 25 questions tion have been political strategies of multina-
regarding business-government relations. tional corporations in different countries and
Recent reviews of the corporate political under different political regimes (Boddewyn
activity literature include those by Getz and Brewer, 1994; Hillman and Keim, 1995).
(1997), Mahon and McGowan (1996), Looking to the future, Oberman (1993) and
Shaffer (1995) and Vogel (1996). Getz Hillman and Hitt (1999) have developed
(1997) describes the scope of corporate polit- typologies of political tactics predicting
i cal activity (CPA) research using the jour- which tactics will most likely be used in what
nalistic questions of why, where, when, who contexts and in support of what political
and how. Why firms participate in CPA has strategies. These offer the potential for
been, she suggests. the most commonly i ncreasing the rigor of research on this topic.

388 HANDBOOK OF STRATEGYAND MANAGEMENT

In conclusion, our objective in this brief categories but prioritize their order as legal,2
overview of the business and society literature ethical, economic, philanthropic (discretionary).
has been to expose management and strategy In one way or another this simple hierarchical
scholars to the key themes and intellectual framework continues to give form and shape to
trends within this subfield of organizational contemporary discussions of business' respon-
studies. We will now narrow our focus and sibility to society. We will briefly review the
concentrate on the core question that has both contemporary arguments supporting each claim
energized and confounded scholarship on this regarding what constitutes these responsibilities
topic for decades: just what are business' and highlight the fundamental conceptual issue,
responsibilities to society? framed here as a dilemma, at the core of each
perspective.
Our purpose in invoking this particular ana-
WHAT ARE BUSINESS' l ytical frame is to encourage management and
RESPONSIBILITIES TO SOCIETY? strategy scholars to more closely examine a
variety of vexing conceptual challenges that
while they are particularly prominent and trou-
Having reviewed the evolution of thinking blesome in the business and society literature
on business and society relations, we now l urk beneath the surface of most contemporary
narrow our focus. Within the context of the four scholarly accounts of managerial and organiza-
major themes described in the preceding section, tional actions.
this question is primarily a matter of principle.
That is, answers reflect competing paradigmatic
arguments regarding whether (and if so, then Legal Responsibility: Obey
wh),) businesses should attend to expectations Laws and Regulations
originating outside the realm of business.
We organize our discussion using the four Legal regulations are considered to be society's
types of business responsibilities proposed by 'safety net' for regulating business activity.
Carroll (1979). Carroll postulated that, `The Given the widespread evidence that market
social responsibility of business encompasses forces and moral persuasion are not sufficient
the economic, legal, ethical, and discretionary to curb the harmful externalities resulting from
expectations that society has of organizations at business leaders' myopic focus on short-term
a given point in time' (1979: 500). As shown in earnings, governmental regulations and laws
Table 17.4, we have broadened two of his cate- have been historically seen as a necessary
gories to reflect a more contemporary 'Institu- buffer between business and society. However,
tional' perspective and to make the categories as we mentioned earlier, a reduction in the rate
more consistent. It is important for our purposes of growth of business regulation is one of the
to underscore Carroll's conclusion that what enduring legacies of the conservative political
constitutes a social responsibility of business is revolution. Therefore, very little attention has
a decision made by society, not by business. been paid to this position in the `what is busi-
As noted in the previous section, Carroll's ness' responsibility' debate since that era.
model of social responsibility has exhibited a However, there is some evidence that this
remarkable degree of resilience, although it has trend line may be reaching a deflection point.
its critics. One of the most common criticisms is We'll briefly mention three examples of fairly
that the model assumes that economic responsi- recent proposals to experiment with new
bilities are most fundamental, followed by forms of business regulations: market incen-
l egal. ethical and discretionary responsibilities tives, federal chartering of corporations, and
(Kang and Wood, 1995; Swanson, 1999). Kang international regulations.
and Wood (1995) offer an alternative view, in Many proponents of stronger controls on
which they rum the hierarchy upside down, pollution have advocated various forms of
before re-conceiving it in different terms, in market-based incentives in preference to tradi-
which moral responsibilities are framed as most tional ' command-and-control' regulation
important, followed by social responsibilities, (Stavins and Whitehead, 1992). Examples of
economic responsibilities, and benevolence. market incentives include pollution charges,
Ferrell et al. (2000) meanwhile retain Carroll's tradeable permit systems, deposit refunds and

Table 17.4 A comparison of husiness'responsibilities to society


Type of responsibility Common description Focus of i mperative Claim on business _ Conceptual dilemma
Legal responsibility: ' Doing what is required' Legal requirements Obligatory Market efficiency versus regulation
obey laws and regulations effectiveness
Economic responsibility: ' Doing well' Owners' rights Obligatory Accuracy versus generality of the
maximize shareholder wealth 'rules of the game'
Moral responsibility: ' Doing what is expected' Moral obligations Obligatory Conflicting moral standards and
discharge moral duties ('not doing harm') expectations
Social responsibility: ' Doing what is desired/ Citizenship Discretionary instrumental justification for 'doing
go beyond obligatory doing good' responsibilities good'
responsibilities

390 HANDBOOK OF STRATEGYAND MANAGEMENT

user fees. The nature of these mechanisms, are the Montreal Protocol adopted in 1987 to
under which companies incur greater financial eliminate certain ozone-depleting chemicals,
costs for greater amounts of pollution, encour- and the 1998 Kyoto global warming treaty. A
ages companies to engage in innovation in major impediment to the use of international
order to reduce costs. In contrast, traditional regulations is that no acknowledged enforce-
regulations, by specifying exactly what actions ment body exists, so the implementation and
are to be taken to limit pollution, can actually enforcement of these regulations is dependent
discourage innovation. In addition, market upon action by individual countries.
incentive mechanisms encourage firms to con- The legal responsibility position wrestles
tinue reducing pollution even after the level of with a core management dilemma, familiar to
pollution that is permitted by regulations is strategy scholars, namely the tradeoff between
attained. Various applications of this approach effectiveness and efficiency. The critique of
are being experimented with in both the US the traditional form of government regulation
and Europe, including elements of the 1 990 is that it is inefficient for business, govern-
Clean Air Act and the recently formulated merit, and society. Because they permit greater
global warming treaty. An example of an flexibility and require less oversight, market
application outside of the environmental arena incentives are championed as a more efficient
is the proposal to bestow favorable tax treat- form of regulation. However, numerous con-
ment on corporations that voluntarily engage cerns have been raised regarding the effective-
i n socially responsible practices, such as limit- ness of market-based forms of regulation. For
ing CEO/worker pay ratios to a certain level example, some environmentalists oppose this
( Kuttner, 1 996). approach because it doesn't carry the same
The federal chartering of businesses has degree of moral sanction. They are concerned
been advocated by those who believe that gov- that the underlying objective of protecting the
ernment needs greater leverage over the actions environment will be overshadowed by debates
of business (Mokhiber, 1998). If all firms were over pricing mechanisms, etc. They view the
federally chartered, then government could prospect of an extremely wealthy firm being
revoke a company's charter (and thus its right willing to pay a severe financial penalty for
to exist) if it engaged in a pattern of egregious producing high levels of pollution as an unten-
behavior. While states currently have this able proposition. They also point out that in
power, the economic benefits they derive from order for the market form of deterrence to
issuing charters or from being the home of a work, prices have to be right. Given that pric-
large corporation discourages them from using ing is inherently a trial-and-error process, they
this power. Advocates of this form of regula- worry that if the initial prices are too low to
tion argue that government simply can't levy produce the expected results, government offi-
big enough fines to deter businesses from cials will lack the political will to raise the fees.
engaging in a class of reprehensible offenses Business and government leaders have
that generate significant financial gains. They expressed related concerns about the unknown
believe that nothing short of the threat of losing aspects of this new approach. For example,
the right to operate as a business will be suffi- although business leaders complain about the
cient to prevent these social disasters. current form of regulation, they know how the
Recently, there has been an increase in the current system works and they have learned
demands for international business regulation how to operate successfully within this set of
(Post et al.. 1996). Advocates argue that even parameters. Therefore, although they, in gen-
i f the world's major trading nations agree on a eral, prefer market solutions over government
common set of ethical standards and business solutions, many business leaders are uncom-
regulations, given that contracts are generally fortable with the uncertainty inherent in
awarded to the lowest bidder and that pollution switching to an entirely new form of regula-
knows no boundaries, the only guarantee that tion. The same type of ambivalence can be
harmful business activities occurring in any observed among government officials. On the
given country aren't allowed to affect one hand. they see merit in off-loading an
members of societies half way around the extremely unpleasant, unpopular, and onerous
globe is to create a minimal set of intema- oversight responsibility. But, they too are
tional business regulations. Notable examples uncertain about the implications of trading a

