Misery Loves Companies: Rethinking Social Initiatives by Business

Author(s): Joshua D. Margolis and James P. Walsh

Source: Administrative Science Quarterly, Vol. 48, No. 2 (Jun., 2003), pp. 268-305
Published by: Johnson Graduate School of Management, Cornell University
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MiseryLoves
Companies:Rethinking
SocialInitiativesby
Business
Joshua D. Margolis
Harvard
University
James P Walsh
Universityof Michigan
?2003 by Johnson GraduateSchool,
CornellUniversity.
0001-8392/03/4802-0268/$3.00.
0 The picture in the United States alone is as vividand com-
We thankChristineOliver,LindaJohan-
son, our three anonymousreviewers,
PaulAdler,HowardAldrich,Alan
Andreasen,Jim Austin,CharlesBehling,
MichaelCohen, Bob Dolan,MaryGentile,
TomGladwin,MortenHansen,Stu Hart,
Nien-heHsieh, LindaLim,NitinNohria,
LynnPaine,GailPesyna, RobertPhillips,
LanceSandelands,DeboraSpar,Joe
White, RichardWolfe, and the students in
Jim Walsh's "TheCorporation in Society"
Ph.D.seminarfor theirconstructivecom-
ments on earlierversionsof this paper.
We also thankMargueriteBooker,John
Galvin,and NicholePelakfor theirhelpful
researchassistance. The HarvardBusi-
ness School, the MichiganBusiness
School, and the Aspen Institute'sBusi-
ness and Society Programprovided
invaluablesupportfor this project.
Companies are increasingly asked to provide innovative
solutions to deep-seated problems of human misery,
even as economic theory instructs managers to focus on
maximizing their shareholders' wealth. In this paper, we
assess how organization theory and empirical research
have thus far responded to this tension over corporate
involvement in wider social life. Organizational scholar-
ship has typically sought to reconcile corporate social ini-
tiatives with seemingly inhospitable economic logic.
Depicting the hold that economics has had on how the
relationship between the firm and society is conceived,
we examine the consequences for organizational
research and theory by appraising both the 30-year quest
for an empirical relationship between a corporation's
social initiatives and its financial performance, as well as
the development of stakeholder theory. We propose an
alternative approach, embracing the tension between
economic and broader social objectives as a starting
point for systematic organizational inquiry. Adopting a
pragmatic stance, we introduce a series of research ques-
tions whose answers will reveal the descriptive and nor-
mative dimensions of organizational responses to
misery.?
The world cries out for repair.While some people in the
world are well off, many more live in misery. Ironically,the
magnitudeof the problem defies easy recognition.With the
global populationexceeding six billionpeople, it is difficultto
painta vividand compelling pictureof social life. Inthe
extreme, Bales (1999) conservativelyestimated that there are
27 millionslaves in the world today, while Attaranand Sachs
(2001) reportedthat 35 millionpeople are now infected with
the HIVvirus, 95 percent of them livingin sub-SaharanAfrica.
Even more broadly,aggregate statistics both informand
numb. Compiledfrom data released by the WorldBank
(2002), table 1 represents the kindof snapshot that such sta-
tistics provide.It can be shocking to learnthat so many peo-
ple live on less than $2.00 per day, that a quarterof the chil-
dren in Bangladeshand Nigeriaare at work in their nations'
laborforce, or that some countries have mortalityrates for
childrenunderage five more than ten times that of the Unit-
ed States. Access to sanitation,let alone access to a tele-
phone or computer,can be very limitedaroundthe world.
pelling. Fortwenty years, Americanshave lived througha
periodof unparalleledprosperity.IbbotsonAssociates (2000)
calculatedthat in real terms, a dollarinvested in large compa-
ny stocks in December 1925 was worth $24.79 by year-end
1979. Exactlytwenty years later,that dollarwas worth
$303.09. Nevertheless, the fact that the upper echelon of
society disproportionatelyreaped these gains is no longer
news. Even as debate persists about intercountryincome
inequality(Firebaugh,1999), Galbraith(1998), and Mishel,
Bernstein,and Schmitt (1999) provideda comprehensive pic-
ture of wealth inequalityin the United States, while Conley
(1999) clearlypointed out that many blackAmericanshave
been left out of this economic boom. Table 1 providesa com-
parativeportraitof how the top 10 percent of the people in
each of the world'sthirteen largest countries controlso much
268/Administrative Science Quarterly, 48 (2003): 268-305
 Social Initiatives by Business

Table1
A Snapshot of Social Life in the World's Most Populous Nations, 2000
% Share
of % Rural Illiteracy
income pop. % Pop. rate
or con- % Chil- Under- with with among Main-
sump- dren five access access 15-24 line/ Personal
tion: aged mortali- to to year mobile comput-
Popula- % Pop. bottom 10-14 in ty per improvedimproved olds: phones ers per
tion in living on 10%/ labor 1000 live water sanita- % male/ per 1000 1000
Nation millions < $2/day top 10% force birth source tion %female people people
China 1,262.5 52.6 2.4/30.4 8 39 66 38 1/4 112 /66 15.9
India 1,015.9 86.2 3.5 /33.5 12 88 86 31 20/35 32 /4 4.5
U.S.A. 281.6 * 1.8 / 30.5 0 9 100 100 * 700/398 585.2
Indonesia 210.4 55.3 4.0 / 26.7 8 51 65 66 2/3 31/ 17 9.9
Brazil 170.4 26.5 .7/48.0 14 39 54 77 9/6 82/136 44.1
Russia 145.6 25.1 1.7 / 38.7 0 19 96 * <.5/<.5 218/22 42.9
Pakistan 138.1 84.7 4.1 /27.6 15 110 84 61 29 / 58 22 / 2 4.2
Bangladesh 131.1 77.8 3.9/28.6 28 83 97 53 39/60 4/1 1.5
Japan 126.9 * 4.8 / 21.7 0 5 * * * 586/ 526 315.2
Nigeria 126.9 90.8 1.6/40.8 24 153 39 63 10/16 4/0 6.6
Mexico 98.0 37.7 1.3/41.7 5 36 63 73 3/3 125/142 50.6
Germany 82.2 * 3.3 / 23.7 0 6 * * * 611 / 586 336.0
Vietnam 78.5 * 3.6 /29.9 5 34 50 73 3/3 32 / 10 8.8
* Data not available.

