Crossroads of Philosophy and Economics

An Ethics Officer's Handbook


Why should corporations have social responsibilities?

Broadly, there are three kinds of arguments in favor of placing corporations, at least large and fully developed ones, within an ethical context of broad social and environmental responsibilities:

• Corporations are morally required to accept those responsibilities
• The existence of externalities attaches companies, in operational and economic terms, to those responsibilities
• Enlightened self-interest leads to voluntarily embracing those responsibilities

The moral requirement argument
The moral requirement that business goals go beyond the bottom line to include the people and world we all share is built on the following arguments:

• Corporations are already involved in the broad social world and the ethical dilemmas defining it. For example, factories producing toxic waste are making a statement about the safety and wellbeing of those living nearby every time they dispose of the toxins. If they follow the cheapest—and least safe—route in order to maximize profits, they aren’t avoiding the entire question of social responsibility, they’re saying with their actions that the wellbeing of townspeople doesn’t matter too much. That’s an ethical stance. It may be good or bad, it may be justifiable or not, but it’s definitely ethics. If that’s right, the basic duties of honesty and sincerity require that companies acknowledge their inescapable responsibility to the society around them.

• Corporations, at least well-established, successful and powerful ones, can be involved in the effective resolution of broad social problems, and that ability implies an obligation. Whether we’re talking about a person or a business, possessing wealth and power is also a duty to balance that privilege by helping those with fewer resources. Many accept the argument that those who are extraordinarily rich have an obligation to give some back by, say, creating an educational foundation or something similar. That’s why people say, “To whom much is given, much is expected.” Here, what’s being argued is that the same obligation attaches to companies.

• Corporations rely on much more than their owners and shareholders. They need suppliers for material, employees who labor, a town where the workplace may be located, consumers who buy, air to breath, water to drink, everything. Because, finally, a business relies on all that, it’s automatically responsible—to some extent—for the welfare and protection of those things.

• Because businesses cause problems in the larger world, they’re obligated to participate in the problems’ resolution. What kinds of problems are caused? Taking the example of an industrial chemical factory, toxic waste is produced, and even though it may be disposed of carefully, that doesn’t erase the fact that barrels of poison are buried somewhere, and a threat remains, no matter how small.

Taken together, these arguments justify the vision of any particular enterprise as much more than an economic wellspring of money: businesses become partners in a wide world of interconnected problems and shared obligations to deal with them.

The externality argument
The second type of argument favoring corporate social responsibility revolves around externalities. These attach corporations to social responsibilities not morally but operationally. An externality in the economic world is a cost of a good or service that isn’t accounted for in the price (when that price is established through basic laws of supply and demand). For example, if a corporation producing industrial chemicals and toxic liquid waste runoff saves some money by letting the waste drip into the soil, and the poison eventually makes its way into the water table providing the area drinking supply, then it will be necessary to pay for the installation of cleansers and scrubbers in the city waterworks building. That cost will be borne by everyone in town when they receive a higher water bill. The chemical company, that means, gets the full amount of money from the sale of its product, but doesn’t pay the full cost of producing it since the broader public is shouldering part of the cleanup bill. This strikes many as unfair.

Another example might be a company underfunding its pension accounts. The business may eventually shut its doors, deliver final profits to shareholders, and leave retired workers without the monthly checks they’d been counting on. Then the government may have to step in with food stamps, welfare payments and similar to make up for the shortfall, and, in the final tabulation, the general public ends up paying labor costs that should have been borne by shareholders.

Externalities, it should be noted, aren’t always negative. For example, the iPhone does a pretty good job of displaying traffic congestion in real time on its map. That ability cost money to develop, which Apple invested, and then they get cash back when an iPhone sells. Apple doesn’t receive, however, anything from those drivers who don’t purchase an iPhone but still benefit from it: those who get to where they’re going a bit faster because everyone who does have an iPhone is navigating an alternate route. More, everyone benefits from cleaner air when traffic jams are diminished, but again, that part of the benefit which should channel back to Apple to offset its research and production costs ends up uncompensated.

Whether an externality is negative or positive—whether a company’s bottom line rises or falls with it—a strong argument remains for broad corporate responsibility wherever an externality exists. Because these parts of corporate interaction with the world aren’t accounted for in dollars and cents, a moral element must be introduced to determine what, if any, obligations or benefits arise.

The enlightened self-interest argument
The third kind of argument in favor of corporations as seats of social responsibility grows from the notion of enlightened self-interest. Enlightened self-interest means businesses take on broad responsibilities because, on careful analysis, that public generosity also benefits the company. The benefits run along a number of lines:

• Corporations perceived as socially engaged may be rewarded with more, and more satisfied customers. TOMS shoes is an excellent example. For every pair of shoes they sell, they give a pair away to needy children. No one doubts that this is a noble action—one displaying corporate vision as going beyond the bottom line—but it’s also quite lucrative. Many people buy from TOMS because of the anti-poverty donations, and those customers feel good about their footwear knowing that a child somewhere is better off.

• Organizations positively engaged with society or the environment may find it easier to hire top-notch employees. All workers seek job satisfaction, and given that you spend 8 hours a day on the job, the ingredients of satisfaction go beyond salary level. Consequently, workers who select from multiple job offers may find themselves attracted to an enterprise that does some good in the world. This point can also be repeated negatively. Some organizations with more checkered reputations may find it difficult to hire good people even at a high salary because workers simply don’t want to have their name associated with the operation. A curious example to fit in here is the CIA. Some people will accept a job there at a salary lower than they’d make in the private realm because it’s the CIA, and others won’t work there even if it’s their best offer in terms of money because it’s the CIA.

• Organizations taking the initiative in regulating themselves in the name of social betterment may hold off more stringent requirements that might otherwise be imposed by governmental authorities. For example, a lab fabricating industrial chemicals may wrap their toxic waste in not only the legally required single, leak-proof barrel, but a second as well, to positively ensure public safety. That proactive step is not only good for the environment, it may help the bottom line if it effectively closes off a regulatory commission’s discussion about requiring triple barrel protections.

Enlightened self interest, in general, is the belief that there are many opportunities for corporations to do well in the world (make money) by doing good (being ethically responsible). Because those opportunities exist, the argument closes, corporations have no excuse for not seeking them out, and then profiting from them, while helping everyone else along the way.

The basic question about enlightened self-interest is: are corporations making money because they’re doing good deeds, or, are they doing good deeds because it makes them money? If it’s the second, then the idea of CSR is twisted into something nearing its opposite: a clever trick employed to maximize profits by deceiving consumers about a business’s intention. Instead of being social responsibility it's cause egoism: giving the false appearance of being concerned with the welfare of others in order to advance one’s own interests.