CHAPTER TWENTY-THREE

Management and the Quality of Life

THE “SOCIAL RESPONSIBILITIES OF BUSINESS” have been discussed for a century. Indeed, a chapter or two on social responsibility—or some similar heading—can be found in almost any text on general management.

But since the early sixties the meaning of the words “social responsibility of business” has changed radically.

Earlier discussions of social responsibilities of business centered in three areas. One was the perennial question of the relationship between private ethics and public ethics. To what extent are you as a manager in charge of an organization beholden to the ethics of the individual and to what extent does your responsibility to the organization permit you—or perhaps even compel you—to resort to privately unethical behavior for the good of your organization? The text for this discussion, consciously or not, is an old epigram of the politicians: “What scoundrels we would be if we did in our private lives what we do in our public capacity for our countries.”

The second major topic was the social responsibility which employers bear toward their employees by virtue of their power and wealth.

Finally, social responsibility was the term used to assert—or assign—leadership responsibility of business people with respect to the “culture” of the community; support of the arts, the museums, the opera, and the symphony orchestra; service as a trustee on the boards of educational and religious institutions, and also giving money to philanthropic and other community causes. And in the United States in particular, willingness to serve in governmental or quasi-governmental positions has become in this century an important social responsibility of the executive.

By and large the traditional approach was not concerned, as it claimed to be, with the social responsibility of business but with the social responsibility of business people. And the greatest emphasis was put on what they should or might contribute outside of business hours and outside their businesses.

After World War II there was increasing emphasis on the contribution of business. But this was a result of tax laws which, on the one hand, slowed down the accumulation of large fortunes by individuals, and on the other hand encouraged and made highly attractive charitable contributions on the part of a company. The emphasis otherwise remained unchanged. Where an earlier generation had looked to the “rich businessman” to endow a hospital, post-World War II big business was expected to support worthy causes. Emphasis was still on outside “causes” rather than on the behavior and actions of business itself.

When social responsibilities are being discussed these days, however, the emphasis is quite different. It is on what business should or might do to tackle and solve problems of society. The emphasis is on the contribution business can make to such social problems as racial discrimination and racial integration in the United States, or on the maintenance and restoration of the physical environment. One of the best examples of the new attitude comes from Sweden.

Several large Swedish companies, especially ASEA, the big electrical-apparatus company, were harshly attacked in the late sixties in the Swedish press for participating in a major electric-power project in Africa. The project was sponsored by the UN and financed by the World Bank; it also had been endorsed by the socialist government of Sweden. Its purpose was to raise the living standards of a desperately poor region of Black Africa. But it was located in a Portuguese colony. Hence, it was vehemently argued, the Swedish companies participating in it “supported colonialism” by helping to raise the standards of living of the native population. It was their duty, so the argument ran, to work for the “downfall of colonialism,” which would best be achieved by keeping the natives desperately poor rather than have them prosper under an “imperialist exploiter.”

The most extreme assertion of social responsibilities of business is perhaps a statement made during the sixties by the Mayor of New York City, John Lindsay.

The Mayor called on the big corporations of New York City to “adopt” a Black ghetto neighborhood and to make sure that the people in that neighborhood would have the necessities of life, would get education, and would get jobs. He then added that he hoped that these major corporations would also make sure that each Black family had a man in the house who would be husband to the wife and father to the children.

Only ten years earlier one could not have imagined anyone, not even the most extreme “leftist” or “progressive,” berating business for its refusal to nullify the foreign policy of its own government (and a socialist one to boot) or for shunning paternalistic control over the sex life of citizens who were not even employees.

This new concept of social responsibility no longer asks what the limitations on business are, or what business should be doing for those under its immediate authority. It demands that business take responsibility for social problems, social issues, social and political goals, and that it become the keeper of society’s conscience and the solver of society’s problems.

But increasingly such social responsibility is also being demanded of non-business institutions in society. Universities, hospitals, and government agencies, but also learned societies, whether of physicians, historians, or linguists, are all increasingly being confronted with similar demands and attacked for not assuming responsibility for society’s ills and problems.

