Corporate responsibility and the plurality of market aims

AuthorJeffery Smith
Date01 June 2019
Published date01 June 2019
DOIhttp://doi.org/10.1111/basr.12167
Bus Soc Rev. 2019;124:183–199.
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183
wileyonlinelibrary.com/journal/basr
There is an attractive elegance in grounding corporate responsibility in an understanding of the over-
arching purpose of the market. An important body of work drawn from the fields of economics,
law, and political theory has contributed to the development of this line of thought, which broadly
maintains that standards of corporate conduct should be built upon the normative presuppositions of
markets (Arrow, 1973; Heath, 2004, 2007, 2011a, 2014; Martin, 2013; McMahon, 1981; Norman,
2012; Sen,1993; Singer, 2018, 2019; cf. Schultz, 2008). This work has us focus on two important
DOI: 10.1111/basr.12167
ORIGINAL ARTICLE
Corporate responsibility and the plurality of
market aims
JefferySmith
© 2019 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.
Albers School of Business and
Economics,Seattle University, Seattle,
Washington
Correspondence
Jeffery Smith, Frank Shrontz Chair
in Professional Ethics,Albers School
of Business and Economics, Seattle
University, Seattle, WA 98122.
Email: smitjeff@seattleu.edu
Abstract
A number of recent authors, most notably Joseph Heath,
have persausivelydefended a market‐centered account of
corporate responsibility that grounds standards of busi-
ness conduct upon the normative presuppositions of the
market. They have us focus on two important items: first,
the value of welfare, or Pareto efficient outcomes, which
underwrites the legitimacy of market arrangements; and
second, the behavioral requirements needed to assure that
corporations conduct business in a manner consistent with
this value. This article critically examines the aspirations
of this literature by embracing its basic method but ques-
tioning how well it understands the aim of the market. It
puts forth a limited case for corporate responsibility an-
chored in other dimensions of the public good, distinct
from the value of efficiency, and argues that a plausible
understanding of corporate responsibility arises from the
notion that market arrangements are sites of delegated so-
cial authority to provision other aspects of the common
good.
184
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SMITH
items: first, the value of social welfare, or Pareto efficient outcomes, that underwrites the legitimacy
of market arrangements; and second, the behavioral expectations needed to assure that corporate man-
agers engage in activities that produce results consistent with that end. The spirit of this position is that
corporate managers have responsibilities to refrain from conduct that would undermine the purpose
of markets to produce a more efficient production and allocation of resources. Thusly construed, there
are at least four basic categories of responsibilities that corporations and their managerial agents pos-
sess: to refrain from actions that would undermine the basic conditions of free and fair contracting; to
refrain from profit‐seeking that results from the “exploitation” of failures in the market, such as infor-
mation asymmetries, negative externalities, and imperfect competition; to respect the requirements es-
tablished through law designed to preserve efficiency in the marketplace; and to refrain from activities
that attempt to profit through “non‐market” means (Buchanan, 1980; Heath, 2004). Violations of these
norms undermines “the implicit morality of the market” to the extent that violating them circumvents
behavior that moves market activity toward improved levels of efficiency in the production and allo-
cation of resources (McMahon, 1981).
This market‐centered approach aspires to provide a systematic normative foundation for corporate
responsibility that is entirely “immanent” to the market (Singer, 2018). Its advocates take the purpose
of the market and market arrangements as a complete blueprint for specifying and justifying the re-
sponsibilities that corporations possess; more importantly, there is a pragmatic virtue in recognizing
that it makes little sense to superimpose normative requirements on firms that neglect the special
nature of competitive life in the marketplace. What may be responsible conduct for a private citizen,
a parent, member of a civic group or legislator, is not necessarily a guide for drawing the contours of
responsibility for corporations. Their identity and purpose are squarely economic and therefore repre-
sent a special domain of action that demands special standards for responsible behavior.
This discussion does not aim to systematically assess this position; rather, I will examine the gen-
eral methodological assumptions standing behind it and draw two implications that challenge whether
a full account of corporate responsibility can be derived from the tacit normative underpinnings of
the market. Section one discusses in greater detail the most visible and, at least recently, oft reviewed
approach that attempts to provide a purely market‐centered foundation for corporate responsibility,
Joseph Heath's so‐called “market failures approach” to business ethics. The second and third sec-
tions will thereafter engage the question of whether the market's definitive aim—efficiency—can do
the necessary philosophical work to ground corporate responsibility. In those sections, I argue that
market arrangements have two types of aims that present a challenge to the notion that efficiency
can, alone, provide an adequate foundation for corporate responsibility. I attempt in these sections to
embrace the methodological insights of the market‐centered justification of corporate responsibility
but question how well it understands the underlying aim of the market. It is undoubtedly the case
that markets are endorsed for their tendency to improve welfare through the efficient production and
allocation of goods and services. Markets, however, also reflect a mode of design as to how partic-
ular goods and services are produced and allocated. This gives rise to responsibilities unforeseen
within an approach that remains singularly focused on the market's efficiency aim. The implication
of this argument, explored in the section three, is that managers of different business corporations
not only possess general responsibilities entailed by the preservation of Pareto‐efficient outcomes in
the marketplace, but also responsibilities tied to the realization of certain aims that are specific to the
firms and industries in which managers make investment and operational decisions. This opens the
door for a more expansive foundation for corporate responsibility that is briefly outlined in section
four. I thereafter conclude.1

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