week2

  The summary should be no more than half a page.
The format of the summary is flexible, so feel free to use bullet points.  

there are three articles each one needs a summary of half of a page or less.  

/academy of Management Review 1979, Vol. 4, No. 4.

497

–

505

A Three-Dimensional Conceptual
Model of

Corporate Performance
ARCH

I

E B. CARROLL
University of Georgia

Offered here is a conceptual model that comprehensively describes es-
sential aspects of corporate social performance. The three aspects of the
model address major questions of concern to academics and managers
alike: (1) What Is included in corporate social responsibility? (2) What are
the social issues the organization must address? and (3) What is the
organization’s philosophy or mode of social responsiveness?

Concepts of corporate social responsibility have
been evolving for decades. As early as the 1930s,
for example, Wendell Wilkie “helped educate the
businessman to a new sense of social responsibili-
ty” [Cheit, 1964, p. 157, citing historian William
Leuchtenburgj. The modern era of social responsi-
bility, however, may be marked by Howard R.
Bowen’s 1953 publication of Social Responsibili-
ties of the Businessman, considered by many to be
the first definitive book on the subject. Following
Bowen’s book, a number of works played a role in
developing the social responsibility concept [Berle
& Means, 1932; Cheit, 1964; Davis & Blomstrom,
1966; Greenwood, 1964; Mason, 1960; McGuire,
1963]. By the mid-1950s, discussions of the social
responsibilities of businesses had become so
widespread that Peter Drucker chided business-
men: “You might wonder, if you were a conscien-
tious newspaper reader, when the managers of
American business had any time for business”
[1954].

One of the factors contributing to the ambiguity
that frequently shrouded discussions about social
responsibility was the lack of a consensus on what
the concept really meant. In 1960, Keith Davis sug-
gested that social responsibility refers to “busi-
nessmen’s decisions and actions taken for reasons

at least partially beyond the firm’s direct economic
or technical interest” [p. 70]. Eells and Walton, in
1961, argued as follows:

When people talk about corporate social responsi-
bilities they are thinking in terms of the problems
that arise when corporate enterprise casts its
shadow on the social scene, and of the ethical
principles that ought to govern the relationships
between the corporation and society [pp. 457-458).

The real debate got underway in 1962 when Mil-
ton Friedman argued forcefully that the doctrine of _
social responsibility is “fundamentally subversive.”
He asserted: “Few trends could so thoroughly un-
dermine the very foundations of our free society as
the acceptance by corporate officials of a social
responsibility other than to make as much money
for their stockholders as possible” [p. 133].

Joseph McGuire, in 1963, acknowledged the
primacy of economic concerns, but also accommo-
dated a broader view of the firm’s social responsi-
bilities. He posited that:

The idea of social responsibilities supposes that the
corporation has not only economic and legal obli-
gations, but also certain responsibilities to society
which extend beyond these obligations [p. 144].

Arguing in a similar vein, Jules Backman has
suggested that “social responsibility usually refers

© ‘979 ty the Academy ot Managemenl 0363-7425

497

to the objectives or motives that should be given
weight by business in addition to [emphasis added]
those dealing with economic performance (e.g.,
profits)”[1975, p. 2].

Though McGuire and Backman see social re-
sponsibility as not only including but also moving
beyond economic and legal considerations, others
see it as involving only pure voluntary acts, thus
conceptualizing social responsibility as something
a firm considers over and above economic and
legal criteria. Representative of this view is Henry
Manne, who has argued “Another aspect of any
workable definition of corporate social responsibil-
ity is that the behavior of the firms must be volun-
tary” [Manne & Wallich, 1972, p. 5, emphasis
added].

Another approach to the question of what social
responsibility means involves a definition simply
listing the areas in which business is viewed as
having a responsibility. For example. Hay, Gray,
and Gates suggest that one aspect of social re-
sponsibility requires the firm to “make decisions
and actually commit resources of various kinds in
some of the following areas: pollution probiems . . .
poverty and racial discrimination problems… con-
sumerism . . . and other social problem areas”
[1976, pp. 15-16].

One of the first approaches to encompass the
spectrum of economic and non-economic concerns
in defining social responsibility was the “three con-
centric circles” approach espoused by the Commit-
tee for Economic Development (CED) in 1971. The
inner circle “includes the clear-cut basic responsi-
bilities for the efficient execution of the economic
function — products, jobs, and economic growth.”
The intermediate circle “encompasses a respon-
sibility to exercise this economic function with a
sensitive awareness of changing social values and
priorities: for example, with respect to environmen-
tal conservation, hiring, and relations with em-
ployees. . . . The outer circle “outlines newly
emerging and still amorphous responsibilities that
business should assume to become more broadly
involved in actively improving the social environ-
ment” [Committee for Economic Development,
1971, p. 15]. The outer circle would refer to busi-
ness helping with major social problems in society
such as poverty and urban blight. This “widening
circle” approach has also been adopted by Davis

and Blomstrom [1975].
George Steiner’s concept of corporate social re-

sponsibility is a continuum of responsibilities rang-
ing from “traditional economic production” to
“government dictated” to a “voluntary area” and
lastly to “expectations beyond reality” [1975, p,
169]. It is thus similar to the Davis and Blomstrom
and CED conceptualizations.