more of each nation'swealth than those in the bottom 10

percent. Miringoffand Miringoff(1999) chronicledthese
same kindsof inequalitydata but also providedevidence that
child abuse, child poverty,teenage suicide, and violent crime,
as well as the numberof people livingwithout health insur-
ance, have all increased in the United States since the 1970s.
These kindsof data serve as a stimulus for outrage and
reform(Korten,1995; Greider,1997; Wolmanand Colam-
osca, 1997; Kapstein,1999; Madeley, 1999).
In the face of these broadand deep problems, calls go out
for companies to help. Some organizationsexist solely to
fight such problems. There are publiclytraded companies
dedicated to cleaning up waste (e.g., Waste Management,
Inc.),privatenot-for-profitorganizationsdedicated to treating
the sick in very difficultcircumstances (e.g., M6decins Sans
Frontibres),and consortiaof development organizationsdedi-
cated to fightingpoverty,hunger,and social injustice(e.g.,
Oxfam International). The calls for help, however, target prof-
it-makingfirms that produce goods and services-goods and
services that may have littleto do with amelioratinghuman
misery. Forexample, all three branches of the United States
government have recognizedthe role corporationscould play
in promotingsocial welfare. President Bush and Secretaryof
State Powell have asked companies to contributeto a global
AIDSfund (New YorkTimes,2001), while FormerPresident
Clintonused his "bullypulpit"to urge corporationsto attend
to social problems (New YorkTimes, 1996) and later advocat-
ed that minimumlaborstandardsbe a partof international
trade agreements (New YorkTimes, 1999). With the Econom-
ic RecoveryAct of 1981, Congress increased (from5 percent
to 10 percent)the allowablecorporatetax deduction for chari-
table contributions(Millsand Gardner,1984). Even as a
majorityof states were adopting "other constituency
269/ASQ, June 2003
statutes," statutes that allow directorsto attend to factors
other than shareholderwealth maximizationwhen fulfilling
their fiduciaryduty (Orts, 1992), the Delaware Supreme Court
endorsed this same idea in 1989 when it allowed Time Inc.'s
management to reject a lucrativetender offer from Para-
mount Communicationsto pursue other non-shareholder-
related interests (Johnson and Millon,1990).
Activitybeyond the halls of government that focuses on the
corporation'srole in society is equallyintriguing.Non-govern-
mental organizations(NGOs)have worked tirelessly in recent
years to establish worldwide standardsfor corporatesocial
accountability-Ranganathan(1998) listed 47 such initia-
tives-and investors have pressured firms to be more
responsive to social problems (e.g., Carleton,Nelson, and
Weisbach, 1998). Majorcharitablefoundationsand public
interest groups-the FordFoundation,the Sloan Foundation,
and the Aspen Institute,to name three of the most promi-
nent-have launchedmajorinitiativesto investigate and even
encourage business investment in redressing societal ills.
Publicintellectuals,includingleadingbusiness school acade-
mics whose priorcontributionsshaped the fields of corporate
strategy and organizationalbehavior,have joinedthe call to
encourage and guide firms in takingon a largerrole in soci-
ety. Porter(1995) celebrated the competitive advantageof
doing business in the innercity, Kanter(1999) identifiedways
in which public-privatepartnershipsadvance corporateinno-
vation, and Prahalad(Prahaladand Hammond,2002; Prahalad
and Hart,2002) mapped the untappedeconomic opportuni-
ties that reside in what he called the bottom of the world's
wealth pyramid.
Business leaders and firms themselves are even responding
to calls for enhanced corporatesocial responsibility.From
mavens, such as the Body Shop's Anita Roddick,to converts,
such as BritishPetroleum'sJohn Browne, some business
leaders are preaching-and at least tryingto practice-an
approachto business that affirmsthe broadcontributionthat
companies can make to humanwelfare, beyond maximizing
the wealth of shareholders.On a largerscale, the United
States Chamberof Commerce, representingtens of thou-
sands of business interests worldwide, recentlyfounded the
Centerfor CorporateCitizenship,whose purpose is to pro-
vide an institutionalmechanism to assist humanitarianand
philanthropicbusiness initiativesaroundthe world.
The repeated calls for corporateaction to amelioratesocial
ills reflect an underlyingtension. On the one hand, misery
loves companies. The sheer magnitudeof problems,from
malnutritionand HIVto illiteracyand homelessness, inspires
a turntoward all availablesources of aid, most notablycorpo-
rations. Especiallywhen those problems are juxtaposedto
the wealth-creationcapabilitiesof firms-or to the ills that
firms may have helped to create-firms become an under-
standable target of appeals. On the other hand,a sturdyand
persistent theoreticalargument in economics suggests that
such corporateinvolvementis misguided. It may be neither
permissible nor prudentto devote corporateresources to
redress social misery (Friedman,1970; Easterbrookand Fis-
chel, 1991; Sternberg,1997). Callsfor broadercorporate
270/ASQ, June 2003
Social Initiatives by Business

