Malcolm 1
Corporate Social Responsibility and the Balance Between Ethics and Economics:
A Response to Aristotle
This paper will focus on corporate social responsibility and the balance between
ethics and economics as a response to Aristotle’s concern about money exchanged for
commodities. Topics to be highlighted include a discussion of Aristotle’s commodity
exchange, telos, economic practices within society and the importance of professional
manager versus ownership roles in organizations, corporate social responsibility, and the
ever elusive balance between ethics and economics.
Aristotle begins his discussion about the need for a household to obtain goods for
living the good life within the context of the household (Aristotle 15). He distinguishes
goods acquired for living, or natural wealth-getting, versus those acquired for the purpose
of producing wealth; noting that the quantity of goods necessary for living are limited and
that the quantity of goods needed for producing wealth are unlimited (Aristotle 16).
Specifically, Aristotle offers examples of the natural origins of bartering when
parties divided common goods and then traded based on natural wants for the necessities
of life (Aristotle 16). This form of exchange arises out of natural circumstances, occurs
without the mediation of money, and is referred to as C-C (Meikle 51-52)1. Exchange
eventually evolves to be a trade of excess goods for money and that money is eventually
used to purchase another commodity; money permits flexibility, operates as a means to
purchasing items that are needed, and is referred to as C-M-C (Meikle 53, 96). These
two forms of exchange are based on use value of the commodity, are qualitative in
nature, and are considered by Aristotle as natural wealth-getting because money is a
means to exchange (Meikle 87).
Scott Meikle prepared the text, Aristotle’s Economic Thought, when he was a Reader in Philosophy at the
University of Glasgow.
1
Malcolm 2
The difficulty for Aristotle arises when money is used to purchase a good for the
purpose of reselling it, designated as M-C-M, or for using money to get more money as
occurs with charging interest for a financial loan, designated as M-M (Aristotle 17).
These later forms of exchange view money as an end in itself and are not based on use
value or quality, but solely on the quantity of money to be accumulated (Aristotle 17)
For these reasons, Aristotle considers them unnatural and improper (Aristotle 16). He
begins to view money as an end in itself, or telos, which is inconsistent with his initial
focus on money as a means (Meikle 96). Aristotle emphasizes that activities that are
directed toward different ends indicate that the activities are different things (Meikle 47).
Exchange value, for Aristotle, becomes one of economics versus ethics
where only one can prosper (Meikle 109). According to Meikle however, Aristotle’s
discussion is not as clear as he had intended (92). Over time, Meikle states, Aristotle’s
C-M-C and M-C-M are no longer separable units with different ends but rather, could be
perceived as having the common end of making money due to the separation of C-M-C
into C-M and M-C (Meikle 93). Aristotle’s discussion of money then focuses on the
means or the origins of money as well as the end or the telos of money; the origins when
he emphasizes that “he who thus considers things in their first growth and origin, whether
a state or anything else, will obtain the clearest view of them” and the telos of money
when he considers that the commodity exchange develops into an unlimited accumulation
or desire for money (Aristotle 7; Meikle 96).
The duality of origins and telos, ethics versus economics, is repeated in modern
day marketplace activities as corporations struggle to manage issues such as outsourcing,
executive compensation, and pay for performance programs. A second type of ethical
Malcolm 3
versus economic conflict is resolved through government intervention such as tax law,
mandated family leave policies, equal pay and non-discrimination policies as well as
mandated safety standards for the workplace. A third type of ethical and economic
conflict, corporate social responsibility (CSR), operates more subtly through programs of
social responsibility. Organizations participating in activities defined as CSR programs
are sacrificing potential profits and investment dividends for shareholders in lieu of
advancing environmental, community, human rights, corporate governance and corporate
diversity issues.
The moral and social responsibilities of the corporation in society are intertwined
with the actions of the government in the economy (Cameron and Neal 285)2.
Historically, until the mid-20th century, the government took a “laissez faire” or a “handsoff” approach to business and rules regarding property, contract and honesty were
ambiguous (Bowen 20)3. This is often referred to as the Classical approach to economics.
Individual freedoms were broad, government intervention was minimal and competition
was the control for self-interest (Bowen 20). The governmental “laissez-faire” approach
to business changed as a result of developments within the economy and society (Bowen
20). The decline in death rates, trend toward urbanization, peak rates of immigration,
war, economic turmoil, and technological advancements contributed to the changing
2
The late Rondo Cameron was the William Rand Kenan Professor of Economics and History at Emory
University. Larry Neal was a Professor of Economics at the University of Illinois at Urbana-Champaign
when he co-authored the text, A Concise Economic History of the World: From Paleolithic Times to the
Present.
3
Howard R. Bowen was a Professor of Economics at Williams College when he authored the text Social
Responsibilities of the Businessman. The text is part of a larger study of Christian Ethics and Economic
Life which was initiated by the Department of the Church and Economic Life of the Federal Council of the
Churches of Christ in America in 1949. The Federal Council merged with other agencies to form the
National Council of the Churches of Christ in the United States of America that was comprised of 29
Protestant and Orthodox church bodies within the United States. The project began in 1949 under a grant
from the Rockefeller Foundation.
Malcolm 4
relationship between government and the corporation (Cameron and Neal 317-338).
