Moral Responsibilities of Corporations
Minimal Moral Responsibilities
You may recall from the previous page that Milton Friedman argues that corporations have no broad social responsibilities unrelated to making profits;however, in making that claim he recognizescertain basic moral responsibilities. Quoting from Capitalism and Freedom he states: "[T]here 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." Corporations, under his view, must do business in a way that follows basic rules against, for example, deception and fraud. Thesearebasic moral responsibilities.
Friedman’s view may be labeled a minimal notion of business moral responsibility. This view, briefly stated, is that business activities should make a profit consistent with basic moral responsibilities, such as avoiding deceit. Doing business without deception and fraudis consistent with the view that goods and services are most efficiently provided by fair competition. Efficiency depends on business transactions guided by the preferences of consumers and producers. If business transactions involve fraud and deception, then consumers may not get what they bargain for. This means that a consumer might not reach the level of preference fulfillment consistent with economic efficiency. In theory, an efficient competitive market optimally satisfies preferences, the main point behind market economic activity. Prohibitions against fraud and deception help to achieve efficient allocation of goods and services, the reason for endorsing the pursuit of profit as the prime responsibility of a business.
Although Friedman presents one minimal view of moral responsibilities, we might question whether he includes enough. In order to come to a conclusion about what should be included in minimum moral requirements of a business we turn to a brief examination of Challenger disaster. The reader might want to link to an extensive account by one of the engineers involved in the Challenger disaster, Roger Boisjoly who writes along with Ellen Curtis and Eugene Mellican. (“Roger boisjoly and the Challenger Disaster: The Ethical Dimensions”can be found on the Internet:
On January 28, 1986 the Space Shuttle Challenger exploded 73 seconds after launching, killing all seven crew members. (See Wikipedia’s overview of the disaster: The problem involved cold outside temperature which caused a rubber O-ring failure. O-rings are crucially important because they seal the joints of the solid rocket booster. The key point about the tragedy is that an engineer, Roger Boisjoly, previously warned management that the O-ring failure was likely if the launch took place under unusually cold Florida temperatures. Despite cold temperatures on January 28 and against the advice of Boisjoly, management approved the disastrous launch.
It appears that the Challenger disaster involves a deliberate compromise of safety. Let us assume that this amounted to deliberate and reckless risk. We know that recklessly doing harm or risking harm is typically prohibited, one way or another, in all major theories.(Consider, for example, Kantian deontology, utilitarianism, and rule theory.)Is it morally permissible for a business to act with reckless disregard ofpublic safety or the safety of its employees? That question would not be significant if asked about an individual because individuals are not morally permitted to deliberately act in a dangerous way. The question seems significant when raised about a business, which is not an individual and has making profit as its main goal. Even though the organizations involved in the Challenger disaster were doing business, it does make perfect to hold those businesses accountable, morally and legally, for their actions. In the case of the Challenger, there was a chain of command and group meetings about the 0-ring problem. So who is responsible? It might be best to hold any guilty individuals accountable, but if the organization as a whole set policies that led to harm, then it seems appropriate to hold the business itself accountable, both morally and legally.
We add to our small list of minimal moral requirements the moral injunction against deliberately doing harm, i.e., against deliberately and unreasonably putting public and employee health and safety at risk. Note here that we are specifying further the notion of doing harm. Any setback to an interest -- something a person has a stake in or considers important -- harms a person. A business that sells an inferior product may be harming a customer. We are not including such harm under our list of minimal moral obligations but instead are only includingunreasonable and deliberate health and physical harm or risk ofharm. Deliberatelyshould not be taken in an overly narrow sense. A person who acts negligently -- in the way that a normally prudent reasonable person would not act -- may be thought of as acting deliberately. Thus claiming that harm caused or risk permitted was not intentionally done, or that it was done out of ignorance, might not be an adequate excuse.
Our list of minimal moral business responsibilities should be acceptable to most theorists. This includes Friedman. His idea of playing by customary rules should include the injunction against deliberate harm and risk of serious harm. Note that we are not claiming that businesses have no obligations that go beyond minimal requirements. Instead, we contend that minimal requirements are basic and widely accepted. With the list of minimal moral requirements in mind, we next consider possible ways to enforce moral standards.