In the early sixties student riots against the university arose out of student grievances. But the student riots of 1968 that almost destroyed Columbia University in New York City were sparked by complaints that the university had failed to take full social responsibility for the neighboring Black community of Harlem and had failed to subordinate its own educational goals to the alleged needs of Harlem’s hard-core unemployables.

What Explains It?

The most popular and most obvious explanation is the wrong one. It is not hostility to business that explains the surge of demands for social responsibility. On the contrary, it is the success of the business system which leads to new and, in many cases, exaggerated expectations. The demand for social responsibility is, in large measure, the price of success.

In developed countries we now take economic performance for granted. This has led to the belief that there is, or should be, universal capacity for economic performance. It has led us to believe that the same efforts which, within a century, lifted one-third of humanity from poverty into affluence can in much less time raise the remaining two-thirds into affluence, or can at least bring them into rapid economic development.

Less than two generations ago, in the years around World War I, poverty was still taken for granted as the universal condition. No one then assumed economic development to be the rule. It was considered an exception. What was considered surprising in 1900, or even in 1950, was not that India remained poor. Indeed anyone who would then have talked about the economic development of India would have been considered inane. What was exceptional, and truly surprising, was that Japan had managed to break out of the all but universal poverty of humanity and to start on the road to development. Today lack of development is considered the exception and the “problem.” And no matter how rapid development is—e.g., in Brazil since World War II—it is considered inadequate because it does not transform an entire country, within one generation, from extreme misery to comfortable affluence.

No one, only two generations ago, expected poverty to disappear, even in the developed and wealthy countries at that time. Few people today would believe the descriptions and illustrations in the first systematic survey of the poor in what was then the world’s richest city, London, which Charles Booth published just before the turn of the century. Only the horror stories that come out of Calcutta equal them today. Yet, to contemporaries, the London poor of the

1890s seemed so affluent by comparison with the conditions described and illustrated twenty years earlier, that Marx’s partner, Friedrich Engels, in reissuing in 1896 his earlier The Conditions of the Working Classes in England, was forced to admit that his and Marx’s earlier prophecy of the increasing “pauperism” of the “proletariat” could no longer be maintained.

In particular, the poverty that is most offensive to us today, that is, poverty in the midst of affluence, was then taken for granted. No one in the nineteenth or early twentieth centuries expected pre-industrial immigrants into the industrial cities to be other than poor, destitute, incompetent, and wretched. No one expected a rapid transformation of the slums of industrial Lancashire or of the industrializing Vienna in Austria around 1900. All anyone expected was a little humanity to assuage the worst of the suffering, and a little charity. At best there were attempts to help a few of unusual endowment and personal ambition to raise themselves out of abject destitution. To the orthodox Marxist even this was sentimental romanticism. Following his master he considered these people Lumpenproletariat and incapable of improving themselves either individually or collectively.

Nothing in earlier social and economic history equals the recent economic and social development of the American Negro. Within twenty years, from 1950 to 1970, two-thirds of one of the least prepared and most disadvantaged of pre-industrial immigrants into modern civilization have risen from extreme poverty into middle-class status. They have acquired competence and jobs. A larger proportion of their children acquire higher education than of the children of older immigrant groups in the city, such as Italians or Poles who encounter no “racial” barrier.

Admittedly the American Negro is a very special problem. But still, the difference between what was considered success only a half century ago and what is now considered grim failure illustrates the extent to which success has changed expectations. Even rather well-to-do “middle-class” people yesterday had only little of the qualities of life we now expect routinely.

The apartment buildings of the late nineteenth century still stand in most European cities. They are hardly “good housing”—airless and dark, with mean little flats, five floors high without elevator, heating—a coal or wood stove—only in the “parlor,” and with one tiny, grimy bathroom for a family of seven. Yet they were built for the new middle classes. Health care was almost nonexistent, education beyond the elementary level a privilege of the few, the newspaper a luxury. And no matter how serious an environmental problem the automobile poses in today’s big city, the horse was dirtier, smelled worse, killed and maimed more people, and congested the streets just as much.

