The constituents of corporate responsibility: separate, but not separable, interests? - shareholder and societal interests not mutually exclusive

Business Horizons,  July-August, 1991  by Dan R. Dalton,  Catherine M. Daily

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In his recent - and splendid - Lonely Hearts of the Cosmos, Dennis Overbye observed that it is the "grinding of interests that leads to the sawdust of progress." Although he addressed this comment to the history of cosmological inquiry, we have taken the liberty (with apologies to Mr. Overbye) of citing his work out of his context because we fervently believe in its application here. We take a second liberty, then, and presume to modify his insight for our specific use in this forum: It is the grinding of separate, but not necessarily separable, interests that leads to the sawdust of progress when addressing issues of corporate social responsibility.

We argue that the interests of corporate constituencies that give rise to questions on the order of "To Whom is the Corporation Responsible?" are often separate, but they are not separable. This article, then, is organized into several sections that address this issue. First, we openly admit our guilt for providing a "hook," designed to pique the curiosity of those with interests in this area. Second, we present an overview of the allocative problem. Third, we provide some "collaborative" strategies by which corporations may attend simultaneously to the preferences of separate constituencies. Finally, we revisit the "hook," as a dilemma all corporations increasingly face in responsibly attending to shareholder interests while simultaneously benefiting society.

THE HOOK

We are familiar with the sage journalistic advice suggesting that writers should provide a "hook" early on to capture the interest of the reader. This could be accomplished by establishing the essentiality of the subject matter or its potential impact. One might cite provocative examples to highlight the salience of the topic. A series of rhetorical questions might be asked. Also, a point or two might be raised without benefit of much context, with a question propounded, presumably for the purposes of an answer that might be forthcoming. It is with this advice in mind that we introduce our posture as a response to "To Whom is the Corporation Responsible?"

Most large corporations dedicate large amounts of resources to their research and development (R&D) activities. This, presumably, is done to develop new or improved products with the hope that markets for these products can either be created or enlarged. Frankly, we think it would be fair to say that most R&D efforts are not successful. There would seem to be no question that resources used for these purposes could be otherwise allocated. A corporation, for example, could certainly cease any expenditure of these types and distribute the "savings" to shareholders as dividends. We daresay that such a strategy would be seen as radical by virtually any observer. It is hard to imagine how one would attend to the future of the corporation through such a strategy.

Advertising expenses, too, may have this character. Corporations regularly allocate significant resources to make consumers aware of their products and services. These attempts are usually designed to reinforce current markets as well as to develop new ones. In theory, any corporation could elect to reduce advertising expenses to zero for a period of years and distribute the resultant "savings" to shareholders. A hypothetical strategy of this sort would also seem to mortgage the future of the corporation.

Given that there is at least some substance to this view, is it not possible that corporate expenditures for "societal" purposes are of a similar character? Isn't it possible that certain corporate "social" activities - we do not argue all activities - operate to create new opportunities as well?

THE ALLOCATIVE PROBLEM

A corporation's resources at any given point in time are finite; it does not have limitless dollars, personnel, time, or any other of the various elements that could be noted here. This condition leads us to something of a quandary. A mature argument could be marshalled that the allocative demands of a corporation's constituencies are less subject to such practical constraints.

Consider the players that would almost certainly have to be included in virtually everyone's categorization of corporate constituencies:

* Customers, clients, consumers (direct and indirect);

* Debtors (financial institutions, bondholders);

* Employees;

* Government (local, state, federal);

* Managers (noted separately because their preferences are almost certainly not isomorphic with those of non-managers);

* Organized labor (noted separately because its preferences are almost certainly not isomorphic with those of the rank-and-file);

* Owners (shareholders in this case);

* Public-at-Large; and,

* Suppliers.

Add to these the international dimensions of each category and we might have a reasonably representative, though certainly not exhaustive, list of the major constituencies of the modern corporation.

Initially these groups may seem more distinct than alike. Most observers would concede, for example, that their particular allocative preferences would differ. Govermments are less interested in dividend distributions than stable employment; consumers are more interested in quality products and services and "reasonable" prices; suppliers typically demonstrate preferences for long-term contracts and timely payment. Seemingly, these preferences are in conflict and would require quite different corporate postures to satisfy these demands. In general, however, the allocative preferences for all of these groups are identical: Whatever it is they want, they want more of it. As an illustration, ask yourself what the likely answers are to the following questions: