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Social Impacts and Social Responsibilities

Social responsibilities—whether of a business, a hospital, or a university—may

arise in two areas. They may emerge out of the social impacts of the institution. Or

they arise as problems of the society itself. Both are of concern to management,

because the institution that managers manage lives of necessity in society and

community. But otherwise the two areas are different. The first deals with what an

institution does to society. The second is concerned with what an institution can do

for society.

The modern organization exists to provide a specific service to society. It there-

fore has to be in society. It has to be in a community, has to be a neighbor, has to

do its work within a social setting. Also it has to employ people to do its work. Its

social impacts inevitably go beyond the specific contribution it exists to make.

The purpose of the hospital is not to employ nurses and cooks. It is patient care.

But to accomplish this purpose, nurses and cooks are needed. And in no time at all,

they form a work community with its own community tasks and community

problems.

The purpose of a ferroalloy plant is not to make noise or to release noxious fumes.

It is to make high-performance metals that serve the customer. But in or- der to do

this, it produces noise, creates heat, and releases fumes.

These impacts are incidental to the purpose of the organization. But in large

measure they are inescapable by-products.

Social problems, such as a deteriorating educational system, by contrast, are

dysfunctions of society rather than impacts of the organization and its activities.

Since the institution can exist only within the social environment and is indeed an

organ of society, such social problems affect the institution. They are of concern to

it even if, as in the ferroalloy company’s case, the company had no role in

producing the decline in the education system.

A healthy business, a healthy university, a healthy hospital cannot exist in a sick

society. Management has a self-interest in a healthy society, even though the cause

of society’s sickness is not of management’s making.

214 SOCIAL IMPACTS AND SOCIAL RESPONSIBILITIES

RESPONSIBILITY FOR IMPACTS

One is responsible for one’s impacts, whether they are intended or not. This is the first rule for

the ferroalloy company. There is no doubt regarding management’s responsibility for the social

impacts of its organization. They are management’s business.

It is not enough to say, “But the public doesn’t object.” It is, above all, not enough to say that any

action to come to grips with such a problem is going to be “unpopular,” is going to be “resented”

by one’s colleagues and one’s associates, and is not required. Sooner or later society will come to

regard any such impact as an attack on its integrity and will exact a high price from those who

have not responsibility worked on eliminating the impact or on finding a solution to the problem.

Here is an example. In the late 1940s and early 1950s, one American automobile company tried

to make the American public safety-conscious. Ford introduced cars with seat belts. But sales

dropped catastrophically. The company had to with- draw the cars with seat belts and abandoned

the whole idea. When, fifteen years later, the American driving public became safety-conscious,

the car manufacturers were sharply attacked for their “total lack of concern with safety” and for

being “merchants of death.” And the resulting regulations were written as much to pun- ish the

companies as to protect the public.

The first job of management is, therefore, to identify and to anticipate im- pacts—coldly and

realistically. The question is, “Is what we do right, in the best interest of the customer and

society?” And if our social impacts are not right, it is the responsibility of the company to

educate the customer and society so that the negative impact can be eliminated.

HOW TO DEAL WITH IMPACTS

Identifying the incidental impacts of an institution is the first step. But how does management

deal with them? The objective is clear: impacts on society, the econ- omy, the community, and

the individual that are not in themselves the purpose and mission of the institution should be kept

to the minimum and should preferably be eliminated altogether. The fewer such impacts the

better, whether the impact is within the institution, on the social environment, or on the physical

environment.

Wherever an impact can be eliminated by dropping the activity that causes it, this is therefore the

best—indeed, the only truly good—solution.

However, in most cases the activity cannot be eliminated. Hence there is need for systematic

work at eliminating the impact—or at least at minimizing it— while maintaining the underlying

activity itself.

The ideal approach is to make the elimination of impacts into a profitable business opportunity.

One example is the way Dow Chemical, one of the leading U. S. chemical companies, has for

almost twenty years tackled air and water pollution.

Social Impacts and Social Responsibilities 215

Dow decided, shortly after World War II, that air and water pollution was an undesirable impact

that had to be eliminated. Long before the public outcry about the environment, Dow adopted a

zero-pollution policy for its plants. It then set about systematically developing the polluting

substances it removes from smokestack gases and watery effluents into salable products and

creating uses and markets for them.