THE RESPONSIBILITIES OF BUSINESS 391

known set of goals, responsibilities, competen- these critiques into two broad dilemmas facing
cies, etc., for a new approach whose potential advocates of the `maximize shareholder
to regulate is unproven and whose implica- wealth' position. These dilemmas are linked to
tions for regulators are unknown. the corresponding summary statement in the
preceding paragraph.
First, the tradeoff between accuracy and gen-
Economic Responsibility: erality. Weick (1979) observed that theoretical
Maximize Shareholder Wealth propositions can be classified as simple, gen-
eral, or accurate. In addition, he argued that
This is the traditional view of business respon- because it is logically impossible for a state-
sibility, commonly attributed to Milton ment to be simple, general, and accurate, these
Friedman's classic New York Times Magazine attributes are, as a set, incommensurable.
article, `The social responsibility of business Applying this logic to Friedman's 'rules of the
is to make profits' (1970). Advocates of this game', critics have argued that although this
position argue that the ultimate decision crite- general and simple statement is adequate as a
ria in business affairs is the interests of the boundary condition for the maximize share-
owners - the shareholders. Their agents holder wealth proposition, its lack of accuracy
(senior managers) are expected to maximize makes it unacceptable as a practical guide for
profits, within the `rules of the game'. From discharging moral responsibilities.
this perspective, the firm has but one stake- Initially, Friedman proposed that the rules
holder - stockholders - and they have but one of the game included laws and ethical stan-
interest - financial gain. Therefore, if man- dards. However, in his later writings he argued
agers engage in `socially responsible actions' in favor of restricting legal encumbrances on
that reduce the return to shareholders they are business (Friedman and Friedman, 1980),
in effect levying a tax on the company's which places the bulk of the responsibility for
assets. Furthermore, by appointing themselves restraining the excesses of business on unspeci-
as de facto policy makers they subvert the fied ethical standards and moral principles.
rightful control of the market place. As such, Advocates of the moral responsibility position
' doing good' is always at the expense of have insisted that matters this important
` doing well', and, therefore, it is not only bad shouldn't be passed off this casually - moral-
for business it is also bad for society. Why? ity is too important to be summarily dismissed
Because, shareholder advocates claim (using with a forward definition. Although they don't
utilitarian logic) that the `greatest good for the fault Friedman for not providing a definitive
greatest number' results from business doing set of ethical rules, they fear that his simple
what business does best - creating wealth that and general treatment of the subject marginal-
through lawful and appropriate means like izes the role of ethics in the minds of practi-
wages and taxes enables other social institu- tioners. The expressed need for adding greater
tions (families, governments, and churches) to specificity and clarity to the `rules of the
do what they do best - attending to the chart- game' is reflected in the search for the Holy
table needs of society. Grail of business ethics - a definitive moral
In summary, the Friedmanesque view of credo for business. As we will discuss in more
business and society relations can be reduced to detail shortly, although this quest has not
two statements: The responsibility of business yet accomplished its avowed objective, the
is to make money, and management should crusaders involved in this effort are both
stay focused on this goal. as l ong as they are numerous and zealous.
playing by the rules. If a corporation engages Second, the tradeoff between core and com-
i n socially beneficial practices that add value prehensive. It is clear that Friedman was
to the firm that is simply good economics. (As focusing on the core objective of business- to
such, these practices should not be heralded as generate wealth. However, when wealth gen-
evidence of socially-enlightened management.) eration is proposed as a comprehensive state-
This view of business and society relations ment of business practice, critics consider this
has been criticized on several fronts (Wartick an impoverished view of business' role in
and Cochran, 1985; Sethi. 1999; Baumol. society. They argue that placing all other organi-
1 991). We have chosen to synthesize many of zational intentions and effects secondary to the

