Plato: The debate over the social responsibilities of
corporations is perhaps the most crucial, and certainly one of
the hottest in the field of business ethics. Corporations, as
the largest and most visible members of the business community,
stand at the center of any discussion of the role of business in
society. Of course, as in any debate, there are different views;
thus, there is some contention as to what that social
responsibility actually is.
Aristotle: What are the most prominent of these views?
Plato: Well, there are three major schools of thought,
each with its own proponents. The first, and probably the most
prominent, is the corporate accountability theory. Its major
proponent is the "consumer advocate" Ralph Nader.
The second major theory is the profit motive theory. Its most
prominent advocate is Milton Friedman. Dr. Friedman was a
professor of economics at the University of Chicago for many
years, and has received the Nobel Prize for his work in that
The third and most recent theory is the corporate natural
rights theory. Although it has no defenders of the public
stature of Mr. Nader and Dr. Friedman, it does have competent
proponents. The specific argument that we shall discuss in favor
of this theory is advanced by Douglas J. Den Uyl, a professor of
philosophy at Bellarmine College in Louisville, Kentucky.
Aristotle: What are the main thrusts of these arguments?
Plato: The corporate accountability theory, in brief,
holds that corporations are responsible to and subject to the
will of the people, that is to say, society. The profit motive
theory holds that, in the words of Dr. Friedman, "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 ......
The corporate natural rights theory basically states that Dr.
Friedman is right about profit being the major goal of corporate
business, but that there are other moral responsibilities that
must be met so long as they don't directly conflict with the
Aristotle: It seems these arguments merit a more in-depth
The Corporate Accountability Theory
Plato: The corporate accountability theory rests upon two
major assumptions. The first is that corporations are
"creatures of the state," This assumption means that
corporations are created by, and indeed could not exist without,
government charters. The second assumption is that corporations,
because of their size and economic power, are on the same level
as governments. They possess as much "public power" as
do states; therefore they, like governments, must be
Constitutionally limited. As Nader has written, "It makes
no public sense to apply the Constitution to Wyoming and West
Tisbury, Massachusetts, but not to General Motors and Standard
Oil, New Jersey."
Aristotle: This all seems silly to me. What is the basis
for these assumptions?
Plato: The argument is basically historical. The first
corporations were chartered in England during the 1500s.
"The Crown vested governmental authority in certain
commercial groups to trade in its name." (Nader 1973)
Corporations originated, not as groups of individuals deciding
voluntarily to pool their resources, but rather as government
agents, contributing to the economic power of the country.
Nader regards the idea of corporations as private property as
a relatively new and fraudulent concept. It was only over time,
and largely as the result of "corruption and
favoritism" that the concept of corporations as private
property developed: "In the early 1800s most lawyers and
judges still viewed corporations as performing public functions
in the public interest. But by 1870... this notion had all but
vanished. Corporations now considered themselves private
property owned and controlled by their shareholders."
Aristotle: So, if corporations are government creations,
then the government has the right to tell them what to do.
Plato: Correct. Corporations are public rather than
private property. From this point Nader turns to the American
system of government.
Corporations gain their authority from the government, which
in turn gains its authority from the people ...
Aristotle: Thus, indirectly the corporations are
responsible to the public. The corporation's responsibility is
to serve whatever is deemed to be in the public's interest.
Aristotle: Also, Nader has stated that the Constitution
should prohibit certain corporate behavior just as it prohibits
certain governmental behavior. Corporations would also be
morally obligated to uphold those parts of the Constitution that
are commonly thought to apply only to government.
Plato: Remember, Nader believes corporations to be on the
same level as government. By necessity they must be limited:
"Corporations are effectively like states, private
governments with vast economic, political, and social impact. A
democratic society, even if it encourages such groupings for
private economic purposes, should not suffer such public power
without public accountability."
Corporate accountability would require corporations to
respect the Fourteenth Amendment, thus requiring due process for
an employee before firing, and the Fourth Amendment, which would
require a warrant before a company could search the property an
employee might have on the job.