A variant is the Du Pont Industrial Toxicity Laboratory. In the 1920s, Du Pont became aware of

the toxic side effects of many of its industrial products and set up a laboratory to test for toxicity

and to develop processes to eliminate the poisons. Du Pont started out to eliminate an impact that

at the time every other chemical manufacturer took for granted. But then Du Pont decided to

develop toxicity control of industrial products into a separate business, the Industrial Toxicity

Laboratory, where products could be tested not only for Du Pont but for a wide variety of

customers for whom it developed compounds. Again, an impact was eliminated by turning it into

a business opportunity.

WHEN REGULATION IS NEEDED

Turning elimination of an impact into a business opportunity should always be attempted. But it

cannot be done in many cases. More often eliminating an impact means increasing the costs.

What was an “externality” for which the general public paid becomes business cost. It therefore

becomes a competitive disadvantage unless everybody in the industry accepts the same rule. And

this, in most cases, can be done only by regulation—that means by some form of public action.

Whenever an impact cannot be eliminated without an increase in cost, it be- comes incumbent

upon management to think ahead and work out the regulation that is most likely to solve the

problem at the minimum cost and with the greatest benefit to public and business alike. And it is

then management’s job to work at getting the right regulation enacted.

Management—and not only business management—has shunned this respon- sibility. The

traditional attitude has always been that “no regulation is the best regulation.” But this applies

only when an impact can be made into a business. Where elimination of an impact requires a

restriction, regulation is in the interest of business, and especially in the interest of responsible

business. Otherwise it will be penalized as “irresponsible,” while the unscrupulous, the greedy,

the stupid, and the chiseler cash in.

And to expect that there will be no regulation is willful blindness.

The fact that today the public sees no issue is not relevant. Indeed, it is not even relevant that

today the public—as it did in every single one of the examples

216 SOCIAL IMPACTS AND SOCIAL RESPONSIBILITIES

above—actively resists any attempts on the part of farsighted business leaders to prevent a crisis.

In the end, there is the scandal.

Any solution to an impact problem requires trade-offs. Beyond a certain level, elimination of an

impact costs more in money or in energy, in resources or in lives, than the attainable benefit. A

decision has to be made on the optimal balance be- tween costs and benefits. This is something

people in an industry understand, as a rule. But no one outside does—and so the outsider’s

solution tends to ignore the trade-off problem altogether.

Responsibility for social impacts is a management responsibility—not because it is a social

responsibility, but because it is a business responsibility. The ideal is to make elimination of such

an impact into a business opportunity. But wherever that cannot be done, the design of the

appropriate regulation with the optimal trade-off balance—and public discussion of the problem

and promotion of the best regulatory solution—is management’s job

SOCIAL PROBLEMS AS BUSINESS OPPORTUNITIES

Social problems are dysfunctions of society and—at least potentially—degenerative diseases of

the body politic. They are ills. But for the management of institutions and, above all, for business

management, they represent challenges. They are major sources of opportunity. For it is the

function of business—and to a lesser degree of the other main institutions—to satisfy social need

and at the same time serve their institution, by making resolution of a social problem into a

business opportunity.

It is the job of business to convert change into innovation, that is, into new business. And it is a

poor executive who thinks that innovation refers to technology alone. Social change and social

innovation have, throughout business history, been at least as important as technology. After all,

the major industries of the nineteenth century were, to a very large extent, the result of

converting the new social environment—the industrial city—into a business opportunity and into

a business market. This underlay the rise of lighting, first by gas and then by electricity, of the

streetcar and the interurban trolley, of telephone, newspaper, and department store—to name

only a few.

The most significant opportunities for converting social problems into business opportunities

may, therefore, not lie in new technologies, new products, and new services. They may lie in

solving the social problem, that is, in social innovation that then directly and indirectly benefits

and strengthens the company or the industry.

The success of some of the most successful businesses is largely the result of such social

innovation. Here is an American example:

The years immediately prior to World War I were years of great labor unrest in the United States,

growing labor bitterness, and high unemployment. Hourly wages for skilled men ran as low as

15 cents in many cases. It was against this background, as seen

Social Impacts and Social Responsibilities 217

in chapter 19, that the Ford Motor Company, in the closing days of 1913, announced that it

would pay a guaranteed $5-a-day wage to every one of its workers. James Couzens, the

company’s general manager, who had forced this decision on his reluctant partner, Henry Ford,

became convinced that the workmen’s sufferings and hence turn- over were so great that only

radical and highly visible action could have an effect. Couzens also expected that Ford’s actual

labor cost, despite the tripling of the wage rate, would go down—and events soon proved him

right. Before Ford changed the whole labor economy of the United States with one

announcement, labor turnover at the Ford Motor Company had been so high that, in 1912,

60,000 men had to be hired to retain 10,000 workers. With the new wage, turnover almost

disappeared. The resulting savings were so great that despite sharply rising costs for all materials

in the next few years, Ford could produce and sell its Model T at a lower price and yet make a

larger profit per car. It was the saving in labor cost produced by a drastically higher wage that

gave Ford market domination. At the same time Ford’s action transformed American industrial

society. It established the American workingman as fundamentally middle class.

