CHAPTER 3
The Corporation and Public Policy:
Expanding Responsibilities
Chapter Goals
The social responsibility materials are, in a sense, a continuation of the discussion of ethics in Chapter
Two. The social responsibility doctrine grows out of ethical concerns and is, in part, an “applied,” “macro”
version of some of the themes raised in Chapter Two.
The chapter starts by taking a closer look at criticisms of corporate behavior and values and then explore
their impacts on the society in such diverse arenas as politics, schools, religion, culture and sports. Then
it moves on to look at the multi-national corporate phenomenon on the global stage. Having been
exposed to the breadth of the concerns expressed, the chapter then seeks to give students a clear picture
of the range of meanings and opinions that is attached to the social responsibility concept. A hard look at
the competing social responsibility arguments and the research findings regarding the “success” of social
responsibility is important to impose reason on a topic that otherwise might readily be given over to
emotion. Students often fail to receive a picture of the serious dilemmas of conscience that are
encountered by managers. Even accepting that corporate America does have social responsibilities, the
proper resolution of a particular issue is often not clear.
Chapter Learning Objectives
At the end of this chapter, students will be able to:
1. Recognize the interdependent relationship between business and the larger society.
2. Discuss whether business should play a more or less active role in politics, education, and other
public-sector activities.
3. Discuss concerns about globalization.
4. List some of the critics’ primary complaints about the alleged abuse of corporate power in
contemporary America.
5. Make a tentative assessment regarding the proper role of business in society.
6. Explain the concept of corporate social responsibility.
7. Discuss whether socially responsible business is “good business.”
8. Explain the triple bottom line/sustainability approach to corporate citizenship.
9. Contrast the stakeholder and shareholder approaches to corporate social responsibility.
Chapter Outline
Practicing Ethics: Yvon Chouinard and Patagonia
An example of a successful “green” business with a “management by absence” approach is offered.
Outdoor adventurer Yvon Chouinard and his wife, Ellen Pennoyer, in 1972, founded Patagonia, Inc., the
sports clothing and outdoor gear retailer. Chouinard, was an early advocate of doing business in an
environmentally friendly way. Chouinard’s 2005 memoir, Let My People Go Surfing, explains his
commitment to a workplace where capitalism, ethics, and fun can coexist. [For more detail about
Chouinard and Patagonia, see, e.g., Seth Stevenson, “America’s Most Unlikely Corporate Guru,”The Wall
Street Journal Magazine, May 2012, p. 86.]
Source: Keith Garber, “Yvon Chouinard: Patagonia Founder Fights for the Environment,” U.S. News &
World Report, October 22, 2009 [http://www.usnews.com/news/best-leaders/articles/2009/10/22];
Brad Wieners, “The Gospel of Yvon,” Men’s Journal, July 2007, p. 51, “Employees Who March to Their
Own Music,” BusinessWeek, December 19, 2005, p. 81; and Hugo Martin, “Outdoor Retailer Patagonia
Puts Environment Ahead of Sales Growth,” latimes.com, May 24, 2012 [latimes.com/].\
I. Introduction
This chapter questions whether the corporation must make a broad contribution to the general societal
welfare beyond the performance required by the market. Tomorrow’s leaders must understand the
increasingly complex and interdependent relationship between business and the larger society. The
changing nature of that relationship has been explored in four parts:
Criticism of corporate America
The emergence of the expectation of corporate social responsibility
The management of social responsibility, and
The examination of some specific business and society issues
Part One—Corporate Power and Corporate Critics
Corporate critics have long argued that the public interest has not been well served by America’s big
corporations. The colossal size and the economies of scale that accompany it have been critical to
American competitiveness in today’s tough global market. At the same time, that very size, the critics say,
permits continuing abuse of the American public. The extraordinary wealth of America’s corporate
institutions is such that they tower over most countries of the world by some measures of economic might.
Sixty-seven percent of Americans express a favorable opinion of big corporations, according to a 2012
nationwide survey, but 76 percent say too much power is concentrated in a few large companies.
I. The Corporate State—Economics
Economists are increasingly concerned that concentrated power is reducing America’s legendary and
crucial power to innovate and thereby improve life for all. Most of America’s 50 states fight feverishly
among themselves to attract new corporate investment. The states compete by improving their “business
climates” with incentives such as reduced taxes, reduced regulations, and cash grants. However, critics
are concerned about the point at which incentives become unjustified corporate welfare.
A. Taxes
America’s combined federal and state corporate tax rates are now considered the highest in the world
at 39.2 percent. “Loopholes,” however, allow American corporations to pay an actual rate of about 29.2
percent, which is somewhat below average globally, according to a U.S. Treasury Department
analysis.