392 HANDBOOK OF STRATEGYAND MANAGEMENT

wealth-creation i mperative of business and utility. Quinn and Jones' (1995) moral
increases the risk that devotees of Friedman's rule book is less expansive: avoiding harm to
philosophy will intentionally or unintention- others, respecting the autonomy of others,
ally precipitate social calamities because of avoiding lying, and honoring agreements. In
what they have been trained `not to see' in an ambitious statement of the `universal moral
terms of their firm's web of embedded inter- minimum' that should regulate all business
dependence.' activity in any national or cultural setting,
To better inform discussions about this Donaldson (1989) proposes a list of 10 funda-
broader set of issues, it is useful to note that mental international individual rights, includ-
these two broad critiques of the economic ing such things as freedom of physical
responsibility position have served as the movement, nondiscriminatory treatment, sub-
defining issues for the moral responsibility sistence, and freedom of speech.
and social responsibility positions, respec- An encyclical letter from Pope John Paul II,
tively. In the next section we will summarize ' Centesimus Annus', represents one of the
the efforts by the advocates of the moral most comprehensive and articulate efforts to
responsibility position to remove the vague- establish a moral code for business activity.
ness from Friedman's notion of the `rules of Following is an excerpt from this 114 page
the game'. Then, in the following section on document, written by one of the foremost
social responsibility, we will examine the posi- moral authorities of our time.
tion that responsible businesses, like citizens,
The Church acknowledges the legitimate role
should do more than the bare minimum to
of profit as an indication that a business is
advance the goals of the larger society.
functioning well. When a firm makes a profit,
this means productive factors have been prop-
Moral Responsibility: erly employed and corresponding human
needs have been duly satisfied. But profitabil-
Discharge Moral Duties i ty is not the only indicator of a firm's condi-
tion. It is possible for the financial accounts to
This position challenges the presumption of
be in order, and yet for the people - who make
privilege underlying the shareholder wealth
up the firm's most valuable asset - to be
position. Rather than granting economic activ-
humiliated and their dignity offended. Besides
ity an exemption from basic ethical obliga-
being morally inadmissible, this will eventu-
tions, this perspective characterizes business
ally have negative repercussions on the firm's
and markets (like all other forms of human
economic efficiency. In fact, the purpose of a
activity) as social artifacts, consisting of
business firm is not simply to make a profit,
socially constructed and sustained 'practices'
but is to be found in its existence as a corrnmu-
( Wicks, 1996; Freeman and Gilbert, 1 988). By
nit of persons who in various ways are
stressing the commonality between business
endeavouring to satisfy their basic needs, and
activity and other forms of human endeavor,
who form a particular group at the service of
advocates bring economic activity under the
the whole society. Profit is a regulator of the
jurisdiction of fundamental moral principles
life of a business, but it is not the only one:
and responsibilities. Given that no social insti-
other human and moral factors must also be
tution can legitimately claim that their contri-
considered which, in the long term, are at least
bution to society is uniquely exempted from
equally important for the life of a business.
the moral codes required to sustain the corn-
(1991: 68-9) (italics in the original text)
mon good, then all institution-specific goals.
rules, or requirements must be subordinated to The dilemmas associated with the moral
common moral law. This is an essential responsibility position that we feel have the
requirement for sustainable social action. greatest relevance for organizational scholars
There have been several attempts to codify are rooted in the social nature of moral codes,
the moral `rules of the road' that under-gird all i ncluding their creation, their enactment, and
business activity. For example, DeGeorge their enforcement. Several organizational schol-
(1990), following the lead of Velasquez et al_ ars have examined the social context conducive
(1983), proposed a `normative code' that to on-the-job moral behavior, including the
encompasses three principles - rights, justice, effects of ethics statements, ethics committees.

THE RESPONSIBILITIES OF BUSINESS 393

in-house ethics advisors, ethics audits, ethics moral voice is likely to be marginalized as
training programs, and so forth (Smith and unknown, impractical and, therefore, irrelevant.
Carroll, 1984; Trevino, 1986; Weber, 1993). Although the dilemma involving moral and
The most commonly examined source of effective organizational practices has not
organizational influence on moral behavior is received much attention in the business and
organizational culture, or climate (Victor and society literature, it is related to a conundrum
Cullen, 1988; Toffler, 1986; Trevino, 1990). that has been the focus of considerable debate:
Summarizing these studies, Frederick finds, the apparent 'contradiction-by-definition' rela-
' Ethics is essentially an experiential phenome- tionship between a firm's economic and moral
non, so that finding ways to affect one's work- duties. A standard technique for resolving
ing experience is more likely to have moral dilemmas and paradoxes is to invoke a frame-
impact than exhortations to adopt abstract changing moderator, such as time intervals, or
philosophic principles, laudable as they may levels of analysis. The later has figured promi-
be' (1995: 242). nently in the efforts of business and society
In reading this literature, one is left wonder- scholars to develop an 'integrated' view of
ing, `Given what we know about "effective" business' moral and economic duties. For
organizational practices, is there anything example, Wood (1991) argues that different
unique about their "moral" counterparts?' For levels of analysis, or organization, incur differ-
example, referring to the preceding quote from ent forms of social responsibility, and further-
Frederick, wouldn't we expect to hear basi- more, she believes there is a natural order to
cally the same sentiments from an expert on these nested requirements. The observation
improving productivity, or quality, or cus- that businesses have 'nested' responsibilities to
tomer satisfaction? society echoes Freeman and Gilbert's (1988)
If we assume that our 'best practice' man- argument that all organizations sanctioned by a
agement processes are agnostic - what is society must support the underlying normative
being implemented, and for what purpose, rules that make social intercourse possible.
does not significantly affect how it should be More specifically, they propose that it is only
implemented - then the primary obstacle after a business has satisfied its common oblig-
inhibiting the widespread adoption of the ations as a member of society (to support and
moral responsibility position is lack of inter- sustain foundational moral/ethical principles)
est. If, on the other hand, we conclude that that it should focus on its institution-specific
organizational practices legitimated by the responsibilities (to generate wealth) (see Quinn
moral imperative are inherently and funda- and Jones, 1995, for an excellent summary of
mentally different from practices legitimated this general argument).
by the effectiveness imperative, then not only Another dilemma that figures prominently in
may 'effective managers' be unskilled as this literature involves compliance with codes
' moral managers', but in addition the blur- of ethics. It is widely recognized that many, if
ring of this distinction (in discourse and in not most, unethical decisions in business are the
practice) will likely exacerbate this 'folly of result of conflicting obligations and priorities,
ignorance'. rather than manifestations of morally defective
These alternatives highlight a core dilemma decision makers (Frederick, 1995). Work in this
in the business and society field - the tradeoff area has examined inter-role conflicts (Wicks,
between feasibility of moral practice and dis- 1996) as well as inter-group conflicts (Wood,
tinctiveness of moral practice. Their common 1991). Individuals sucked into the vortex of
peril, reflected in the respective extreme posi- incompatible moral force fields often feel like
tions, is straightforward: If moral management they are 'damned if they do and damned if they
practices are characterized as just another form don't'. These conflicting force fields can take
of organizational best practices, then their the form of incompatible codes of conduct gov-
adoption is facilitated by the assurance of erring the home office of a multinational cor-
familiarity, but justifications used to support poration and a field operation in a different
these practices must yield their 'moral high country. They can also manifest themselves as
ground'. On the other hand, if moral practices conflicting norms regarding social intercourse,
are treated as wholly separate from, even anti- in general. versus codes of conduct pertaining
thetical to, standard business practice, then the to a specific type of business transaction.