Other factors that precipitated the changing relationship were the growth of large
corporations, the introduction of professional managers in lieu of owners, periods of
unemployment; non-existent broad scale social programs for the sick or disabled, nonexistent programs for retirement or old age, exploitation of natural resources, disregard
for social costs of economic activity, and an increasing trend toward materialistic and
individualistic consumption (Bowen 21).
Business management, by the 1950’s, had changed significantly from the
management at the turn of the century. The business managers were now salaried,
professional, managers with a different vantage point than the owner-managers of earlier
times (Bowen 99, 104). In addition, these managers were subject to increasing scrutiny
of public opinion and discovered the long-term self-interest of adopting business policies
that coincided with publicly accepted standards (Bowen 104). For these reasons, the
1950’s businessmen began to alter decisions in consideration of the economic and social
effects (Bowen 28).
Businessmen cooperated with government in formulating and executing public
policy (Bowen 28). For example, beginning in the late 1950’s, chief executives of
corporations such as General Electric, Sears, Roebuck, du Pont, U.S. Steel, American
Telephone and Telegraph, and International Business Machines, delivered an annual
series of McKinsey lectures, at Columbia University’s Graduate School of Business
Administration for the purpose of exploring larger issues of value and ideology
(Cavanagh 63)4. These companies all had some degree of success and security amongst
4
Gerald Cavanagh was associated with Wayne State University when he authored the text, American
Business Values in Transition.
Malcolm 5
competition and could afford to take a long term view of larger issues, yet these
businessmen were not specific about the duties that were associated with general issues
and ideologies (Bowen 67, 82).
During the 1960’s and 1970’s, some executives changed their messages to include
tones of responsibility and social awareness coincident with large scale organizations,
though everyday actions often contradicted this message (Cavanagh 64). Other
executives believed only in the power of the public relations associated with socially
responsible actions (Anshen 5).5 A third group of business leaders disagreed with
socially responsible initiatives and preferred that government authorities impose socially
responsible legislation so as not to be criticized for decisions related to the balance of
investment and operating costs (Anshen 1). The third group delayed action entirely,
because initiatives for social responsibility ran in opposition to the corporate philosophy
in favor of less government (Anshen 21).
As corporate social responsibility (CSR) evolved, economist Milton Friedman
recognized the contradiction of social responsibility and free enterprise business
objectives; the national dialogue on ends and means (Anshen 5)6. He argued that the
source of the money for socially responsible behavior was the shareholders, in the form
of lost profits; the customers, in the form of higher prices; and the employees, in the form
of reduced wages (Anshen 6). Friedman actually argued that socially responsible
behavior erodes the foundation of the capitalist economy unless the behavior has some
connection or financial advantage to the company advocating CSR (Anshen 5).
5
Melvin Anshen edited the text Managing the Socially Responsible Corporation, when he was the Paul
Garrett Professor of Public Policy and Business Responsibility in the Graduate School of Business at
Columbia University.
6
Milton Friedman is the Paul Snowden Russell Distinguished Service Professor Emeritus in Economics at
the University of Chicago.
Malcolm 6
By the early 1970’s, American society experienced a negative shift in the public
opinion of institutions and business leadership (Cavanagh 136-137). The country had
lapsed into a general mode of divisiveness and disenchantment resulting from inflation,
recession, the energy crisis, and the political climate of the country (Cavanagh 137-138).
The American people were without a common sense of purpose and guidance which
resulted in a loss of confidence in the major centers of power within American society, a
loss of satisfaction in the depersonalized and hierarchical business organization, a loss of
community resulting from increased mobility of the workforce and women joining the
workforce, a loss or realization that natural resources are limited, and a loss in commonly
accepted values such as the Protestant ethic and delayed gratification (Cavanagh 146154). The effects of uncertainty in American society resulted in a backdrop of general
“malaise and pessimism” within which the corporate leaders were operating (Cavanagh
156-157).
The pessimistic corporate consumer found a representative with conviction, in
Ralph Nadar, who challenged the safety of the American automobile (Cavanagh 157).7
Nadar started an activist mentality that extended beyond the automobile industry to the
South African activities of Caterpillar, General Electric, and Phillips Petroleum and the
shareholder nomination procedures of Xerox (Cavanagh 159-160).
The corporate response to activism and the changing role of the consumer, was to
ignore the challenges as being temporary, to sell capitalism and free enterprise in lieu of a
good offensive argument, or to integrate new values into corporate goals in an effort to
meet the new needs of society (Cavanagh 166). Some of the business executives began
7
Ralph Nader, in his 1966 book Unsafe at Any Speed, challenged the safety of the American automobile.
This book placed the auto industry on the defensive, resulted in a General Motors investigation of Nadar
and a subsequent apology and out-of-court settlement by General Motors for activities against Nadar.
Malcolm 7
to acknowledge their role in the responsible use of power as well as the role of the
organization and its policies within the context of a larger society (Cavanagh 101). The
question became not how to react to proposed changes but rather how to develop socially
responsible policies in conjunction with sound business policies (Anshen 9). Companies
were being asked to refrain or lessen price increases, invest in environmentally
responsive equipment that reduced returns on investment, provide special training for the
unemployed, ensure promotions of minority groups, contribute to charitable
organizations, and to maneuver through the maze of countries that followed objectionable
human rights practices (Anshen 3). The company was being asked to make ethical
choices within an economic framework; the practicality of such a request is troublesome
and the desirability questionable. The U.S. Chamber of Commerce issued the statement,
“if business corporations are to adjust to continually changing demands for social as well
as economic performance, they must do something more fundamental than respond to the
proposals of others. Business must restructure its objectives so that social goals are put
on a par with economic goals” (Anshen 36)8.