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Enforcement of Moral Obligations
Violations of the business moral obligations are highly significant because business activities affect all of us. The Challenger disaster caused national grief. An unsafe automobile can lead to the death of hundreds of people as can the production of an impure drug. Many moral requirements are not enforced by any special mechanism. For example, there is no general enforcement of the rule against breaking a promise. One reason for that absence is that informal promises are typically between individuals and involve special, almost unique, circumstances. The harm done by breaking a promise tends to be limited. On the other hand, several moral rules are supported by legal injunctions. It is both immoral and illegal to murder another person. The harm involved is so great that societies develop special protection against actions such as murder, assault and battery, and the like. The question we are asking is about possible enforcement techniques used to ensure, in a practicable way, that businesses are conducted in accordance with minimal moral requirements.
One proposed way to help ensure that minimal moral requirements are enforced is by codes of ethics. Most professional groups have organizations with a code of ethics. For example the Manufacturer’s Agents National Association (MANA) has an extensive code of ethics, which is available on-line. Codes of business associations often include language supporting the minimal list of requirements we presented. As with the MANA Code, items are often included which go beyond the minimal list we offered. For example, the Code contains the following: “To promote only those products or services which are in the Customer’s best interest.” While we talked of harmful products, those products which involve the customer’s best interest go beyond the basic requirement.
Codes are a form of self-regulation that businesses typically prefer to governmental regulation. One reason for this preference is that governmental regulation often involves fines for non-compliance. Also, businesses may believe that governmental standards are too rigid, vague, or that they tend to change too often over time. Despite business preference for self-regulation, the problem with it is precisely that self-regulation is not typically enforced. If it is in a business’s advantage to operate in violation of a code of ethics, then the business may well go against the code. Furthermore, codes are almost always vague because guidelines are presented in general and abstract ways. You should be able to see this in the MANA Code.
A serious problem with industry self-regulation is that a single firm is best off, in terms of income, if all other firms follow self-imposed regulations while it ignores them. The reason for this is that following the regulations is likely to cost money. When competitor’s costs are higher, the complying firm may charge a higher price for its products. A firm not complying can beat that price and thereby gain extra sales revenue. However, the same reasoning is true for every firm. So each firm has a good reason to violate the self-imposed regulations. Yet if enough firms fail to achieve self-regulation, this might force the government to intervene with its own form of regulation, which is probably against the interests of all the businesses.
The problem of gaining individual advantage is a form of the Prisoner’s Dilemma paradox. In game theory, the Prisoners' Dilemmademonstrates that two people, each acting "rationally," can produce irrational results. The setting for the prime example of the dilemma is a police interrogation. Two prisoners are taken and interrogated separately. The police offer each the same deal, in terms of prison time, to get them to confess, and each knows that the same offer has been made to the other. Both prisoners are assumed to be individually rational in the sense that they want the most for themselves, without thought about social norms or moral obligations.
The dilemma is set up using simple numbers to reflect individual interests, although these numbers may be varied to include special concerns, fears, and the like. Individuals are assumed to want to avoid a jail sentence. So the numbers represent the number of years in prison that each prisoner will receive depending on whether the prisoners confess or refuse to confess. Getting more prison time is worse than getting less. We assume that each prisoner only has two choices: confess or do not confess. These two options are represented by a matrix containing four boxes. The prisoners are called ‘A’ and ‘B’. The top two rows of the matrix below represent outcomes when A confesses. Likewise, the first column represents outcomes when B confesses. Thus, the upper-left-hand box represents the outcome when both prisoners confess, while the upper-right box represents the outcome when A confesses and B does not. The lower right box is the result when both do not confess.
Prisoners' DilemmaConfess / Donot Confess
Confess / (7,7) / (2,10)
Donot Confess / (10,2) / (4,4)
The outcomes are listed within the boxes. The upper-left-hand box shows what happens when both prisoners confess: each gets a seven-year sentence. The first number in each box represents the sentence of A and the second number the sentence of B. So if A does not confess and B does, then A gets ten years in prison, and B gets two years.
The rational thing to do is confess. This is the case because no matter what the other does, each prisoner is better off by confessing. We will work this out for A, showing that no matter what B does, A is better off by confessing. Afterward, you should work this out for B, showing that no matter what A does, B is better off by confessing. Keep in mind that in this simple example, being better off simply means serving less time in prison.