responsibility,therefore, constitute an effort to surmountthe

presuppositionthat such corporateaction is illicit.With social
misery and the imperativeof corporateinvolvement,on the
one hand,and the skepticaleconomic rationale,on the other,
attempts to mobilizecorporatesocial initiativesreach an
intense pitch. Organizationalscholarshiphas confrontedthe
economic argument head-on.
THEPOINTOF TENSION
Appeals for corporateinvolvementin amelioratingmalnutri-
tion, infantmortality,illiteracy,pollution,perniciouswealth
inequality,and other social ills quicklycall to mind a long and
contentious debate about the theory and purposes of the
firm. Despite a long historyof communitarianprotest (Morris-
sey, 1989), Bradleyet al.'s (1999) review of these efforts
found that the neoclassical construalof the firmas a nexus
of contracts has prevailed.Althoughorganizationaland legal
scholars (Bratton,1989a, 1989b; Davis and Useem, 2000;
Paine, 2002) have questioned the contractarianmodel and
sketched alternativeviews, they have also acknowledged the
purchase this economic model of the firm has had on corpo-
rate conduct, law, and scholarship.The purpose of the firm,
from a contractarianperspective, is perhaps best capturedby
the landmark1919 Dodge v. FordMichiganState Supreme
Courtdecision that determinedwhether or not HenryFord
could withholddividendsfrom the Dodge brothers(andother
shareholders).The court famously argued, "A business orga-
nizationis organizedand carriedon primarilyfor the profitof
the stockholders"(Dodge Brothersv. FordMotor Company,
1919: 170 N.W. 668). The assumption that the primary,if not
sole, purpose of the firm is to maximizewealth for sharehold-
ers has come to dominate the curriculaof business schools
and the thinkingof future managers, as evidence from a
recent survey of business school graduates reveals (Aspen
Institute,2002). Investigatingcorporatesocial initiativespre-
sents a richscholarlyopportunityin partbecause the eco-
nomic account suggests that there should be no so such ini-
tiatives to investigate in the first place.
The contractarianview of the firm or,to be more accurate,
the economic version of contractarianism(cf. Keeley, 1988;
Donaldsonand Dunfee, 1999), challenges the legitimacyand
value of corporateresponses to social misery.The specific
challenges come in three distinct forms: saying that firms
alreadyadvance social welfare to the full extent possible,
saying that the only legitimateactors to address societal
problems are freely elected governments, or saying that if
firms do get involved,managers must warn their constituen-
cies so they can protect themselves from corporatemisad-
ventures. The first point of view defends the economic con-
tractarianmodel by invokingthe same aim that stimulates
efforts to enlist companies to cure social ills. Forexample,
Jensen (2002: 239) argued, "200 years' worth of work in
economics and finance indicatethat social welfare is maxi-
mized when all firms in an economy maximizetotal firm
value." Jensen conceded that companies must attend to
multipleconstituencies in orderto succeed but, ultimately,
firms must be guided by a single objective function:wealth
creation. He argued that it is logicallyincoherentand psycho-
271/ASQ, June 2003
logicallyimpossible to maximizeperformancealong more
than one dimension-calculating tradeoffs and selecting
courses of action become intractable.Althoughany single
objective could satisfy the logicaland psychologicalrequire-
ments, Jensen concluded that long-termmarketvalue is the
one objective that best advances social welfare. Those sub-
scribingto this view believe that if shareholderwealth is
maximized,social welfare is maximizedas well. Inthe end,
the challenge for firms to invest in social initiativesis no chal-
lenge at all.
Friedman's(1970) well-knowncriticismof corporatesocial
responsibilityembodies the second form of criticism.He con-
strued these investments as theft and politicalsubversion:in
respondingto calls for socially responsible practices, execu-
tives take money and resources that would otherwise go to
owners, employees, and customers-thus imposing a tax-
and dedicate those resources to objectives that the execu-
tives, underthe sway of a minorityof voices, have selected
in a mannerthat is beyond the reach of accepted democratic
politicalprocesses. Friedmandid not deny the existence of
social problems;he simply claimed that it is the state's role
to address them.
The thirdform of the economic argumentagainst corporate
social initiativesdeems them dubious but, providedthey are
disclosed, unobjectionable.As long as the contractingparties
are clear about the firm's intentions,even if those intentions
includesomething other than wealth creation, Easterbrook
and Fischel (1991: 36) argued, "no one should be allowed to
object." They went on to conclude that "one thing that can-
not survive is systematic efforts to fool participants"(Easter-
brookand Fischel, 1991: 37). They were wary of corporate
social investments and, like Jensen, trusted propertyrights
and the invisiblehand of the marketto solve most social
problems. If all contractingparties know that the firm plans
to make a social investment, no matter how illconceived,
however, then those parties can decide if they want to partic-
ipate in the venture. The marketwill ultimatelysort out
whether it is the best use of a firm's resources.
The point of tension between a nexus of contracts approach
to the firmand those who push for corporatesocial involve-
ment can thus be distilledto two centralconcerns: misappro-
priationand misallocation.When companies engage in social
initiatives,the first concern is that managers will misappropri-
ate corporateresources by divertingthem from their rightful
claimants,whether these be the firm'sowners or, some-
times, employees. Managersalso misallocate resources by
divertingthose best used for one purpose to advance purpos-
es for which those resources are poorlysuited. Fromthis
perspective, managers' social initiativesare akinto using a
dishwasher to wash clothes. While economic contractarians
may be as committed to amelioratinghuman misery as any-
one, they see no reason for a corporationto divertits
resources to solve society's problems directly.Corporations
can contributebest to society if they do what they do best:
employ a workforceto providegoods and services to the
marketplaceand, in so doing, fulfillpeople's needs and create
wealth.
272/ASQ, June 2003
Social Initiatives by Business

