Public Responsibility in the Private Corporation

FOR the past 40 years, the enterprise system serving as the engine of the American economy has been increasingly modified by a doctrine of social responsibility. By 'social responsibility' we mean voluntary restraint of short-term profit maximization. This restraint, not required by law, is purportedly exercised in the public interest. It reflects a judgment by the managers of a corporation that their powers are ultimately subject to public expectations that extend beyond the stockholders' interest in profit. The emerging doctrine recognizes that the 'invisible hand' of competition, postulated in the Wealth of J[ations as the ethical balance wheel preventing the selfseeking of men striving against each other from harming the public does not adequately check the power of great corporations capable of shaping their environments. A central assumption of this adaptation of economic theory is that regulation by government, while to some degree essential under imperfect competition, is not sufficiently knowledgeable, subtle, or effective to reconcile the self-interest of corporate entrepreneurship and the needs of a society being soretried as well as served by economic activity. I should like in this paper to acknowledge the difficulties of specifying precisely this theory of social responsibility, to assert nonetheless its powerful impact upon management behavior, to defend its validity as a partial substitute for increased regulation of private enterprise by the state, and to indicate how consideration of the public interest is brought into the strategic planning and policyformulation processes of the professionally managed corporation. The evolution of the American economic system, the security of the franchise granted by the American public to the private firm, the relationship between the individual and the company for which he works, and the very quality of national life will be crucially affected by the extension in practice of the concept of social responsibility. The subject is above all controversial. The American public is generating these days a passionate interest in consumer protection, rescue of the environment from pollution, and social justice. Even shareholder meetings are disturbed by insistence upon corporate involvement in these movements. Although the proponents do not command majorities in the voting of shares, they have alerted institutional holders of corporate securities, who own 40 per cent of securities listed on American exchanges, to the need to take stands.