New Directions in Corporate
Social Responsibility
Norman Bowie
m o n g phi-
Theorists must consider
m
A losophers
writing in
business ethics,
reciprocity and moral something of a con-
sensus has emerged
pluralism if they are to in the past ten years
regarding the social
help managers prac- responsibility of
tice social responsibility. business. Mthough
these philosophers
were critical of the
classical view of Milton Friedman (the purpose of
the corporation is to m a k e profits for stockhold-
ers), the consensus view had m u c h in c o m m o n
with Friedman, so much so that I referred to m y
o w n statement of this position as the neoclassical
view of corporate responsibility (Bowie 1982).
The heart of the neoclassical view was that the
corporation was to make a profit while avoiding
inflicting harm. In other formulations the corpora-
tion was to make a profit while (1) honoring the
moral minimum or (2) respecting individual
rights and justice. Tom Donaldson arrived at a
similar neoclassical description of the purpose of
the corporation by arguing that such a view is
derived from the social contract that business has
with society (1989).
The stakeholder theory made popular by Ed
Freeman does seem to represent a major advance
over the classical view (Freeman 1984; Evan and
Freeman 1988). It might seem inappropriate to
refer to the stakeholder position as neoclassical.
Rather than argue that the job of the manager
was to maximize profits for stockholders, Free-
man argued that the manager's task was to pro-
tect and promote the rights of the various corpo-
rate stakeholders. Stakeholders were defined by
Freeman as m e m b e r s of groups whose existence
was necessary for the survival of the firm--stock-
holders, employees, customers, supphers, the
local community, and managers themselves.
56
Despite the vast increase in scope of mana-
gerial obligations, a Friedmanite might try to
bring stakeholder theory under his or her um-
brella. Of course, the managers must worry about
the rights and interests of the other corporate
stakeholders. If you don't look after them, these
other stakeholders will not be as productive and
profits will fall. A g o o d manager is concerned
with all stakeholders while increasing profits for
stockholders. In the Friedmanite view, the stake-
holder theorist does not give us an alternative
theory of social responsibility; rather, he or she
reminds us h o w an enlightened Friedmanite, as
o p p o s e d to an unenlightened one, is s u p p o s e d to
manage. The unenlightened Friedmanite exploits
stakeholders to increase profits. Although that
strategy might succeed in the short run, the mo-
rale and hence the productivity of the other
stakeholders plummets, and as a result long-run
profits fall. To protect long-run profits, the en-
lightened manager is concerned with the health,
safety, and family needs (day care) of employees,
a no-question-asked return policy, stable long-
term relations with suppliers, and civic activities
in the local community. In this way, long-run
profitability is protected or even enhanced. In the
classical view, the debate between Milton
Friedman and Ed Freeman is not a debate about
corporate ends, but rather about corporate means
to that end.
Moreover, some classicists argue, the neoclas-
sical concern with avoiding harm or honoring the
moral minimum does not add anything to Fried-
man's theory. In Capitalism and Freedom (1962)
he argues that the manager must o b e y the law
and moral custom. The quotation goes like this:
In such an economy, there is one and
only one social responsibility of busi-
n e s s - t o use its resources and engage in
activities designed to increase its profits
so long as it stays within the rules of the
Business Horizons / July-August 1991
 game, which is to say, engages in o p e n
and free competition, without deception
or fraud.
If there really is a social contract that requires
business to honor a moral minimum, then a busi-
ness manager on the Friedmanite model is duty-
b o u n d to o b e y it. To the extent that the moral
minimum involves duties to not cause avoidable
harm, or to honor individual stakeholder rights,
or to adhere to the ordinary canons of justice,
then the Friedmanite manager has these duties as
well. Even if Friedman didn't emphasize the
manager's duties to law and c o m m o n morality,
the existence of the duties are consistent with
Friedman's position.
Unfortunately, the compatibility of the classi-
cal Friedmanite position with obedience to law
and morality is undercut by some of Friedman's
most well-known followers. The late Albert Carr
(1968) substituted the morality of p o k e r for ordi-
nary morality. Indeed he argued that ordinary
morality was inappropriate in business:
Poker's o w n brand of ethics is different
from the ethical ideals of civilized h u m a n
relationships. The game calls for distrust
of the other fellow. It ignores the claim
of friendship. Cunning deception and
concealment of one's strength and inten-
tions, not kindness and openheartedness,
are vital in poker. No one thinks any the
worse of p o k e r on that account. And no
one should think the worse of the game
of business because its standards of right
and wrong differ from the prevailing
traditions of morality in our society . . . .
Even more pervasive has b e e n the influence
of former Harvard Business Review editor
Theodore Levitt. He defends various deceptive
practices in advertising, which seem to be in
violation of ordinary morality, as something con-
sumers really like after all (1970):
Rather than deny that distortion and ex-
aggeration exist in advertising, in this
article I shall argue that embellishment
and distortion are a m o n g advertising's
legitimate and socially desirable purpose;
and that illegitimacy in advertising con-
sists only of falsification with larcenous
intent . . . . But the consumer suffers from
an old dilemma. He wants "truth," but he
also wants and needs the alleviating
imagery and tantalizing promise of the
advertiser and designer.