For the business managers in support of CSR, the practical questions focused on
how to broach the subject with the board of directors, where to situate the CSR programs
within the management hierarchy, and what type of CSR performance motivation
initiative to implement for middle management (Anshen 9). CSR implementation details
about who should act, how many companies should act, and the type of legislative
support needed further complicated the idea of CSR (Anshen 17).
8
This editorial comment was in response to an essay by Courtney C. Brown, Dean Emeritus of the
Graduate School of Business, Columbia University.
Malcolm 8
For business managers who object to CSR, economist Friedman, economist
Baumol, and Danley, the arguments for corporate involvement in moral issues related to
social responsibility are weak and pose potential dangers to society. William Baumol,
Princeton University Professor of Economics, asserted that corporations are too quick to
concern themselves with social concerns and that a corporate consciousness may be
desired but little more (Anshen 59-60).9 Baumol notes that the primary purpose of a
business is to make money for stockholders and sees no argument to the contrary
(Anshen 60).
Danley agrees and illustrates using the outline and detail developed by the
Committee on Economic Development (CED) as a premise for his discussion (210213).10 In 1971, the CED developed a policy statement and list of obligations for
corporations with no premise or argument, saying only that, “The great growth of
corporations in size, market power, and impact on society has naturally brought with it a
commensurate growth in responsibilities; in a democratic society, power sooner or later
begets equivalent accountability.” (Danley 213).11 Danley cites the misnomer, to which
William J. Baumol was a Joseph Douglas Green ’95 Professor of Economics at Princeton University
when he contributed his comments to the Anshen text, Managing the Social Responsible Corporation.
Baumol defined CSR from the perspective of an economist; the economist “is more concerned than the
individual executive is likely to be about the total performance of the system and about relationships among
firms that affect their decisions in allocating and using resources. Looking through the economist’s
assessment, we can gain insights into management problems and ways of responding to them that can be
related, in turn, to the aggregate economic response of the business system to the society in which it
functions” (Anshen 59).
10
John R. Danley was associated with Southern Illinois University when he prepared the text, The Role of
the Modern Corporation in a Free Society. The text is part of the series, Soundings: A Series of Books on
Ethics, Economics, and Business. The Council on Economic Development was comprised of executives
from AT&T, General Motors, Heinz, Newsweek, Inland Steel, United Fruit, Caterpillar, Owens-Illinois,
General Electric, Morgan Stanley & Co., and 3M. Academic advisors included Alfred J. Chandler, Jr.,
Richard Eells, Richard M. Cyert, Fritz Malchup, Charles Schultz then of the Brookings Institute, Walter W.
Heller of the University of Michigan, and Carl Kaysen the director of the Institute for Advanced Study at
Princeton University (Danley 210).
9
11
In summary, the CED summary statement originally contained comments related to the changing social
contract with business, the evolving corporate institutions and managerial outlook, enlightened self-interest
Malcolm 9
CSR supporters subscribe, as the notion that professional managers may be willing and
able to exercise discretion in aspiring to short versus long-term profits with the intent to
simultaneously pursue CSR’s (215). The implication being that pursuit of multiple social
and economic goals of the various constituents will lead to long-term profitability and the
satisfaction of CSR’s. (Danley 215). He argues that there is no way to test such a claim
nor is there any CED description for the type of system that would support the competing
interests; ethics versus economics (Danley 215).
Baumol proposes that CSR is best accomplished through economic initiatives,
such as the implementation of costly fines for environmental pollution violations (Anshen
60-61). At the same time, he also acknowledges that business should not sabotage
regulatory efforts and should cooperate in the design of economic sanctions so as not to
have them interfere with the business economy (Ashen 61). Regarding the apparent
inconsistency in his position, Baumol notes that his process of “meta-voluntarism” avoids
the risk of business interests infiltrating social policy and that the adoption of
economically oriented incentives would ensure that all competitors were operating within
the same market structure (Anshen 70). 12
Baumol further highlights the potential danger to society if business managers
were to use financial resources to influence social and political activities (Anshen 61).
He discusses the complications if CSR were to realize its full potential, such as, the
selection of appropriate CSR goals, the potential for CSR goals to conflict with generally
conceived societal goals of the government and capitalist economy (Anshen 61). Baumel
and the corporate stake in a good society, widening parameters of social performance, and the government-business partnership for social progress (Danley 211). In the summary statement, the CED argued
that the public demands that corporations play a part in alleviating social ills (Danley 211).
12
Baumol refers to “meta-voluntarism” as the cooperation of business in the design and implementation of
measures that are involuntary (Anshen 70).