And life on the farm, that is, life for the great majority, was, if anything, poorer, dirtier, more dangerous to life and limb, and more brutish.

As late as 1900 or 1914 quality of life was a concern only of the few rich. To all the others it was “escapism” that could be permitted in the syrupy romances that sold by the millions. Reality, however, was the numbing daily struggle for a little food, a dreary job and enough money to pay the premium on burial insurance.

That we can worry about the qualities of life is thus very great success. And it is only right and natural that the same leadership groups which were responsible for the success in providing the quantities of life are expected to assume the responsibility now for providing the quality of life.

The same reason explains the demand for social responsibility on the part of the university. For the university too is a success story of the twentieth century.

“If science can tell us how to put an astronaut on the moon,” the student activists of the sixties said again and again, “it surely can tell us how to create a decent environment, save our cities from drugs, make marriages happy and children enjoy school. If it doesn’t, the only explanation must be ‘wrong value priorities’ or malicious conspiracy.”

To be sure, these arguments are naive. But they are not irrational. The clamor for social responsibility expects too much. But it expects the right things. Its root is not hostility to authority, but overconfidence in managers and management.

The Disenchantment with Government

On top of this comes the growing disenchantment with government, the growing disbelief in government’s ability to solve major social problems.

Only a generation ago the people who now demand social responsibility from business (or the university) expected government to be able to take care of every problem of society, if not of every problem of the individual as well. There is still, in all countries, pressure for more and more government programs—though there is also growing resistance to more and more expenditures and taxes. But even the most fervent advocate of an activist government no longer truly expects results, even in countries where respect for and belief in government are still high, such as in Japan, Sweden, and Germany. Even the most fervent advocate of a strong government no longer believes that a problem has been solved the moment it has been turned over to government. As a result, the people most concerned with these problems, the liberals and progressives who, a generation ago, rallied under the banner of “more government,” now increasingly look to other leadership groups, other institutions, and, above all, to business, to take on the problems which government should but is not able to solve.

Robert Kennedy, rather than the National Association of Manufacturers, proposed that the rehabilitation of the slums in the big American cities be taken on by business. And one of the staunchest and most respected advocates of government activism, and America’s leading labor union theoretician, the late Frank Tannenbaum of Columbia University, at the very end of his life, in the spring of 1968, proclaimed that the multinational corporation was “the last best hope” and the only foundation of a peaceful world.

The New Leadership Groups

Altogether it is the succession of management to the leadership position in society that underlies the demands for social responsibility.

In this century the managers of our major institutions have become the leaders in every developed country, and in most developing countries as well. The old leadership groups, whether the aristocracy or the priesthood, have either disappeared entirely or have become insignificant. Even the scientists, the priest-hood of the post-World War II period, have lost much of their prestige. The only new leadership groups to emerge are managers, managers of business enterprise and of universities, of government agencies and of hospitals. They command the resources of society. But they also command the competence. It is, therefore, only logical that they are expected to take the leadership role and take responsibility for major social problems and major social issues.

As a result of these shifts—the emergence of managers as the major leadership group; the growing disenchantment with government, and the shift in focus from the quantities of life to the quality of life—the demand has arisen that managers, and especially business managers, make concern for society central to the conduct of business itself. It is a demand that the quality of life become the business of business. The traditional approach asks, “How can we arrange the making of cars (or of shoes) so as not to impinge on social values and beliefs, on individuals and their freedom, and on the good society altogether?” The new demand is for business to make social values and beliefs, create freedom for the individual, and produce the good society.

This demand requires new thinking and new action on the part of the managers. It cannot be handled in the traditional manner. It cannot be handled by public relations.

Public relations asks whether a business or an industry is “liked” or “understood.” Public relations would therefore be worried that Black Power advocates blame the profit motive for the ghetto, and that they presumably like business just as little as they like any other part of the white establishment. But what really matters is that the Black Power leaders expect business to perform miracles with respect to ghetto employment, ghetto education, ghetto housing; and they expect these miracles virtually overnight. The relevant questions are: “Can business tackle these huge problems? How? Should business tackle them?” These are not questions which public relations is equipped to handle.

