To Whom is Business
Beholden?
Leo J. Rain, M.D.
CSUN Center for Ethics and Values
The purpose of business is to make a profit. It does so by providing a needed or desired service to the community. So what responsibility does a business have, other than sustaining itself, providing a living for its owners and employees and getting a reasonable return on investment to its shareholders?
The classical, democratic, capitalist view as championed by Milton Friedman, holds that private business is typically formed to advance the economic interests of its owners, but in ways that conform to conventional norms of morality. It should obey the law and act within the constraints of capitalist market morality. This requires that it must refrain from deception, fraud, bribery, kickbacks, theft, and violation of valid contracts and agreements. Market morality respects capitalist rights and liberties.
Generally the primary focus of business is on the goals and interests of the corporation and its shareholders. It comes before natural duties to do no harm, to help others in need and to promote the common good. So, is there a role for government? Standard democratic capitalist theories hold that there is a division of moral labor between business and government so that when market mechanisms fall short, government, by means of democratic political processes, is called on to protect non investors, competitors and the market from harm, and to insure adequate production of public goods.
Some contemporary moral reformists hold that business is morally obligated to consider the interests and needs of all members of society and to help those in need. Corporate managers should act in accordance with all the natural moral duties that good citizenship requires and they should use their economic power to help solve pressing social problems and promote social justice. They should balance their fiduciary obligations to shareholders against their moral duties to non investors.
One popular version of the reformist view is the Stakeholder Theory of corporate responsibility. On this theory corporations are morally obligated to consider Stakeholders -- those groups or individuals who benefit from, or may be harmed by, corporate actions whether directly or indirectly. These include owners and managers, customers and employees, suppliers and competitors, and the general community all of whom are considered to have equally important interests. A narrower view of this theory is that responsibility is owed to the legitimate interests of only those primary stakeholders who are directly affected by the corporation.
We are talking about laissez-faire capitalism versus a system that has more social responsibility. The latter threatens the distinction between public and private enterprise. How much is owed to the community in which the corporate managers live and work? What is the role of government in the business world? Which system is more in keeping with democratic principles? Is business ethics an oxymoron? Today we seem to be leaning more to the theory of social responsibility. It is expressed as the opportunity for a firm to "do well by doing good" (Essentials of Business Ethics, Ed. Madsen and Shafritz, Meridian). Profit making is compatible with a social agenda and a social contract.
I am indebted to Professor Richard Rodewald, who teaches Business Ethics at California State University, Northridge, for showing me how to think about these issues and for reviewing this paper. I alone am responsible its content.