Over the last fifty years, the dogma of “corporate social responsibility” has become the favorite tool of American liberals to cajole and shame the owners and managers of corporations into adopting major features of their liberal social agenda. John Hood has written this book to attack this dogma and defend the moral way in which the vast majority of American businesses are run.
One assumption behind the liberal dogma is the alleged conflict between a corporation’s commitment to profit-seeking for its shareholders and what liberals view as the business world’s propensity to overlook or reject important ethical and social responsibilities. Liberals seem to believe that the people who own and manage corporations will do almost anything to make a profit, including destroying the environment, cheating their customers, and taking advantage of their workers. Instead of thinking first of maximizing return to owners and shareholders, companies that are operated in a “responsible” way will make the attainment of various social goals as important or more important than profit-seeking.
Corporate Social Responsibility
Hood contends that the people who own and manage businesses do not need governmentally mandated incentives to support and promote social progress. When the facts are examined, he argues, it is clear that the vast majority of these people have handled their corporation’s affairs in morally and socially responsible ways. Hood’s book is full of examples of such activity, including preserving the environment, revitalizing inner cities, enhancing worker safety, and promoting family values. Corporations have helped to bring about important advances for workers, families, consumers, and their communities. The owners and managers of many American businesses were busy creating jobs, expanding educational opportunities, and supporting family values long before any ivory tower liberal dreamed up the idea of corporate social responsibility.
Besides meeting the moral obligations Americans typically expect all citizens to observe, management’s primary responsibility is to the firm’s shareholders. The pursuit of the highest return to shareholders provides important guidance as managers select their priorities from available options. For example, what should corporations do with unexpected revenues? Should they be passed on to consumers in the form of lower prices, spent to raise wages for employees, given to shareholders in the form of higher dividends, or donated to local charities?
Who Are Our Heroes?
The title of Hood’s book summarizes nicely what he views as the major task of his work. Someone once said you can tell a lot about a person by learning who his heroes are. For most Americans these days, their “heroes” provide fleeting entertainment on an athletic field, movie screen, or television set. For a few, the “heroes” are champions of this or that radical cause, the pursuit of which seriously compromises important human liberties and places harmful obstacles in the path of the few people in our society who are willing to assume the risks and make the sacrifices that have significantly improved the quality of life in America and solved major human problems. The fact that so few of us think of a business career as a heroic enterprise reveals a lot about the success of liberalism’s negative propaganda.
In Hood’s words, “most of the good things that happen in this world can only happen because somebody else is also generating wealth.… There is no way you have educational communities in this country, there is no way you have hospitals, there is no way you have homes for the aged, there is no way you have the social programs that deal with poverty and all, unless you’re also generating wealth.” While this may seem like a marvelously uncomplicated idea, it has yet to occur to one large group of people running for political office.
Hood provides numerous examples from many walks of life that show how American business “creates jobs, treats workers fairly, supports educational innovation, trains employees, contributes to the health of cities, discovers new drugs and medical treatments, makes workplaces and products safer, conserves resources, invents ways to save energy and reduce or eliminate waste, gives women and minorities unparalleled economic opportunities, and contributes to the stability and quality of life of families. It does all these things not in spite of its search for the highest possible return to shareholders, but because of it.”
Hood contends that wise owners and managers will understand the importance of properly moral behavior: “American businesses contribute to the progress and well-being of society because they must. If firms mistreat workers, they cannot be productive. If firms ignore issues of education and skills among young people, they will not be productive in the future. If they discriminate against women and minorities, they pay the price in the market for employees and for consumers. If they ignore the wastes they generate, they pay higher energy bills and disposal fees. Most importantly, if firms fail to take advantage of the opportunities they see to create new products or services to solve society’s problems, then they will surely lose profits to their competitors.” The incentives of the market are much more effective than those of government in promoting the common good.
Different Institutions, Different Roles
One of Hood’s more important arguments centers around the rather obvious fact that different institutions have different roles. While the purpose of government is taking and protecting things and the objective of charity is giving things away, the purpose of business is making and selling things. This means that social responsibility for a business is different from that of a government or charity. It is unwise and often harmful to attribute to businesses the social responsibilities of government or charities. When its owners or managers try to operate a corporation as if it were a government or charity, they risk harm both to the shareholders and to the common good.
According to Hood, the social responsibility of corporations should not be measured in terms of such things as layoffs, charitable donations, health insurance coverage, or racial quotas. Instead, the ethical questions that ought to be directed at corporations should focus on whether firms are earning their money through illegal activities involving force or fraud, whether the firm’s disposable income is being used in a productive manner, whether managers are utilizing worthwhile technology and strategies to compete for workers and customers, whether managers are avoiding discriminatory practices, and whether the training of workers helps them to be productive and safe. Businesses can indeed serve the broader public interest when they pursue their primary task, namely creating wealth for their owners and customers.
It is for these reasons that business is a heroic enterprise and worthy of our praise. Artificial and faulty notions of corporate responsibility only serve to obscure and hinder the truly beneficial products of commercial activity. Hood’s book offers an important corrective to the unfair and negative distortion of the corporate world that unfortunately now prejudices the thinking of so many Americans.