Aristotle: I'm afraid these arguments just aren't
First of all, just because corporations were originally
created by the government doesn't mean that they are still
"creatures of the state." The English mercantilist
system prohibited any private corporate endeavors. The economy
was heavily regulated, and government intruded into almost every
aspect of citizens' lives. Without government interference,
corporations would have sprung up in the marketplace as an
efficient means of doing business. In modern times corporations
are voluntary associations. Governmental chartering exists only
as a holdover from the old system. These charters are
unnecessary. Whereas under mercantilism corporations needed
charters in order to exist, now, under the American system that
largely respects property rights, corporations have the
protection of being private property. Contrary to Nader,
corporations are owned by their shareholders. They are the ones
who paid for their shares as surely as people pay for copies of
Second, since corporations aren't really created by
government, the state has no authority to tell them what to do.
Morally it doesn't matter how powerful corporations are. They
aren't subject to public control. Anyway, Nader's assessment of
corporate power is overblown. Corporations don't have military
or police power, therefore they cannot force anyone to do
anything. Governments are constitutionally limited because they
do have the power of force.
Plato: Then, if corporations aren't creatures of the
state and are not legitimately subject to public rule, then
corporations have no moral responsibility to he
Plato: Then let's move on to the second argument.
The Profit Motive Theory
Plato: Milton Friedman accepts your argument concerning
the fraudulence of "corporate accountability."
Therefore, he believes businesses should be allowed to function
freely in an unregulated environment. This does not, however,
mean that businesses have no responsibilities.
Aristotle: Yes, but Friedman acknowledges the validity of
only one responsibility: to make a profit within the bounds of
the "rules of the game." But what are those rules?
Plato: To operate within the rules of the game means to
"engage in open and free competition without deception or
fraud." (Friedman 1990) But Friedman's argument goes
further than simply to require that corporations seek to earn a
profit. The profit motive theory expressly forbids corporate
involvement in social activity even if it is done freely,
without government coercion.
Aristotle: Why is that?
Plato: The basis for this claim rests on the necessity to
play by the rules of the game, which means honoring contracts.
The managers and executives of corporations are the employees of
the business's shareholders. As such, they have a contractual
and thus, moral-responsibility to their 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 the basic rules of the society,
both those embodied in law and those embodied in ethical
custom." (Friedman 1990)
Thus, it is the moral duty of corporate executives to carry
out the wishes of the shareholders, who, in the main, invest in
order to make a profit. Managers cannot morally engage in any
activity that reduces the corporation's profitability.
Aristotle: You say, "in the main." What about
people who start businesses for reasons other than profit?
Plato: In that case social responsiveness is acceptable.
"The manager of such a corporation will not have money
profit as his objective but the rendering of certain
services." The key point, however remains "that, in
his capacity as a corporate executive, the manager is the agent
of the individuals who own the corporation ... and his primary
responsibility is to them." (Friedman 1990)
Aristotle: I see, but corporations are made up of
individuals. Is Friedman saying that people have no
responsibilities other than to make money?
Plato: Not at all. In fact he states otherwise: "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... But ... 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
There is another point to Friedman's argument. When a manager
diverts profits into social causes, he is guilty of taxation
Aristotle: I'm afraid this argument eludes me.
Plato: If an executive spends funds for social causes
,"he is in effect imposing taxes, on the one hand, and
deciding how the tax proceeds shall be spent, on the
other." Friedman goes on to say: "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."
In short, the stockholder is taxed by diminished returns on
his investments, and the consumer is taxed by higher prices for
the company's goods or services that might result from decreased
Aristotle: The "taxation without
representation" argument is indeed weak. Stockholders are
able to vote for company executives, therefore there is
accountability. Also, anyone who is displeased with how a
company is run is free to sell his or her shares. It isn't the
same as government taxation, where a person can hardly move to
another country where he will, incidentally, also be taxed.
People don't have to own stock.
As for consumers, if prices for the goods and services of one
corporation go up, they are, to use a favorite phrase of Dr.
