CHAPTER TWENTY-FIVE

The Limits of Social Responsibility

THE MANAGER IS A SERVANT. As a manager your master is the institution you manage and your first responsibility must therefore be to it. The first task is to make the institution, whether business, hospital, school, or university, perform the function and make the contribution for the sake of which it exists. Anyone who uses the 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 university erodes through neglect, is not a leader. Such managers are 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 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 workers. A university which fails to prepare tomorrow’s leaders and professionals is not socially responsible, no matter how many “good works” it engages in.

The first “limitation” on social responsibility is, therefore the higher responsibility for the specific performance of the institution which is the manager’s master. This needs particular stress with respect to the business enterprise, the economic institution of society. Any solution of a social impact or of a social problem except to make it into an opportunity for performance and results creates social overhead costs. These costs cannot be borne out of profits, no matter what popular rhetoric may say. They are paid for either out of current costs— that is, by consumer or taxpayer—or they are paid for out of capital—that is, by fewer and poorer jobs tomorrow and impaired standards of living. The only way to cover costs and to accumulate capital is through economic performance. All other satisfactions of society are being paid for, one way or another, out of the surplus between current production and current consumption, that is, out of the surplus of the economy.

This again underscores the responsibility of managers to anticipate problems and to think through the trade-offs involved in their solutions. At what point does a solution become prohibitively expensive for society because it impairs the performance capacity of existing and needed institutions, whether of the economy, of health care, of education, or of the military? What is the optimal balance between the need to take care of a social problem and the need to preserve the performance capacity of the existing social institutions? And at what point does one risk losing social performance—and thereby creating new and bigger problems—by overloading the existing institutions? At what point do we achieve the best balance between the old costs and the new benefits?

Managers need to be able to think through the limits on social responsibility set by their duty to the performance capacity of the enterprises in their charge.

In the case of the business enterprise this requires knowing the objectives in the key areas. For these objectives set the minimum performance goals for the attainment of the enterprise’s mission. As long as they can be attained, the enterprise can perform. If the objective in any one area is seriously jeopardized, the performance capacity of the entire business is endangered.

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 in terms of the “profit motive”—they will be able neither to make rational decisions with respect to social responsibilities, nor to explain these decisions to others inside and outside the business.

A popular pun these days says, “It is not enough for business do do well; it must also do good.” But in order to “do good,” a business must first “do well” (and indeed “do very well”).

Whenever a business has disregarded the limitation of economic performance and has assumed social responsibilities which it could not support economically it has soon gotten into trouble.

Union Carbide was not socially responsible when it put its plant into Vienna, West Virginia, to alleviate unemployment there. It was, in fact, irresponsible. The plant could barely keep its head above water. And this, inevitably, meant a plant unable to take on social responsibility, even for its own impacts. Because the plant was uneconomical to begin with, Union Carbide resisted so long all demands to clean it up. This particular demand could not have been foreseen in the late 1940s when concern with jobs far out-weighed any concern for the environment. But demands of some kind can always be expected. To do something out of social responsibility which is economically irrational and untenable is therefore never responsible. It is sentimental. The result is always greater damage.

Similarly, Deltec in Buenos Aires may be vulnerable to the charge that to keep a plant open when every other major meat-packer had reached the conclusion that the business could not survive was sentimentality rather than social responsibility. It was an assumption of responsibility beyond tenable limits. The intentions were good and honorable—as in Union Carbide’s case. It may be argued that Deltec took a calculated risk. Also, the outcome was far more the result of internal Argentinian politics than of anything Deltec did or omitted to do. Yet Deltec management took a greater risk than might be compatible with true social responsibility.

The same limitation on social responsibility applies to noneconomic institutions. There, too managers are duty-bound to preserve the performance capacity of the institutions in their care. To jeopardize it, no matter how noble the motive, is irresponsibility. These institutions too are capital assets of society on the performance of which society depends.

This, to be sure, is a very unpopular position to take. It is much more popular to be “progressive.” But managers, and especially 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.