The challenge facing those who advocate corporatesocial ini-

tiatives then is to find a way to promote what they see as
social justice in a world in which this shareholderwealth
maximizationparadigmreigns. Althougha dauntingtask, it
has attractedmany management scholars over the years.
Theirscholarshiphas attempted to sort out the relationship
between shareholders,with their economic interests, and
society, with its interest in broaderwell-being and human
development. The aim has largelybeen to demonstrate that
corporateattention to human misery is perfectly consistent
with maximizingwealth, that there is, in the words of United
Nations' Secretary GeneralKofiAnnan(2001), "a happycon-
vergence between what your shareholderswant and what is
best for millionsof people the world over."
ORGANIZATIONAL SCHOLARSHIP ON BUSINESS IN
SOCIETY
Aware of human sufferingand alert to the challenge from
economic contractarianism,organizationtheorists and empiri-
cal researchers have sought to identifya role for the firmthat
both attends to shareholders'interest in wealth creationand
looks beyond it. Inthis light, empiricalresearch has largely
focused on establishinga positive connection between cor-
porate social performance(CSP)and corporatefinancialper-
formance (CFP).Firstappearingin 1972, these studies were
offered as something of an antidote to a publicconversation
that was quite skepticalof corporatesocial responsibility
(Levitt,1958; Friedman,1970). The now 30-year search for
an association between CSP and CFPreflects the enduring
quest to find a persuasive business case for social initiatives,
to substantiate the kindof claims that KofiAnnan (2001)
recently made to U.S. corporations:"byjoiningthe global
fight against HIV/AIDS, your business will see benefits on its
bottom line." A dozen years after the publicationof the first
CSP-CFPstudies, stakeholdertheory (Freeman,1984) began
to take shape as the dominanttheoreticalresponse to the
economists' challenge. It aims to establish the legitimate
place for parties other than shareholderswhose interests and
concerns can defensibly orient managers' actions. Witha
body of empiricalwork and a rivaltheoreticalmodel of the
firm, organizationstudies has tried to respond to the econo-
mists' fundamentalchallenge by establishing some grounds
to license direct corporateinvolvementin amelioratingsocial
misery.The problemis that the resultingempiricalfindings
and theoreticalpropositionsrestrictorganizationalscholars'
abilityto develop a more expansive approachto understand-
ing the relationshipbetween organizationsand society. We
brieflyappraisethe 30-year CSP-CFPempiricalresearch tradi-
tion and the standing of stakeholdertheory and use this sum-
maryand critiqueas a springboardto develop an alternative
scholarlyagenda.
The EmpiricalCSP-CFPLiterature
Between 1972 and 2002, 127 publishedstudies empirically
examined the relationshipbetween companies' socially
responsible conduct and their financialperformance.Bragdon
and Marlin(1972) and Moskowitz (1972) publishedthe first
studies, with 17 other studies following duringthe 1970s, 30
273/ASQ, June 2003
 in the 1980s, and 68 in the 1990s. Inthe most recent 10-year
periodfrom 1993 through2002, researchers have published
64 new studies. Notwithstandinga long empiricalhistory,
interest in this question seems to be gaining momentum.
Corporatesocial performancehas been treated as an inde-
pendent variable,predictingfinancialperformance,in 109 of
the 127 studies. Inthese studies, almost halfof the results
(54) pointed to a positive relationshipbetween corporate
social performanceand financialperformance.Onlyseven
studies found a negative relationship;28 studies reported
non-significantrelationships,while 20 reporteda mixed set of
findings. Corporatesocial performancehas been treated as a
dependent variable,predictedby financialperformance,in 22
of the 127 studies. In these studies, the majorityof results
(16 studies) pointedto a positive relationshipbetween corpo-
rate financialperformanceand social performance.Fourstud-
ies investigatedthe relationshipin both directions,which
explains why there are more results than studies. Table2
Table 2

Relationship between Corporate Social Performance and Corporate Financial Performance in 127 Studies*
Measure

Study Social performance Financialperformance

Corporatesocial performance as independent variable

Positive relationship
Anderson& Frankle(1980) Disclosureof social performance Market
Belkaoui(1976) Disclosureof pollutioncontrol Market
Blacconiere& Northcut(1997) Disclosureof and expenditureson environmental Market
practices
Blacconiere& Patten (1994) Disclosureof and expenditureson environmental Market
practices
Bowman (1976) Disclosureof social performance Accounting
Bragdon& Karash(2002) Stewardship,systems thinking,transparency, Market
employee growth, financialstrength
Bragdon& Marlin(1972) CEPevaluation Accounting
Brown(1998) Fortunereputationrating Market
Christmann(2000) Surveyof environmentalpractices Cost advantage
Clarkson(1988) Ratingsof charity,communityrelations,customer Accounting
relations,environmentalpractices,humanresource
practices,and org. structuresbased on case studies
Conine& Madden(1986) Fortunereputationrating Perceptionof value as
long-terminvestment
and of soundness of
financialposition
D'Antonio,Johnsen & Hutton Mutualfund screens Market
(1997)
Dowell, Hart& Yeung(2000) IRRCevaluationof environmentalperformance Accounting& market
Epstein& Schnietz (2002) Industryreputationfor environmentand laborabuses Market
Freedman& Stagliano(1991) Disclosureof EPAand OSHAcosts Market
Graves& Waddock(2000) KLDevaluation Accounting& market
Griffin& Mahon(1997) Fortunereputationrating,KLDevaluation,charitable Accounting
contributions,pollutioncontrol
Hart& Ahuja(1996) IRRCevaluationof environmentalperformance Accounting
Heinze(1976) NACBSratings Accounting
Herremans,Akathaporn& Fortunereputationrating Accounting& market
Mclnnes (1993)
Ingram(1978) Disclosureof social performance Market
Jones & Murrell(2001) WorkingMotherlist of "Most FamilyFriendly" Market
companies
Judge & Douglas (1998) Surveyof environmentalpractices Accounting& market
share