Malcolm 10
also notes that CSR companies would be at a competitive disadvantage against those who
do not take such action, and for that reason he encourages the use of price mechanisms to
ensure all corporations are competitive within a given industry (Anshen 63-64). He
views the price mechanism as an extension of the profit system, one that protects a
company from accusations of criminal activity if society is compensated for corporate
actions, a system that protects each corporation from undercutting of others in the same
industry and one that avoids direct controls from the government, that is, the government
would not detail a formula for daily company operations (Anshen 65).
Danley disagrees with Baumol on the extent of government involvement as
evidenced in his discussion of the CED position of “enlightened self-interest” (216).
According to Danley, enlightened self-interest is not referring to the laissez faire of
classical economics and Adam Smith, but rather government involvement to “guide
economic activity toward major public objectives, as determined by the political process,
when these cannot be achieved through the normal working of the marketplace” (Danley
216). Danley rejects the underlying implication of the CED that private business and
society develop a unified vision toward the goodwill of society though he notes one
attempt to do so in the IRS tax code exclusions for corporate charitable contributions
(217-218).
Danley argues that the intention to blend the two interests lacks moral argument
for CSR, and notes that the CED itself recognizes this situation when they retreat slightly
in their posture saying that management, “must concern itself with realizing a level of
profitability which its stockholders and financial market consider to be reasonable under
the circumstances’” (219). The lack of moral argument for CSR, combined with the CED
Malcolm 11
statement of recognition in favor of profit maximization, is the weakness of the CSR
argument which, according to Danley, poses subsequent challenges for Revisionist
Liberalism, Keynesianism, and pluralism (Danley 222). According to Danley, these
factions have the unenviable task of demonstrating the ability of competing tensions to
exist, tensions between ethics and economics; the moral legitimacy of more than a
“minimal state” coupled with government interference in the market are “consistent
with the commitment to liberty and human development” (Danley 222 ).
Though Danley acknowledges that the world has changed since the 1970’s, he
says, “as yet there is no good reason to believe that the role of the firm should be other
than profit maximization, even with an active government” (232). Cavanagh notes that
performance is exactly the premise on which companies were judged (178). He suggests
that the terrain of society has changed however, and though companies may still be
judged on performance, the definition of performance has changed to reflect the values of
a different society (Cavanagh 177-178). Performance, according to Cavanagh, is defined
as the return on investment and increased productivity, but is also determined by
adherence to clean air and water standards, observation of safety in the workplace and
humane working conditions, and the creation of durable products of quality (178). This
type of revolutionary change in the structure of the modern corporation, and the
coinciding moral changes are stressed by the Micro-Managerialists (Danley 163).
The Micro-Managerialists emphasize the independence of the professional
manager in making discretional decisions within an organization that has a diversified
stock ownership (Danley 167-168). This view of managerial independence, in a
Malcolm 12
“stakeholder model, identifies organizations as social-political entities instead of legaleconomic entities as described in Classical model of economics (Danley 163).
Managerial ideology is contrasted against the Classical by George C. Lodge who
bases the comparison on the Lockean Five (Danley 161).13 Lodge characterizes the
Classical ideology using five ideas; individualism as the basis for the economy and
society, property rights as one of the key rights of the individual in pursuit of the good
life, competition-consumer desire as the right of individuals to control their own property
in pursuit of their own individual self-interest, limited state or governmental involvement
other than to protect citizens from harm, and scientific specialization and fragmentation
that focuses on the parts of society with the idea that the whole will take care of itself
(Danley 161). The Managerialist ideology is characterized by communitarianism that
focuses on community, rights and duties of membership that blurs the lines between
public and private, community need that replaces self-interest as a regulator for society,
planning state that reflects an active government that does more than protect citizens
from harm, and holism-interdependence that emphasizes the interrelatedness of things as
opposed to specializations (Danley 162).
Danley insists that the principles advocated by the Managerial framework were
never defended but are being embraced as legitimate based on some version of “ethical
conventionalism” (248). Ethical conventionalism says that “whatever values and
principles a society adopts are the morally correct ones for that society “(248). Danley
suggests that the acceptance of normative positions is a form of Prescriptive Pluralism; a
procedural or process argument that asserts the outcome of morally legitimate procedures
13
George C. Lodge develops the Lockean Five in The New American Ideology. Danley notes that the new
list of Managerialist ideology contains no guidance for implementation and that Lodge provides no
substantial reasoning as to why the new ideology should be accepted.
Malcolm 13
are morally legitimate though he ultimately concludes that, like Managerialism,
Prescriptive Pluralism is not morally defensible (249, 266).
In the absence of any morally defensible argument, modern day organizations and
transnational organizations are nonetheless attempting to develop a response to the
dilemma between means and ends; origins and telos; ethics and economics. A recent
survey of 450 large companies from Europe, North America and Asia showed, that while
CSR has not yet been well defined, a majority of the participating organizations had
adopted formal policies regarding internal elements of CSR and a major of the supply
chain related external components of CSR.(Welford 34-37)14 The internal CSR elements
defined by the survey focused on non-discrimination, equal opportunity, fair wages,
vocational education, freedom of association, and human rights within the organization
(Welford 38). External components focused on labor standards, child labor, human
rights, suppliers, local protection, stakeholders, fair trade, indigenous people and ethics
(Welford 38). Accountability components of the survey included stakeholder
involvement in dialogue and reporting on CSR activities (Welford 38). Citizenship
activities included campaigns for raising social issues and development, education for the
promotion of corporate citizenship, and support for third party social development
initiatives (Welford 38). The survey was based on email questionnaire responses to about
policies in each of 20 CSR elements that focused on internal, external, accountability, and
citizenship components (Welford 35).
