the growing concern over business responsibility

8/18/2019 The Growing Concern Over Business Responsibility

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The Growing Concern Over

Business Responsibility

W I L L I A M

C

F R E D E R I C K

In the new era o f

business

power the old philosophy of

b

responsibility has been outdated. This rticle suggests a ne

more adequate st nd rd to follow in judging your resp ons

a s a businessma n to society.

The television quiz show scandal, aired last

autumn in Congressional hearings, has high-

lighted an issue that has been of increasing

concern to many people—the public respon-

sibilities of private businessmen. Concern

about business power is not new, but the

past decade has seen a growing conscious-

ness of the problems that business power can

create in a democratic society.

It is the contention of this paper that the

heightened interest in the problem of busi-

ness responsibility can be explained in terms

of two developments of the twentieth cen-

tury. One of these developments is intellec-

tual, the other is institutional in character—

and both of them are related to the collapse

of l issez faire as a philosophy and as an eco-

nomic order.

The Relevance of aissez atre

The disintegration of the world economy,

starting early in the present century, sig-

naled th e begirming of the end for the

laissez-

faire

philosophy and all its supporting in-

stitutions. Th e trend, accelerated by the First

World War and the subsequent monetary

panics of the 192O's, culminated in the early

initiated; Germany, where National S

ism was in the ascendant; Italy, which w

the throes of corporate Fascism; and

United States, where the New Deal

the symbol of institutional transformatio

a grand scale. These and other dom

economies, seeking to protect thems

from the ravages of a self-regulating m

mechanism, were transformed to an eco

in which centralized state planning

regulations were increasingly the rule r

than the exception.'

At the same time, it became more

more obvious that the world of busine

self was the scene of growing econ

power. Moreover, the growth of the l

scale corporation, with its tendenc

divorce legal ownership from actual co

of operations and with its technique of

ing upon itself for growth capital, freed

giants of business from the checks form

put upon them by stockholders and ca

investors. In addition, business had

bined two forces to dilute what coul

considered consum er sovereign ty: a re

and sophisticated advertising program

wha t am ounted to program ming contr


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Robinson and Chamberlin had written

The General Theory of

Interest and Money.

economic man who always pursued

the individualistic Robinson Crusoe

laissez faire.

laissez

had collapsed as thoroughly as had its

ts if only allowed to do so by a m eddle-

T H E B U S I N E S S R E S P O N S I B I L I T Y 55

a rational desire of man to solve his prob-

lems. Gone was the theory of a harmony of

interests which was to be the automatic out-

come of the self-seeking interests of a society

of rational men checked in their selfishness

by the invisible hand of competition. A type

of civilization and a way of thinking were

truly gone

vAth

the wind.

The collapse of the laissez faire philosophy

created a philosophical vacuum. It is this

vacuum that businessmen and others inter-

ested in the issue of business responsibility

have been trying to fill since the end of

World War II. Under the laissez faire philos-

ophy private interests were supposed to be

channeled into publicly useful pursuits, but

now such institutions as had been responsi-

ble had fallen into disuse. Under the

laissez-

faire

philosophy, there had been a social

theory by which private interests could be

harmonized with the interests of society at

large. This meant that there was no need to

be concemed deliberately with the social

responsibility of private businessmen; it

would be produced automatically. But now

there was no such theory. Quite plainly, the

older rubrics no longer furnished an ade-

quate intellectual system for explaining the

social consequences of business activities.

Hence, the collapse of

laissez faire

posed a

giant intellectual conundrum for social

theorists: How could a society with demo-

cratic traditions and democratic aspirations

rationahze the grovwng amounts of power

accruing to businessmen? And how could

that power be channelled into socially-usefxJ

functions without driving the populace into

some Orwellian nightmare of

1984

propor-

tions?

Several events conspired to cloak the true

nature of the crisis until after the Second

World War. It is true that a few questioning


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5 6 C A L I F O R N I A M A N A G E M E N T R E V I E W

Property

and James Bum ham in his analysis.

The Managerial Revolution. But preoccu-

pation with the Great Depression and with

the impending World War II served to post-

pone a consideration of the major problems

of business power tbat had developed out of

the broad-scale institutional changes in the

193O's.

However, with the resumption of peace-

time production, and after it became evident

that the American economy would not be

subjected immediately to anotber large-scale

depression, and particularly after studies

wbicb revealed the very great concentration

of economic power that had occurred during

the Second World War, all of the same wor-

risome questions were asked once again.

Since 1950, as a result, five major currents of

thought about business responsibility in

American society have developed. Each of

these currents attempts to grapple with the

problems of power in a complex society and

with the resultant issue of business responsi-

bility to tbe society at large.