274/ASQ, June 2003


Table2 (Continued)
Study
Corporate social performance as independent variable
Klassen& McLaughlin(1996)
Klassen& Whybark(1999)
Konar& Cohen (2001)
Luck& Pilotte(1993)
McGuire,Sundgren&
Schneeweis (1988)
Moskowitz(1972)
Nehrt(1996)
Newgren et al. (1985)
Parket& Eilbirt(1975)
Porter& van der Linde(1995)
Posnikoff(1997)
Preston (1978)
Preston & O'Bannon(1997)
Preston & Sapienza(1990)
Reimann(1975)
Russo & Fouts (1997)
Shane & Spicer(1983)
Sharma& Vredenburg(1998)
Simerly(1994)
Simerly(1995)
Spencer & Taylor(1987)
Spicer (1978)
Stevens (1984)
Sturdivant& Ginter(1977)
Tichy,McGill& St. Clair(1997)
Travers(1997)
Verschoor(1998)
Verschoor(1999)
Waddock& Graves(1997)
Wokutch& Spencer (1987)
Wrightet al. (1995)
Non-significantrelationship
Abbott& Monsen (1979)
Alexander& Buchholz(1978)
Aupperle,Carroll& Hatfield
(1985)
Bowman (1978)
Chen & Metcalf(1980)
Fogler& Nutt (1975)
Fombrun& Shanley(1990)
Freedman& Jaggi (1982)
Freedman& Jaggi (1986)
Fry& Hock(1976)
Greening(1995)
Guerard(1997a)
Hamilton,Jo & Statman(1993)
Hickman,Teets & Kohls(1999)
Hylton(1992)
Ingram& Frazier(1983)
Social Initiatives by Business
Measure
Social performance Financialperformance
Environmentalawards and crises Market
Surveyof environmentalpracticesand TRI Manufacturingcost,
quality,speed, and
flexibility
TRIand environmentallawsuits Accounting& market
KLDevaluation Market
Fortunereputationrating Accounting& market
Observationsof charitablecontributions,consumer Personalassessment
protection,disclosure,equal employment
opportunity,humanresource practices,South Africa
operations,and urbanrenewal
Timingand intensityof pollution-reducing technologies Accounting
Surveyof environmentalpractices Market
Surveyon minorityhiringand training,ecology, Accounting
contributionsto educationand art
Waste preventionpractices Accounting
South Africa:divestment Market
Disclosureof social performance Accounting
Fortunereputationrating Accounting
Fortunereputationrating Market
Surveyof attitudestoward nationalgovernment, Organizational
suppliers,consumers, community,stockholders, competence
creditors,and employees
FRDCratingsof environmentalpractices Accounting
CEPevaluation Market
Surveyof environmentalstrategy Operationalimprovement
Fortunereputationrating Accounting& market
Fortunereputationrating Accounting
Fortunereputationrating Accounting
CEPevaluation Accounting& market
CEPevaluation Market
Moskowitzratingsof social responsiveness Accounting
Fortunereputationrating Accounting
Mutualfund screens Market
Espoused commitmentto ethics in annualreport Accounting& market
Explicitstatement of an ethics code in annualreport Accounting& market
KLDevaluation Accounting
Fortunereputationrating,charitablecontributions, Accounting
corporatecrime
Awardsfrom U.S. Dept. of Laborfor exemplaryequal Market
employmentopportunity
Disclosureof social performance Accounting
Moskowitzratingsof social responsiveness Market
Surveyof social responsibilitypracticesand Accounting
organizationalstructures
Disclosureof social performance Accounting
CEPevaluation Accounting& market
CEPevaluation Market
Fortunereputationrating Accounting& market
CEPevaluation Accounting
Disclosureof pollution Market
Disclosureof social performance Accounting
EIAreportson conservationpractices Accounting& market
KLDevaluation Market
Mutualfund screens Market
Mutualfund screens Market
Mutualfund screens Market
Disclosureof environmentalqualitycontrol Accounting
275/ASQ, June 2003
Table2 (Continued)

Measure

Study Social performance Financialperformance

Corporate social performance as independent variable

Kurtz& DiBartolomeo(1996) KLDevaluation Market
Lashgari& Gant(1989) South Africa:adherence to Sullivanprinciples Accounting
Luther& Matatko(1994) Mutualfund screens Market
Mahapatra(1984) Disclosureof capitalexpenditureson pollutioncontrol Market
McWilliams& Siegel (1997) Awardsfrom U.S. Dept. of Laborfor exemplaryequal Market
employmentopportunity
McWilliams& Siegel (2000) KLDevaluation Accounting
O'Neill,Saunders& McCarthy Surveyof directors'concernfor social responsibility Accounting
(1989)
Patten (1990) South Africa:announcementof signing of Sullivan Market
principles
Reyes & Grieb(1998) Mutualfund screens Market
Sauer (1997) Mutualfund screens Market
Teoh,Welch & Wazzan(1999) South Africa:divestment Market
Waddock& Graves(2000) KLDevaluation Accounting& market

Negative relationship
Boyle, Higgins& Rhee (1997) Compliancewith Defense IndustriesInitiative Market
Kahn,Lekander& Leimkuhler Tobacco-free Market
(1997)
Meznar,Nigh& Kwok(1994) South Africa:withdrawal Market
Mueller(1991) Mutualfund screens Market
Teper(1992) No alcohol,tobacco, gambling,defense contracts,or Market
operationsin South Africa;adherence to broad
social guidelines
Vance(1975) Moskowitzratingsof social responsiveness Market
Wright& Ferris(1997) South Africa:divestment Market

Mixedrelationship
Belkaoui& Karpik(1989)
Bermanet al. (1999)
Blackburn,Doran& Shrader
(1994)
Bowman& Haire(1975)
Brown(1997)
Cochran& Wood (1984)
Diltz(1995)
Graves& Waddock(1994)
Gregory,Matatko& Luther
(1997)
Guerard(1997b)
Hillman& Keim(2001)
Holman,New & Singer(1990)
Kedia& Kuntz(1981)
Luther,Matatko& Corner
(1992)
Mallin,Saadouni& Briston
(1995)
Marcus& Goodman(1986)
McGuire,Schneeweis &
Branch(1990)
Ogden & Watson (1999)
Pava& Krausz(1996)
Rockness, Schlachter&
Rockness (1986)
Disclosureof social performanceand Moskowitz Accounting& market
ratingsof social responsiveness
KLDevaluation Accounting
CEPevaluation Accounting& market
Disclosureof social performance Accounting
Fortunereputationrating Market
Moskowitzratingsof social responsiveness Accounting& market
CEPevaluation Market
KLDevaluation Accounting
Mutualfund screens Market
KLDevaluation Market
KLDevaluation Market
Disclosureof social performance& capital Market
expenditureson regulatorycompliance
Interviewand survey on charitablecontributions,low- Accounting& marketshare
income housing loans, minorityenterpriseloans,
female corporateofficers, and minorityemployment
Mutualfund screens Market
Mutualfund screens Market
Compliancewith safety regulations Capabilities& productive
efficiency
Fortunereputationrating Accounting& market
Customerservice complaints Accounting& market
CEPevaluation Accounting& market
EPAand U.S. House of Representativesdataon Accounting& market
hazardouswaste disposal