The writings of these authors give Friedman's
theory that "anything for profit" ring that its critics
New Directions in Corporate Social ResponslblIity
hear. But Friedman need not be interpreted in
that way. Many profit-oriented business people
do not espouse that interpretation; neither do
some academic Friedmanites. What needs to be
done is for the Friedmanite school to declare Carr
and Levitt heretics and excommunicate them
from the faith. The Friedmanites also need to
include as part of their canon some statement of
the moral minimum idea so the phrase "rules of
the game" in Capitalism a n d Freedom has some
flesh and bone.
On one important point the neoclassical
theorists and the Friedmanites are already in ex-
plicit agreement. Both positions argue that it is
not the purpose of business to do good. The
neoclassicists agree with Levitt that providing for
the general welfare is the responsibility of gov-
ernment. A business is not a charitable organiza-
tion.
Business will have a m u c h better chance
of surviving if there is no nonsense about
its goals--that is, if long-run profit maxi-
mization is one dominant objective in
practice as well as in theory. Business
should recognize what government's
functions are and let it go at that, stop-
ping only to fight government where
government directly intrudes itself into
business. It should let government take
care of the general welfare so that busi-
ness can take care of the more material
aspects of welfare. (Levitt 1958)
Both the classicists and the neoclassicists
have elaborate arguments to support their views.
The classicist arguments focus on legitimacy.
Corporate boards and managers are not p o p u -
larly elected. Politicians are. Hence, government
officials have a legitimacy in spending tax dollars
for public welfare that corporate managers don't.
Moreover, the corporate board and managers are
agents of the stockholders. Unless the stockhold-
ers authorize charitable contributions, the corpo-
rate officers have no right to give the stockhold-
ers' m o n e y away and violate their fiduciary re-
sponsibility in doing so.
Levitt (1958) gives the legitimacy argument a
final twist. It is the job of the government to pro-
vide for the general welfare; but if business starts
doing the government's job, the government will
take over business. As a result, business and gov-
ernment will coalesce into one powerful group at
the expense of our democratic institutions.
Levitt seems to hold the traditional American
view, adopted from Montesquieu, that the exist-
ence of a democracy requires a balance of com-
peting powers a m o n g the main institutions of
society. Levitt and Friedman both see the com-
peting institutions as business, government, and
57
 labor, each with its distinct and competing inter-
ests. If business starts to take on the task of gov-
ernment, the balance of p o w e r is upset.
The neoclassical arguments are much more
pragmatic. Corporations don't have the resources
to solve social problems. Moreover, since the
obligation to do good is an o p e n - e n d e d one,
society cannot expect corporations to undertake
it. A corporation that tries to solve social prob-
lems is an institutional Mother Teresa. What it
does is good, but its actions, in the language of
ethics, are supererogatory.
Some of the neoclassicists add a little sophis-
tication to the argument by showing that com-
petitive pressure will prevent corporations from
doing good, even if the competitors all want to.
If c o m p a n y X spends
more of its m o n e y
solving social prob-
"Part of what it means lems than c o m p a n y
Y, c o m p a n y Y gains a
for a corporation to be competitive advan-
socially responsible is tage. Even if com-
pany Y wants to con-
cooperation with other tribute to solving
corporations and with social problems, it
will try to get com-
nonprofit social and pany X to contribute
government agencies even more. C o m p a n y
to help solve social X has thought this all
through; as a result it
problems. " can't contribute (or
contribute as m u c h as
it would like). The
conclusion is that all competitive companies be-
lieve they can't focus on solving social problems
even if they want to.
As a result of the arguments, a fairly ortho-
dox position has developed both in theory and in
practice. American corporations do not have an
obligation to solve social problems. Whatever the
notion of corporate responsibility means, it does
not m e a n that. However, the orthodox position
does have its critics, and these critics have argu-
ments of their own.
Perhaps the three strongest arguments are
based on the duties of gratitude and citizenship
and the responsibilities of power. With respect to
gratitude, defenders of a duty to help solve social
problems argue that society provides tremendous
resources to corporations. The local community
provides public education that trains workers, a
legal system complete with police and courts to
enforce corporate contracts, and a huge infra-
structure of highways, sewage and garbage dis-
posal, and public health facilities. Corporate taxes
are not sufficient payment for the corporations'
share of these resources, therefore corporations
have a duty out of gratitude to help solve social
problems. Moreover, even if corporate taxes did
58
cover their fair share, corporations are citizens
morally similar to individual citizens; as a result,
they have a similar obligation to help solve social
problems. Thus, corporations have a duty based
on citizenship to help solve social problems.