Three Cautionary Tales

Books and magazines these days are full of horror stories of “business irresponsibility,” of “greed,” and “incompetence.” There is no doubt that there are irresponsible, greedy, and incompetent managers and businesses. Managers, after all, are members of the human race. But the real problems of social responsibility are not irresponsibility, greed, and incompetence. If they were the problem would be easy. One could then set forth standards of conduct and hold business to them. Unfortunately the basic problems of social responsibility are different. They are problems of good intentions, honorable conduct, and high responsibility—gone wrong.

This can be illustrated by three “cautionary tales.”

Union Carbide and Vienna, West Virginia

West Virginia, never one of the more prosperous areas of the United States, went into rapid economic decline in the late twenties as the coal industry, long the state’s mainstay, began to shrink. The decline of the coal industry was hastened by rising concern with mine accidents and miners’ diseases. For many of the coal mines of West Virginia were small and marginal and could not afford modern safety precautions or adequate health protection.

By the late 1940s the leading industrial company in the state became alarmed over the steady economic shrinkage of the region. Union Carbide, one of America’s major chemical companies, had its headquarters in New York. But the original plants of the company had been based on West Virginia coal, and the company was still the largest employer in the state, other than a few large coal mines. Accordingly, the company’s top management asked a few young engineers and economists in its employ to prepare a plan for the creation of employment opportunities in West Virginia, and especially for the location of the company’s new plant facilities in areas of major unemployment in the state. For the worst afflicted area, however, the westernmost corner of the state on the border of Ohio, the planners could not come up with an attractive project. Yet this area needed jobs the most. In and around the little town of Vienna, West Virginia, there was total unemployment, and no prospects for new industries. The only plant that could possibly be put in the Vienna area was a ferroalloy plant using a process that had already become obsolete and had heavy cost disadvantages compared to more modern processes such as Union Carbide’s competitors were already using.

Even for the old process, Vienna was basically an uneconomical location. The process required very large amounts of coal of fair quality. But the only coal available within the area was coal of such high sulfur content that it could not be used without expensive treatment and scrubbing. Even then—that is, after heavy capital investment—the process was inherently noisy and dirty, releasing large amounts of fly ash and of noxious gases.

In addition, the only transportation facilities, both rail and road, were not in West Virginia but across the river, on the Ohio side. Putting the plant there, however, meant that the prevailing westerly winds would blow the soot from the smokestacks and the sulfur released by the power plants directly into the town of Vienna, on the other bank of the river.

Yet the Vienna plant would provide 1,500 jobs in Vienna itself and another 500 to 1,000 jobs in a new coal field not too far distant. In addition, the new coal field would be capable of being strip-mined, so the new mining jobs would be free from the accident and health hazards that had become increasingly serious in the old and worked-out mines of the area. Union Carbide top management came to the conclusion that social responsibility demanded building the new plant, despite its marginal economics.

The plant was built with the most up-to-date antipollution equipment known at the time. Whereas even big-city power stations were then content to trap half the fly ash escaping their smokestacks, the Vienna plant installed scrubbers to catch 75 percent—though there was little anyone could do about the sulfur dioxide fumes emitted by the high-sulfur coal.

When the plant was opened in 1951, Union Carbide was the hero. Politicians, public figures, educators, all praised the company for its social responsibility. But ten years later the former savior was fast becoming the public enemy. As the nation became pollution-conscious, the citizens of Vienna began to complain more and more bitterly about the ash, the soot, and the fumes that floated across the river into their town and homes. About 1961 a new mayor was elected on the platform “fight pollution,” which meant “fight Union Carbide.” Ten years later the plant had become a “national scandal.” Even Business Week—hardly a publication hostile to business—chastised Union Carbide (in February, 1971) in an article entitled “A Corporate Polluter Learns the Hard Way.”

There is little doubt that Union Carbide’s management did not behave very intelligently. They should have realized in the early sixties that they were in trouble, rather than delay and procrastinate, make and then break promises—until the citizens, the state government, the press, the environmentalists, and the federal government all were aiming their biggest guns at the company. It was not very smart to protest for years that there was nothing wrong with the plant and then, when governmental authorities began to get nasty, announce that the plant would have to be closed as it could not be brought up to environmental standards.

