Why Should Corporations Have Social Responsibilities

There are three broad types of arguments for situating businesses, at least large and developed ones, inside an ethical framework 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:

Conclusion

Taken together, these considerations explain the view of any firm as much more than a source of economic revenue. Businesses become collaborators in a vast world of interrelated challenges and shared responsibilities for resolving them.

The Externality Argument

Externalities are the second type of argument in favour of corporate social responsibility. These bind companies not morally, but operationally, to societal duties. In economics, an externality is a cost of an item or service that is not included in the price. For instance, if a corporation’s plant produces large air pollution, resulting in a high rate of upper respiratory illnesses in the adjacent town, a disproportionately high number of teachers and police officers (among others) will miss work during the year.

Substitute teachers and replacement officers will be required, and the expense will be shared by everyone in town as a result of their increased tax bill. The firm that owns the polluting plant earns the entire value of its products but does not bear the whole cost of production, as the broader public bears a portion of the pollution burden. This is viewed as unjust by many.

Another example is a corporation that underfunds its pensions. The company may close, distributing final earnings to stockholders and denying retired workers their monthly cheques. In the end, the general public pays for labour costs that should have been borne by stockholders.

Externalities aren’t necessarily negative. For example, the iPhone’s map shows real-time traffic congestion. Apple invested money in developing this feature, and they get paid when an iPhone sells. Apple doesn’t gain anything from drivers who don’t buy an iPhone but nonetheless profit from it: those who get to their destination faster because everyone with an iPhone is taking a different 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 favour of corporations as seats of social responsibility grows from the notion of enlightened self-interest. Enlightened self-interest means businesses take on broad responsibilities because, on careful analysis, that public generosity also benefits the company. The benefits run along with a number of lines:

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 fundamental question of enlightened self-interest is this: “Are corporations profitable because they perform good actions, or are they profitable because they do good deeds?” This distinction may be insignificant in terms of pure implications. However, if the fact is that social good is done solely for financial gain, some may argue that corporate social responsibility has devolved into a sophisticated ruse used to maximise profits by misleading consumers about a business’s intentions.

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