Finally, the moral use of p o w e r requires that
p o w e r be used responsibly. The term "steward-
ship" is often used to describe the responsibilities
of those w h o have great p o w e r and resources.
Individual corporate leaders make reference to
the duties of stewardship w h e n they establish
private foundations. Carnegie and Rockefeller are
two prominent examples.
In addition to the intellectual arguments on
behalf of a duty to help solve social problems,
there are m a n y actual cases where corporations
have acted on that duty. It is part of the corpo-
rate culture in the Twin Cities (Minneapolis and
St. Paul). Indeed, it seems to be part of the Min-
nesota corporate culture. Three chambers of
commerce annually compile a list of the corpora-
tions w h o give 2 to 5 percent of their pre-tax
profits to charitable organizations. The list con-
tains a n u m b e r of Fortune 500 companies, in-
cluding General Mills, Honeywell, Pillsbury, and
the H.B. Fuller Co. The Minneapolis offices of the
accounting firms of Arthur Andersen, Price
Waterhouse, Peat Marwick and Mitchell, and Tou-
che Ross and C o m p a n y are also on the list.
The n u m b e r of academics w h o support the
view that corporate responsibility involves an
obligation to help solve social problems is even
smaller than the n u m b e r of corporations w h o
support the view. Moreover, the corporate culture
of the Minnesota business community is consid-
ered unique. The orthodox view is that a socially
responsible corporation pursues profit while re-
specting the moral minimum. I have b e e n an
adherent of that position, but I n o w think the
position is mistaken. Part of what it means for a
corporation to be socially responsible is coopera-
tion with other corporations and with nonprofit
social and government agencies to help solve
social problems.
SOCIAL RESPONSIBILITY AND THE DUTY
TO SOLVE SOCIAL PROBLEMS
I begin this section with an argument for a
duty to solve social problems. This argu-
ment resembles one a Friedmanite could use
to defend an obligation on the part of corporate
managers to honor the needs and rights of corpo-
rate stakeholders. As you recall, a Friedmanite
could argue that a concern with the needs and
rights of corporate stakeholders is required for
long-term profits. Treating one's customers, em-
ployees, and suppliers well is a means to profit.
That theme provides a rationale for an instru-
mental duty of business to solve social problems.
Business Horizons /July-August 1991
 The argument I shall m a k e rests on a n u m b e r of
complicated and controversial empirical claims,
and I have neither the expertise nor the space to
argue for these empirical claims here. However,
these empirical claims constitute something of a
conventional wisdom on this subject.
Among the social problems the U.S. faces,
most of the more important ones have a severe
impact on the quality of the work force. The
problem of drug use and other forms of sub-
stance abuse, the abysmal quality of public edu-
cation, the decline in w o r k ethic values, the insta-
bility of the family, and the short-term orientation
of all corporate stakeholders all affect the firm
negatively. The impact is especially acute on
employees and suppliers. If the w o r k force is
poorly educated, affected with substance abuse,
poorly motivated, and short-term oriented, pro-
ductivity suffers both in quantity and quality.
In future international competition, the qual-
ity of the work force is the most important asset a
c o m p a n y can have. If capital markets are open,
the cost of capital will even out, so any advan-
tage a country might gain through lower costs of
capital is short-term. If a country gains an advan-
tage through a technological discovery, highly
developed technological competitors will reverse
engineer the discovery so the advantage is short-
term as well. The one advantage that is relatively
long lasting is the quality of one's work force.
In that respect America is at a disadvantage.
All the problems pointed out earlier have affected
the quality of our work force more severely than
in other countries. In addition, racial, religious,
and ethnic tensions in our pluralistic work force
affect productivity, putting us at a disadvantage
against industrial societies with a more h o m o g e -
neous work force. Thus, if America is to remain
competitive, social problems that affect work-
force productivity must be addressed.
However, the traditional institutional source
for resolving social p r o b l e m s - - g o v e r n m e n t - -
seems to have neither the will nor the p o w e r to
do so. After all, the costs are high and Ameri-
c a n s - a s events in the past decade have demon-
strated--don't like taxes. In addition to being
high, the costs are also immediate. However, the
benefits, though higher, are very distant. Politi-
cians have difficulty with a time frame b e y o n d
the next election. Therefore, there is little incen-
tive for a politician to p a y the costs now. A well
worked-out statement of this view can be found
in Alan Blinder's Hard Heads Soft Hearts (1987).
To m a k e matters worse, our high national
debt, the recent war with Iraq, the S&L debacle,
and our aging infrastructure will only drain re-
sources from social problems. If international
competition requires that such problems be
solved, but government is unwilling and perhaps
unable to do so, it would seem that business has
New Dlrect:ons in Corporate SoclaIResponslblhty
no choice but to b e c o m e involved. The long-term
competitiveness and hence long-term profitability
of business is at stake. If the scenario I have
painted is at all accurate, then even a Friedmanite
could argue that business should help solve so-
cial problems. Business initiative in that area is
justified on the grounds that such action is neces-
sary to increase profits.