B. Misconduct/Incompetence
Some polls place more blame with politicians than with the business community, but the
stunning scandals and nancial failures of recent years have strengthened doubts about
corporate honor and competence. The big banks in particular have been harshly
criticized. Rolling Stone magazine said, “Financial crooks brought down the world’s
economy…”
C. Monopoly and More
Barry C. Lynn’s 2010 book, Cornered: The New Monopoly Capitalism and the Economics of
Destruction, makes the claim that much of America’s economy is dominated by shared monopolies
allowing producers and retailers to charge inflated prices because of a lack of meaningful competition.
Likewise, complaints about the corporate role in pollution, discrimination, white-collar crime, misleading
advertising, and so on remain commonplace.Furthermore, the ongoing decline in the number of
American public corporations should be noted. Increasingly, investment money is being
raised privately rather than through open sales on stock markets.
D. Globalization
America’s tightly-interconnected, highly e&cient global supply systems have brought
millions of jobs, substantial capital, and vital rst steps on a path toward prosperity for
currently struggling nations such as Bangladesh. But globalization of the garment industry
and many others has also brought new challenges, particularly for the wealthy, powerful
Western manufacturers who prot spectacularly from cheap labor in less developed
nations. Major brands such as Gap, H&M, and Walmart are among the many that are
supplied by garment factories in Bangladesh.
Globalization Fears
The garment factory tragedy vividly illustrates the critics’ worry that global free trade is merely an
opportunity for America’s giant corporations to exploit cheap, powerless labor abroad. Further, the
outsourcing of good, high-paid factory jobs from the United States to less developed nations has
fundamentally challenged and changed life in this country.
One can see that concerns about corporate domination of American life are now being applied to
the entire globe. The world has come to understand that free markets usually are more efficient
decision makers than government rules. As a result, national boundaries are receding in
importance, technology is shrinking the globe, multinational companies are treating the world as
one big marketing opportunity, less developed countries are trying to improve their living standards
by connecting to that market, financial assets are flowing freely and almost instantaneously from
one edge of the globe to another, and the world is becoming one highly greased, interconnected
mass market.
Corporations as Psychopaths?
The 2004 movie documentary The Corporation argues that the corporation has become the
dominant institution in American life, exceeding the influence of both religion and government. One
result is that corporations often demonstrate the “traits of the prototypical psychopath.” The
contemporary corporation is depicted as an “exploitative monster” driven not by the greater good
but by its first responsibility to stockholders. Source: Jim Keough, “Film Sees Evil in Corporations,”
Worchester Telegram & Gazette, September 29, 2004, p. C5.
II. The Corporate State—Politics
Critics argue that big money enables the business community to disproportionately influence the electoral
and law-making processes. In recent decades, the corporate community has taken an increasingly direct
role in the political process. Corporate funds cannot lawfully be given directly to candidates for federal
office. However, corporations can lawfully establish political action committees (PACs) to solicit and
disburse voluntary campaign contributions. That money is then put in a fund, carefully segregated from
general corporate accounts, and disbursed by the PAC in support of a political agenda preferred by
officers, managers, or shareholders.
The role of conventional PACs in the political process has receded in importance following a momentous
U.S. Supreme Court decision in the 2010 Citizens United case The Supreme Court’s highly controversial
5–4 ruling held that federal laws limiting corporate campaign contributions violated corporate free speech
rights. The decision allows corporations, labor unions, and some other aggregations to spend unlimited
organizational funds for candidates and causes so long as they do not coordinate that spending with
parties and/or candidates.
A. Corporate Influence
The U.S. Chamber of Commerce, spent nearly $24 million backing conservative candidates in 15 U.S.
Senate races, but only two of those candidates prevailed. The Chamber spent more than $7 million in
22 U.S. House of Representatives races and enjoyed four wins.
Change the Law?
Many Americans are arguing that the U.S. Constitution should be amended to make it clear that
money does not constitute speech and that corporations are not entitled to the inalienable rights of
persons. In considering concerns about corporate political spending, one needs to remember that
labor unions and other groups also have a big monetary voice in the political process. Furthermore,
a recent study found that “corporate political efforts generally have positive effects on a firm’s
market value and its shareholder returns.”
Boycott Target?
Minnesota-based Target’s $150,000 contribution in 2010 to MN Forward, a group supporting a
conservative candidate for Minnesota governor was angrily assailed by some company employees
and many Minnesota progressives. The specific objection was that the candidate indirectly
supported by Target was an outspoken opponent of gay marriage. Sources: Associated Press,
“Target Sells Shirts to Help Pro-Gay Marriage Group,” Waterloo-Cedar Falls Courier, June 3, 2012,
p. A8; Tom Hamburger and Jennifer Martinez, “Target Stores Negotiate with Gay-Lesbian Group
over Political Spending,” latimes.com, August 13, 2010 [http://www.latimes.com/] and Martiga Lohn,
“Target’s Gay Employees Are Angered by Political Donation,” The Des Moines Register, July 28,
2010, p. 1A.