The Limits of Competence

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

In particular an institution better refrain from tackling tasks which do not fit into its value system. Skills and knowledge are fairly easily acquired. But one cannot easily change personality. No one is likely to do well in areas which 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 and 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.

What not to do was demonstrated when the American universities in the sixties rushed into taking social responsibility for the problems of the big city. These problems are real enough. And within the university were to be found able scholars in a variety of areas with relevance to the problems. Yet the tasks were primarily political tasks. The values involved were those of the politician rather than the scholar. The skills needed were those of compromise, of mobilizing energies, and above all, of setting priorities. And these are not skills which the academician admires and respects, let alone excels in. They are almost the opposite of the objectivity and the “finding of truth” which constitute excellence in academia. These tasks exceeded the competence of the university and were incompatible with its value system.

The result of the universities’ eager acceptance of these tasks was therefore, inevitably, lack of performance and results. It was also damage to the prestige and standing of the university, and to its credibility. The universities did not help the problems of the city; but they seriously impaired their own performance capacity in their own area.

The major corporations in New York City would have acted totally irresponsibly had they responded to Mayor Lindsay’s call to “adopt the Black ghetto.” All they could have done (as they apparently realized) was damage—to the ghetto and to themselves.

What the limits of competence are depends in part on circumstances. If a member of a climbing team develops acute appendicitis in the high Himalayas and is almost certain to die unless operated on, any medical doctor in the group will operate, even though the doctor may be a dermatologist who has never done a single operation. The dermatologist, though a qualified physician, will be considered irresponsible and vulnerable to both a malpractice suit and a conviction for manslaughter, should he or she operate on an appendix in a place where a qualified surgeon, or even a general practitioner, are within reach.

Management therefore needs to know at the very least what it and its institution are truly incompetent for. Business, as a rule, will be in the 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 depths. 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, mobilization of community energies and structuring of power relations, business is unlikely 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 measurably 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 unemployable Black 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.

Before acceding to the demand that it take this or that social responsibility, and go to work on this or that problem, management better think through what, if any, part of the task can be made to fit the competence of its institution. Is there any area which can be defined in terms of tangible goals and measurable performance—as business managers understand these slippery terms? If the answer is yes, one is justified in thinking seriously about one’s social responsibility. But when the answer is no—and this will be the answer in a good many areas—business enterprise better resist, no matter how important the problem and how urgent the demand for business to take over. It can only do harm to society and to itself. It cannot perform and therefore cannot be responsible.

Limits of Authority

The most important limitation on social responsibility is the limitation of authority. 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 there-by assumes responsibility. But 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 where 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 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 grave suspicion. It is not responsibility; it is lust for power.

The position of the Chicago economist, Milton Friedman, that business should stick to its business, that is, to the economic sphere, is not a denial of responsibility. It can be argued with great force that any other position can only undermine and compromise a free society. Any other position can only mean that business will take over power, authority, and decision-making in areas outside of the economic sphere, in areas which are or should be reserved to government or to the individual or to other institutions. For, to repeat, whoever assumes responsibility will soon have to be given authority. History amply proves this.

From this point of view the present “critics” of big business can rightly be accused of pushing big business into becoming our master.

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, i.e., with responsibility for performance and contribution. The only question—apart from the accuracy of his facts and the style of his campaign—would be whether Nader’s demand for perfection is not going to cost the consumer far more than the shortcomings and deficiencies which Nader assails. The only questions are the trade-offs.

But Ralph Nader demands, above all, that big business assume responsibility in a multitude of areas beyond products and services. This, if acceded to, can lead only to the emergence of the managements of big corporations as the ultimate power in a vast number of areas that are properly some other institution’s field.

And this is, indeed, the position to which Nader—and other advocates of unlimited social responsibility—are moving rapidly. One of the Nader task forces published in 1972 a critique of the Du Pont Company and its role in the small state of Delaware, where Du Pont has its headquarters and is a major employer. The report did not even discuss economic performance; it dismissed as irrelevant that Du Pont, in a period of general inflation, consistently lowered the prices for its products, which are, in many cases, basic materials for the American economy. Instead it sharply criticized Du Pont for not using its economic power to force the citizens of the state to attack a number of social problems, from racial discrimination to health care to public schools. Du Pont, for not taking responsibility for Delaware society, Delaware politics, and Delaware law, was called grossly remiss in its social responsibility.