There certainly is nothing inconsistent with a
Friedmanite arguing that business should help
solve social problems to increase profit, so long
as the dangers from
not doing so out-
weigh the dangers
discussed earlier. But "If international c o m p e -
I doubt that people
like Levitt would ever tition requires that such
agree that the in- problems be solved, but
crease in profitability
would be worth the government is unwilling
cost of lost indepen- a n d perhaps unable to
dence n o w enjoyed
by the business com-
do so, it would seem
munity. Even though that business has no
Friedmanites in
theory could support
choice but to b e c o m e
a view of corporate involved. "
responsibility that
included a corporate
duty to help solve social problems, in all prob-
ability they would not.
On the chance some Friedmanite might sup-
port such an e x p a n d e d concept of social respon-
sibility, let me argue w h y a Friedmanite approach
to an obligation to help solve social problems
would probably fail. My argument here is tied up
with issues of motivation and intentionality.
Consider what philosophers call "the hedonic
paradox": the more people consciously seek
happiness the less likely they are to achieve it.
The reader is invited to test this assertion by get-
ting up tomorrow and framing his or her activi-
ties with a conscious goal of happiness. In other
words, do everything to be happy. If you do,
almost certainly you will fail to achieve happi-
ness.
To understand the paradox, we must distin-
guish between the intended end of an action and
the feelings w e get w h e n we succeed (achieve
the goal). If you are thirsty, you seek a glass of
water to extinguish the thirst. When you quench
your thirst you feel pleasure or contentment. But
you didn't get the glass of water to get the con-
tentment that goes with quenching your thirst.
And you generally don't act to be happy. You are
h a p p y w h e n you succeed in obtaining the goals
that constitute the basis of your actions. Happi-
ness is not one of those goals; it is a state one
achieves w h e n one successfully gains one's other
goals.
59
 What does this have to do with profit? Should
profit be a conscious goal of the firm, or the
result of achieving other corporate goals? For
simplicity's sake let us say there is some relation
b e t w e e n providing meaningful work for employ-
ees, quality products
for customers, and
corporate profits.
"American corporations What is the nature of
that relationship? Do
have thought like you achieve meaning-
Friedmanites even when ful work for employ-
ees and quality prod-
they speak the language ucts for customers by
of stakeholder theorists. aiming at profits (by
making profits your
Some of our international goal), or do you aim
competitors have thought at providing meaning-
ful work for employ-
like stakeholder theorists ees and quality prod-
even though they have ucts for customers
(make them your
achieved Friedman-like goal) and achieve
results. " profits as a result? A
Friedmanite is com-
mitted to making
profits the goal. As w e saw in the discussion of
stakeholder theory, a Friedmanite will respect the
needs and rights of the other stakeholders to
increase profits for the stockholders. But for a
genuine stakeholder theorist, the needs and
rights of the various stakeholders take priority.
Management acts in response to those needs;
profits are often the h a p p y result.
Both Friedmanites and non-Friedmanites can
posit a relationship between profits and meeting
stakeholder needs. What divides them is the
strength of the casual arrow, a difference over
which one should be the conscious objective of
management. A Friedmanite argues for profit. A
stakeholder theorist argues for the needs and
rights of stakeholders. A Friedmanite argues that
you treat employees and customers well to make
a profit; good treatment is a means to an end. A
stakeholder theorist argues that a manager should
treat employees and customers well because it is
the right thing to do; the needs and rights of the
corporate stakeholders are the ends the manager
should aim at. Profits are the h a p p y results that
usually a c c o m p a n y these ends.
American corporations have thought like
Friedmanites even w h e n they speak the language
of stakeholder theorists. They introduce quality
circles or ESOPS to increase profits. Some of our
international competitors have thought like stake-
holder theorists even though they have achieved
Friedman-like results.
With respect to the duty to help solve social
problems, should that duty be taken on because
by doing so profits m a y be increased, or because
60
it is a moral responsibility to do so? To answer
that question, I suggest we visit the work of
Cornell economist Robert Frank (1988) and con-
sider the spotty success of the introduction of
quality circles and other forms of "enlightened"
labor m a n a g e m e n t in the U.S.
Frank's point, buttressed by a large amount
of empirical evidence from psychology, sociol-
ogy, and biology, is that an altruistic person (a
person w h o will not behave opportunistically
even w h e n he or she can get away with it) is the
most desirable person to make a deal with. After
all, if you have a contractual relationship with
someone, the best person you can deal with is
s o m e o n e you k n o w will honor the terms of the
contract even if he or she could get away with
not honoring them. An employer wants employ-
ees w h o won't steal or cheat even if they could.
A marriage partner wants a spouse w h o won't
cheat even if he or she could. Altruists rather
than profit maximizers make the best business
partners.
