Business ethics

3. External stakeholders: social responsibility

It is not only Kantianism, utilitarianism and Aristotelianism which are invoked to deal with the obligations of a firm to the wider world. Sometimes the firm is said to be party to a social contract which confers a duty to transfer profits or services to the communities in which it operates, in return for the good will or custom or labour of members of those communities (see Contractarianism). Sometimes it is said to be in the firm’s self-interest to benefit communities. These things are said, at any rate, by those who think that businesses have obligations to external stakeholders at all. There are well-known advocates of the view that company philanthropy within a host community violates a prior and overriding obligation of a firm to its shareholders. The more profit or employee time is diverted to noncommercial and non-profit-making activity, so it is argued, the less there is to redistribute to shareholders, who after all own the company and invest in it usually on the understanding that the company will maximize returns to them.

The view that firms have no business helping the community is now widely contradicted by the behaviour of large commercial enterprises themselves. The directors of such enterprises accept that philanthropy is often expected by local communities and shareholders alike, and sometimes endorsed by consumers in the form of greater approval for, and loyalty to, firms that go in for it. In the UK retail sector, for example, market research has confirmed the commercial benefits of a caring public image.

If it is in the interest of firms to give money or time to helping the community, and if they give the help because of the commercial benefits, is the help morally creditable? Much depends on whether the help is given only for the commercial benefits. If it is only for the commercial benefits, then probably only egoism – the theory that something is right if and only if it serves one’s own interest – makes the act moral, and egoism is strongly counterintuitive as a moral theory (see Egoism and altruism). On the other hand, although business people see the value of self-interest, it is uncharacteristic for them to say or think that acts of corporate charity serve only self-interest. Perhaps they would not go in for donations of money or time if they were not going to pay the firm in some way; this does not mean that nothing else matters. The motivation can be mixed, as it is when directors of enterprises themselves have strong philanthropic impulses, but can also see that the philanthropy will be good for public relations. In the case where the motivation is mixed and the benefits to the community are real, then several theories assign moral credit to corporate giving, including utilitarianism, different versions of theories that say that businesses are parties to a social contract, and Aristotelianism. Even a Kantian theory can assign considerable positive value to company philanthropy with a mixed motivation, so long as it is the right sort of mix. The action that is in accordance with duty but motivated by extra-moral forces can still be honourable, beautiful, and so on according to Kant.

What are the appropriate forms of corporate philanthropy or ‘social responsibility’? The question has an edge in places where the private sector is increasingly expected by government to pay directly for, or sponsor programmes in, schools and hospitals, and when businesses are partners with the state in big transportation and housing projects. Does a firm go beyond what can reasonably be demanded of it when it takes over responsibility in one place for a service or institution that the state is responsible for elsewhere? Should it help only with public services or institutions, refraining from taking a leading role? And if it gives help, should the help have some relation to its business activity? Should a construction firm donate construction advice or labour for a public housing scheme; or should it lend the scheme one of its accountants? Should a supermarket take charge of recycling packaging on the goods it sells rather than lending its property-buying expertise to the public sector? Here a version of social contract theory, according to which business has an obligation to fulfil the expectations it creates in society, provides a clue to the answer. The closer a firm’s philanthropy to its public business activity, the less the risk of creating new, perhaps over-demanding, expectations among the public and confusion among internal stakeholders.

Many questions about the obligations of businesses to the wider world are less tractable than those we have been pursuing. For example, what are the obligations of transnational firms in societies with very different levels of prosperity? In what special circumstances are the assets of firms open to expropriation in the name of the public interest? To what extent is the law rather than corporate policy the best medium for stipulating the limits of corporate obligation?