One of the ironies of this story is that the traditional liberal or left-wing criticism of the Du Pont Company for many years has been the exact opposite, i.e., that Du Pont, by its very prominence in a small state, “interferes in and dominates” Delaware and exercises “illegitimate authority.”

The Nader line is only the best-publicized of the positions which, under the cover of antibusiness rhetoric, actually plead for a society in which big business is the most powerful, the dominant, the ultimate institution. Of course such an outcome is the opposite of what Nader intends. But it would not be the first time that a demand for social responsibility has had results opposite from those intended.

The most likely result of the Nader line neither he nor management would want. It is either a destruction of all authority, that is, complete irresponsibility. Or it is totalitarianism—another form of irresponsibility.

Yet Milton Friedman’s “pure” position—to shun all social responsibility—is not tenable either. There are big, urgent, desperate problems. Above all, there is the “sickness of government” which is creating a vacuum of responsibility and performance—a vacuum that becomes stronger the bigger government becomes. Business and the other institutions of our society of organizations cannot be pure, however desirable that may be. Their own self-interest alone forces them to be concerned with society and community and to be prepared to shoulder responsibility beyond their own main areas of task and responsibility.

But in doing this they have to be conscious of the danger—to themselves and to society. They have to be conscious of the risk. No pluralist society such as ours has become, has ever worked unless its key institutions take responsibility for the common good. But at the same time, the perennial threat to a pluralist society is the all-too-easy confusion between the common good and one’s own lust for power.

In a few areas guidelines can be developed. It is not the task of business (or of the university) to substitute its authority for that of the duly constituted political sovereign, the government, in areas that are clearly national policy. In a free society a business is, of course, entitled not to engage in activities, even though they are sanctioned and even encouraged by governmental policy. It can stay out. But it is surely not entitled to put itself in the place of government. And it is not entitled to use its economic power to impose its values on the community.

By these criteria, the Quaker sage who chided his friend the steel-mill manager for using the economic power of a big company to impose a little racial justice on a southern U.S. city in the 1940s was right. That the end was surely right and moral does not sanction the means, that is, the exercise of an authority which a business does not possess. This is as much “imperialism” as any which the most fervent believer in racial equality denounces. The steel company can be faulted—deservedly so, I would say—for having done nothing for long years to work toward the racial justice in which it professed to believe. It can be faulted, and with cause, for not finding whatever possibilities for racial justice could have been put into practice. But two wrongs do not make a right, two examples of irresponsibility do not add up to responsibility.

When to Say No

Demands for social responsibility which in effect ask of business—or any other institution—that it usurp authority are to be resisted. They are to be resisted in business’s own self-interest; the usurper’s power is always shaky. They are to be resisted on grounds of true social responsibility. For they are, in effect, demands for irresponsibility. Whether they are made sincerely and out of honest anguish, or whether they are rhetoric to cloak the lust for power, is irrelevant. Whenever business, or any other of our institutions, is being asked to take social responsibility beyond its own area of performance and its own impact, it better ask itself, “Do we possess authority in the area and should we have it?” And if the answer is no, then the socially responsible thing is not to accede to the demand.

Yet in many cases it may not be enough to say no. Management must resist responsibility for a social problem that would compromise or impair the performance capacity of its business (or its university or its hospital). 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. And if management then has been purely obstructionist and has blocked any approach—even though its objection to any one proposed course of action was legitimate and indeed responsible—the ultimate solution is likely to do even more damage.

In a pluralist society responsibility for the common good is a central problem that is never solved. The only way concern for social responsibility could disappear would be for society to become totalitarian. For it is the definition of a total-itarian government that it has authority over everything and responsibility for nothing.

For this reason managements of all major institutions, including business enterprise, need too to concern themselves with serious ills of society. If at all possible they convert solution of these problems into an opportunity for performance and contribution. At the least they 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 managers 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 tackling tasks beyond their competence or by usurpation of authority in the name of social responsibility.