Social problems that management action converts into opportunities cease to be problems. The

others, however, are likely to become “chronic complaints,” if not “degenerative diseases.” Not

every social problem can be resolved by making it into an opportunity for contribution and

performance. Indeed, the most serious of such problems tend to defy this approach.

What, then, is the social responsibility of management for these social problems that become

chronic or degenerative diseases?

They are management’s problems. The health of the enterprise is management’s responsibility. A

healthy business and a sick society are hardly compatible. Healthy busi- nesses require a healthy,

or at least a functioning, society. The health of the com- munity is a prerequisite for successful

and growing business.

And it is foolish to hope that these problems will disappear if only one looks the other way.

Problems go away because someone does something about them.

To what extent should business—or any of the other special-purpose institu- tions of our

society—be expected to tackle a problem that did not arise out of its impact and that cannot be

converted into an opportunity for performance of the institution’s purpose and mission? To what

extent should these institutions—busi- ness, university, or hospital—even be permitted to take

responsibility? (These questions are more fully the subject of chapter 21.)

Are there limits to social responsibility? And what are they?

THE LIMITS OF SOCIAL RESPONSIBILITY

The manager is a servant. His master is the institution he manages, and his first responsibility

must therefore be to it. His first task is to make the institution, whether business, hospital, school,

or university, perform the function and make

218 SOCIAL IMPACTS AND SOCIAL RESPONSIBILITIES

the contribution for the sake of which it exists. The executive who uses his position at the head of

a major institution to become a public figure and to take leadership with respect to social

problems while his company or his university erodes through neglect is not a statesman. He or

she is irresponsible and false to their trust.

The institution’s performance of its specific mission is also society’s first need and interest.

Society does not stand to gain but stands to lose if the performance capacity of the institution in

its own specific task is diminished or impaired. Performance of its function is the institution’s

first social responsibility. Unless it discharges its performance responsibly, it cannot discharge

anything else. A bankrupt business is not a desirable employer and is unlikely to be a good

neighbor in a community. Nor will it create the capital for tomorrow’s jobs and the opportunities

for tomorrow’s work- ers. A university that fails to prepare tomorrow’s leaders and professionals

is not socially responsible, no matter how many “good works” it engages in.

Above all, management needs to know the minimum profitability required by the risks of the

business and by its commitments to the future. It needs this knowledge for its own decisions. But

it needs it just as much to explain its decisions to others— the politicians, the press, the public.

As long as managements remain the prisoners of their own ignorance of the objective need for,

and function of, profit (i.e., as long as they think and argue solely in terms of the “maximization

of shareholder wealth”), they will be able neither to make rational decisions with respect to

social responsibilities, nor to explain those decisions to others inside and outside the business.

Whenever a business has disregarded the limitation of economic performance and has assumed

social responsibilities that it could not support economically, it has soon gotten into trouble.

The same limitation on social responsibility applies to noneconomic institu- tions. There, too, the

manager’s first duty is to preserve the performance capacity of the institution in his care. To

jeopardize it, no matter how noble the motive, is irresponsibility. These institutions, too, are

capital assets of society on whose performance society depends.

This, to be sure, is a very unpopular position to take. But managers, and espe- cially managers of

key institutions of society, are not being paid to be heroes to the popular press. They are being

paid for performance and responsibility.

To take on tasks for which one lacks competence is irresponsible behavior. It is also cruel. It

raises expectations that will then be disappointed. An institution, and especially a business

enterprise, has to acquire whatever competence is needed to take responsibility for its impacts.

But in areas of social responsibility other than impacts, right and duty to act are limited by

competence (on this matter see chapter 21 for amendments to this argument).

In particular, an institution better refrain from tackling tasks that do not fit into its value system.

Skills and knowledge are fairly easily acquired. But one can-

Social Impacts and Social Responsibilities 219

not easily change personality. No one is likely to do well in areas that he or she does not respect.