Frank then goes on to make the point
Immanuel Kant would make. You can't adopt
altruism as a strategy like "honesty is the best
policy" and gain the advantages of altruism. After
all, if I k n e w you were being an altruist because
it paid, I would conclude that in any case where
altruism didn't pay, you would revert to oppor-
tunism. My ideal business partner is s o m e o n e
w h o doesn't merely adopt altruism because it
pays but adopts it because he or she is commit-
ted to it. She or he is not an opportunist because
opportunism is wrong. As Frank says:
For the model to work, satisfaction from
doing the right thing must not be pre-
mised on the fact that material gains may
later follow; rather it must be intrinsic to
the act itself. Otherwise a person will
lack the necessary motivation to make
self-sacrificing choices, and once others
sense that, material gains will not, in fact,
follow. Under the commitment model,
moral sentiments do not lead to material
advantage unless they are heartfelt.
Frank's theoretical account of the advantages
of committed altruism over reciprocal altruism as
the best payoff strategy helps explain the spotty
record of "enlightened" employee m a n a g e m e n t
techniques. Techniques like quality circles that
work very well in Japan and Sweden don't work
as well in the U.S. Why? Cultural difference is not
a sufficiently specific answer. What cultural differ-
ences m a k e the transfer difficult? I hypothesize
that since l a b o r / m a n a g e m e n t relations in the U.S.
are opportunistically based, labor a s s u m e s - -
probably correctly--that such reforms are moti-
vated not by employer concern for employees
Business Horizons /July-August 199:
 but by profit. If that is the motivation, labor rea-
sons, w h y should labor embrace the reforms? The
elements of trust created by genuine concern for
employees are missing in the American context.
Indeed, both labor and m a n a g e m e n t assume the
other will behave opportunistically. Academics
assume that too, and agency theory provides a
model for the opportunistic framework. Given
that cultural and intellectual context, it is no sur-
prise that labor would distrust an employer
whose concern with an improved working envi-
ronment was not genuinely altruistic.
This discussion affects the duty to help solve
social problems. If the resolution of these prob-
lems would improve America's h u m a n capital,
that result would be most likely to occur if the
investment in h u m a n capital were altruistically
motivated. The one g o o d thing about corporate
efforts to solve social problems is that it is easy to
show that with respect to the individual firm,
such efforts must be altruistic. After all, an im-
proved labor force is a classic case of a public
good. There is no guarantee that the m o n e y
spent by an individual firm will benefit that firm.
If a firm adopts an inner city elementary school
and pours resources into it, there is no reason to
think that firm will get its investment back. The
reason need not be that m a n y of the students of
that elementary school won't work for the sup-
porting firm. After all, it might gain employees
from other schools supported by other firms.
Rather, the reason is that some firms will ride free
off the expenditures of the moral firms. Thus,
employees w h o understand these considerations
can be sure that the employers w h o give m o n e y
to solve social problems are altruistic.
If this analysis is correct the following con-
clusions can be drawn:
1. It is in the interest of business to adopt an
extended view of corporate social responsibility
that includes a duty to help solve social prob-
lems.
2. If business adopts that duty because it
thinks it will benefit, its actions will be viewed
cynically.
3. Moreover, because an improved labor
force is a public good for business, the only real
reason for an individual firm to help solve social
problems is altruistic.
4. Thus, employees and other corporate
stakeholders have a good reason to believe that
corporate attempts to solve social problems are
altruistic.
OBLIGATIONS OF VARIOUS STAKEHOLDERS
IN A SOCIALLY RESPONSIBLE C O R P O R A T I O N
n the previous section I gave an argument to
I show that everyone has g o o d reason to be-
lieve that corporate attempts to solve social
New Directions in Corporate Social ResponslblhW
problems are genuinely altruistic. What are the
implications of this for the various corporate
stakeholders, especially customers?
Our ordinary w a y of speaking is to say the
corporation ought to respect stakeholder needs
and rights. Thus, we say that the corporation
should produce quality products for customers,
or that the corporation should not subject its
employees to lie detector tests. We speak of the
obligation of the firm (firm's management) to
employees, customers, and local community.
However, this way of speaking tends to give a
one-sided emphasis to the moral obligations of
the corporation.
My concern is that within the firm conceived
of as a moral community, we speak as if all the
obligations fall on the firm, or its managers and
stockholders. In a previous article, "The Firm as a
Moral Community" (Bowie 1991), I argued that
Kant's third formulation of the categorical im-
perative best captures the moral relations that
exist a m o n g corporate stakeholders. Kant would
view a corporation as a moral community in
which all of the stakeholders would both create
the rules that govern them and be b o u n d to one
another by these same rules.