394 HANDBOOK OF STRATEGY AND MANAGEMENT

Various strategies have been proposed for involves `negative action' - non-interference
resolving the potentially paralyzing tension in the enjoyment of a right. The common ter-
associated with seemingly incompatible ethical minology for violating this duty is `doing
requirements. Invoking the levels of analysis harm'. In contrast, positive rights are those
moderator to reconcile seemingly contradictory rights that a person can enjoy only if they are
moral and economic duties, Donaldson and provided by someone else. The common ter-
Dunfee (1994) propose an `integrative social minology for enabling someone to enjoy posi-
contracts theory', that specifies two require- tive rights is `doing good'. If a business does
ments for an ethical contract. First, it must con- not provide an entitlement, it is creating harm.
form to the universal `hypernorms' that apply If it does not provide a privilege (benefit) then
to all contracts among economic participants. it is not, by definition, creating harm, but it
Second, it must be consistent with the local, or also isn't doing good. As reflected in the medi-
` micro', ethical specifications within an eco- cal creed, `First do no harm', moral philoso-
nomic community (an industry, an organization, phy places greater importance on avoiding
a market). Using different levels of analysis harm than on doing good. Hence, the distinc-
fulcrum for logical leverage. Wicks (1996) tion between business' obligatory (moral)
argues that there has been an excessive empha- responsibility to avoid harm, and its discre-
sis on creating a shared moral organizational tionary (social) responsibility to do good.
culture at the expense of helping individuals As noted in our historical overview, the term
better understand how their personal moral sen- philanthropy was used by Carroll (1991) in his
sibilities should be used as guidelines for deter- later description of discretionary social
mining what constitutes a moral business responsibilities. However, over time the dis-
practice. In brief, he argues that personal moral cretionary aspect of business' responsibility to
codes should take precedence over organiza- do more than avoid causing harm has proven
tional codes of conduct, because the latter are problematic for those who see the need for our
too easily corrupted by other organizational most powerful and resourceful organizations
responsibilities. to address pressing social issues like improv-
ing literacy, caring for the homeless, and pro-
tecting the environment. They bridle at the
Social Responsibility: Go i mplication that corporate support for founda-
Beyond Fulfilling Basic tional social goods is classified as philan-
Obligations to Society thropy, which is equated with support for the
l ocal arts council or symphony guild.
There are numerous forms of the social (dis- The passionate commitment shared by many
cretionary) responsibility position, but they all business and society scholars to increase the
acknowledge the need for firms to go beyond ` clout' of the social responsibility claims on
simply meeting their economic, moral, and the business enterprise highlights a vexing
legal responsibilities. While some tend to dilemma in this literature. On the one hand, it
advantage one set of obligatory responsibili- is unacceptable to relegate important social
ties over others (Ferrell et al., 2000; Kang and responsibilities to the status of discretionary.
Wood, 1 995), all accept the inherent legiti- But, on the other hand, efforts to enhance the
macy of all obligatory claims on the enterprise authority of these claims by aligning them
of business. However, advocates of the social with business' obligatory moral, legal, or eco-
responsibility position generally hold that for a nomic duties tends to yield illogical or unveri-
business to only do the bare minimum is no fiable arguments. Space does not permit a
more responsible than it is for a citizen to only detailed analysis of the logical and empirical
do what is minimally required. problems resulting from the practice of
The difference between negative and posi- i nvoking the authority of each of the three
tive rights in philosophy is pivotal to the dis- categories of obligatory duties. Therefore.
tinction between obligatory and discretionary we will focus on the overarching fallacy of
business responsibilities (Swanson. 1 995: using instrumental arguments to justify moral
Velasquez, 1992). Negative rights are those positions.
rights that a person will enjoy unless interfered Given the avowed purpose of the social
with. Therefore, the resulting moral duty responsibility advocates to influence business

THE RESPONSIBILITIES OF BUSINESS 395

practice, it is not surprising to find many of their expectations, then managers feel justified in
espoused positions buttressed by instrumental abandoning their commitment to socially
justifications. For example, Hosmer (1994) responsible business practices.
argues that ethical firm behavior fosters trust Before closing this discussion of social
among stakeholders, which in turn generates responsibility, we wish to draw attention to an
commitment, which is manifest as increased emerging effort to finesse the use of instru-
organizational support.' An alternative form of mental arguments to justify moral behavior.
this argument makes the case for the instru- Recently, several scholars (Litz, 1996:
mental benefits of trust within the contest of Waddock and Graves, 1997a) and practition-
principle-agent relations and social contract ers (Long and Arnold, 1995; Svendsen, 1998)
management (Freeman and Evan, 1990; Hill have argued that internal and external stake-
and Jones, 1992; Jones, 1995). In rebuttal, crit- holders are so essential to the effectiveness of
ics argue that despite their natural appeal, a company that partnering and collaborating
instrumental justifications for moral behavior with stakeholders are essential strategic activi-
are both logically and empirically suspect ties. Furthermore, they posit that the ability to
(Donaldson and Preston, 1995; Quinn and do so effectively is a strategic asset - a source
Jones, 1995; Wicks, 1996; Freeman and of competitive advantage. This perspective
Gilbert, 1988). asserts that collaborating with, rather than the
Logically, the instrumental argument isn't management of, stakeholders requires a posi-
supported by either the economic or moral tive, rather than a defensive or manipulative,
responsibility positions. To say that one orientation toward stakeholders (Svendsen.
should `do good' in order to `do well' violates 1998). Empirical evidence is used by support-
a fundamental tenant of moral reasoning: ers of this position to suggest that the quality
moral principles require no external validation of stakeholder relations may be synonymous
and that moral practice should be intrinsically with the quality of management (Waddock
valued. Furthermore, as noted by Friedman and Graves, 1997a).
(1962), it is neither necessary nor appropriate To provide a sampler of the specifics, many
to characterize business activities that create of these partnerships have focused on environ-
economic value for the firm as moral or mental issues, such as the McDonald's-
ethical - it's just good economics, period. Environmental Defense Fund collaboration.
Empirically, the research on the relationship A key element of collaboration has been
between corporate social performance and increased communication and trust between
financial performance has so far yielded the parties. Disclosure and transparency are
ambiguous results (Wood and Jones, 1995). the key watch words in companies attempting
As we described in our historical overview, it to build collaborative relationships with stake-
is far from an established fact that socially holders, frequently expressed through the
responsible firms have a competitive advan- issuance of environmental reports, as champi-
tage over social slackers. Irrespective of what oned by the Coalition for Environmentally
the numbers suggest about this relationship, Responsible Economies (CERES). The increa-
some authors have expressed concern about sed attention to sustainable development has
the practice of using empirical evidence to broadened the focus on environmental con-
support a moral argument. For example, cems to include collaboration on issues of
Donaldson and Preston (1995) express con- social justice or equity, and is reflected in the
cems about succumbing to the `naturalistic `triple bottom line' (economics, environment.
fallacy' (Moore, 1959) - moving from equity), that is increasingly being used by
description to evaluation, from `what is' to companies, particularly in Europe, and
` what should be', without careful attention addressed in their 'sustainability' reports
being paid to the underlying explanation and (Elkington and Stibbard, 1997).
analysis. In addition, they point out a practical Now we turn to the crucial, supporting argu-
concern regarding the use of `descriptive justi- ments. As noted earlier, collaborative relation-
fication'. If businesses adopt socially respon- ships with stakeholders can be justified on the
sible practices because they believe doing basis of a purely instrumental view of business
good will enhance their financial performance, relations (Donaldson and Preston. 1995). and.
but their experience doesn't support their if profit-enhancing, would be considered by