Yet this is not the basic lesson of this cautionary tale. Once the decision had been made to employ an obsolescent process and to build an economically marginal plant in order to alleviate unemployment in a bitterly depressed area, the rest followed more or less automatically. This decision meant that the plant could not make enough money to modernize its equipment. There is very little doubt that on economic reasoning alone the plant would never have been built. Public opinion forced Union Carbide to invest substantial sums in that plant to remedy the worst pollution problems—though it is questionable whether the technology exists to do more than a patch-up job. Publicity also forced Union Carbide to keep the plant open. But, once the spotlight shifts elsewhere, most of the jobs in the Vienna, West Virginia, plant are likely to disappear again, if indeed the plant remains open at all.

Swift do Argentina and Deltec

The Swift meat-packing plant in the Buenos Aires port district has been the largest meat-packing plant in Argentina for many years. It has also been a major employer in a poor area of Buenos Aires. Originally a subsidiary of Swift of Chicago, the company became independent, though still under American ownership, shortly after World War II.

But the Argentinian meat-packing industry fell on evil days after World War II—in part because of government measures that have been driving up the price of Argentinian cattle, while cutting down the supply, thus making Argentinian beef increasingly non-competitive in the world market and depriving meat-packers of their source of raw materials. Swift became increasingly unprofitable. The owners finally sold out in 1968 to a Canadian-based “multinational,” Deltec, a company that is active in many parts of Latin America, primarily in financial service businesses. Deltec promptly started to modernize the Swift plant to make it competitive again. But the Argentinian meat-packing industry continued on its decline.

Swift’s two major competitors, both foreign-owned, decided in the late sixties to close down. They paid off the workers according to Argentinian law and went out of business. Deltec, however, decided that it could not afford to do this in view of its many other interests in Latin America. It had to maintain employment in an area where unemployment was far too high anyhow. Deltec worked out an agreement with the labor unions under which employment was substantially cut and productivity greatly improved. The company poured substantial amounts of money into the plant and used its financial connections to obtain foreign bank loans for it. Still the meat business in Argentina did not improve.

By 1971 Swift had used up all the capital Deltec could make available to it and was still not back on a profitable and competitive basis. Thereupon Swift worked out a voluntary agreement with the creditors, including the company’s workers, for full repayment of all debts over an extended period—with Deltec being the last creditor to receive any payment. Eighty-six percent of the creditors, far more than required by law, accepted this agreement. But to everyone’s surprise the Argentinian judge, whose approval had been expected as a mere formality, turned the agreement down. He decided that Deltec had obtained it improperly, declared Swift do Argentina bankrupt, ordered its liquidation, and asked the Argentinian government to appoint a liquidator. In effect he expropriated the company and its property. He not only refused to recognize any rights of Deltec as a creditor but decided that all Deltec holdings in other Argentinian companies be impounded as security for Swift’s debts to Argentinian creditors.

There was no public pressure for such an action—and no legal pressure either. The Swift workers, although members of the most militant of Argentinian unions, fully supported Deltec. Yet the decision found tremendous approval in Argentina, even among people who by no stretch of the imagination could be considered antibusiness or even anti-American. “The other foreign-owned meat-packers,” a good many people said, “did the right thing in closing down their plants and paying off their workers when they could no longer operate economically. Deltec, by trying to keep going, raised expectations which it then cruelly had to disappoint.”

Civil Rights and the Quaker Conscience

In the late 1940s a major American steel company appointed a new general manager for its large southern division, located in one of the most strongly “white supremacy” areas in the South. Traditionally, all top-management positions in that division had been held by Southerners. The new appointee was a Northerner. Moreover, he was a scion of one of the old Philadelphia Quaker families and had been active in several civil rights organizations.