Moral relations are reciprocal. In addition to
the obligations of managers, what of the obliga-
tions of the employ-
ees, customers, or
local community to
the firm (firm's man- "Moral relations are
agement)? For ex- reciprocal. In addition
ample, business ethi-
cists are critical of the to the obligations of
so-called employ- managers, what of the
ment-at-will doctrine
under which employ- obligations of the
ees can be let go for employees, customers,
"'any reason, no rea-
son, or reason im-
or local community to
moral." Such a doc- the firm (firm's manage-
trine is unresponsive
to the needs and
ment)?"
rights of employees; it
permits a manager to ignore both the quality of
an employee's work performance and the num-
ber of years he or she has b e e n with the firm.
Similarly, business ethicists are critical of the
noneconomic layoffs that often a c c o m p a n y a
hostile takeover. An example of noneconomic
layoffs is w h e n people are fired just because they
w o r k e d for the old company. The n e w managers
simply want their people in those positions--an
understandable view, but one that does not take
into account the interests of the employees let
go. Those people might have served the target
c o m p a n y for 20 years with great loyalty and dis-
tinction. Now they find themselves out of w o r k
through no fault of their own.
61
 However, these
business ethicists
"If environmentalists want seldom criticize
employees w h o
business to produce prod- leave a corporation
ucts that are more friendly on short notice
simply to get a
to the environment, they better job. Busi-
must convince Americans ness firms argue
that they invest
to purchase them, Business huge amounts of
will respond to the market. " m o n e y in training
n e w employees,
and losses from
turnover are very high. Sometimes the employee
might have b e e n given educational benefits or
even paid leave to resolve personal problems
such as alcohol and drug abuse. Others m a y have
received c o m p a n y financial support for further
e d u c a t i o n - - p e r h a p s even an M.B.A. Yet these
employees think nothing of leaving the proven
loyal employer for a better job elsewhere. As
managers often remind us, loyalty is not a one-
w a y street.
What needs to be decided is the nature of
the e m p l o y m e n t relationship. Because it is
a m o n g people, it cannot be merely an economic
relationship. Although some currently refer to it
as such, they are mistaken. All e m p l o y m e n t rela-
tionships have some contractual elements at-
tached to them. A contract represents a kind of
promise; even the standard e m p l o y m e n t relation-
ship is in part moral. Some argue that legally the
e m p l o y m e n t contract is nothing more than an
agreement that the employer can let the em-
ployee go w h e n e v e r he or she wants, and the
employee can leave w h e n e v e r he or she wants.
There is true reciprocity here, even if the rela-
tionship is rather limited morally.
However, in the world of actual business
practice one side or the other often behaves in
ways that go far b e y o n d the limited legal contrac-
tual relationship, thus adding moral capital to the
relationship. Loyal employees w h o m a y have
passed up other jobs are let go; employees leave
loyal employers w h o have invested heavily in
their welfare for a slightly better-paying job. Both
actions are morally wrong because the duties of
reciprocity and gratitude have b e e n breached.
Social responsibility under a stakeholder model
requires that each stakeholder has reciprocal
duties with others. Thus, if an employee has a
duty of loyalty to an employer, an employer has
a duty of loyalty to an employee.
Let us apply this analysis to a triadic stake-
holder relationship--the firm's management, its
customers, and the local community. One of the
moral problems facing any community is environ-
mental pollution. As with the employment-at-will
doctrine, most business ethicists focus on the
62
obligations of the firm. But what of the obliga-
tions of the consumers w h o b u y and use the
firm's products?
Consider the following instances reported by
Alicia Swasy in a recent Wall Street Journal article
(1988). Wendy's tried to replace foam plates and
cups with paper, but customers in the test mar-
kets balked.
Procter and Gamble offered D o w n y fabric
softener in a concentrated form that requires less
packaging than ready-to-use products. However,
the concentrate version is less convenient be-
cause it has to be mixed with water. Sales have
b e e n poor. Procter and Gamble also manufac-
tures Vizir and Lenor brands of detergents in
concentrate form. Europeans will take the
trouble; Americans will not.
Kodak tried to eliminate its yellow film boxes
but met customer resistance. McDonald's has
b e e n testing mini-incinerators that convert trash
into energy but often meets opposition from
community groups that fear the incinerators will
pollute the air. A McDonald's spokesperson
points out that the emissions are mostly carbon
dioxide and water v a p o r and are "less offensive
than a barbecue."
And Jerry Alder reports in Newsweek (1989)
that Exxon spent approximately $40,000 each to
"save" 230 otters. Otters in captivity cost $800.
Fishermen in Alaska are permitted to shoot otters
as pests.
Recently environmentalists have pointed out
the environmental damage caused by the wide-
spread use of disposable diapers. However, are
Americans ready to give up Pampers and go back
to cloth diapers and the diaper pail? Most observ-
ers think not.
If environmentalists want business to pro-
duce products that are more friendly to the envi-
ronment, they must convince Americans to pur-
chase them. Business will respond to the market.
It is the consuming public that has the obligation
to make the trade-off b e t w e e n cost and environ-
mental integrity.