In recent years, several writers have suggested
that our focus on the social “responsibility” of busi-
ness indicates undue effort to pinpoint accountabil-
ity or obligation and therefore is too narrow and too
static to fully describe the social efforts or perfor-
mance of business. For example, Robert Ackerman
and Raymond Bauer criticize the expression “social
responsibility,” holding that “the connotation of’re-
sponsibility’ is that of the process of assuming an
obligation. It places an emphasis on motivation
rather than performance.” They elaborate: “Re-
sponding to social demands is much more than
deciding what to do. There remains the manage-
ment task of doing what one has decided to do, and
this task is far from trivial.” They go on to argue that
“social responsiveness” is a preferable orientation
[1976, p. 6].

S. Prakash Sethi takes a slightly different, but
related, path in getting from social responsibility to
social responsiveness. He sets forth a three-state
schema for classifying the adaptation of corporate
behavior to social needs: (1) social obligation, (2)
social responsibility, and (3) social responsiveness
[1975, pp. 58-64]. Social obligation involves cor-
porate behavior in response to market forces or
legal constraints. Social responsibility “implies
bringing corporate behavior up to a level where it is
congruent with the prevailing social norms, values,
and expectations.” Social responsiveness, the third
state in his schema, suggests that what is important
is “not how corporations should respond to social
pressures, but what should be their long-run role in
a dynamic social system.” Business, therefore,
must be “anticipatory” and “preventive” [pp. 58-
64].

In sum, social responsibility has been defined or
conceptualized in a number of different ways, by
writers of stature in business, and in its various
definitions the term has encompassed a wide range
of economic, legal, and voluntary activities. Indeed,
it has been suggested that the term should give way

498

to a new orientation referred to as social respon-
siveness. Below is a summary listing of some of
these various views as to what social responsibility
means:

1. Profit making only (Friedman)
2. Going beyond profit making (Davis, Back-

man)
3. Going beyond economic and legal require-

ments (McGuire)
4. Voluntary activities (Manne)
5. Economic, legal, voluntary activities (Steiner)
6. Concentric circles, ever widening (CED,,

Davis and Blomstrom)
7. Concern for the broader social system (Eells

and Walton)
8. Responsibility in a number of social problem

areas (Hay, Gray, and Gates)
9. Giving way to social responsiveness (Acker-

man and Bauer, Sethi)

The Social Performance Model

Implicit in the various views of social responsibil-
ity are a number of different issues. Some defini-
tions, for example, face the issue of what range of
eoonomic, legal, or voluntary matters fall under the
purview of a firm’s social responsibilities. Other def-
initions address the social issues (e.g., discrimina-
tion, product safety, and environment) for which
business has a responsibility. A third group of defi-
nitions, suggesting social responsiveness, is more
concerned with the manner or philosophy of re-
sponse (e.g., reaction versus proaction) than with
the kinds of issues that ought to be addressed.

Because all three of these views are important, I
suggest the following three distinct aspects of cor-
porate social performance that must somehow be
articulated and interrelated:

1. A basic definition of social responsibility (i.e..
Does our responsibility, go beyond economic
and legal concerns?)

2. An enumeration of the issues for which a so-
cial responsibility exists (i.e.. What are the
social areas — environment, product safety,
discrimination, etc. — in which we have a
responsibility?)

3. A specification of the philosophy of response
(i.e.. Do we react to the issues or proact?)

Each of these needs elaboration.

Definition of Social Responsibility

For a definition of social responsibility to fully
address the entire range of obligations business
has to society, it must embody the economic, legal,
ethical, and discretionary categories of business
performance. These four basic expectations reflect
a view of social responsibility that is related to some
of the definitions offered earlier but that categorizes
the social responsibilities of businesses in a more
exhaustive manner. Figure 1 shows how the social
responsibilities can be categorized into the four
groups. (The proportions simply suggest the rela-
tive magnitude of each responsibility.)

Discretionary
Responsibilities

Ethical
Responsibilities

TOTAL

SOCIAL

RESPONSIBILITIES

Legal
Responsibilities

Economic
Responsibilities

Figure 1
Social Responsibility Categories

These four categories are not mutually exclusive,
nor are they intended to portray a continuum with
economic concerns on one end and social con-
cerns on the other. That is, they are neither cumula-
tive nor additive. Rather, they are ordered in the

499

Figure only to suggest what might be termed their
fundamental role in the evolution of importance.
Though all of these kinds of responsibilities have
always simultaneously existed for business organi-
zations, the history of business suggests an early
emphasis on the economic and then legal aspects
and a later concern for the ethical and discretionary
aspects. Furthermore, any given responsibility or
action of business could have economic, legal,
ethical, or discretionary motives embodied in it. The
four classes are simply to remind us that motives or
actions can be categorized as primarily one or an-
other of these four kinds.