14
The Richard Welford, deputy director of the Corporate Environmental Governance Programme at the
University of Hong Kong, authored the 2004 survey and paper entitled, “Corporate Social Responsibility in
Europe, North America and Asia” published in The Journal of Corporate Citizenship, Spring 2005 issue.
The survey encompassed 20-30 large companies in 15 countries including Europe, North America and
Asia. A 2002 survey was also completed and published by Welford and that CSR survey included 20 large
companies in 12 countries in Europe, United Kingdom, and Asia.
Malcolm 14
European and North America were comparable in their response to questions of
internal CSR; Asia demonstrated a strong incidence of external CSR specifically in
policies pertaining to ethics, bribery, and corruption; accountability components were
60% in Europe and 48% in North America; philanthropy was highest in North America
and significantly lower in Europe and Asia (Welford 41). Policies specific to North
America, including Canada and Mexico, revealed well developed internal CSR elements
in Canada and the U.S. but not Mexico (Welford 48). External CSR elements revealed
the highest development of policies in Canada and the lowest in Mexico (Welford 48).
The most common policies focused on areas of child labor, supply chain inspection and
local community development (Welford 48). Relatively low incidence of reporting
policies exist in North America though the reverse is true for third party support for CSR
projects (Welford 48).
The intent of the survey was to portray “best practice” and to provide a
benchmark for those considering the adoption of CSR policies (Welford 50, 52). Large
companies were chosen specifically because these organizations were deemed to be
leaders in CSR practices (34).
As highlighted by the CSR survey, corporate philanthropy is becoming
increasingly relevant to business operations as companies recognize the components of
CSR programs and begin to implement their own initiatives in corporate volunteerism,
giving, community service, educational initiatives and a variety of other programs (Bruch
and Walter 49).15 Bruch and Walter advocate for attending to the CSR programs in a
manner befitting the core business as a way to enhance the profitability of business
15
Heike Bruch is a professor of leadership at the University of St. Gallen in Switzerland. Frank Walter is a
research associate at the same university.
Malcolm 15
operations and to simultaneously benefit individual members or groups in society (50).
“Companies must direct their charitable engagement from both an ethical and an
economic point of view” as opposed to an either/or mandate (Bruch and Walter 50).
According to Bruch and Walter, however, CSR programs do not always fare well
because companies fail to properly administer their CSR program (54). There are several
critical steps to exercise in monitoring a CSR initiative such as the need to track the
impact of the program goals, to integrate CSR performance with overall company
performance, to define exit options for programs that may not be achieving intended
goals, to formalize philanthropic programs so that a designated beneficiary or group is
targeted as the recipient for a particular CSR program, and to recognize or publicize the
good deeds or programs within the stakeholder community (Bruch and Walter 55).
Recent corporate accounting scandals of Enron and WorldCom are examples of
the most fundamental failure of ethical values within an organization and the failure of
the stakeholder theory against fraud and deception (Carson 389)16. Deceptive accounting
practices, arguably, resulted in increased stock prices and the laissez faire attitude of
capitalism and the self-interest motives of the invisible hand actually encouraged the
continuation of such practices (Carson 392). While CSR programs should include a
stated policy or policies against such deceptive practices, the burden of moral
enforcement is often placed on managers within the organization (Carson 389). The lack
of performance monitoring or lack of coordinating CSR program goals with overall
company performance contributed to the failures at Enron and WorldCom.
16
Thomas Carson is Professor of Philosophy at Loyola University in Chicago.
Malcolm 16
Other examples of potential CSR program failures are evident in executive plans
for cash and benefit compensation; the executives benefit at the expense of the “common
good,” sometimes regardless of overall company performance (Carson 392).
Similarly, short term compensation goals for employees are sometimes structured in such
a way as to inadvertently promote creative accounting practices in an effort to achieve
bonus pay (Carson 392). The ethics and economics are in direct competition in these
circumstances.
The design of a CSR program is critical to the achieving desired outcomes and
to establishing some balance between the ethics and economics of an organization.
Bruch and Walter emphasize that some companies design philanthropic (substituted here
for the term CSR program) initiatives based on market orientation to improve the
corporate competitive position, while other companies implement programs that focus on
internal initiatives that complement the core competencies of the company (50). In some
cases, companies choose to develop a combined approach to CSR programs but all
generally can be categorized as peripheral, constricted, dispersed, or strategic, depending
on the degree to which the program is oriented to the market or to the competence of the
organization (Bruch and Walter 51).
Companies with peripheral philanthropy programs have designed programs to
meet stakeholder expectations for the purpose of improving position in a competitive
market (Bruch and Walter 51). Companies who employ this type of program may benefit
from stimulated customer demand due to enhanced reputations, but these types of
programs are often viewed with suspicion as being superficial (Bruch and Walter 51).