276/ASQ, June 2003

 Social Initiatives by Business

Table2 (Continued)

Measure

Study Social performance Financialperformance

Corporatesocial performance as dependent variable

Positive relationship
Brown& Perry(1994)
Cottrill(1990)
Dooley & Lerner(1994)
Fry,Keim& Meiners(1982)
Galaskiewicz(1997)
Konar& Cohen (1997)
Levy& Shatto (1980)
Maddox& Siegfried(1980)
Marcus& Goodman(1986)
McGuire,Sundgren&
Schneeweis (1988)
Mills& Gardner(1984)
Navarro(1988)
Preston& O'Bannon(1997)
Riahi-Belkaoui (1991)
Roberts(1992)
Waddock& Graves(1997)
Fortunereputationrating Accounting& market
Fortunereputationrating Marketshare
TRI Accounting
Charitablecontributions Accounting
Charitablecontributions Accounting
TRI Market
Charitablecontributions Accounting
Charitablecontributions Accounting
Compliancewith emissions regulations Accounting
Fortunereputationrating Accounting& market
Disclosureof social performance Accounting& market
Charitablecontributions Accounting
Fortunereputationrating Accounting
Fortunereputationrating Accounting& market
CEPevaluation Accounting& market
KLDevaluation Accounting

Non-significantrelationship
Buehler& Shetty (1976) Organizationalprogramsin consumer affairs,environ- Accounting
mentalaffairs,urbanaffairs
Cowen, Ferreri& Parker(1987) Disclosureof social performance Accounting
Patten (1991) Disclosureof social performance Accounting
Mixedrelationship
Johnson & Greening(1999) KLDevaluation Accounting
Lerner& Fryxell(1988) CEPevaluation Accounting& market
McGuire,Schneeweis & Fortunereputationrating Accounting& market
Branch(1990)
* CEP = Councilon Economic Priorities;EIA= Energy InformationAssociation; EPA = EnvironmentalProtection
Agency;FRDC= FranklinResearch& DevelopmentCorporation; IRRC= InvestorResponsibilityResearchCenter;KLD
= Kinder,Lydenberg,Dominimultidimensionalrating;NACBS= NationalAffiliationof ConcernedBusiness Students;
OSHA= OccupationalSafety and HealthAdministration; and TRI= ToxicsRelease Inventory.Fourstudies investigate
the relationshipin both directionsbut are counted as only one study: McGuire,Schneeweis & Branch(1990);McGuire,
Sundgren& Schneeweis (1988);Preston & O'Bannon(1997);Waddock& Graves (1997). Marcus& Goodman(1986)
containstwo separate studies and is therefore counted twice.

captures the basic approachesfor measuringsocial and

financialperformanceand reports which authorsfound which
results, includingpositive, non-significant,negative, and
mixed relationships.
A clear signal emerges from these 127 studies. A simple
compilationof the findingssuggests there is a positive asso-
ciation,and certainlyvery littleevidence of a negative associ-
ation, between a company's social performanceand its finan-
cial performance.A recent meta-analysisof 52 CSP-CFP
studies reached this same substantive conclusion (Orlitzky,
Schmidt, and Rynes, 2003). Concerns about misappropria-
tion, and perhaps even misallocation,would seem to be alle-
viated. If corporatesocial performancecontributesto corpo-
rate financialperformance,then a firm's resources are being
used to advance the interests of shareholders,the rightful
claimants in the economic contractarianmodel. Concerns
about misallocationrecede as well. If social performanceis
277/ASQ, June 2003
contributingto financialperformance,then the firmis being
used to advance the objectivefor which it is consideredto be
best suited, maximizingwealth. Althoughit can be arguedthat
a company'sresources might be used to produceeven more
wealth, were they devoted to some activityother than CSP,
studies of the linkbetween CSP and CFPreveal littleevidence
that CSP destroys value, injuresshareholdersin a significant
way, or damages the wealth-creatingcapacityof firms.The
empiricalrelationshipbetween CSP and CFPwould seem to
be established and the underlyingeconomic concerns about
CSP alleviated.Evenas research intothe relationshipbetween
CSP and CFPaddresses the objectionsposed by economic
contractarianism,however,a closer lookat this researchsug-
gests that it opens as many questions as it answers about the
role of the firmin society.
What appears to be a definite linkbetween CSP and CFPmay
turnout to be more illusorythan the body of results suggests.
The steady flow of researchstudies reflects ongoing efforts
both to resolve the tension between advocates and criticsof
corporatesocial performanceand to shore up the methodologi-
cal and theoreticalweaknesses in past studies. Therehave
been 13 reviews of this CSP-CFPresearchpublishedsince
1978, nine in the past ten years alone (Aldagand Bartol,1978;
Arlowand Gannon,1982; Cochranand Wood, 1984; Aupperle,
Carroll,and Hatfield,1985; Wokutchand McKinney,1991;
Wood and Jones, 1995; Pavaand Krausz,1996; Griffinand
Mahon,1997; Prestonand O'Bannon,1997; Richardson,Welk-
er, and Hutchinson,1999; Roman,Hayibor,and Agle, 1999;
Margolisand Walsh,2001; Orlitzky,Schmidt,and Rynes,
2003). The reviewers see problemsof all kinds in this
research.They identifysamplingproblems,concerns about the
and validityof the CSP and CFPmeasures, omission
reliability
of controls,opportunitiesto test mediatingmechanisms and
moderatingconditions,and a need for a causal theoryto link
CSP and CFP The imperfectnatureof these studies makes
researchon the linkbetween CSP and CFPself-perpetuating:
each successive study promises a definitiveconclusion,while
also revealingthe inevitableinadequaciesof empiricallytack-
lingthe question. As the accelerationin the numberof studies
reveals, researchthat investigatesthe linkbetween CSP and
CFPshows no sign of abating.
This continuingresearch traditionproduces an ironicand, no
doubt, unintendedconsequence. The CSP-CFPempiricalliter-
ature reinforces, ratherthan relieves, the tension surrounding
corporateresponses to social misery. By assaying the finan-
cial impact of corporatesocial performance,organizational
research helps to confirmthe economic contractarianmodel
and accept its assumptions. Meanwhile,the work leaves
unexploredquestions about what it is firms are actuallydoing
in response to social misery and what effects corporate
actions have, not only on the bottom line but also on society.
The parallelconceptualwork in the area of stakeholdertheory
arrivesat the same disquietingdestination.
The Theoretical Stakeholder Literature
Freeman(1984) broughta formalconsiderationof stakeholder
relationsto a burgeoningfield of management scholarship
278/ASQ, June 2003
Social Initiatives by Business