Economic responsibilities The first and fore-
most social responsibility of business is economic
in nature. Before anything else, the business institu-
tion is the basic economic unit in our society. As
such it has a responsibility to produce goods and
services that society wants and to sell them at a
profit. All other business roles are predicated on this
fundamental assumption.

Legal responsibilities Just as society has
sanctioned the economic system by permitting bus-
iness to assume the productive role, as a partial
fulfillment of the “social contract,” it has also laid
down the ground rules — the laws and regulations
— under which business is expected to operate.
Society expects business to fulfill its economic mis-
sion within the framework of legal requirements.
The dotted lines in Figure 1 suggest that, although
we have four kinds of responsibilities, they must be
met simultaneously, as in the case of economic and
legal responsibilities.

Ethical responsibilities Although the first two
categories embody ethical norms, there are addi-
tional behaviors and activities that are not neces-
sarily codified into law but nevertheless are
expected of business by society’s members. Ethical
responsibilities are ill defined and consequently are
among the most difficult for business to deal with. In
recent years, however, ethical responsibilities have
clearly been stressed — though debate continues
as to what is and is not ethical. Suffice it to say that
society has expectations of business over and
above legal requirements.

Discretionary responsibiiities Discretionary
(or volitional) responsibilities are those about which
society has no clear-cut message for business —
even less so than in the case of ethical responsibili-

ties. They are left to individual judgment and choice.
Perhaps it is inaccurate to call these expectations
responsibilities because they are at business’s dis-
cretion; however, societal expectations do exist for
businesses to assume social roles over and above
those described thus far. These roles are purely
voluntary, and the decision to assume them is guid-
ed only by a business’s desire to engage in social
roles not mandated, not required by law, and not
even generally expected of businesses in an ethical
sense. Examples of voluntary activities might be
making philanthropic contributions, conducting in-
house programs for drug abusers, training the
hardcore unemployed, or providing day-care cen-
ters for working mothers. The essence of these
activities is that if a business does not participate in
them it is not considered unethical per se. These
discretionary activities are analogous to Steiner’s
“voluntary” category and the CED’s third circle
(helping society).

This four-part framework provides us with cate-
gories for the various responsibilities that society
expects businesses to assume. Each responsibility
is but one part of the total social responsibility of
business, giving us a definition that more complete-
ly describes what it is that society expects of busi-
ness. This definition can therefore be stated:

The social responsibility of business encompasses
the economic, legal, ethical, and discretionary ex-
pectations that society has of organizations at a
given point in time.

This definition is designed to bring into the fold
those who have argued against social responsibility
by presuming an economic emphasis to be separ-
ate and apart from a social emphasis, it requires a
recognition of the possibility of movement from one
category to the next, such as an ethicai expectation
(business should manufacture safe products) be-
coming a legal expectation (the requirements of the
Consumer Product Safety Commission). Neil
Churchhill has referred to this characteristic in as-
serting that “social responsibility is a moving target”
[1974, p. 266]. The definition does not “nail down”
the degree of specific responsibility in each cate-
gory, but it was not meant to. it purports only to
provide a classification scheme for the kinds of
social responsibilities business has.

The reader should note, too, that a given busi-
ness action may simultaneously invoive several of

500

these kinds of social responsibilities. For example,
if a manufacturer of toys decided it shouid make
toys that are safe, it would be (at the same time)
economically, legally, and ethically responsible,
given today’s iaws and expectations. The four-part
framework can thus be used to help identify the
reasons for business actions as weil as to call atten-
tion to the ethical and discretionary considerations
that are sometimes forgotten by managers.

The Social Issues Involved

In developing a conceptual framework for cor-
porate social performance, we not only have to
specify the nature (economic, legal, ethical, discre-
tionary) of social responsibility but we also have to
identify the social issues or topical areas to which
these responsibilities are tied.

No effort will be made here to exhaustively iden-
tify the social issues that business must address.
The major problem is that the issues change and
they differ for different industries, it is partly for this
reason that the “issues” approach to examining
business and society relationships gave way to
managerial approaches that are more concerned
with developing or specifying generalized modes of
response to all sociai issues that become significant
to a firm.

One need not ponder the social issues that have
evolved under the rubric of social responsibility to
recognize how they have changed over time. For
example, product safety, occupational safety and
health, and business ethics were not of major inter-
est as recently as a decade ago; similarly, preoccu-
pation with the environment, consumerism, and
employment discrimination was not as intense. The
issues, and especiaiiy the degree of organizational
interest in the issues, are aiways in a state of flux.
As the times change, so does emphasis on the
range of social issues business must address.

