Corporate Profit, Social Welfare, and the Logic of Capitalism

• Date: 01 September 2016
• Published date: 01 September 2016
• DOI: http://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

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Business and Society Review 121:3 331–363

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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