Friedman, "free to choose" the goods and services of a
competitor. This is, after all, the whole idea behind a free
Now, concerning the argument about contractual
responsibilities, it seems that although Dr. Friedman is correct
in insisting that attention be focused on profit, he is
neglecting other moral obligations. True, he says people can do
what they want on their own time and with their own money, but
executives cannot simply leave their humanity at the door when
they come to work every morning. Furthermore, charitable
contributions can and do often have effects that are, in the
long run, beneficial to business.
Plato: You have indeed hit upon something, young
Aristotle. In fact, it was the very same sentiments that led to
the birth of the third school of thought.
The Corporate Natural Rights Theory
Plato: The corporate natural rights theory means exactly
what it says-the primary social responsibility of corporations
is to respect individual, or "natural," rights. This
means corporations must respect the rights or "moral
space" of individuals: "The boundaries [of this moral
space] themselves are set by the principle of the non-initiation
of physical force. Thus, one is entitled to pursue whatever
goals one desires provided one does not cross another's moral
boundaries by the initiation of force." (Den Uyl 1984)
Aristotle: Isn't the natural rights theory the same as
the "rules of the game" principle?
Plato: In some ways, yes. But the natural rights theory
provides a moral reason why one ought to obey the rules of the
Aristotle: How does this allow for corporate charitable
acts? Presumably contractual obligations are still valid. Any
social responsiveness would still violate the contractual
agreement between the owners and the management.
Plato: So it would seem at first glance. But Den Uyl's
definition of contractual obligations is more lenient than
Friedman's. Den Uyl argues that some acts of corporate
"charity" are actually wise business decisions.
Therefore, a blanket prohibition against corporate charity is
Aristotle: What examples are cited of corporate charity
turning out to be beneficial to the function of business?
Plato: Den Uyl cites the case of the Ford Motor Company:
". . . in 1914 Ford Motor Company increased its wages to $5
a day and reduced the work day from 9 to 8 hours. This policy
was not viewed at the time as good business, but as virtually an
act of charity." As history shows, Ford went on to prosper
as a direct result of this so-called "act of charity."
It follows that certain charitable acts could prove
beneficial today. A corporation could locate a plant in a low
income area as an act of "charity" The low income area
might not be the most profitable place to locate, but a profit
could be earned, thus not forsaking the profit responsibility.
Also, if the area could be built up economically, it would make
customers out of people who had previously been left out of the
marketplace. These new consumers would then be able to patronize
the business community as a whole, thus also potentially
benefiting the original business.
Aristotle: This seems to be a tenuous position. A company
could very likely not get enough return from its
"charitable investment" in order to justify it in the
Plato: Den Uyl argues that it isn't necessary for
corporations to maximize profits: "It could be suggested
that the owners do not seek to maximize, but rather wish only a
certain rate of return. Provided one is not required to
interpret 'maximize' to mean what would be received if all
parties had perfect information, this question need not detain
Aristotle: And interpreting "maximize" to mean
"perfect information" would be a difficult task. It
would make it nearly impossible for any manager to adequately
fulfill his responsibilities to the corporation's owners. No
matter what action he took, it would be morally deficient. It is
impossible for all parties to receive perfect information.
Plato: Also, a bad charitable contribution could be
treated the same as any bad business decision. It would be a
technical failing, possibly resulting in dismissal for the
parties involved, but not a moral failing.
Aristotle: So managers are able to live up to their
contractual responsibilities while still showing some
consideration for other people. Kindness, compassion, and
thoughtfulness still have their place.
Money and Morality
Plato: Now, what conclusions have you drawn?
Aristotle: In brief, the corporate accountability
argument is invalid because it fails to justify government
regulation and, therefore, the moral responsibility of
corporations to submit to regulation. There is no reason to
believe corporations are "creatures of the state."
While the profit motive argument is better, it fails to take
into account the moral responsibilities of the individuals who
run the corporation. There is more to life than profit, and
people don't abandon their other responsibilities in the
The corporate natural rights argument is the only one that
reconciles both the primary goal of business (profit) and the
other goals of humanity. It reconciles money and morality.