Also of interest is the fact that particular social
issues are of varying concern to businesses, de-
pending on the industry in which they exist as well
as other factors. A bank, for example, is not as
pressed on environmental issues as a manufac-
turer. Likewise, a manufacturer is considerably
more absorbed with the issue of recycling than is an
insurance company.

Many factors come into play as a manager at-
tempts to get a fix on what social issues should be of

most interest to the organization. A recent survey by
Sandra Holmes illustrates this point quite well. In
her survey of managers of large firms, she asked
what factors are prominent in selecting areas of
social involvement by their firms [1976, p. 87]. The
top five factors were:

1. Matching a social need to corporate need or
ability to help.

2. Seriousness of social need
3. interest of top executives
4. Public reiations value of social action
5. Government pressure

That these disparate factors should show up in a
response to a question of this kind suggests clearly
that business executives do not have a consensus
on what social issues should be addressed.

Thus, we are left with a recognition that social
issues must be identified as an important aspect of
corporate social performance, but there is by no
means agreement as to what these issues should
be.

Philosophy of Responsiveness

To complete our conceptual model it is necessary
that a third component be identified and discussed.
The third aspect of the modei addresses the phil-
osophy, mode, or strategy behind business (man-
agerial) response to social responsibility and social
issues. The term generally used to describe this
aspect is “social responsiveness.”

Social responsiveness can range on a continuum
from no response (do nothing) to a proactive re-
sponse (do much). The assumption is made here
that business does have a social responsibility and
that the prime focus is not on management accept-
ing a moral obligation but on the degree and kind of
manageriai action. In this connection, William
Frederick has articulated the responsiveness view,
which he terms CSRg:

Corporate social responsiveness refers to the ca-
pacity of a corporation to respond to social pres-
sures. The literal act of responding, or of achieving
a generally responsive posture, to society is the
focus. . . . One searches the organization for me-
chanisms, procedures, arrangements, and beha-
vioral patterns that, taken collectively, would mark
the organization as more or less capable of re-
sponding to social pressures [1978, p. 6].

501

lan
Wilson

Terry
McAdam

Davis &
Blomstrom

DO *
NOTHING

Reaction

Fight all
the way

Withdrawal

Defense

Do only what
Is required

Public
Relations
Approach

Accommodation

Be
Progressive

Legal
Approach Bargaining

Figure 2
Social Responsiveness Categories

Proaction

Lead the
Industry

Problem
Solving

DO *
MUCH

Several writers have provided conceptual
schemes that describe the responsiveness continu-
um well, lan Wilson, for example, asserts that there
are four possible business strategies — reaction,
defense, accommodation, and proaction [1974],
Terry McAdam has, likewise, described four social
responsibility philosophies that mesh well with Wil-
son’s strategies and, indeed, describe the mana-
gerial approach that would characterize the range
of responsiveness. His philosophies are (1) “Fight
all the way,” (2) “Do only what is required,” (3) “Be
progressive,” and (4) “Lead the industry” [1973].
Davis and Blomstrom, too, describe alternative re-
sponses to societal pressures as follows: (a) with-
drawal, (b) public relations approach, (c) legal
approach, (d) bargaining, and (e) problem solving
[1975]. These correspond, essentially, with the
above schemas. Figure 2 plots these responses on
a continuum:

Corporate social responsiveness, which has
been discussed by some as an alternate to social
responsibility is, rather, the action phase of man-
agement responding in the social sphere. In a
sense, being responsive enables organizations to
act on their social responsibilities without getting
3ogged down in the quagmire of definitional prob-
ems that can so easily occur if organizations try to
3et a precise fix on what their true responsibilities
are before acting.

The responsiveness continuum presented here
epresents an aspect of management’s social per-
ormance that is distinctly different from the concern

for social responsibility, CSR^ (corporate social re-
sponsibility), as Frederick [1978] terms it — our first
aspect of the conceptual model — has ethical or
moral threads running through it and, hence, is
problematical. In contrast, CSRg (corporate social
responsiveness) — our third aspect — has no moral
or ethical connotations but is concerned only with
the managerial processes of response. These
processes would include planning and social fore-
casting [Newgren, 1977], organizing for social re-
sponse [McAdam, 1973], controlling social activi-
ties [Carroll & Beiler, 1975], social decision making,
and corporate social policy [Bowman & Haire, 1975;
Carroll, 1977; Fitch, 1976; Post & Mellis, 1978;
Preston & Post, 1975; Steiner, 1972; Sturdivant &
Ginter, 1977], Figure 3 puts the three aspects to-
gether into a conceptual social performance model.