Constricted philanthropy is designed to connect charitable activities with primary
Malcolm 17
products and markets at the expense of neglecting stakeholder needs (Bruch and Walter
51). These may be most appropriate in an urgent situation to solve an unusual or
catastrophic event such as responding to the tragedy of the World Trade Center (Bruch
and Walter 52). Dispersed philanthropy lacks strategic direction and company activities,
and rationale for the activities are not communicated clearly to top executives or
employees (Bruch and Walter 52). Strategic philanthropy is the most effective approach
and combines internal as well as external initiatives by applying uniform professional
management skills to profitable, as well as charitable, corporate programs (Bruch and
Walter 53). This approach, as might be expected, is more difficult and time consuming
but the potential for reward is much greater when activities are executed proficiently
(Bruch, Walter 53). Bruch and Walter cite IBM’s “Reinventing Education” grant
program as a classic example of strategic philanthropy that aimed to improve the school
systems and initiate education reform in the United States (53). The program provided
communication links between homes and schools, provided professional development for
teachers, and provided student assessment and data management analysis (Bruch and
Walter 53). Strategic philanthropy creates situations where stakeholders benefit, the
company benefits, CSR recipients benefit, and the employees benefit (Bruch and Walter
53).
An additional 100 CSR program success stories were recently published in the
online journal of Business Ethics (Business-ethics.com, “100 Best Corporate Citizens for
2005”)17. The list was published for the sixth year and the possible pool of citizens
17
Upon origination, the survey list was drawn from 650 firms used in the socially screen Domini Index,
plus 150 other firms that were selected for industry balance. In 2003, the survey expanded to cover the
Russell 1,000, or the 1,000 largest publicly traded U.S. firms. In 2003, the data was changed from a three
year average score to a one year rating that included seven stakeholder groups. The eighth stakeholder,
Malcolm 18
included the 1,000 largest publicly traded firms based on a one year rating involving
eight stakeholder groups (Business-ethics.com, “100 Best Corporate Citizens for 2005”).
The stakeholder groups included shareholders, community, minorities and employees,
environment, human rights, customers, and governance (Business-ethics.com, “100 Best
Corporate Citizens for 2005”). Four of the 100 best corporate citizens are highlighted in
order to illustrate the use of CSR programs as a bridge between ethics and economics18.
In all cases, the positive financial return to stockholders is combined with formal CSR
programs as a form of reconciliation between ethics and economics.
Cummins, Inc. was names number one in the 2005 list and has made the list every
year since the survey inception six years ago (Cummins.com). The 85-year old company
is headquartered in Indiana and designs, manufactures, distributes, and services engines
and related technologies (Cummins.com). The organization employs more than 28,000
worldwide and serves customers in more than 160 countries and territories through a
network of 550 company-owned and independent distributor locations as well as more
than 5,000 dealer locations (Cummins.com). Cummins, Inc. averaged a 77.4 percent
return to stockholders over the last two years, provides philanthropic educational and
medical aid to Brazilian residents, provided seed money for community projects in
Mexico, sponsored local educational refurbishments, explicitly defines the moral values
overriding corporate operations, and explicitly defines the corporate governance
principles for the Board (Cummins.com). The formal CSR program includes three
governance, was added in 2005. Firms were awarded strengths and concerns based on eight variable scales
that were standardized for reporting purposes. The final list is prepared based on the unweighted
standardized scores, in addition to information regarding social scandals or other outlying data that may be
a factor in the final rating. Data compilation is completed by KLD Research & Analytics, Boston, MA.
The underwriter of the project was Xerox Corporation (Business-ethics.com).
18
This sample list of companies was selected at random to represent a variety of industry types.
Malcolm 19
primary areas of focus: community involvement, corporate donations, and activities of
the Cummins Foundation that celebrated its 50th anniversary in 2004.
Cisco Systems, Inc. was founded in 1984 by a small group of computer scientists
from Stanford University and the Cisco engineers are industry leaders in the development
of Internet Protocol (IP) networking technologies (Cisco.com). In addition, Cisco
recently received the U.S. State Department award for Corporate Citizenship in
recognition of educational programs, in Jordon, that advance math and technology for
youth (Cisco.com). The company employs 34,000 worldwide and is committed to
delivering value in the form of hardware, software, and technical support services
(Cisco.com). The dedication to CSR is described in the first ever, “Corporate Citizenship
Report” for fiscal years 2004 and 2005 that describes Cisco internal and external CSR
initiatives (Cisco.com)19. Internal initiatives include employee networking, explicit
corporate value statements, employee diversity, and work-life programs and external
initiatives including constituent surveys, supply chain diversity through the Cisco
Supplier Diversity Business Development Program that was established 14 years ago, and
supply chain management programs that were recently designed to address human rights
and environment issues in suppliers from developing countries (Cisco.com).
Two specific Cisco CSR programs are: the Cisco Networking Academy that was
initiated in 1997 as a network online support program for high schools and has evolved
into an educational program with more than 458,000 students attending 10, 257
academies in 157 countries, and a corporate community investment program developed in
2000 by Cisco Australia/New Zealand when the company joined with The Smith Family
19
Some of the Cisco CSR initiatives were implemented during the last one to two years while other
initiatives have existed for up to 14 years. The company never published a report of activities until 2005
(Cisco.com).
Malcolm 20
charity to develop a program of educational support for 7,000 disadvantaged students
(Redmond 71-73). The program currently assists over 22,000 students and developed a
precedent for business-community partnership arrangements in Australia/New Zealand.
