Corporations dominate advanced economies. Corporations are legal agents, and also moral agents with social and moral responsibilities.

There are three meanings of moral responsibility:

• refers to people being morally accountable for some past action;
• refers to a person’s accountability for the care, welfare or treatment of others according to social conventions;
• refers to a person’s own capacity to make moral and rational decisions.

Can corporations make moral decisions? Yes, corporate internal decision structure establishes lines of authority and corporate procedures and objectives. In addition, corporate decision-making structure acts intentionally and with a purpose. Therefore, corporation makes informed and rational moral decisions, and carries out actions in order to realise its intentions.

There are two views on what responsibilities a corporation has.

According to Milton Friedman, a business has no social responsibilities other than to maximise profits. Corporate officials have a sole responsibility to serve the interests of their shareholders within the rules of the game: open and free competition without deception and fraud. Corporate managers must obey civility and to seek material gain. To have other social responsibilities means that managers must subordinate owners’ interests to some social objectives, such as controlling pollution or fighting sexual discrimination. But such issues are the roles of government agencies, not corporations. Friedman believes there is nothing immoral about the pursuit of profits and doesn’t require external controls.

A business has other obligations in addition to pursuing profits. Because of their great social and economic power, corporations must carry social responsibility. Businesses cannot make decisions that are solely economic decisions, because they are interrelated with the whole social system – business activities have profound implications for society. As a result, society expects business to pursue other responsibilities as well.

A social contract between society and business represents a tacit understanding within society about the proper goals and responsibilities of business. This social contract is an on-going process of negotiation and change.

There are four arguments that criticise the broader view of moral responsibility.

Adam Smith claimed that when individuals act in self-interested manner in a free-market environment, the general good is promoted. If businesses are permitted to seek self-interest (maximisation of profit), their activities will inevitably yield the greatest good for society as a whole through the invisible hand of the market.

However, when economic exchanges involve large corporations, the concept of invisible hand is less credible. Large corporates weld large power over their employees and communities, producing economic and social inequalities.

Radical economists argue that corporations should not be considered as moral agents, and reject the assumption that Smith’s ‘invisible hand’ will have moralising effects on corporate activities. Corporations will enrich themselves while impoverishing society. Only the strong hand of government, through a system of laws and incentives, can and should bring corporates under control.

However, a big and intrusive government can emerge. Moreover, government lacks intimate knowledge of specific corporations to control corporate activities. Furthermore, government officials are not necessarily the defenders of morality – and indeed, corporate lobbyists and political action groups can capture them.

Corporate executives lack the moral and social expertise, and can only make economic decisions. To ask executives to take charge of non-economic responsibilities is to put social welfare in the hands of inept custodians.

However, most people in organisations are not trained moral philosophers or social scientists, but they are not restricted to only organisational goals. Doctors, lecturers, clerks and factory workers participate in political and social campaigns.

Broadening corporate responsibility will materialise society rather than moralise corporate activity. Corporate managers will impose their materialistic ideas, using cost-benefit analysis, on many non-economic activities.

Yet, businesses already use their privilege position to promote their view of humanity and the good life through corporate advertising and marketing. Corporations are unlikely to have a more materialistic effect than they do now.

The list of corporate responsibilities goes beyond such negative injunctions as ‘Don’t pollute’, and ‘Don’t misrepresent products’. Included also are affirmative duties like ‘Improve working conditions’, and ‘Contribute to arts and education’.

Corporations require at least four actions to institutionalise ethical behaviour:

• acknowledge the importance of moral business conduct;
• encourage employees to take moral responsibilities seriously;
• encourage public discussion and criticism;
• recognise the pluralistic nature of the social system.

There are limits on what government and laws can achieve:

• many laws are passed only after damage has already been done;
• formulating and designing laws are difficult and haphazard;
• enforcing laws is cumbersome, expensive and protracted.

Ethical codes need not damage economic efficiency as trust and confidence are vital for economic exchange. Professional or business moral codes instill confidence.

Corporate culture describes a general collection of beliefs, mores and values that are unique to each corporation. This monitors and manages business conduct and ethical behaviour.