Corporate Profit, Social Welfare, and the Logic of Capitalism

Date01 September 2016
AuthorS. L. Reiter
Published date01 September 2016
DOIhttp://doi.org/10.1111/basr.12090
Corporate Profit, Social
Welfare, and the Logic of
Capitalism
S. L. REITER
ABSTRACT
Business ethics scholars have proposed strategies for mit-
igating the ill effects brought on by a wealth maximization
business strategy by urging managers to either embrace
corporate social responsibility (CSR) or to manage accord-
ing to stakeholder theory. In this article I argue that these
strategies are often ineffective in bringing about the
behavior they promote because it is antithetical to the
nature and logic of capitalism. I examine the organizing
principles of capitalism and the role it assigns to capital-
ists, and juxtapose these with the behavior prescribed by
three normative frameworks: strategic management theo-
ry (SMT), the CSR initiative, and stakeholder theory.
Unlike the behaviors prescribed by the CSR initiative and
stakeholder management theory, the behavior prescribed
by SMT is consistent with the role of capitalists as defined
by the organizing principles of capitalism, and SMT’s
“rules” have instilled habits that have, in turn, been able
to mold managers’ aspirations and purposes. CSR and
stakeholder theory must not only combat the habits
instilled by the entrenched SMT, they must also find
S. L. Reiter is Associate Professorof Business Administration, Williams School of Commerce, Eco-
nomics, and Politics, Washingtonand Lee University, Lexington,VA. E-mail: reiters@wlu.edu.
V
C2016 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by
Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
Road, Oxford OX4 2DQ, UK.
Business and Society Review 121:3 331–363
bs_bs_banner
some way of instilling habits that run contrary to those
defined by the nature and logic of capitalism itself.
Some of the largest and most successful corporations and
their executives have been accused of focusing on financial
performance at the expense of social welfare or the preser-
vation of the natural environment. The public generally becomes
aware when the actions are so egregious that the law is broken, as
was the case with Enron and WorldCom in the early 2000s. Howev-
er, even well-regarded corporations, such as Apple (Duhigg et al.
2012), Google (Miller 2013), Wal-Mart (Greenhouse and Barbaro
2006), Boeing (Greenhouse 2013), and BP (Krauss and Schwartz
2012) have all had instances in recent times where their actions
have raised concerns related to labor conditions, privacy rights,
discrimination, employee wages and benefits, and the preservation
of the natural environment.
Business ethics scholars have proposed strategies for mitigating
these ill effects by arguing that corporations and their managers
have responsibilities that are broader than financial performance.
Two paths that have been defended are corporate social responsi-
bility (CSR) and stakeholder management theory, both of which
require managers to behave in ways that are mindful of interests
that extend beyond financial concerns. Moreover, they both have
the presumed advantage of promoting economic growth and social
welfare, the ultimate aims of an economic order, but without bur-
dening managers with excessive government regulation.
This attempt to motivate managers to voluntarily temper their
actions so as, at a minimum, not to harm society or corporate
stakeholders, however, has too often failed, at least as evidenced
by the continuing reports of socially and environmentally harmful
corporate behavior. Even corporations that are trying to operate
according to the tenets of CSR or stakeholder theory seem to
struggle to do so. The BP Corporation is just one relatively recent
example of such a company. It has instituted policies and codes
that espouse its commitment to stakeholders, society, and the
environment. It has joined organizations that are equally commit-
ted to socially responsible behavior, such as the UN Global Com-
pact and the Extractive Industries Transparency Initiative. It uses
the Global Reporting Initiative guidelines and has been recognized
for tracking its impact on society and the environment. Yet
332 BUSINESS AND SOCIETY REVIEW
throughout the 2000s it has been responsible for a series of oil
spills, including the Deepwater Horizon spill in the Gulf of Mexico,
cited as the largest oil spill in the history of the petroleum indus-
try. Additionally, during this decade it has been responsible for
numerous safety violations, manipulating the price of propane,
and lobbying the British government to free the only person ever
convicted of the 1988 Lockerbie airliner bombing to presumably
protect its oil and gas exploration deal off the Libyan coast. Share-
holder wealth maximization seems to continue to dominate the
mindset of corporate executives and is too often seen as the objec-
tive of a firm (Jones and Felps 2013). Why is this the case? Does
it point to a deeper problem, one that is systemic in the economic
order?
In this article, I examine the economic order of capitalism and
the type of behavior it encourages by way of its organizing princi-
ples and logic. I juxtapose this with the behavior prescribed by
three management theories espoused by management scholars:
strategic management theory (SMT), CSR, and stakeholder man-
agement theory. SMT is used by business enterprises to determine
their strategic direction, while CSR and stakeholder theory encour-
age behavior that bring broader ethical considerations more direct-
ly into play. The aim of my analysis is to understand what each of
these frameworks requires of managers and how each compare to
what is required and encouraged by the organizing principles and
logic of capitalism. I argue that the behavior prescribed by SMT is
consistent with the role and aims of capitalists as defined by the
fundamental organizing principles of capitalism, and SMT’s “rules”
have instilled habits that have, in turn, been able to mold manag-
ers’ aspirations and purposes. In contrast, I argue that CSR and
stakeholder theory are often ineffective in bringing about the
behavior they promote because they are antithetical to the funda-
mental organizing principles of capitalism, particularly the U.S.
version of capitalism. They require behavior that is incongruous
with the role of capitalists as defined by the fundamental organiz-
ing principles of capitalism and with the behavior prescribed by
SMT. As such, these theories, to be successful, must not only com-
bat the habits instilled by the entrenched SMT, they must find
some way of instilling habits that run contrary to the organizing
principles of capitalism. The aim of this article is not to discredit
the normative claim that managers have responsibilities that go
333S. L. REITER

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