The social issues identified in Figure 3 are illus-
trative only. Each organization should carefully as-
sess which social issues it must address as it plans
for corporate social performance.

Uses of the Model
This corporate social performance conceptual

model is intended to be useful for both academics
and managers. For academics, the model is pri-
marily an aid to perceiving the distinction among
definitions of social responsibility that have ap-
peared in the literature. What heretofore have been
regarded as separate definitions of social responsi-
bility are treated here as three separate issues per-
taining to corporate social performance.

502

I

PHILOSOPHY
OF

SOCIAL
RESPONSIVENESS

Discretionary
Responsibilities

Ettiical
Responsibitrties

SOCIAL

RESPONSIBILITY

CATEGORIES

Legat
Responsibitities

Economic
Responsibilities

Proaction
Accommo- ^^^^
dation _ ^ ^ ^

. Defense

Consum-
erism

Environ-
ment

piscrifTi-
ination

Product
Safety

Occupa-
tionai
Safety

Stiare-
hotdars

SOCIAL ISSUES .JNVOLVED

Figure 3
The Corporate Social Performance Model

One aspect pertains to all that is included in our
definition of social responsibility — the economic,
legal, ethical, and discretionary components. The
second aspect concerns the range of social issues
(e,g,, consumerism, environment, and discrimina-
tion) management must address. Finally, there is a
social responsiveness continuum. Although some
writers have suggested that this is the preferable
focus when one considers social responsibility, the
model suggests that responsiveness is but one ad-
ditional aspect to be addressed if corporate social
performance is to be acceptable. The three aspects
of the model thus force us to think through the
dominant questions that must be faced in analyzing
social performance. The major use to the aca-
demic, therefore, is in helping to systematize the
important issues that must be taught and under-
stood in an effort to clarify the social responsibility
concept. The model is not the ultimate conceptuali-
zation; it is, rather, a modest but necessary step

toward understanding the major facets of social
performance.

The conceptual model can assist managers in
understanding that social responsibility is not sepa-
rate and distinct from economic performance but
rather is just one part of the total social responsibili-
ties of business. The model integrates economic
concerns into a social performance framework. In
addition, it places ethical and discretionary expec-
tations into a rational economic and legal
framework.

The model can help the manager systematically
think through major social issues being faced.
Though it does not provide the answer to how far
the organization should go, it does provide a con-
ceptualization that could lead to a better-managed
social performance program. Moreover, it could be
used as a planning tool and as a diagnostic prob-
lem-solving tool. The model can assist the manager
by identifying categories within which the organiza-

503

tion can be situated.
An illustration will perhaps be helpful for an or-

ganization attempting to categorize what it has
done according to the cubic space in Figure 3.
Recently, Anheuser-Busch test-marketed a new
adult beverage called “Chelsea.” Because the
beverage contained more alcohol than the average
soft drink, consumer groups protested by calling the
beverage “kiddie beer” and claiming that the com-
pany was being socially irresponsible by making
such a drink available to youth, Anheuser-Busch’s
first reaction was defensive — attempting to claim
that it was not dangerous and would not lead
youngsters to stronger drink. The company’s later
response was to withdraw the beverage from the
marketplace and reformulate it so that it would be
viewed as safe. The company concluded this was
the socially responsible action to take, given the
criticism.

According to the social performance model in
Figure 3, the company found itself in the consumer-
ism segment of the model. The social responsibility
category of the issue was ethical (the product being
introduced was strictly legal because it conformed
to the maximum alcoholic content standard). As it
became clear that so much protest might be turning
an ethical issue into an economic one (as threats of
product boycotts surfaced), the company moved
along the responsiveness dimension in the model
from reaction and defense to accommodation.

This example shows how a business’s response
can be positioned in the social performance model.
The average business firm faces many such con-
troversial issues and might use the conceptual

model to analyze its stance on these issues and
perhaps help determine its motivations, actions,
and response strategies. Managers would have a
systematic framework for thinking through not only
the social issues faced but also the managerial
response patterns contemplated. The model could
serve as a guide in formulating criteria to assist the
organization in developing its posture on various
social issues. The net result could be more syste-
matic attention being given to the whole realm of
corporate social performance.

Summary

Corporate social performance requires that (1) a
firm’s social responsibilities be assessed, (2) the
social issues it must address be identified, and (3) a
response philosophy be chosen. The model pre-
sented attempts to articulate these key aspects in a
conceptual framework that will be useful to aca-
demics and managers alike. The conceptual model
is intended to heip clarify and integrate various defi-
nitional strands that have appeared in the literature.
Also, it presents the notions of ethical and discre-
tionary responsibilities in a context that is perhaps
more palatable to those who think economic con-
siderations have disappeared in discussions of so-
cial responsibility. The model can be used to help
managers conceptualize the key issues in social
performance, to systematize thinking about social
issues, and to improve planning and diagnosis in
the social performance realm. To whatever extent
the model helps accomplish these objectives, it re- f-
mains but a modest step toward the refinement of
the corporate social performance concept.