Manag em ent as Trustee

Tbe first of these currents of thought, and

one tbat has gained increasing favor, is the

idea that corporate managers should volun-

tarily act as trustees of the public interest,

Tbey should police tbemselves and tbeir use

of the tremendous amounts of power they

possess. The keynote of this concept is the

deliberate and voluntary assumption of

pubhc responsibility by corporate managers,

even though at times such a trusteeship

might cause a managerial group to forego im-

mediate profits for the sake of the public

good. Management, according to tbis con-

cept, bas a multiplicity of obligations—to tbe

stockholders, to the employees, and to the

appeals to the conscience of individual m

agers to wield their power in a publ

responsible m anner. One student of th e p

lem has even called for the developmen

the conscience of tbe corpora tion to

tect the public against possible abuses

corporate power.

The Relevance of C hristian Ethics

Easily the most appealing and the m

emotional of these five viewpoints is

notion of relating Christian etbical princi

of conduct to tbe problems of business en

prise,' The basic idea seems to be that

businessman needs to think of himsel

something more than a simple mo

grubber. He needs to bave a nobility of

pose tbat overarcbes his corporate activ

and day-to-day duties. He needs skyho

to orient bim toward tbe nobler ideals

Christian ethical conduct so that he m

become a practicing Cbristian businessm

on the

job.

On e spokesman for tbis viewp

even argues the direct applicability of s

Christian doctrines as the idea of original

forgiveness, creation, and the general c

cept of God to the problems of busin

Christian ideals and doctrines are said, tb

fore, to fumisb the Christian businessm

with a framework of ethics by wbich he

approacb and grapple witb problems

finance, personnel, production, and gen

decision making,*

Balance of Power

One of tbe most intriguing ideas to re

pear in the postwar period is the notion

the answer to concentrated business po

is more power, Th e central them e of

argument is that business power is here

Adolf A. Berle, Jr..

The Twentieth Century Ca


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and that

the answer to this problem is

f the o ther major groups in the society

the side of one group against

the others while a sufficient amount of

the balance of power doctrine handles

e Viewers w ith Alarm

erhaps the strongest of the currents that

laissez faire

ists of the ideas of the group tha t views

alarm. ' Often these spokesmen see the

, Orwell, Riesman, W hyte, and Mills—

T H E B U S I N E S S R E S P O N S I B I L I T Y 5 7

doubts about concentrating so much power

in the hands of so few bureaucrats, wbether

of tbe industrial, the govemmental, or the

military type. The members of tbis group

have no clear-cut answer to the problem of

concentrated pwwer, counseling a resistance

of the spirit against the ravages of organiza-

tion and mass technology. Business responsi-

bility, they seem to say, will be achieved

only \\'hen there is a general recognition by

businessmen and otbers of the perils to the

individual personality that accompany great

aggregations of power.

Capitalist E thic R eformu lated

The fifth major current is actually com-

posed of many smaller rivulets of thought,

all of them related to an attempt to reformu-

late and restate the capitalist ethic in terms

that will be acceptable in the changed in-

stitutional situation that now confronts tbose

of us living under the capitalist tradition.

Perhaps the most notable attempt to refor-

mulate the capitalist ethic can be found in

The Cap italist Ma nifesto,

by Louis O. Kelso

and Mortimer J. Adler. This manifesto

argues that the capitalist revolution will not

be fuUy realized until some of the basic

capitalist principles—ownership, for ex-

ample—have been extended to embrace ever

larger numbers of citizens. As ownership is

more widely diffused, so will the citizen's

stake in the prevailing system increase. As

a

result, his interest and loyalt)' to the modified

capitalist system will increase. Thus, a higher

degree of responsibility on the part of capi-

talist-owners will be achieved by modifying

and extending one of the basic capitalist in-

stitutions. Clarence B. Randall, formerly

chairman of the Inland Steel Company, has

also tried to restate a more realistic ethic for

the capitalist system in his book, A

Creed

for


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ously naive.

Therefore, we find that the businessman,

d into a going system of values and

luence over tbe manner in which a

must

be concerned primarily with

The balance of power theory, on the other

laissez faire order.

laissez-faire

order, competition


stitutes for the free competition of the Nine-

teenth Century. As Galbraitb himself has

been careful to point out, tbere are certain

institutional situations, particularly inflation,

in whicb the wbole balance of power system

breaks dovwi and does not in fact cbannel

private power into socially desirable uses.

Moreover, in

The Affluent Society

Galbraith

seems to be saying that the entire institu-

tional order, including tbe balance of power

system is outmoded and unserviceable with

respect to the utilization of society's resources

for socially intelligent ends.