All of these programs were voluntarily started by Cisco whose net income has
doubled since 2002 (Cisco.com). In addition, recent annual report information shows
shareholder return per share increased 28% between 2003 and 2004.
Genentech, Inc. was founded in 1976, employs over 9,000 full time employees,
and manufactures and commercializes multiple biotechnology products in the United
States in addition to licensing some products to other companies (Genentech.com). The
CSR program includes community, diversity, environmental, supplier, ethics, and
governance components. The community involvement, for example, resulted in over $76
million of Genentech products being provided to uninsured and underinsured patients
during 2004, in addition to education programs (Genentech.com). Environmental
programs focus on research about the connection between the environment and health
issues. Quality and ethics components are present throughout the CSR program
including supplier relations (Genentech.com). According to the 2004 Annual Report,
Genenetch experienced a 38% increase in the net earnings per share from 2003 and
overall net income increased 40% over 2003.
Starbucks Corporation has a CSR program that includes ethics, diversity,
community, supplier, environmental, and governance components and all were
highlighted in the third annual Corporate Social Responsibility Fiscal 2003 Annual
Report. The report details programs in each of the above areas and talked about
partnership with employees, diversity in the workplace, employee training, supplier
Malcolm 21
diversity, investment in social programs for coffee-farming villages, fair prices and
favorable payment terms to coffee farmers based on respective cost of living conditions,
and corporate recognition awards for CSR efforts (Starbucks CSR FY 2003 Annual
Report). The website information and FY2004 annual report contain similar messages
about the importance of heritage, innovation, strength in people (Starbucks.com). At the
same time, Starbucks reported comparable store sales growth of 10% from 2003 to 2004,
record net income and net earnings from 2003 to 2004 with increases of 30% and 46%
respectively, and net earnings per share increasing 42% over 2003 (Starbucks.com)
Other companies have sought to balance competing ethical and economic desires
by manufacturing quality products, albeit that those products are sent to market at a price
that pays for the quality. Attempts to answer Aristotle’s Delphian Knife complaint are
illustrated by H.J.Heinz, Waterford Wedgwood plc, Allen-Edmonds, and L.L.Bean20.
These companies may not be charging a rate of exchange that is commensurate for their
product but, as Aristotle concluded, commensurability of unlike goods cannot be
determined (Meikle 21). The products manufactured over the long histories of the
respected companies are testimony to the quality. These companies are able to satisfy the
competing economic and ethical goals of profit and quality because of increased demand
by consumers, new technology that improved production efficiency, and the willingness
of consumers to pay for the product.
H.J. Heinz Company is a global U.S.-based food company that holds number one
and two positions in more than 50 countries (Heinz.com).21 The organization is a leader
in the manufacture and sale of ketchup, condiments and sauces, selling nearly $3.3 billion
20
This list of companies producing quality products was selected randomly to represent various industry
types.
21
Malcolm 22
worldwide in 140 countries (Heinz.com). The top 15 power brands account for 64% in
annual sales (Heinz.com). The company was founded in 1869 in Sharpsburg, PA and
currently operates in the Americas, Europe, Asia, Middle East, Pacific Rim,and Africa
(Heinz.com). The founder believed, “To do a common thing uncommonly well brings
success” and the company continues to operate under that belief (Heinz.com). The
company has a variety of CSR program components including a statement of values,
corporate governance, industry networks, diversity, environment, and nutrition programs
in addition to the programs funded by the Heinz Foundation (Heinz.com).
Wedgwood was founded in 1759 and Waterford in 1783 in England and Ireland
respectively (Waterford.com).22 Waterford Wedgwood plc was formed in 1986 with the
merger of Waterford Crystal and Wedgwood China. The company has adapted to meet
marketplace challenges, as evidenced in the merger, but many products continue to be
hand crafted by people who have apprenticed for a minimum of several years within the
organization (Waterford.com). The labor intensive process is reflected in the prices of
the products but customer demand is sufficient to sustain the company.
Allen-Edmonds, a men’s shoe manufacturer, was started in Wisconsin in 1922
(Allen-Edmonds.com)23 The manufacturer upgraded production based on technological
22
Waterford Crystal started in 1783 when George and William Penrose founded the crystal manufacturing
business in Waterford, Ireland (Waterford.com). The company operates today on a 40-acre site in
Waterford, Ireland (Waterford.com). Wedgwood China was started in 1759 by Josiah Wedgwood in
England (wedgwoodmuseum.org). Josiah Wedgwood V, the last family member to hold stock, said before
his death in 1968, “our founder left us a social obligation, which can only be fulfilled by maintaining high
standards in the quality not only of our pottery, but about human relations – with employees, customers,
suppliers and competitors” (wedgwoodmuseum.org). In 1998, the company acquired an 85% share in
Rosenthal AG, Selb, Germany (now an 89.9% share). In 1999, All-Clad of Cannonsburg, PA jointed the
Waterford Wedgwood Group, as did W-C Designs of Anaheim, CA in 2001 (Waterford.com). The
company is represented in 80 countries and employees approximately 9,000 employees and the
headquarters is in Dublin, Ireland (Waterford.com).
23
Allen-Edmonds was purchased in 1980 and is managed by the owner, John Stollenwerk. He notes, the
company embraced the internet and other technologies but never lost sight of the traditions that made the
company unique; a balance between tradition and innovation.
Malcolm 23
advances but simultaneously focuses on employee welfare, as demonstrated in 2000
when the company opted to reinvest $1.5 million into upgrading facilities instead of
outsourcing positions offshore (Allen-Edmonds.com). Results of this reinvestment were
a 30% increase in productivity and a decrease in damages of 14% (Allen-Edmonds.com).
L.L.Bean started in 1911 and began his business by working out of the basement
of his brother’s apparel shop (llbean.com)24. The owner guaranteed quality and
satisfaction, corrected product defects, and continues to serve the customer in the same
revolutionary way as initially designed (llbean.com). The company expanded outside of
Maine for the first time in 2000 and in 2001 the leadership was passed to a non-family
member (llbean.com). The company values espouse customer service and guaranteed
quality in addition to other CSR program components (llbean.com). The company CSR
program includes a charitable giving program for conservation and recreation programs,
funding of educational initiatives, funding of health and human service organizations as
well as contributions to the arts (llbean.com).
All of the organizations described in this paper have developed a CSR programs
to emphasize ethics while maintaining competitive stance in the marketplace; balancing
ethics and economics. Arguably, the CSR programs are only possible due to the
profitability of the company and their desire to attain what Aristotle terms “unnatural
24
The company started when Leon Leonwood Bean asked a local cobbler to stitch leather uppers
to workmen’s rubber boots that would be more functional for adventures in the woods (llbean.com). 24 The
company was modernized significantly in 1967 with computerization of market information and more
modern distribution facilities. In 1976, the company started to accept credit cards which made shopping
available 365 days a year.
Malcolm 24
wealth,” but the programs represent a balance between corporate ethics and economics as
suggested by the “Doctrine of the Mean” that was presented by Aristotle and implied in
Politics.
Malcolm 25
Works Cited
Allen-Edmonds.com. Allen-Edmonds Shoe Corporation. 3 December 2005.
http://www.allenedmonds.com/webapp/wcs/stores/servlet/
Anshen, Melvin ed., Managing the Socially Responsible Corporation. New York:
Macmillan Publishing, 1974.
Aristotle. Politics. Trans. Benjamin Jowett. N.p.: NuVision Publications, 2004.
Bowen, Howard R. Social Responsibilities of the Businessman. Ethics and Economic
Life. New York: Harper & Brothers, 1953.
Bruch, Heike and Frank Walter. “The Keys to Rethinking Corporate Philanthropy.”
MIT Sloan Management Review 47.1(2005): 49-55. Proquest. Duquesne
University Gumberg Library. 23 November 2005.
Business-ethics.com. “100 Best Corporate Citizens for 2005.” Business Ethics Magazine
Online Spring 2005. 2 November 2005
http://www.business-ethics.com/whats_new/100best_2005.html.
Cameron, Rondo E. A Concise Economic History of the World: from Paleolithic Times
to the Present. New York: Oxford UP, 2003.
Carson, Thomas L. “Self-Interest and Business Ethics: Some Lessons of the Recent
Corporate Scandals.” Journal of Business Ethics 43 (2003): 389-394. Proquest.
Duquesne University Gumberg Library. 20 November 2005.
Cavanagh, Gerald F. American Business Values in Transition. Englewood Cliffs:
Prentice-Hall: 1976.
Cisco.com. Cisco Systems Inc. 20 November 2005.
http://www.cisco.com/web/about/index.html.
Malcolm 26
Cummins.com. Cummins Inc. 2 November 2005. http://www.cummins.com.
Danley, John R. The Role of the Modern Corporation in a Free Society. Soundings: A
Series of Books on Ethics, Economics, and Business. Notre Dame: U. of Notre
Dame P: 1994.
Gene.com. Genentech, Inc. 2 November 2005. http://www.gene.com/gene/about/.
Heinz.com. H.J.Heinz Company. 20 November 2005.
http://www.heinz.com/jsp/about.jsp
Llbean.com. L.L.Bean, Inc. 15 November 2005.
http://www.llbean.com/customerService/aboutLLBean/
Meikle, Scott. Aristotle’s Economic Thought. Oxford, Eng.: Clarendon, 1995.
Redmond, Louise. “Cisco Systems, Global Programme: Local Impact.” The Journal
of Corporate Citizenship 17 (2005): 69-78 Proquest. Duquesne University
Gumberg Library 5 December 2005.
Starbucks.com Starbucks Corporation 10 November 2005
http://www.starbucks.com/aboutus/overview.asp
Starbucks Corporate Social Responsibility Fiscal 2003 Annual Report. Seattle:
Starbucks Coffee Company, 2004.
Waterford.com. Waterford Wedgwood U.S.A. Inc. 15 November 2005.
http://www.waterford.com/about/aboutus.asp
Wedgwoodmuseum.org. Wedgwood Museum. 15 November 2005.
http://www.wedgwoodmuseum.org.uk/josiah_v.htm
Malcolm 27
Welford, Richard. “Corporate Social Responsibility in Europe, North America and
Asia.” The Journal of Corporate Citizenship 17 (2005): 33-52. Proquest.
Duquesne University Gumberg Library. 23 November 2005.