If a business or any other institution tackles such an area because there is a social need, it is

unlikely to put its good people on the task or to support them adequately. It is unlikely to

understand what the task involves. It is almost certain to do the wrong things. As a result, it will

do damage rather than good.

Management therefore needs to know at the very least what it and its institu- tion are truly

incompetent for. Business, as a rule, will be in this position of absolute incompetence in an

“intangible” area. The strength of business is accountability and measurability. It is the

discipline of market test, productivity measurements, and profitability requirement. Where these

are lacking, businesses are essentially out of their depth. They are also out of fundamental

sympathy, that is, outside their own value systems. Where the criteria of performance are

intangible—such as “political” opinions and emotions, community approval or disapproval,

mobiliza- tion of community energies, and structuring of power relations—business is un- likely

to feel comfortable. It is unlikely to have respect for the values that matter. It is, therefore, most

unlikely to have competence.

In such areas it is, however, often possible to define goals clearly and measur- ably for specific

partial tasks. It is often possible to convert parts of a problem that, by itself, lies outside the

competence of business into work that fits the competence and value system of the business

enterprise.

No one in America has done very well in training hard-core unemployed Afri- can-American

teenagers for work and jobs. But business has done far less badly than any other institution:

schools, government programs, community agencies. This task can be identified. It can be

defined. Goals can be set. And performance can be measured. And then business can perform.

THE LIMITS OF AUTHORITY

The most important limitation on social responsibility is the limitation of author- ity. The

constitutional lawyer knows that there is no such word as “responsibility” in the political

dictionary. The term is “responsibility and authority.” Whoever claims authority thereby

assumes responsibility. But, likewise, whoever assumes responsibility thereby claims authority.

The two are but different sides of the same coin. To assume social responsibility therefore

always means to claim authority.

Again, the question of authority as a limit on social responsibility does not arise in connection

with the impacts of an institution. For the impact is the result of an exercise of authority, even

though purely incidental and unintended. And then responsibility follows.

But when business or any other institution of our society of organizations is asked to assume

social responsibility for one of the problems or ills of society and community, management

needs to think through whether the authority implied

220 SOCIAL IMPACTS AND SOCIAL RESPONSIBILITIES

in the responsibility is legitimate. Otherwise, it is usurpation and irresponsible. Every time the

demand is made that business take responsibility for this or that, one should ask, “Does business

have the authority and should it have it?” If business does not have and should not have

authority—and in a great many areas it should not have it—then responsibility on the part of

business should be treated with great

care. It may not be responsibility; rather it may simply be a lust for power.
Ralph Nader, the American consumerist, sincerely considers himself a foe of big business and is accepted as such

by business and by the general public. Insofar as Nader demands that business take responsibility

for product quality and product safety, he is surely concerned with legitimate business

responsibility, that is, with

responsibility for performance and contribution.
Management must resist responsibility for a social problem that would compro-

mise or impair the performance capacity of its business (or its university or its hos- pital). It must

resist when the demand goes beyond the institution’s competence. It must resist when

responsibility would, in fact, be illegitimate authority. But then, if the problem is a real one, it

better think through and offer an alternative approach. If the problem is serious, something will

ultimately have to be done about it.

Managements of all major institutions, including business enterprise, need to concern themselves

with serious ills of society. If at all possible they should con- vert solution of these problems into

an opportunity for performance and contribution. At the least they can think through what the

problem is and how it might be tackled. They cannot escape concern; for this society of

organizations has no one else to be concerned about real problems. In this society, executives of

institutions are the leadership group.

But we also know that a developed society needs performing institutions with their own

autonomous management. It cannot function as a totalitarian society. Indeed, what characterizes

a developed society—and indeed makes it a developed one—is that most of its social tasks are

carried out in and through organized institutions, each with its own autonomous management.

These organizations, including most of the agencies of our government, are special-purpose

institutions. They are organs of our society for specific performance in a specific area. The

greatest contribution they can make, their greatest social responsibility, is performance of their

function. The greatest social irresponsibility is to impair the performance capacity of these

institutions by having them tackle tasks beyond their competence or usurp authority in the name

of social responsibility.

THE ETHICS OF RESPONSIBILITY

Countless sermons have been preached and printed on the ethics of business or the ethics of the

executive. Most have nothing to do with business and little to do with ethics.