Yet another example involves corporate giv-
ing. Earlier I cited the Twin Cities, Minnesota
business community as providing an example of
a local community where m a n y of the firms gave
either 2 percent or 5 percent of their pretax prof-
its back to the community. I have never heard
anyone argue that on the principle of reciprocity,
citizens of the Twin Cities have obligations to
these firms. Yet I would argue that these citizens
have an obligation to support socially responsible
firms over firms that are either socially irrespon-
sible or indifferent to social responsibility. The
relation of a local citizen to the companies that
do business locally is again not simply economic.
Citizens w h o consider only price in choosing
b e t w e e n two department stores are behaving in a
Business Horizons / July-August 1991
socially irresponsible way. If one department
store contributes to the local community and the
other doesn't, that factor should be taken into
account w h e n citizens in that community decide
on where to shop. It's more than a matter of
price.
The Target department store chain is a
branch of the Dayton Hudson Company. It has a
special program for hiring the disabled, and even
assists these people with up to one-third of their
rent. At Christmas it closes its stores to the gen-
eral public and opens them to the elderly and
disabled. These people receive an additional 10
percent discount and free gift wrapping. In m a n y
stores 75 percent of the trash generated is re-
cycled. Target is a m e m b e r of the 5 percent club.
The list of its activities that support the commu-
nity goes on and on. Target's competitors, Wal-
Mart and K mart, have nothing comparable. I
maintain that Target's superior social performance
creates an obligation for m e m b e r s of the c o m m u -
nity to shop at Target.
All these examples lead to a general point.
For too long corporate responsibility has b e e n
analyzed simply in terms of the responsibilities of
the firm (firm's management) to all other corpo-
rate stakeholders except stockholders. I exclude
stockholders because the cost of honoring stake-
holder obligations comes almost exclusively from
their profits. If we are to have a truly comprehen-
sive theory of corporate social responsibility, we
must develop a theory for determining the appro-
priate reciprocal duties that exist a m o n g corpo-
rate stakeholders. If the managers and stockhold-
ers have a duty to customers, suppliers, employ-
ees, and the local community, then the local
community, employees, suppliers, and customers
have a duty to managers and stockholders. What
these duties are has barely b e e n discussed.
THE COMPLICATIONS OF MORAL PLURALISM
A great complication that exists for any
attempt to determine reciprocal stake-
holder duties occurs w h e n the existence
of moral pluralism is taken into account. For
purposes of this paper, moral pluralism is a de-
scriptive term that applies to the widespread
disagreement about moral matters that exists
a m o n g the American people. People disagree as
to what is right and wrong. Some consider drug
testing to be right. Others think it's wrong.
People also disagree about the priorities given to
various rights and responsibilities. For example,
does the firm's obligation to protect its customers
override its obligation to protect the privacy of its
employees? And suppose it is decided that the
safety of the customers does take priority? Is test-
ing all employees or random testing more fair?
The general point is this: If people cannot agree
New Directions in Corporate Social Responsibility
as to what is right and wrong and h o w to set
priorities w h e n our duties conflict, what advice
can be given to managers and other corporate
stakeholders regarding what their duties are?
The u n h a p p y situation that befell Dayton
Hudson in late 1990 illustrates the point exactly.
Dayton Hudson has long b e e n a m e m b e r of the
Twin Cities 5 percent club. The funds are distrib-
uted through the Dayton Hudson Foundation.
For m a n y years Planned Parenthood has b e e n the
recipient of relatively small grants of a few thou-
sand dollars. Abortion opponents have charged
Planned Parenthood with various degrees of
complicity in abortion activities.
In 1990 Dayton Hudson announced that to
avoid becoming embroiled in the abortion de-
bate, it would no longer support Planned Parent-
hood. No decision could have gotten it more
embroiled in the de-
bate. Pro-choice
forces announced an
immediate boycott of "If we are to have a truly
Dayton Hudson and comprehensive theory of
its Target stores; hun-
dreds of people cut corporate social respon-
up their Dayton sibility, we must develop
Hudson credit cards
and mailed them back a theory for determining
to the company. In a recipro-
the appropriate
few days Dayton
Hudson relented and cal duties that exist
agreed to provide a a m o n g corporate stake-
grant to Planned Par-
enthood as it had
holders. "
done in the past. Now
the anti-abortion
forces were enraged. They organized boycotts
and demonstrations that continued into the holi-
day season.
Dayton Hudson officials were both embar-
rassed and angry, but they indicated they would
not retreat from their position to give 5 percent
of their pretax income to charity. Although little
was said publicly, the Dayton Hudson public
relations disaster gave m a n y executives pause.
Perhaps the Friedmanites were right. They were
giving away stockholder m o n e y for causes
d e e m e d inappropriate. Obviously some stock-
holders would not approve of the company's
choices, just as some of Dayton's customers and
citizens of the local community didn't.
In addition some executives were rumored to
have taken the following position:
1. The m o n e y is ours;
2. If people don't like h o w we spend our
money, then we won't spend it on charity at all.