Upon his appointment top management called him in and said, “We know what we are doing and why we are appointing you. To be sure, your performance has earned this promotion. But you are also a Northerner and committed to employment equality for the Black people. And this, of course, is what both the laws of the United States and our union contract demand of us. Yet, as we all know, our southern division has never given employment opportunities to Blacks. No Black, however skilled, no matter what his or her job, has ever been paid more than ‘helper’s’ wages. We have never been able to make a dent in this down south. But we know that we will not be able much longer to defend and to keep up these practices. We expect you, therefore, to move as fast as you can for civil rights for our Negro employees, as the laws of the country and our union contract demand. Try to get the support and cooperation of the top people in the union which represents our workers. We know that you have been working with them in several civil rights organizations.”

The new general manager spent about a year getting accepted by his new associates, getting known in the local community, and establishing friendly relations with the union leaders in the mill. Then he saw his opportunity. A new major extension to the mill was about to be opened, and a number of new furnaces had to be staffed. The new general manager strictly applied the hiring provisions of the union contract. As a result, a small but still substantial number of Black workers with high job skills and considerable seniority got positions on the new crews. In no case was a white worker deprived of his seniority rights or put under a Black supervisor.

The morning after the new staffing tables had been posted, as required by the union contract, a delegation of local union leaders called on the general manager. “You know that there are several hundred grievances,” they said, “which have been pending for far too long a time without a settlement. The patience of our men is exhausted. We are going out on strike in thirty-six hours. But we don’t want to be unreasonable. If the company makes even a token gesture of goodwill, we will postpone this strike. All you have to do is to suspend those staffing tables you just posted, and let us, together with the supervisors, work out the composition of the crews for the new furnaces. In the meantime, here is the official strike notice as required by our contract.”

The general manager first tried to reach the president and the general counsel of the union. Unaccountably, neither could be found, nor did their secretaries know where they could be reached or when they would return. Then the general manager bethought himself of an old friend, one of the “sages” of the Quakers and a “radical” on race relations, and especially on employment opportunities for Blacks. But to the general manager’s immense surprise, the “sage” was not one bit sympathetic with his plight. “I fully agree with you, as you know, in considering employment discrimination against the Negro to be illegal, immoral, and sinful,” the sage said. “But what you have done, while legal, is just as immoral. You have used the economic muscle of a big company to impose your mores and values on the community in which you operate. Yours are the right mores and the right values. But still, you are using the economic power of a business, the power of the employer, and the authority of your office to dictate to the community. This is ‘economic imperialism’ and it cannot be condoned, no matter how good the cause.”

The general manager resigned and took another job up north. The company quietly dropped the staffing tables. The mills remained open. And a few years later, needless to say, the company came under bitter attack—in which the union’s general counsel joined loudly—for its failure to take leadership in race matters. As the biggest employer in the community, the critics charged, the company had a social responsibility not to condone practices which it must have known to be both illegal and immoral.

Managers: The Leadership Group for Social Responsibility

Clearly, the demand for social responsibility is not as simple as most books, articles, and speeches on the subject make it out to be. But it is not possible to disregard it, as such distinguished economists as Milton Friedman of Chicago have urged. To be sure, Friedman’s argument that business is an economic institution and should stick to its economic task is well taken. There is danger that social responsibility will undermine economic performance and with it society altogether. There is surely an even greater danger that social responsibility will mean usurpation of power by business managers in areas in which they have no legitimate authority.

But it is also clear that social responsibility cannot be evaded. It is not only that the public demands it. It is not only that society needs it. The fact remains that in modern society there is no other leadership group but managers. If the managers of our major institutions, and especially of business, do not take responsibility for the common good, no one else can or will. Government is no longer capable, as political theories still have it, of being the “sovereign” and the “guardian of the common good” in a pluralist society of organizations. The leadership groups in this society, and this means the managers of the key institutions, whether they like it or not—indeed whether they are competent or not—have to think through what responsibilities they can and should assume, in what areas, and for what objectives.

If there is one moral to these cautionary tales, it is not that social responsibility is both ambiguous and dangerous. It is that social impacts and social responsibilities are areas in which business—and not only big business—has to think through its role, has to set objectives, has to perform. Social impacts and social responsibilities have to be managed.