One main topic is plain, everyday honesty. Executives, we are told solemnly,

Social Impacts and Social Responsibilities 221

should not cheat, steal, lie, bribe, or take bribes. But nor should anyone else. Men and women do

not acquire exemption from the ordinary rules of personal behavior because of their work or job.

Nor, however, do they cease to be human beings when appointed vice president, city manager, or

college dean. And there have always been a number of people who cheat, steal, lie, bribe, or take

bribes. The problem is one of moral values and moral education—of the individual, of the family,

of the school. But neither is there a separate ethics of business, nor is one needed.

All that is needed is to mete out stiff punishments to those—whether business executives or

others—who yield to temptation.

The other common theme in the discussion of ethics in business has nothing to do with ethics.

Such things as the employment of call girls to entertain customers are not matters of ethics but

matters of aesthetics. “Do I want to see a pimp when I look at myself in the mirror while

shaving?” is the real question.

It would indeed be nice to have fastidious leaders. Alas, fastidiousness has never been prevalent

among leadership groups, whether kings and counts, priests or generals, or even “intellectuals”

such as the painters and humanists of the Renaissance or the “literati” of the Chinese tradition.

All a fastidious man or woman can do is withdraw personally from activities that violate his or

her self-respect and his or her sense of taste.

Lately, these old sermon topics have been joined, especially in the United States, by a third one:

managers, we are being told, have an “ethical responsibility” to take an active and constructive

role in their community, to serve community causes, give of their time to community activities,

and so on.

Such activities should, however, never be forced on them nor should managers be ap- praised,

rewarded, or promoted according to their participation in voluntary activities. Or- dering or

pressuring managers into such work is abuse of organizational power and illegitimate.

But, while desirable, community participation of managers has nothing to do with ethics, and not

much to do with responsibility. It is the contribution of an individual in his capacity as a

neighbor and citizen.

A problem of ethics that is peculiar to the executive arises from the fact that the executives of

institutions are collectively the leadership groups of the society of organizations. But individually

a manager is just another fellow employee.

It is therefore inappropriate to speak of managers as leaders. They are “members of the

leadership group.” The group, however, does occupy a position of visibility, of prominence, and

of authority. It therefore has responsibility.

But what are the responsibilities, what are the ethics of the individual execu- tives, as a member

of the leadership group?

Essentially being a member of a leadership group is what has traditionally been

222 SOCIAL IMPACTS AND SOCIAL RESPONSIBILITIES

meant by the term “professional.” Membership in such a group confers status, position,

prominence, and authority. It also confers duties. To expect every manager to be a leader is

futile. There are, in a developed society, thousands, if not millions, of managers—and

leadership is always the rare exception and confined to a very few individuals. But as a

member of a leadership group, a manager stands under the demands of professional ethics—

the demands of an ethic of responsibility.

NOT KNOWINGLY TO DO HARM

The first responsibility of a professional was spelled out clearly, 2,400 years ago, in the

Hippocratic oath of the Greek physician: Primum non nocere—“above all, not knowingly to

do harm.” No professional, be he doctor, lawyer, or manager, can promise that he will indeed

do good for his client. All he can do is try. But he can promise that he will not knowingly do

harm. And the client, in turn, must be able to trust the professional not knowingly to do the

client harm. Otherwise the client cannot trust him at all. The professional has to have

autonomy. He cannot be con- trolled, supervised, or directed by the client. He has to be

private in that his knowl- edge and his judgment have to be entrusted with the decision. But it

is the foundation of his autonomy, and indeed its rationale, that he see himself as “affected

with the public interest.” A professional, in other words, is private in the sense that he is

autonomous and not subject to political or ideological control. But he is public in the sense

that the welfare of his client sets limits to his deeds and words. And primum non nocere, “not

knowingly to do harm,” is the basic rule of professional eth- ics, the basic rule of an ethics of

public responsibility.

The manager who, because it would make him “unpopular in the club,” fails to think through

and work for the appropriate solution to an impact of his business knowingly does harm. He

or she knowingly abets a cancerous growth. That this is stupid has been said. That this

always in the end hurts the business or the industry more than a little temporary

“unpleasantness” would have hurt has been said too. But it is also a gross violation of

professional ethics.

But there are other areas as well. American executives, in particular, tend to violate the rule

not knowingly to do harm with respect to

• executivecompensation

• the use of benefit plans to impose “golden fetters” on people in the company’s employ

• their profit rhetoric

Their actions and their words in these areas tend to cause social disruption. They tend to

conceal healthy reality and to create disease, or at least social abnor-