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Mason, E. S. The corporation in modern society. Cambridge,
Massachusetts: Harvard University Press, 1960.
McAdam, T. W. How to put corporate responsibility into practice.
Business and Society Review/innovation, 1973,6,8-16.

McGuire, J. W. Business and society. New York- McGraw-Hill
1963.

Newgren, K. Social forecasting: An overview of current business
practices. In A. B. Carroll (Ed.), Managing corporate sociat
responsibiiity. Boston: Little, Brown, 1977.

Post, J. E., and Mellis, M. Corporate responsiveness and organi-
zational learning. Ca//fom/a Management Rewekv 1978 20(3)
57-63.

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policy. Englewood Cliffs, N.J.: Prentice-Hall, 1975.
Sethi, S. P. Dimensions of corporate social responsibility. Caii-
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Steiner, G. A. Business and society (2nd ed.). New York: Ran-
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Steiner, G. A. Social policies for business. Caiifornia Manage-
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Archie B. Carroll is Professor of Management and
Associate Dean, College of Business Administration,
University of Georgia.

Received 9/25/78

505

The Social Responsibility of Business is to Increase its Profits

Milton Friedman

The New York Times Magazine

September 13, 1970

When I hear businessmen speak eloquently about the “social responsibilities of business in a
free-enterprise system,” I am reminded of the wonderful line about the Frenchman who
discovered at the age of 70 that he had been speaking prose all his life. The businessmen
believe that they are defending free enterprise when they declaim that business is not
concerned “merely” with profit but also with promoting desirable “social” ends; that business
has a “social conscience” and takes seriously its responsibilities for providing employment,
eliminating discrimination, avoiding pollution and whatever else may be the catchwords of
the contemporary crop of reformers. In fact they are–or would be if they or anyone else took
them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way
are unwitting puppets of the intellectual forces that have been undermining the basis of a free
society these past decades.

The discussions of the “social responsibilities of business” are notable for their analytical
looseness and lack of rigor. What does it mean to say that “business” has responsibilities?
Only people have responsibilities. A corporation is an artificial person and in this sense may
have artificial responsibilities, but “business” as a whole cannot be said to have
responsibilities, even in this vague sense. The first step toward clarity in examining the
doctrine of the social responsibility of business is to ask precisely what it implies for whom.

Presumably, the individuals who are to be responsible are businessmen, which means
individual proprietors or corporate executives. Most of the discussion of social responsibility
is directed at corporations, so in what follows I shall mostly neglect the individual proprietors
and speak of corporate executives.

In a free-enterprise, private-property system, a corporate executive is an employee of the
owners of the business. He has direct responsibility to his employers. That responsibility is to
conduct the business in accordance with their desires, which generally will be to make as
much money as possible while conforming to their basic rules of the society, both those
embodied in law and those embodied in ethical custom. Of course, in some cases his
employers may have a different objective. A group of persons might establish a corporation
for an eleemosynary purpose–for example, a hospital or a school. The manager of such a
corporation will not have money profit as his objectives but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the
agent of the individuals who own the corporation or establish the eleemosynary institution,
and his primary responsibility is to them.

Needless to say, this does not mean that it is easy to judge how well he is performing his task.
But at least the criterion of performance is straight-forward, and the persons among whom a
voluntary contractual arrangement exists are clearly defined.

Of course, the corporate executive is also a person in his own right. As a person, he may have
many other responsibilities that he recognizes or assumes voluntarily–to his family, his
conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel
impelled by these responsibilities to devote part of his income to causes he regards as worthy,
to refuse to work for particular corporations, even to leave his job, for example, to join his
country’s armed forces. If we wish, we may refer to some of these responsibilities as “social
responsibilities.” But in these respects he is acting as a principal, not an agent; he is spending
his own money or time or energy, not the money of his employers or the time or energy he
has contracted to devote to their purposes. If these are “social responsibilities,” they are the
social responsibilities of individuals, not business.

What does it mean to say that the corporate executive has a “social responsibility” in his
capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in
some way that is not in the interest of his employers. For example, that he is to refrain from
increasing the price of the product in order to contribute to the social objective of preventing
inflation, even though a price increase would be in the best interests of the corporation. Or
that he is to make expenditures on reducing pollution beyond the amount that is in the best
interests of the corporation or that is required by law in order to contribute to the social
objective of improving the environment. Or that, at the expense of corporate profits, he is to
hire “hardcore” unemployed instead of better qualified available workmen to contribute to the
social objective of reducing poverty.

In each of these cases, the corporate executive would be spending someone else’s money for a
general social interest. Insofar as his actions in accord with his “social responsibility” reduce
returns to stockholders, he is spending their money. Insofar as his actions raise the price to
customers, he is spending the customers’ money. Insofar as his actions lower the wages of
some employees, he is spending their money.

The stockholders or the customers or the employees could separately spend their own money
on the particular action if they wished to do so. The executive is exercising a distinct “social
responsibility,” rather than serving as an agent of the stockholders or the customers or the
employees, only if he spends the money in a different way than they would have spent it.

But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax
proceeds shall be spent, on the other.

This process raises political questions on two levels: principle and consequences. On the level
of political principle, the imposition of taxes and the expenditure of tax proceeds are
governmental functions. We have established elaborate constitutional, parliamentary and
judicial provisions to control these functions, to assure that taxes are imposed so far as
possible in accordance with the preferences and desires of the public–after all, “taxation

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without representation” was one of the battle cries of the American Revolution. We have a
system of checks and balances to separate the legislative function of imposing taxes and
enacting expenditures from the executive function of collecting taxes and administering
expenditure programs and from the judicial function of mediating disputes and interpreting
the law.

Here the businessman–self-selected or appointed directly or indirectly by stockholders–is to
be simultaneously legislator, executive and jurist. He is to decide whom to tax by how much
and for what purpose, and he is to spend the proceeds–all this guided only by general
exhortations from on high to restrain inflation, improve the environment, fight poverty and so
on and on.

The whole justification for permitting the corporate executive to be selected by the
stockholders is that the executive is an agent serving the interests of his principal. This
justification disappears when the corporate executive imposes taxes and spends the proceeds
for “social” purposes. He becomes in effect a public employee, a civil servant, even though he
remains in name an employee of a private enterprise. On grounds of political principle, it is
intolerable that such civil servants–insofar as their actions in the name of social responsibility
are real and not just window-dressing–should be selected as they are now. If they are to be
civil servants, then they must be elected through a political process. If they are to impose
taxes and make expenditures to foster “social” objectives, then political machinery must be set
up to make the assessment of taxes and to determine through a political process the objectives
to be served.

This is the basic reason why the doctrine of “social responsibility” involves the acceptance of
the socialist view that political mechanisms, not market mechanisms, are the appropriate way
to determine the allocation of scarce resources to alternative uses.

On the grounds of consequences, can the corporate executive in fact discharge his alleged
“social responsibilities”? On the one hand, suppose he could get away with spending the
stockholders’ or customers’ or employees’ money. How is he to know how to spend it? He is
told that he must contribute to fighting inflation. How is he to know what action of his will
contribute to that end? He is presumably an expert in running his company–in producing a
product or selling it or financing it. But nothing about his selection makes him an expert on
inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by
leaving more spending power in the hands of his customers, simply divert it elsewhere? Or,
by forcing him to produce less because of the lower price, will it simply contribute to
shortages? Even if he could answer these questions, how much cost is he justified in imposing
on his stockholders, customers and employees for this social purpose? What is his appropriate
share and what is the appropriate share of others?

And, whether he wants to or not, can he get away with spending his stockholders’, customers’
or employees money? Will not the stockholders fire him? (Either the present ones or those
who take over when his actions in the name of social responsibility have reduced the
corporation’s profits and the price of its stock.) His customers and his employees can desert

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him for other producers and employers less scrupulous in exercising their social
responsibilities.

This facet of “social responsibility” doctrine is brought into sharp relief when the doctrine is
used to justify wage restraint by trade unions. The conflict of interest is naked and clear when
union officials are asked to subordinate the interest of their members to some more general
purpose. If the union officials try to enforce wage restraint, the consequence is likely to be
wildcat strikes, rank-and-file revolts and the emergence of strong competitors for their jobs.
We thus have the ironic phenomenon that union leaders–at least in the U.S.–have objected to
Government interference with the market far more consistently and courageously than have
business leaders.

The difficulty of exercising “social responsibility” illustrates, of course, the great virtue of
private competitive enterprise–it forces people to be responsible for their own actions and
makes it difficult for them to “exploit” other people for either selfish or unselfish purposes.
They can do good–but only at their own expense.

Many a reader who has followed the argument this far may be tempted to remonstrate that it is
all well and good to speak of Government’s having the responsibility to impose taxes and
determine expenditures for such “social” purposes as controlling pollution or training the
hard-core unemployed, but that the problems are too urgent to wait on the slow course of
political processes, that the exercise of social responsibility by businessmen is a quicker and
surer way to solve pressing current problems.

Aside from the question of fact–I share Adam Smith’s skepticism about the benefits that can
be expected from “those who affected to trade for the public good”–this argument must be
rejected on the grounds of principle. What it amounts to is an assertion that those who favor
the taxes and expenditures in question have failed to persuade a majority of their fellow
citizens to be of like mind and that they are seeking to attain by undemocratic procedures
what they cannot attain by democratic procedures. In a free society, it is hard for “evil” people
to do “evil,” especially since one man’s good is another’s evil.