twenty years ago. Tracingits indirectroots backto Adam

Smith'swork in the eighteenth centuryand a 1963 internal
memorandumat the StanfordResearch Institute,Freeman's
ideas provideda languageand frameworkfor examininghow a
firm relates to "anygroupor individualwho can affect or is
affected by the achievement of the organization'sobjective"
(Freeman,1984: 46). Lookingat the business corporation
throughsomething other than the eyes of its equity holders
has inspiredgreat efforts to translatethat intuitiveappeal into a
theory. Donaldsonand Preston(1995) counted more than a
dozen books and 100 articlesdevoted to stakeholdertheory;
Wolfe and Putler(2002) counted 76 articleson the stakeholder
theme publishedin just six journalsin the 1990s. The promise
of stakeholdertheoryto offer a cogent alternativeto the eco-
nomic account of the firm,however, is impeded by a set of
assumptions designed to accommodate economic considera-
tions.
Takingstock of stakeholdertheory,Donaldsonand Preston
(1995) introducedan influentialtaxonomythat sorts it into
three types: descriptive,normative,and instrumental.Descrip-
tive stakeholdertheory focuses on whether and to what extent
managersdo in fact attend to variousstakeholdersand act in
accordwith theirinterests. Normativestakeholdertheory
explores whether managersought to attend to stakeholders
other thanshareholdersand, if so, on what groundsthese vari-
ous stakeholdershave justifiableclaims on the firm.Instru-
mental stakeholdertheory delineates and investigatesthe con-
sequences-most notably,the economic benefits-that follow
from attendingto a rangeof stakeholders.Instrumentalver-
sions of stakeholdertheorycan either be descriptive,positing
and investigatingthe beneficialconsequences that accrue to
the firm,such as efficientcontracting(Jones, 1995), or norma-
tive, justifyingthe claims of stakeholderson the basis of the
benefits that accrue to the firmfrom attendingto those claims
(Freeman,1999; Freemanand Phillips,2002; Jensen, 2002).
Whereas Donaldsonand Prestonencouragedgreaterattention
to normativequestions about stakeholders,the scholarship
devoted to stakeholdertheory has focused largelyon instru-
mental considerations.Jones and Wicks (1999)formallypro-
posed a convergentstakeholdertheoryto blend instrumental
considerationswith the ongoing efforts to create a normative
theory.AlthoughFreeman(1999: 235) eschewed Donaldson
and Preston'stripartitedivisionof stakeholdertheoryas well as
the subsequent integration,he also concludedthat to buttress
any normativeinjunctionfor managersto attend to key stake-
holders, "itis hardto see how such an argumentcan be con-
nected to realfirms and realstakeholderswithoutsome kind
of instrumentalclaim."Revealingthe gripthat instrumental
reasoninghas on stakeholdertheory, Post, Preston,and Sachs
(2002: 19) recentlydefined stakeholdersexplicitlyby the contri-
butionstakeholdersmake to wealth creationor destruction:
"Thestakeholdersin a corporationare the individualsand con-
to
stituencies that contribute,eithervoluntarilyor involuntarily,
its wealth-creatingcapacityand activities,and are thereforeits
potentialbeneficiariesand/orriskbearers."
It is taken to be a practicalnecessity that stakeholdertheory
revolvearoundconsequences, financialconsequences
279/ASQ, June 2003
substantive enough to convince managers that stakeholders
are worthy of attention (Freeman,1999; Jones and Wicks,
1999). When those beneficialconsequences are not contin-
gent on a certain standardof stakeholdertreatment, or when
that treatment fails to produce those consequences, howev-
er, the range of corporateconduct that is required,or even
permissible, becomes much less clear.What happens when
attentionto stakeholderinterests yields results that diverge
from the wealth maximizingambitionsof its shareholders?
This is precisely what may happen when attention is directed
at the effects of organizationson society and whether, for
example, companies should divest their investments in South
Africa(Meznar,Nigh, and Kwok, 1994), diversifythe demo-
graphiccomposition of their boardsof directors(Carleton,
Nelson, and Weisbach, 1998), or join the fight to combat
AIDS. Paradoxically, a stakeholdertheory conceived to be
practicalmay have left managers bereft. As Gioia(1999: 231)
argued, the centralchallenge for managers is "how to arrive
at some workablebalance" between instrumentaland other
moralcriteria.Managersconfrontdifficultdilemmas when
normativeand instrumentalclaims do not perfectlyalign.
There are normativereasons to respect stakeholders, inde-
pendent of the ensuing financialbenefits. Those reasons may
be grounded,for example, in the beneficialconsequences
that result for specific stakeholders. Concerns about employ-
ee dignityand self-efficacy may promptcertain kindsof man-
agerialbehavior(Shklar,1991; Hodson, 2001). Normativejus-
tificationof stakeholderclaims may also be grounded in
principlesof fairness and reciprocity(Applbaum,1996;
Phillips,1997, 2003), fundamentalrights (Donaldsonand Pre-
ston, 1995), or respect for the intrinsicworth of human
beings (Donaldsonand Dunfee, 1999). How do these
grounds for action informour perspective on the place of the
firm in society? How can their implicationsfor action, in the
face of calls for corporateresponses to amelioratesocial mis-
ery, be sorted out alongside the compelling instrumentalpur-
pose of the firmto enhance materialwelfare and maximize
wealth?
A preoccupationwith instrumentalconsequences renders a
theory that accommodates economic premises yet sidesteps
the underlyingtensions between the social and economic
imperativesthat confrontorganizations.Such a theory risks
omittingthe pressing descriptiveand normativequestions
raised by these tensions, which, when explored, might hold
great promise for new theory, and even for addressing practi-
cal management challenges. How do firms navigatetheir
way throughthese tensions? How ought they to do so?
Organizationalinquirymust go beyond efforts to reconcile
corporateresponses to social misery with the neoclassical
model of the firm. Rather,this social and economic tension
should serve as a startingpoint for new theory and research.
Exploring the Antinomy
Organizationalscholars and managers alike find themselves
in the clutches of an antinomy(Alexander,1988; Poole and
Vande Ven, 1989). Thatantinomyis capturedin a question
Merton(1976: 88) believed every executive must face:
280/ASQ, June 2003
Social Initiatives by Business