B can either confess or not confess. Suppose that B confesses. A should confess as well, because by confessing, A can serve three years less jail time. If B confesses, A gets seven years by confessing, but ten years by not confessing. So if B confesses, A should confess as well.
Suppose B does not confess, what should A do? Once again, by confessing A gets a better deal. If A confesses, A gets two years in jail, but by not confessing, A gets four years. So if B does not confess, A should confess in order to get less time.
No matter what B does, confess or not confess, A gets less time by confessing.
As you can tell, the same analysis works to show that B should confess. If A and B are both rational (meaning in this context that they want most for themselves), then they both should confess. Of course, the prosecutor sets up the game this way, attempting to get a confession from each.
Note that if the “rational” path is taken, both confess. That gives them each a seven year sentence. If they both acted “irrationally,” by not confessing, they would each get a four year sentence. Each is better off if both acted “irrationally.” That makes the Prisoner’s Dilemma paradoxical.Businesses likewise should know that when every firm follows the regulations all may be better off because governmental regulation may be avoided. This attitude may prevail. But the pressure is against it because each firm is better off violating a self-imposed regulation no matter what the other firms do.
A key problem with self-regulation is that no single firm has assurance that other firms will accept the regulation. This puts pressure on each firm to ignore the regulations. It is unlikely that there would be an industry wide regulation back by some form of coercion, such as fines. Given that self-regulation is unlikely to have enough force behind it to ensure compliance, business regulation seems to fall to governmental action. As a matter of fact businesses are often regulated, one way or the other, by various governments, often the U.S. government.
Governmental regulation of business is extensive. Governments regulate many things; sometimes regulations are more stringent on a particular industry, such as automobile manufacturing and prescription drugs. The following are some examples of governmental regulations that have been put into place: the way buildings are constructed, the amount of parking spaces a business should have, the kinds of toilet facilities a business has, the amount of interest a bank can charge, environmental safety, occupational safety, and product safety. Often the violation of a governmental regulation will result in a fine, refusal to allow business to proceed, or even criminal prosecution of individuals or of a corporation itself.
Prisoner’s Dilemma
Norman Bowie’s Position on Business Responsibility
Norman Bowie,a well known philosopher and business ethicist, argues that businesses have moral obligationsthat go beyond the moral minimum. He states his position in “New Directions in Corporate Social Responsibility - Moral Pluralism and Reciprocity,” Business Horizons, Vol. 34, 1991, pp. 56-65. (His paper is available on the Internet: Consistent with the Prisoner’s Dilemma, Bowie argues that it is in the interest of business as a whole to help to solve social problems in a way that would, for example, provide for a better educated work force. However, building social structures develops a public good, one that all firms can depend upon, such as a better trained work force. One cannot argue that firms should have a social responsibility because of benefits because it helps them more to have public goods without contributing. Thus, the way firms will help is due to altruistic motives. This seems to fall short of a moral responsibility because is based on an attitude and not on a moral requirement. But if a firm has such motivations, as many do, then it isa good way to act to promote social causes. However, Bowie’s view does not involve any enforcement.
So far Bowie’s article is interesting in putting altruism in a primary place. However, the main value of his approach may be his position on the moral responsibilities of other stakeholders, such as consumers. Bowie offers a series of cases in which corporations tried to do the right thing only to have customers reject their attempts. For example, for environmental reasons Wendy’s tried to replace foam plates but realized that customers would reject this. In effect, Bowie claims that customers have a moral obligation to support socially responsible businesses. Another example is the claim that businesses should not arbitrarily fire an employee. Yet business ethicists do not complain when an employee quits his or her job. He claims that this emphasis on reciprocity, with customers and employees having obligations, has been missed in business ethics. Bowie concludes: “If the managers and stockholders have a duty to customers, suppliers, employees, and the local community, then the local community, employees, suppliers, and customers have a duty to managers and stockholders.”
Implicit is the view that altruism will be rewarded if customers and employees support responsible business practices. However, altruism is a lot like following a code of ethics – it is not something that ensures desired behavior. Less likely is the idea that all the stakeholders Bowie mentions will act in a reciprocal way. It seems we end up back at government regulation as possibly the best way to ensure that the moral requirements are followed. However, governmental regulations have drawbacks, so even if it is the best way to ensure certain results does not mean it should always be pursued.
Acceptable Risk?