I have, for simplicity, concentrated on the special case of the corporate executive, except only
for the brief digression on trade unions. But precisely the same argument applies to the newer
phenomenon of calling upon stockholders to require corporations to exercise social
responsibility (the recent G.M. crusade, for example). In most of these cases, what is in effect
involved is some stockholders trying to get other stockholders (or customers or employees) to
contribute against their will to “social” causes favored by activists. Insofar as they succeed,
they are again imposing taxes and spending the proceeds.

The situation of the individual proprietor is somewhat different. If he acts to reduce the
returns of his enterprise in order to exercise his “social responsibility,” he is spending his own
money, not someone else’s. If he wishes to spend his money on such purposes, that is his right
and I cannot see that there is any objection to his doing so. In the process, he, too, may impose

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costs on employees and customers. However, because he is far less likely than a large
corporation or union to have monopolistic power, any such side effects will tend to be minor.

Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that
are justified on other grounds rather than a reason for those actions.

To illustrate, it may well be in the long-run interest of a corporation that is a major employer
in a small community to devote resources to providing amenities to that community or to
improving its government. That may make it easier to attract desirable employees, it may
reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile
effects. Or it may be that, given the laws about the deductibility of corporate charitable
contributions, the stockholders can contribute more to charities they favor by having the
corporation make the gift than by doing it themselves, since they can in that way contribute an
amount that would otherwise have been paid as corporate taxes.

In each of these–and many similar–cases, there is a strong temptation to rationalize these
actions as an exercise of “social responsibility.” In the present climate of opinion, with its
widespread aversion to “capitalism,” “profits,” the “soulless corporation” and so on, this is one
way for a corporation to generate goodwill as a by-product of expenditures that are entirely
justified on its own self-interest.

It would be inconsistent of me to call on corporate executives to refrain from this hypocritical
window-dressing because it harms the foundation of a free society. That would be to call on
them to exercise a “social responsibility”! If our institutions, and the attitudes of the public
make it in their self-interest to cloak their actions in this way, I cannot summon much
indignation to denounce them. At the same time, I can express admiration for those individual
proprietors or owners of closely held corporations or stockholders of more broadly held
corporations who disdain such tactics as approaching fraud.

Whether blameworthy or not, the use of the cloak of social responsibility, and the nonsense
spoken in its name by influential and prestigious businessmen, does clearly harm the
foundations of a free society. I have been impressed time and again by the schizophrenic
character of many businessmen. They are capable of being extremely far-sighted and clear-
headed in matters that are internal to their businesses. They are incredibly short-sighted and
muddle-headed in matters that are outside their businesses but affect the possible survival of
business in general. This short-sightedness is strikingly exemplified in the calls from many
businessmen for wage and price guidelines or controls or income policies. There is nothing
that could do more in a brief period to destroy a market system and replace it by a centrally
controlled system than effective governmental control of prices and wages.

The short-sightedness is also exemplified in speeches by businessmen on social responsibility.
This may gain them kudos in the short run. But it helps to strengthen the already too prevalent
view that the pursuit of profits is wicked and immoral and must be curbed and controlled by
external forces. Once this view is adopted, the external forces that curb the market will not be
the social consciences, however highly developed, of the pontificating executives; it will be

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the iron fist of Government bureaucrats. Here, as with price and wage controls, businessmen
seem to me to reveal a suicidal impulse.

The political principle that underlies the market mechanism is unanimity. In an ideal free
market resting on private property, no individual can coerce any other, all cooperation is
voluntary, all parties to such cooperation benefit or they need not participate. There are not
values, no “social” responsibilities in any sense other than the shared values and
responsibilities of individuals. Society is a collection of individuals and of the various groups
they voluntarily form.

The political principle that underlies the political mechanism is conformity. The individual
must serve a more general social interest–whether that be determined by a church or a
dictator or a majority. The individual may have a vote and say in what is to be done, but if he
is overruled, he must conform. It is appropriate for some to require others to contribute to a
general social purpose whether they wish to or not.

Unfortunately, unanimity is not always feasible. There are some respects in which conformity
appears unavoidable, so I do not see how one can avoid the use of the political mechanism
altogether.

But the doctrine of “social responsibility” taken seriously would extend the scope of the
political mechanism to every human activity. It does not differ in philosophy from the most
explicitly collective doctrine. It differs only by professing to believe that collectivist ends can
be attained without collectivist means. That is why, in my book Capitalism and Freedom, I
have called it a “fundamentally subversive doctrine” in a free society, and have said that in
such a society, “there is one and only one social responsibility of business–to use its resources
and engage in activities designed to increase its profits so long as it stays within the rules of
the game, which is to say, engages in open and free competition without deception or fraud.”

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