These corporate officials saw Dayton
Hudson's protesting customers and citizens in the
Twin Cities as ungrateful and unappreciative of
the largesse Dayton Hudson had given over the
63
 years. These ingrates did not deserve corporate
support. Whether corporate support for charities
in the Twin Cities will fall off over the next few
years remains to be seen.
Should the Dayton Hudson problem b e c o m e
more widespread, a serious impediment toward
any corporation's decision to help solve social
problems will have arisen. H o w should such
difficulties be resolved? To answer that question
we need to return to our model of the firm as a
nexus of moral relationships a m o n g stakeholders.
From that perspective I might suggest some prin-
ciples that can be used to help resolve the prob-
lems created by moral pluralism.
First, if a corporation really has a duty to
help solve social problems, w e can ask whether
the corporation, through its managers, should
have sole say as to h o w the m o n e y is to be
spent. I think the answer to that question must
be "no." A firm as constituted by its stakeholders
is not narrowly defined. To let the managers have
the sole say is to allow one stakeholder to make
the decisions on behalf of all. H o w can that be
justified?
Some argue that legal ownership justifies the
decision. On this view the decision should be
made by the stockholders, because they are the
legal owners. To m y knowledge, no corporation
decides either the amount of charity or deter-
mines those organizations that receive charity by
taking a vote of the stockholders. Of course, the
matter could be settled in this way, but I have
argued elsewhere (Bowie 1990) that the limited
short-term view of most stockholders undercuts
any moral claim that ownership might have to
make the sole decision here.
These arguments, if valid, also count against
any view that would justify the manager making
this decision as the agent of the stockholder. If
the stockholders have no right to make the sole
determination in these matters, neither do the
stockholders' agents. If no one stakeholder
should settle these issues, it seems reasonable to
think that all stakeholders should have a voice.
H o w this voice is exercised can be decided in a
n u m b e r of ways.
Some corporations might focus on providing
funds to groups that have broad public support,
such as the United Way. Agencies like the United
Way reflect community decisions concerning
which charities are considered worthwhile. Un-
doubtedly some people in the community will
object to the list, and agencies like the United
Way have b e e n criticized for leaving out contro-
versial nonprofits that really fight social problems
while keeping "'middle class" charities such as the
Boy Scouts. Despite these objections, deferring to
local agencies recognizes the voice of the local
community in decisions that are made. Alterna-
tively, a corporation might put community people
64
on its foundation board or community affairs
council. I would r e c o m m e n d the first approach.
The latter approach runs the risk of filling a
board or council with individuals w h o speak only
to narrow interests. Moreover, in line with m y
argument that moral duties fall on all corporate
stakeholders, I would argue that it is the moral
responsibility of the community to structure the
United Way and other social agencies to meet
genuine social needs. It is up to the local com-
munity to find a place for unpopular but socially
concerned and effective nonprofits. It is up to
the local community to solve the problems of
representation.
Many corporations have given voice to their
employees by matching employee contributions
to charity. If an employee gives $100 to his or her
college alma mater, the c o m p a n y will kick in
$100 as well. Corporations also support charitable
organizations in cities and towns where they
have plants. They might extend this to cities and
towns where their suppliers are located as well.
These strategies should be adopted as policy by
other corporations unless other defensible ways
of giving voice to employees and suppliers can
be found.
As for customers, they are part of the local
community; unless there are some special cir-
cumstances that should be taken into account, I
think our analysis will suffice. Customers are
given voice the same w a y the local community
i s - - b y supporting local agencies through the
United Way or some other similar organization.
Finally, I turn to stockholders. Although I
have argued that the amount and type of corpo-
rate support given to help solve social problems
should not be decided by the stockholders alone,
they certainly should have some say in the deci-
sions. Management might poll stockholders to
determine their interests or get them to specifi-
cally approve the company's program in this area
w h e n they cast their annual proxy vote for the
election of the board and other matters.
As the tenor of these remarks suggest, we are
further along than might have b e e n suspected
with regard to giving all stakeholders a voice in
corporate decisions. However, w e have a w a y to
go, and I have made some suggestions as to the
directions w e might take.
et me close by making a point that will
L seem obvious to philosophers but less
obvious to others. In essence I have ap-
proached the issues raised by ethical pluralism by
process rather than substance. I have not tried to
argue that one position on these matters is mor-
ally correct and the others morally flawed. Rather,
1 have tried to elucidate a just process so the
various stakeholder voices in these matters can
be heard and have some influence on the deci-
Business Horizons /July-August 1991
sion. To put my perspective in Rawls's language
(1971), I think the issues presented by ethical
pluralism can only be handled by just procedures
rather than aiming at just results. In Rawls's lan-
guage, I am suggesting a system of imperfect
procedural justice to address this issue.
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New Directions in Corporate Social Responsibility
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Norman Bowie is a professor of manage-
ment at the Curtis L. Carlson School of
Management, University of Minnesota,
Minneapolis,
65