A review and appraisal of the "social responsibility hypothesis" of corporate behavior

Two major rationales for the acceptance of the social responsibility doctrine by corporations have been examined. Any notion of increased altruism on the part of investors was found to be lacking in empirical validation. Furthermore, it was shown that even if individuals did becomes more altruistic, the free rider problem of large number settings would inhibit most private efforts to provide public goods. Managerial support for the concept of social responsibility was analyzed, and it was found to be very consistent with expectations based on the traditional self-interest assumption of economics. It was pointed out, however, that even with strong incentives for managers to support the pursuance of social goals with corporate resources, their discretion to do so would be much more limited than is commonly thought. Thus, there appeared to be little reason to expect substantial corporate social endeavors on the basis of this rationale.

Social responsibility is good business was the central theme of the enlightened self-interest rationale. The Wallich-McGowan model has been frequently employed to "show" that the more diverse stock ownership of modern corporations would result in an increase in socially responsible behavior by most if not all publicly held corporations. Self-interest on the part of owners with diverse portfolios would insure that corporations were encouraged to invest in activities which would yield benefits for the corporate sector as a whole, even if such investments did not yield sufficient private returns to any one company. It was demonstrated that only under the most restrictive assumptions does the Wallich-McGowan model yield such predictions. Again, the problems common to private provision of public goods have been overlooked by the subscribers to this rationale. Thus, this analysis answers the critical question: why, if being socially responsible is good business, do corporations have to be encouraged to engage in such activities?

Next, consideration of the political ramifications of the social responsibility doctrine again suggested perverse results. The prediction of increased, rather than decreased, government regulation of private enterprise was implied by this analysis. Furthermore, the difficulties of associating improvements in the "public good" with the unconstrained efforts of private men were discussed in some detail.

The general conclusions of this study, then, are twofold: (1) the efforts called for by those who advocate increased corporate social responsibility will not voluntarily be forthcoming, and (2) even if such efforts could be expected, there is little reason to suspect that the welfare of society, in any meaningful sense, would be improved. Hopefully, this analysis has demonstrated the difficulty, if not the futility, in proposing reforms that are in the "public interest" or that will improve the "quality of life" for society.