396 HANDBOOK OF STRATEGY AND MANAGEMENT

Friedman (1970) to be perfectly appropriate of business, for example, the effectiveness of


and justifiable, simply on economic grounds. government regulation versus the efficiency of
But the emerging argument that firm perfor- economic markets (Scott, 1995).
mance will improve as a result of consistent We have chosen to highlight the theme of
attention to, and concern for, the satisfaction dilemmas in this section for two reasons. First,
of all stakeholders (not just primary/economic they serve as prominent intellectual topo-
stakeholders) is similar to, but not the same graphical reference points for constructing a
as, the 'do well as a result of fulfilling non- ' map' of the business and society literature.
obligatory social responsibilities' argument This is a field of study that has chosen to
discussed above. It is actually more consistent establish its base camp astride a maze of intel-
with the moral responsibility perspective, with lectual fault lines. Second, our immersion in
the 'duty claim' being provided by the ethic of this literature has sensitized us to the relative
care perspective (Liedtka, 1996). Although paucity of concern being expressed about
this stakeholder-collaboration approach to these critical matters within the broader intel-
social responsibility obviously does not pre- lectual context of organizational science. The
clude the adoption of these practices on the proposition that the practice of organizational
basis of their perceived instrumental benefits science, broadly defined, can benefit from a
to the firm, it does not rely on, nor tout, an better understanding of the contemporary
instrumental justification. Said another way, study of business and society relations will be
although proponents do not ignore the poten- more fully developed in our next section.
tial instrumental benefits of these practices,

nor sufficient conditions for organizations


they characterize them as neither necessary
FUTURE DIRECTIONS
discharging their universal moral obligation to
FOR RESEARCH AND STUDY
be prudent and judicious stewards.
In summary, this section has focused on the
core question in the business and society liter- The previous sections of this chapter provide a
ature: What are the responsibilities of business general overview of the CSR literature - its
to society? We have briefly reviewed contem- history and the current state of thinking.
porary thought on the four leading 'answers' - Because this is a handbook for scholars of
legal, economic, moral, and social responsibil- strategy and management, we have chosen to
ities. In addition, as summarized in Table 17.4, focus our final section on promising research
we have examined various dilemmas associated leads implied by business and society scholar-
with each position. These dilemmas reflect in ship, that represent promising opportunities
various ways and through various forms a dis- for collaboration with scholars in other fields
tinctive, and some would argue unique, feature of organizational science. We believe this call
of the business and society literature - it treats for boundary-spanning collaboration is timely
as problematic what too often the encompass- given the increased interest in business and
ing discipline takes for granted. Authors in this society relations within contemporary busi-
area debate the utility of the prevailing eco- nesses and societies. Anticipating greater
nomic model of business - worrying as much emphasis on socially responsible business prac-
about what it leaves unstated as about what it tices, we present opportunities for research
explicitly claims. They also worry about what that consider the strategic and managerial
happens when the business model 'works too challenges facing firms that are committed to
well', for example, when firms successfully discharging their social responsibilities (com-
create market niches with high barriers to monly referred to as socially responsible busi-
entry, or when they convince employees that nesses - SRBs). One way of conceptualizing
their personal values and interests are identical our research agenda for studying SRBs is that
to (or, at least compatible with) the company's it brings business and society scholars and
goals and practices. Their distrust of the their more mainstream counterparts together
enlightened self-interest, self-policing. view of to examine what Weick (1979) refers to as an
ethical business practice has also led them to ' extreme case' within the general business
examine the competing claims of alternative population. Following his lead, we believe that
'institutional' approaches to the social control studying outlier organizations often produces

THE RESPONSIBILITIES OF BUSINESS 397

more insights than focusing on more typical do not cover the full range of the core
organizations. Throughout this section we'll variables, or constructs. (When was the last
draw attention to the significant reasons why ti me you heard a scholarly presentation on
we believe SRBs represent a particularly poor leadership, weak cultures, lousy strate-
promising venue for research and theory gies, or ineffective organizations?) One of the
development on business management and benefits of studying SRBs as an organizational
strategy. population is the abundance of information
about socially `irresponsible' organizations.
This brings us to the proposed variation on our
Effective and/or Moral questions regarding the organizational cul-
Practices tures of SRBs: Do socially irresponsible
firms - those that are regularly cited (given
Earlier, we drew attention to the lack of citations for violating government regulations
research on the relationship between effective and cited in the press for their irresponsible
organizational practices and moral organiza- actions) for ignoring their social responsibi-
tional practices. If managers want to foster a lities - have equally strong cultures? Self-
moral culture should they basically follow the interest taken to the extreme requires that
known recipes for producing other forms of organizational actors be willing to violate
strong organizational culture? Asked a differ- legal and other regulatory statutes. To do so
ent way, are there any significant differences may require an extremely strong set of enabling
between the `best bets' for increasing work norms, values, and artifacts. The alternative
performance, that are standard fare in any proposition is that socially irresponsible firms
introductory management course, and the list have weak cultures. Because these organiza-
of `how tos' for improving ethical performance? tions appear to value everything very little, their
Or, as one of the authors regularly asks his employees are left on their own to sort out the
MBA students, `Is there a difference between messiness of an organizational milieu awash in
being an ethical manager in an effective organi- self-interest.
zation, and an effective manager in an ethical
organization?'
Because they speak directly to the assump- Reputation, Image and Identity
tion of uniqueness that pervades the business
and society literature, it is remarkable that Questions regarding the unique constitution of
questions this fundamental to a field's claim of SRBs are closely linked to the emerging inter-
a unique domain have not been examined est in the theoretical distinctions between repu-
more fully. Studies of socially responsible tation, image and identity, as well as their
firms comparable to our numerous studies of respective implications for management prac-
effective organizations (Collins and Porras, tice (Whetten and Godfrey, 1998; Fombrun,
1 994) would provide a context for addressing 1 996). Given the skepticism expressed by
the core question: Are SRBs a type of effec- some (Entine, 1994) regarding the level of
tive organization, or does the addition of the commitment exhibited in companies profess-
moral imperative fundamentally change their i ng to support SRB principles and practices,
basic constitution? The answer to this question this area represents a richly-textured context
is equally important to business management for sorting out conceptual conundrums, like
and strategy scholars because it would identify the following.
the extent to which, and in what ways, SRBs How does one distinguish between SRB
require modifications of our standard, main- practices that are intended to burnish a firm's
stream organizing models and principles.' i mage, by enhancing its reputation, and those
Before leaving this topic, we want to draw that emanate from an organization's identity?
attention to an intriguing variation. Although How can we determine if a firm's SRB claims
the theory development literature emphasizes are truly foundational (constitutional)? Would
the importance of using variables, rather than we expect to observe different SRB practices
values of a variable (for example, height, i n firms whose SRB claims appear to be moti-
rather than tall or short) (Whetten, 1 989). vated by reputation-enhancement versus
many of our theories in organizational science i dentity-articulation?

