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13.3 Should Corporations Have Social Responsibilities? The Arguments in Favor

Learning Objective

  1. Define and elaborate the major arguments in favor of corporations having social and environmental responsibilities.

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 expansive social and environmental responsibilities:

  1. Corporations are morally required to accept those responsibilities.
  2. The existence of externalities attaches companies, in operational and economic terms, to those responsibilities.
  3. 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 well-being 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 well-being 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. Choosing, in other words, not to be involved in surrounding ethical issues is an ethical choice. Finally, because companies are inescapably linked to the ethical issues surrounding them, they’re involved with some form of corporate social responsibility whether they like it or not.
  • 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, the possession of wealth and power is also a duty to balance that privilege by helping those with fewer resources. Many accept the argument that individuals 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 applies to companies.
  • Corporations rely on much more than their owners and shareholders. They need suppliers who provide materials, employees who labor, a town where the workplace may be located, consumers who buy, air to breathe, water to drink, and almost everything. Because a business relies on all that, the argument goes, 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. 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. Similarly, companies that fire workers create social tensions. The dismissal may have been necessary or fully justified, but that doesn’t change the fact that problems are produced, and with them comes a responsibility to participate in alleviating the negative effects.

Conclusion. 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 externalityIn the economic world, a cost of a good or service that isn’t accounted for in the price. 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’s factory emits significant air pollution, and that results in a high incidence of upper respiratory infections in the nearby town, then a disproportionately high number of teachers and police officers (among others) are going to call into work sick throughout the year. Substitute teachers and replacment officers will need to be hired, and that cost will be borne by everyone in town when they receive a higher tax bill. The corporation owning the pollution-belching factory, that means, gets the full amount of money from the sale of its products but doesn’t pay the full cost of producing them since the broader public is shouldering part of the pollution 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 costs 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 broad ethical discussion 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-interestIn the business world, taking on broad responsibilities for the social welfare because, on careful analysis, that public generosity also benefits the company’s bottom line. 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 antipoverty 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 eight 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 Central Intelligence Agency. 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, but it may help the bottom line if it effectively closes off a regulatory commission’s discussion about requiring triple barrel protections.

Enlightened self-interest starts with the belief that there are many opportunities for corporations to do well (make money) in the world by doing good (being ethically responsible). From there, it’s reasonable to assert that because those opportunities exist, corporations have no excuse for not seeking them out, and then profiting from them, while helping everyone else along the way.

One 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?” In terms of pure consequences, this distinction may not be significant. However, if the reality is that social good is being done only because it makes money, then some will object that corporate social responsibility is twisting into a clever trick employed to maximize profits by deceiving consumers about a business’s intention. CSR becomes an example of cause egoismGiving the false appearance of being concerned with the welfare of others in order to advance one’s own interests.—that is, giving the false appearance of being concerned with the welfare of others in order to advance one’s own interests.

Key Takeaway

  • There are three broad arguments in favor of corporate social responsibility: it is morally required, it’s required by externalities, it serves the interest of the corporation.

Review Questions

  1. In your own words, what are a few reasons a corporation may feel directly required to respond to broad social obligations?
  2. What is an example of an externality? How could the existence of that externality be transformed into an argument in favor of corporate social responsibility?
  3. List three ways a corporate bottom line may be improved by serving the public welfare.