Lobbying
Lobbying is an essential ingredient in big business strategy. Lobbying also often serves the very
useful role of efficiently educating busy politicians about the vast array of issues they must address
but cannot possibly master without assistance. Labor unions, consumer and environmental interest
groups and myriad others battle to have their voices heard. So lobbying serves a valuable role in
government.
Lobbying by the Numbers
The Honest Leadership and Open Government Act of 2007 was part of the most comprehensive
lobbying and ethics reform effort in the federal government in many years. Studies and expert
opinion, however, indicate that some of those who influence government are able to avoid
registering as lobbyists by turning from direct legislative contact to new influence-peddling tactics
such as social media campaigns. The biggest spenders among lobbyists continue to be business
groups with the Chamber of Commerce at the top with nearly $17 million in expenditures in the first
quarter of 2013.
Buy Votes?
A recent, highly respected study of lobbying results found that most lobbying simply maintains the
status quo; that is, nothing happens. The study concluded that opposing lobbyists and interest
groups hold each other in check about 60 percent of the time. On the other hand, when lobbying is
successful the payoff can be enormous.
A Sunlight Foundation study of 200 corporations found that those firms investing heavily in lobbying
enjoyed lower federal tax rates. Lobbying influence even extends to writing the law itself.
III. The Corporate State—Social Issues and Institutions
The business community’s influence in America’s economic and political life is enormous, but the critics’
concerns do not end there. Business products and services, business marketing, and business values
saturate and dominate all corners of American life, the critics claim.
Schools
Advertising and Promotion
Seeking quality education for their own needs and for the nation, corporations now prepare
model curricula and lesson plans while donating money and other resources to improve school
performance. Sometimes, however, those contributions can be unbalanced and self-serving
while commercializing the classroom setting.
Faced with public resistance to increased school funding, administrators in many school districts
are selling ad space on school buses, websites, buildings, textbook covers, and even report
cards. Critics worry that advertising in school settings encourages materialism, celebrates
dubious values, and discourages critical thinking.
Channel One has supplied educational programming and television sets to schools that agree to
show the programming and accompanying ads on a regular basis. [For the Channel One news,
see http://www.channelone.com]
Manage Public Schools
Many K–12 school districts across the country have contracted with private companies such as
EdisonLearning to consult with or operate some of their struggling public schools. Furthermore,
Edison and several other national, for-profit companies are competing from state to state to offer
new, online schools. Critics see these efforts as a dangerous expansion of corporate values and
authority.
Higher Education
Big business is also accused of turning college campuses into marketing and development
opportunities. The Times observed, “Corporations have been pitching college students for
decades on products from cars to credit cards. But what is happening on campuses today is
without rival, in terms of commercializing everyday college life.” From kindergarten through
graduate school, education is increasingly viewed as a product to be marketed and consumed
on the road to prosperity in the corporate state.
Religion
The ideas of management guru Peter Drucker have become the unexpected intellectual foundation
of the megachurch movement in America. Churches now routinely employ standard business
practices such as advertising, promotional giveaways, and marketing campaigns. Religion, in some
sense, has become a product. Some pastors preach the “prosperity gospel” that material success
is a mark of God’s favor.
Megachurches pastor David Platt questions the commercial direction of contemporary religion in
his book, Radical: Taking Back Your Faith from the American Dream. Platt says the megachurches
have taken on corporate characteristics in competing for market share by serving as social centers
while offering day care and comfortable entertainment. [For a review of Christianity Incorporated:
How Big Business Is Buying the Church, see http://www.directionjournal.org/article/?1301].
Culture
Corporate America has been generous in its financial and organizational support for the traditional
intellectual culture. At the same time, corporate bottom-line concerns appear to the critics to be
steadily degrading America’s cultural life. Even popular culture (rock, movies, television, hip hop,
and so on), already considered a wasteland, has been further debased the critics say, not merely
by a mindless market, but by limitless corporate greed, indifference to quality, and relentless
consolidation.
Sports
Former National Collegiate Athletic Association (NCAA) president Myles Brand, speaking at an
ethics conference, made the argument that “College sports is not a business. It’s about educating
young men and women in the field and in the classroom.”
College sports programs at the highest level are in an increasingly desperate race for money. Most
of that money, of course, is tied to and driven by another enormous industry: television.
Profit-seeking in collegiate sports is not without its benefits. Thousands of students complete
college