398 HANDBOOK OF STRATEGYAND MANAGEMENT

The study of SRBs also provides a fairly socially responsible, and external stakeholders
unique opportunity to examine what Albert increasingly have access to metrics for evaluat-
and Whetten (1985) call hybrid identity organi- ing firm performance, relative to their claims,
zations. First and foremost, one wonders To Considering this question within organiza-
what extent do SRB firms represent true tions in `basic' industries, like mining, would
hybrid identity organizations, in the sense that provide a nice counterpart to the heavy focus
their dual commitment to `doing good' and in the popular press on SRBs from the con-
' doing well' constitutes the core of their organi- sumer products industry. One wonders, for
zational identity? If so, then: What is the etio- example, do mining firms that practice
l ogy of these firms? Is it necessary for their ` beyond compliance' environmental reclama-
unique constitution to be established by the tion gain competitive advantages over rivals,
founders at the time of founding? Or: How as suggested by Porter and van der Linde
likely is it that a hybrid identity can be propa- (1995), or do they simply incur more costs?
gated in mature organizations by means of Because of the commodity-like nature of these
`ideology grafts'? And finally: Can we isolate industries, it would appear that ecological sus-
a unique organizational hybrid identity man- tainability is unlikely to provide any notice-
agement competence in these firms? able differentiation in the firm's product
offering. These industries have particular rele-
vance for the business and society field, because
Sources of Competitive of the severity, and permanence, of potential
Advantage damage that could be done. Ironically, we
might find that those industries where society
Scholars in both the academic literature (Hart, has the greatest stake in ethical behavior are
1995, 1 997) and the popular press (Dalla Costa, the least likely to be influenced by an appeal to
1 998) postulate a positive relationship between enlightened self interest.
an ethical orientation and competitive advan- There is another way in which the study of
tage. For example, firms that are committed to firm-specific competitive assets could be
environmental sustainability often gain cost expanded and enhanced through collaboration
advantages over rivals, because by avoiding with business and society scholars. The bulk
pollution (or other environmental degradation) of the research on competitive advantage has
there is less waste in the economic operations of focused on market-oriented competencies
the firm. Conversely, firms with strong ethical (Hosmer, 1 994). It is self evident that firms
claims (such as the Body Shop) may generate also gain competitive advantages through the
and sustain a clear position of valuable differ- regulatory process, either by tempering the
entiation from competitors. This differentiation i mpact of regulations governing their opera-
may result in a very loyal customer base. that is tions, or by encouraging stronger regulation of
willing, among other things, to pay significantly their competitors. This suggests that some
higher prices for the firm's products. firms, particularly large firms in highly visible
Sidestepping for now the debate over using and socially sensitive industries (bulk chemi-
i nstrumental arguments to justify moral action. cals, mining and extraction, agriculture), would
we commend SRBs as an apt setting for exam- develop competencies related to business-
ining some of the core arguments regarding government relations. This type of indirect
competitive advantage in the strategy literature. effort to increase a firm's competitive advan-
Specifically, does an ethical orientation, or a tage might take the form of influencing the
stated commitment to socially responsible bust- processes pertaining to the granting of
ness practices. constitute a unique, valuable, licenses, patents, and other forms of govern-
non-substitutable, and difficult to imitate source ment approval to conduct business.
of competitive advantage? (Barney, 1 991:
Peteraf, 1 993.) Godfrey and Hill (1995) have
noted that much of the research on the resource- Collaborative Strategies
based view of strategy is hampered by the unob-
servability of resources. The commitment to One of the most natural connections that can
being an SRB seems to overcome this problem: be made between strategy and management.
firms make public commitments to being and business and society scholarship involves

THE RESPONSIBILITIES OF BUSINESS 399

the study of stakeholder relations. In reading theoretical, and clearly more controversial
the discussions of interorganizational collabo- observation. The field of business strategy
ration in these fields one gets the sense of two emerged into the limelight via the writing of
tunnels being drilled from opposite ends of the Michael Porter (1980, 1985), who advocated
mountain. On the one side the effort is being turning many of the propositions of welfare
framed as effective stakeholder relations economics on their ear. For example, welfare
(Waddock and Graves, 1997a), while on the economists hold that barriers to entry in an
other side it is characterized as effective busi- industry impede competition, encourage
ness strategy (Dyer and Singh, 1998). Common monopolistic behavior, and lead to a net loss
to both is the assumption that competitive in welfare over the economy as a whole.
advantages accrue to firms that successfully Porter, however, advocates that firms erect
i mplement and manage interorganizational barriers to entry in order to enhance their own
alliances. Business and society scholars bring monopolistic position - irrespective of the
to this joint scholarly venture a strong sense of welfare effects on the economy as a whole.
purpose. Many of the social problems facing Current work in strategy focuses on gaining
our world, from environmental degradation to competitive advantage at the level of indivi-
poverty to drug use, will require interorgani- dual firms. Consequently, concern that firms
zational, and even intersectoral, cooperation or industries as a whole may gain competitive
and collaboration. Strategy scholars bring advantages at the expense of the welfare of the
complementary assets, including an in depth encompassing society is seldom expressed.
understanding of how effective alliances are Korten (1996) and others writing in a more
created and managed. Together they might popular vein have impaled much of economics
examine questions like: Assuming that SRB (and by implication strategy) in their attacks
managers are very responsive to stakeholder on the emerging global capitalist order. In
claims, are the resulting stakeholder networks response, we suggest that business and society
different in kind from those typically studied and strategy scholars need to develop a care-
by strategy scholars - both in terms of mem- fully reasoned and non-incendiary articulation
bership and relationship? of the conditions under which the pursuit of
Given that most social problems can't be individual firm competitive advantage leads to
solved by the private sector alone, the study of negative outcomes for the social order as a
interorganizational relations within the con- whole.
text of SRBs necessarily expands the set of Such an endeavor might foster a long over-
collaborating organizations to include govern- due critical examination of the economic mod-
ment agencies (Feyerherm, 1993, 1994; els underpinning much of the thinking on this
Feyerherm and Milliman, 1995; Starik and subject. For example, while much of game
Rands, 1995). Studying interorganizational theory supports the notion that unethical
collaboration within this setting will allow strategies will not lead to competitive success
strategy scholars to assess the boundary condi- ( Axelrod, 1984; Hill, 1990), there is no pre-
tions of their current models of alliances and scription that encourages firms to go beyond
joint ventures. Specifically, this enterprise obligatory moral, legal, and economic respon-
would seek to understand how well existing sibilities. In fact, according to game theory
models of joint ventures and other forms of l ogic SRBs may be at a disadvantage in many
inter-firm collaboration apply to different trades (as games) because their ethical com-
kinds of partnerships (between businesses and mitment signals a strategy that can be
government agencies) and to different types of exploited by firms unencumbered by these
activities (reducing poverty versus developing commitments. While the literature on organi-
a new technology). zational trust (Barney and Hansen, 1994;
Wicks et al.. 1999) argues that trust creates
advantages in trades, the progress of this liter-
The Pathological Relationship azure has been halting to date. More impor-
between Strategy and Society tantly, these arguments are disadvantaged by a
l ack of empirical support-data comparable to
Our earlier comment about socially irresponsi- the years of accumulated results that buttress
ble firms foreshadowed this broader, more the game theory view of business transactions.

400 HANDBOOK OF STRATEGYAND MANAGEMENT

Before leaving this topic, we need to note an performance. While organizational theories
interesting counterpoint to the notion of a typically emerge from observations of a spe-
pathological relationship between strategy and cific organizational context, the focus of the
society. Ironically, it is reflected in the evolu- theorist is to move beyond the limitations of
tion in strategic thinking exhibited by Michael any given context and formulate general
Porter. While the work referenced above propositions. For example, Porter (1980) advo-
arguably contains pathological elements, cates the adoption of generic strategies of low
Porter's more recent work relies heavily on cost or differentiation. In similar fashion, the
notions of social capital and socially beneficial literature on managing legitimacy (Suchman,
inputs and outputs to the strategy process. For 1995) provides researchers and managers with
example, in his work on inner city revitaliza- a menu of possible strategies seemingly with-
tion (Porter, 1995), he argues that the exercise out regard to the contextual factors that may
of sound strategic thinking and the principles make certain alternatives less efficacious than
of competitive advantage work to improve the others. Thus, scholars live comfortably in a
condition of America's inner cities. Even more world of offering prescriptions for action
to our point, his 1998 addition to the strategy devoid of diagnosis of the contextual richness
literature (Porter, 1998) holds that when social of the situation.
and intellectual capital is concentrated into Because much of the business and society
geographic clusters, businesses flourish (with i nterface is still defined in terms of issues and
concomitant gains for the communities com- practices, rather than general theoretical
posing the cluster). propositions, research on how firms deal with
social issues tends to emphasize the contextual
features of firm activities rather than automati-
Social Issues and cally abstracting from specific observations to
Environmental Niches general formulations. The application of known
techniques for grounded theory development
A review of Table 17.2 indicates that the bum- (Eisenhart, 1989) can significantly extend
ing social issues facing business have evolved the reach of the business and society 'bottom-
and expanded over time. Because of the exis- up' understanding of the moderating effects of
tence of sympathetic stakeholder and special contextual conditions on strategizing. On the
i nterest groups, social issues may create other side of the theoretical breach, the
munificent niches for organizations. For business strategy, 'top-down' view needs to be
example, firms deemed to have family- calibrated using various social contexts to test
friendly HR practices have received a windfall the utility of their general models. Granovetter
in favorable publicity during the past decade. (1985) shows how this type of contextual
Given how key the concept of niche is to the analysis changes the prescriptions of strategy
study of business strategy (Porter, 1980), busi- paradigms. He argues that the rich cultural
ness and society scholars can inform their context of Japanese society voids certain pre-
understanding of the emergence of social scriptions of transaction costs economics
issues by viewing this process through the ana- about the structuring of firm boundaries.
l ytical lens of niche formation. Relevant
research questions in this vein include: How
do social issue niches form, and how long do Social Institutions, Population
they last? How do organizations identify and Dynamics, and Socially
evaluate the consequences of new niches? Do Responsible Businesses
new issues-based niches encourage new organi-
zational forms? Some of the most promising and critical
There is another way in which the concept opportunities for scholarly collaboration
of niche suggests a promising opportunity for i nvolve the application of institutional theory
discipline-spanning collaboration. The bulk of and population ecology to the study of SRBs.
research in strategy and management aims to Following are a few illustrative examples.
be content free. This is consistent with the broad Activity by critical stakeholders represents
scientific objective of providing generalizable an attempt to modify the organization, or at
theories and models of business behavior and least some of its actions. Applying the lens of

THE RESPONSIBILITIES OF BUSINESS 401

institutional theory (Scott, 1995) to this This type of institutional theory analysis
subject highlights promising new lines of needs to be augmented by population ecology
inquiry. Given the growth and diversity of studies of the (collective) growth of the
stakeholder tactics, outlined in Table 17.3. we socially responsible business organizational
need a better understanding of how new forms form (Hannan and Freeman, 1989), and the
of stakeholder activity (bad publicity, con- SRB practices diffusion process (Oliver,
sumer boycott, letter writing campaigns to 1997). The business and society field would
board members) become legitimated. In par- benefit from a more systematic, theory-guided,
ticular, it would be interesting to compare the understanding of the environmental dynamics
institutionalization processes of stakeholder that encourage (or discourage) the success of
tactics that seek to punish firms with those that SRBs. An incentive for population ecologists
reward firms. The `socially responsible invest- to examine this population of organizations is
ment' mutual fund business provides an ideal the availability of rich data on the genesis of
context for this type of comparison, because both the new form and the niche (Stinchcombe,
some funds use screens to `select out' offen- 1965). In addition, this setting provides an
sive firms, whereas other funds `select in' opportunity to test the limits of our prevailing
acceptable firms (Lavelle and Whetten, 1997). maxims regarding population dynamics. How
Examining the development of the 'institu- does the presence of SRBs in a population of
tion' of socially responsible business practices businesses impact their joint evolution? Do
represents another important opportunity for SRBs and non-SRBs tap into different resource
collaborative scholarship. One straight- bases? Do they have different bases of compe-
forward, framing question is: How has the insti- tition? How well do our existing theories of
tutionalization of this form of business been organizational forms (specialists, generalists)
aided by various enabling factors? Candidates predict the competitive profile of SRBs?
for investigation would include: the formation
of professional associations devoted to provi-
ding expertise on this topic (for example, Strategic Human Resource
Businesses for Social Responsibility), the Management
articulation and endorsement of SRB princi-
ples by industry leaders (the CERES Principles, To this point we have argued that SRBs warrant
the Caux Roundtable), the emergence of spe- study because they appear to represent atypical
cialized trade publications (The Green Money organizations, in some way or another.
Journal). the development of formal criteria Continuing that theme, we conclude our discus-
for rating the social performance of firms sion of future opportunities for collaborative
(Council on Economic Priorities, the Domini research on SRBs by drawing attention to their
400 Social Index), the organization of acade- i mplications for our understanding of human
mic professional associations (International resource management practices. The literature
Association for Business and Society, on human resource management (HRM) con-
European Business Ethics Network), the tinues to widen its scope to contemplate the
development of specialized roles in firms. importance of human resources in the overall
along with accompanying professional associ- strategy of the firm (Barney, 1998). Applying
ations (Business Ethics Officers, Public this `strategic human resources' frame of refer-
Affairs Directors), support service firms pro- ence to our discussion of SRBs, we wonder: If
viding social consulting assistance in conduct- a firm's business strategy includes a strong
in- social performance audits and ethics commitment to socially responsible business
training (Institute of Social and Ethical practices, how does this affect the HRM prac-
Accountability, Praxis Consulting Group), the tices of the firm? For example, assuming for the
legitimating endorsements of a Papal Encyc- moment that the leadership of SRBs requires a
lical and a White House Conference, the atten- different (or at least modified) skill set, how
tion focusing impact of bad publicity (Exxon, must a firm's management development and
Shell) or good publicity (the Corporate career mapping functions change? Also, how
Conscience Awards of the Council on should compensation programs be altered to
Economic Priorities, the Business Enterprise encourage and reward both ethical behavior and
Trust Awards). ethical learning?

