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The social responsibilities of business are many and profound

By Noel Preston - posted Friday, 15 June 2001

Though it may be an expression of private enterprise, business is not an activity of isolated individuals. Business owes its existence to society. Whether we are talking about the corner store or a gigantic transnational corporation, business is a social practice with implications for the public good. The social responsibility of business is therefore a fundamental element in business ethics; at least this is what this discussion will attempt to demonstrate.

The view that business has no social responsibility beyond that of making profits for its stockholders has been vigorously proposed by Chicago economist Milton Friedman. For him, "there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud". Friedman is even opposed to businesses contributing to charity or other social causes (unless those actions contribute to the business and its profitability). The basis of his view is that company directors have a fiduriary responsibility to stockholders to maximise profits and to act otherwise is, in effect, stealing which moves away from the free market approach toward socialism. He endorses William Vanderbilt: " The public be dammed. I’m working for my stockholders". In effect, he is also summoning a narrow role morality to buttress his position: the role of the business person is to develop a profitable business, not to be a legislator or a social reformer, or even a good corporate citizen.

The argument against this view is that, even within the parameters of a capitalist economy, a much wider understanding of the nature of business is required. The proposal is that business sometimes has social responsibilities that conflict with, and override, the responsibility to maximise profits. Arguably, companies that withdrew from the South African economy as an action against apartheid were exercising social responsibility in spite of its effect on profits. On the other hand, an international satellite television service withdrew news on human rights abuses because it offended a government on which the company depended for television rights to about a billion people. In that case it would seem that consideration of profits overrode social responsibility.


While Friedman’s view rests on several half-truths, it overstates the capacity of the free market to correct itself and to work for the wider public good. It is a nonsense to suggest, as he implies, that all steps which maximise profits are socially beneficial. In fact to focus narrowly on profits as the aim of business is misleading. Though a business aims to be profitable, it does so only by supplying quality goods and services, while providing employment and relating to its community. Business lives off, and impacts upon, the society in which it operates (and for some corporations that society is global). Because business interacts with society, questions of job creation and fair pricing, for example, are matters of integrity for business. Of course, no issue exemplifies the need for social responsibility by business better than the environment, because, as we know, some business activities have an enormous capacity to damage the life support systems of Earth. There is no acceptable justification for business, as moral agents, to respond to the environmental crisis in a minimal way and only under the duress of legal sanction. Business, like the rest of the community, is not exempt from the injunction to value life. Proactively sustaining the environment, as an ethical imperative regardless of law, is a new bottom line for commerce.

Solomon invokes the term "stakeholder" to dismiss Friedman’s argument that the ethical responsibilities of business stop with stockholders:

"The stakeholders in a company are all of those who are affected and have legitimate expectations and rights regarding the actions of the company, and these include the employees, the consumers and the suppliers as well as the surrounding community and the society at large. The virtue of the concept is that it greatly expands the focus of corporate concern, without losing sight of the corporation itself. Social responsibility, so considered, is not an additional burden on the corporation but part and parcel of its essential concerns . . ." (in P.Singer, A Companion to Ethics, p360-1).

Fitting, ethical business decisions based on the comprehensive range of concerns indicated by Solomon require an approach consistent with the ethic of response; that approach endorses the need to respect life, act fairly and be true to obligations with the wider community. While an ethic of response applied to business includes the so-called micro-concerns, it will also introduce a critical perspective which incorporates a broad social responsibility. Social responsibility is arguably a constituent of business best practice. Business ethics which fails to serve the common good and the public interest is unethical, chiefly because it fails to understand that business, like all human activity, is dependent on life’s interconnectedness.

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This is an edited extract from Noel Preston’s book "Understanding Ethics", which was republished in July 2001.

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About the Author

Dr Noel Preston is Adjunct Professor in the Griffith University Key Centre for Ethics, Law, Justice and Governance. He is the author of Understanding Ethics (20O1, Federation Press, Sydney), and several texts on public sector ethics. His web page can be found here.

Noel Preston’s recent book is Beyond the Boundary: a memoir exploring ethics, politics and spirituality (Zeus Publications).

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