Some of tbe most powerful statements on

business responsibility have been made by

tbe viewers witb alarm, who, like Gal-

braith, at least are cognizant of some of the

realities of the contemporary scene. They

are aware, for instance, that power is now

drawn up in different configurations and dif-

ferent proportions tban was tme of tbe older

order; and tbey sense that tbese changed

dimensions of power have shifted the nature

of the problems. But since tbe alarmists are

basically individualistic and humanistic in

tbeir predilections and since botb individual-

ism and bumanism are products of an age

before tbe fantastic aggregations of power

tbat we know today, tbere is very little the

alarmists can do except object to wbat is

going on and to what power accumulations

are presumably doing to individuals and to

human values generally. For them, there is

no way out save by some brand of passive

resistance to tbe organizational society and

its many bureaucratic institutions. It is char-

acteristic of this group of thinkers that they

have little or nothing to offer in the way of

an institutional system that will lead us out

of our present difficulties with respect to

promoting the social responsibilities of

private businessmen.


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6 0 C A L I F O R N I A M A N A G E M E N T R E V I E W

our increasing awareness of the requirements

of socially effective economic production and

distribution, and particularly the necessities

of economic growth and development on a

broad social scale. Some such value criterion

has been a part of American thinking since

the Great Depression of the 193O's, and it

was reinforced by the great emphasis that

the Second World War placed upon the

value of high production and the eflScient

allocation and distribution of economic re-

sources. In tbe current race with the Soviet

Union to dominate the world economic

scene, we see once again that economic pro-

duction and distribution constitute a major

criterion of value. Further, such a value as-

sumption underlies the Employment Act of

1946.

Also, such an assumption has caused

the nation's two major political parties to

pledge themselves to use all of the resources

of govemment at their command to offset

the Euctuations of the business cycle.

All of this suggests strongly that when we

invoke the phrase the social responsibilities

of the businessman, we mean that business-

men should oversee the operation of an eco-

nomic system that fulfills the expectations of

the public. And this means in tum that the

economy's means of production should be

employed in such a way that production and

distribution should enhance total socio-eco-

nomic welfare. Social responsibility in the

final analysis implies a public posture tow ard

society's economic and human resources and

a willingness to see that those resources are

utilized for broad social ends and not simply

for the narrowly circumscribed interests of

priva te persons and firms. The television quiz

show scandal is a case in point.

The second requirement of an adequate

theory of business responsibility is that it be

of management is being replaced with a c

cept of the manager as coordinator a

planner, as a team member whose m

play consists of making significant links

tween relevant pieces of information. T

means that managers need to reconstr

their self-images and to de-emphasize

role that status and authority play in

management function. And finally, the stu

of human relations is convincing manag

that careful treatment must be accorded e

ployees if they are to be fully effective

the work situation and if their jobs are

form a pa rt of the good Hfe. Any the

of business responsibility that ignores th

recent developments in management scie

would be seriously deficient.

Third, an adequate theory of business

sponsibility will recognize tbat the pres

business system is an outgrowth of histo

and past cultural traditions. It will recogn

that what we are today is, to a very lar

extent, a function of what we were yest

day. In more specific terms, this means t

there is not likely to be any escape from

very powerful motive of private gain a

profit which is often at variance with soc

interest. Rather than denying the importan

of this force or wishing it away in an ide

istic fashion or assuming that businessm

can or will ignore it as they make decisio

the new theory of business responsibility w

attempt to find institutional means for hed

ing about this motive and for directing

into socially useful channels. This, of cour

is the hope of Galbraitb in his theory

countervailing power. It is also a hope e

pressed by Berle in

The Twen tieth ent

apitalist Revolution

in which he speaks

the need to develop the conscience of t

corporation.


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be m otivated to take action or make

Fifth, there should also be a recognition

matic mechanisms which by themselves

guarantee the results that the pubUc desires.

Conscience alone, whether of public trustee

or of Christian businessman, is not enough.

A balance of power is likewise insufficient.

Nor is courageous action by public servants

enough. The task requires a constant tinker-

ing with the institutional mechanisms of

society, employing more and more of the

fruits of scientific methodology and the sci-

entific attitu de . The job, though difficult,

should become easier as social scientists in-

crease their knowledge of human behavior

and human institutions. It is true that

we

cannot totally escape the impact of our cul-

tural heritage, but we are slowly accumu-

lating a storehouse of knowledge about our-

selves and about businessmen that should

enable us to resolve some of the problems

and issues of business resjwnsibility.

I congratulate poor young men upon being bom to that ancient

and honor ble degree which renders i t necess ry that they should

devote themselves to hard work

Andrew Carnegie


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the growing concern over business responsibility

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