402 HANDBOOK OF STRATEGY AND MANA GEMENT

One particularly intriguing area of inquiry actions taken by business firms in pursuit of
involves the viability of management fast-track competitive advantages and profits impact the
programs in firms committed to a strong moral society in which that business operates, for
code of conduct. While much of the business of good or for ill. Similarly, society is no longer
a business can be learned during a fast-track a passive actor in relationship to business.
rotation, ethical learning is of a different ilk. In Stakeholder and special interest groups are
particular, ethical learning may be subject to increasingly well organized, and becoming
strong ti me compression diseconomies more vocal and encompassing in the demands
(Dierickx and Cool, 1989). Because ethical they make on businesses. As a consequence,
challenges are ambiguous and fraught with management scholars and practitioners are
peril, management fast-trackers may passively becoming increasingly aware of the agenda-
ignore or actively avoid contact with the ethical shaping impact of these powerful voices.
issues surrounding the organizational units To encourage broader participation in schol-
they visit. Further, the nature of fast-track pro- arly conversations about business and society
grams means that managers will often have relations, we first examined the evolution of
moved on before the ethical consequences of the scholarship on this broad topic. It is appar-
their decisions become clear. In this light, there ent from this overview that the interdepen-
appears much to investigate about how SRBs dence between business and society is
can develop managers with both a diverse and extremely complex, and the opportunity for
complex understanding of the business and a different theoretical and methodological per-
keen awareness of the ethical choices and spectives informing the analysis of this inter-
dilemmas involved in running the business. dependence is extremely rich. Debates within
Another set of fascinating questions pertain- this literature regarding the control and
ing to the strategic HRM practices of SRBs accountability of businesses and the compo-
involves the topic of executive succession. nents of effective external relations manage-
Anecdotal evidence suggests that many SRBs ment need to inform related conversations
are founded with a specific social agenda in scattered throughout the discipline.
mind. This makes the task of finding a suitable The narrower focus of the second section was
successor to the founder particularly difficult. directed at the nature of the claims made by
For example. Ben and Jerry's had several well- society on business. In addition to examining
publicized miscues in their repeated efforts to contemporary scholarship on the topics of
select a suitable new CEO - resulting from the economic, moral, legal, and social responsibili-
difficulty of finding leaders capable of both ties, we also explored several dilemmas associ-
growing and greening the business. Given the ated with each of the four perspectives. One of
critical nature of executive succession for both our purposes in highlighting the tensions within
firm strategy and survival, strategic HR schol- and between Carroll's categories is to encour-
ars interested in this topic might consider ques- age organizational scholars to examine their
tions like the following in a study of SRBs. assumptions about the justifications for organi-
What is the impact of these `additional' selec- zational action. In particular, the challenges
tion criteria on the succession process? Does it facing scholars who attempt to blend instru-
simply mean that SRB successors must be mental and moral justifications was highlighted.
selected from within a restricted pool of candi- The theme of bridging the substantive ques-
dates? Or does it mean that the selection tions pertaining to business' responsibilities to
process itself is fundamentally changed? For society and the expertise and interests of the
example. how would a head-hunter firm go broader community of organizational scholars
about the task of assessing (let alone certifying) was amplified in the `implications' section.
the character of prospective CEO candidates? Here we highlighted examples of promising,
discipline-spanning, collaborative research
and theory development opportunities, placing
particular emphasis on the `macro' topics of
CONCLUSION
interest to our readers.
It is our perception that stakeholders are
The relationship of business to the larger becoming increasingly bold in making claims
social enterprise is not a neutral one. The on businesses' resources, in the name of

THE RESPONSIBILITIES OF BUSINESS 403

reducing harm or doing good. Given the Their typology in turn roughly corresponds with the
number and severity of the social issues categories of the corporate social performance model pro-
clogging the political agendas in all contempo- posed by Wood (1991). It is also influenced by the cate-
rary societies, we can expect to see increasing gories Collins (1996) used to group 497 papers presented
at the first six annual meetings of the International
pressure on the largest, most powerful, and
Association for Business and Society (LABS) and pub-
most resourceful
lished in the JABS Annual Proceedings. Unlike the typol-
active, integral contributors to their resolution.
ogies of Gerde and Wokutch, and of Collins, we do not
In addition, it is apparent that many firms consider research methodology or teaching issues in the
believe that representing themselves as a field. Neither is our discussion based on an empirical
socially responsible 'corporate citizen' is good review of a coherent set of papers. Rather it is an attempt
for business. Whether this pattern of increas- to present a brief overview of some of the major themes
ing social involvement is stimulated by the that have developed in this field over the past four decades.
push of threat or the pull of opportunity, it 2 The order of our discussion of Carroll's categories is
appears that business firms are broadening different from his original model. This choice was guided
their list of salient decision criteria beyond the solely by our present expository preferences and should
not be interpreted as a general comment on the 'proper'
narrow considerations suggested by Friedman.
order of his categories.
One implication of these trends is that organi- 3 Before leaving the subject of what people have been
zational scholars must become more conver- trained not to see, we would like to insert a reflexive
sant with the issues and challenges associated observation. Across the length and breadth of organiza-
with the social responsibilities of business. We tional science there is a general lack of concern regarding
believe that the resulting boundary-spanning the inconsistency between the 'behavioral assumptions'
conversations will both broaden and enrich underlying the prevailing models of motivation. leader-
scholarship within the field of business and ship, organizational change, etc., and the 'business
society relations and highlight opportunities assumptions' dictating acceptable practice within the vast
majority of organizations for which our organizing mod-
for research and theory development in allied
els are intended (see Hosmer, 1994, for a business and
management fields on vexing issues facing
society version of this critique). In contrast to the pitched
managers striving to discharge their firm's
battles between notable scholars regarding the merits of
social responsibilities. These organizational adopting one unifying paradigm of 'organizing business'
matters are far too important to society and to (Pfeffer, 1993; McKinley, 1995), it is curious that the field
business to be compartmentalized within our as a whole accepts without concern the dominant eco-
discipline - bounded by the domain statement nomic paradigm of 'doing business'. Given this general
of a single, small, marginal field of scholar- condition, it is worth noting to our readers that there is an
ship. This 'very important stuff warrants the active discourse among business and society scholars
attention of all organizational scholars. regarding the merits of accepting the net present value
model of business management as an unassailable
assumption, or as merely one point of view (Freeman and
Gilbert, 1988; Gilbert, 1992).
ACKNOWLEDGEMENTS 4 Organizational behavior scholars will recognize this
as an incarnation of the 'satisfied workers produce more'
instrumental argument conundrum that played itself out in
The authors wish to thank Brad Agle, Dan
the motivation literature some time ago. Briefly, not only
Greening, Jamie Hendry, Andrew Pettigrew, did subsequent research determine that the simple correla-
Doug Schuler, Sandra Waddock, Steve tion between worker satisfaction and job performance is
Wartick, Jim Weber, and Donna Wood for extremely modest (this is one of the most moderated rela-
their many helpful suggestions on this chapter. tionships in our literature). it also demonstrated that the
arrow' goes the opposite direction (if productive workers
are rewarded commensurate with their performance then
NOTES they will be satisfied).
5 Given our objective of fostering greater collaboration
between business and society scholars and business man-
I Although many different typologies of the major agement and strategy scholars, and given the absence of
streams of business and society scholarship have been disconfirming information. the remainder of this section is
developed. we will draw primarily from one suggested by predicated upon the assumption of uniqueness. However.
Gerde and Wokutch (1998) in their review of 636 Social we have drawn attention to the need to test this assump-
Issues in Management (SIM) division papers and abstracts tion here at the beginning of this 'implications' section to
published in the Acadenn • of Management Proceedings. emphasis its foundational significance.

404 HANDBOOK OF STRATEGYAND MANAGEMENT

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