"Does the successful business try first to profitor to serve?"

Fromsociety's perspective, creatingwealth and contributing
to materialwell-being are essential corporategoals. But
restoringand equippinghuman beings, as well as protecting
and repairingthe naturalenvironment,are also essential
objectives. Companies may be well designed to advance the
first set of objectives, yet they operate in a world plagued by
a host of recalcitrantproblemsthat hamperthe second set.
These vying objectives place claims on the firmthat are often
difficultto rankand reconcile. Where economic contractari-
ans see instrumentalinefficiencyand illicitconduct in direct-
ing corporateresources toward redressing social misery,
those who advocate broadercorporatesocial initiativessee
instrumentalefficiency and duties fulfilled.
The antinomyreveals itself more explicitlyin the face of
appeals for companies to take a more active and expanded
role in society. Some line up to warn of the danger in heed-
ing these appeals, while others point to empiricalfindingsto
relieve concern. Both avenues of intellectualresponse,
alreadyreviewed in this paper,attempt to remove the antino-
my in one of two classic ways (Nussbaum, 1986: 67), either
through invalidationor throughreconciliation.Forexample,
declarationsof what the role and purpose of a firm "really"is
attempt either to validateor disqualifycertainactivities by
suggesting that a theory of the firm renders certainfunctions
and practices defensible and others not (e.g., Berle, 1931;
Dodd, 1932). Theoreticaland empiricalattempts at synthesis,
reflectingthe second avenue of response, seek to demon-
strate the mutualreinforcementof collidingconceptions of
the firm (e.g., Griffinand Mahon, 1997; Jones and Wicks,
1999). Despite these differingefforts to resolve the antino-
my, declarationsof what a firm'spurpose trulyis and efforts
to demonstrate convergence among competing conceptions
do not erase the fundamentaltension.
The effort to relieve the antinomythroughsynthesis and rec-
onciliationhas fueled organizationalscholarshipfor many
years. By adoptingthe underlyingassumptions of economic
contractarianism,both instrumentalstakeholdertheory and
the empiricalresearch connecting CSP and CFPoffer an allur-
ing way to ease the tension with economics. The problem,
as Tetlock(2000: 23) pointed out, is that no concession to
the instrumentaland wealth-enhancingmodel of the firmwill
reconcile economic contractariansto stakeholdertheory:

Disagreements rooted in values should be profoundlyresistantto

change.... Libertarian conservatives might oppose the (confiscato-
ry)stakeholdermodel even when confrontedby evidence that con-
cessions in this directionhave no adverse effects on profitability
to
shareholders.Expropriation is expropriation,no matterhow pretti-
fied. And some egalitariansmightwell endorse the stakeholder
model, even if shown compellingevidence that it reduces profits.
Academics who relyon evidence-based appeals to change minds
when the disagreements are rooted in values may be wasting
everyone's time.
Aside from failingto win over opponents, substantiatingthe
instrumentalbenefits of corporatesocial performancemay
well be immaterialfor another,equallysalient reason. Compa-
nies alreadyinvest in social initiatives.Moreover,these com-
281/ASQ, June 2003
panies often invest for reasons that have nothingto do with
instrumentalconsequences. Beyond the obvious point that
researchers could not investigate the CSP-CFPrelationship
without evidence of CSP,companies' philanthropiccontribu-
tions more than quadrupled,in realterms, between 1950 and
2000 (Caplow,Hicks,and Wattenberg,2001). The cross-
industryorganizationBusiness for Social Responsibilitywould
not be able to count 1,400 members and commission a book
to document the benefits that purportedlyaccrue from social-
ly responsible practices (Makower,1994) were such practices
unknown. In keeping with Tetlock's(2000) insight,the rea-
sons executives give for these social initiativestypicallyhave
more to do with an ineffable sense that this work is the right
thing to do (Holmes, 1976; Galaskiewicz,1997; Donnelly,
2001), ratherthan with how these investments will increase
shareholdervalue. These corporatepractices even seem to
challenge the empiricalclaims of economic theory.Why does
corporatesocial performancepersist despite the disadvan-
tages that economic theory suggests it imposes on firms?
The existence of CSP begs empiricalexplanationratherthan
empiricaljustification.
Effortsto reconcile organizationalresearch on corporate
social performancewith the economic model of the firm may
ultimatelyturn out to be counterproductive.To make room
for corporateresponses to societal ills, organizationaltheo-
rists and researchers have acceded to economic contractari-
anism, relinquishingtheir own ideas about the problemsto
be investigated, the variableson which to focus, and the
methods to use for gaining insight (Alexander,1988; Hirsch,
Friedman,and Koza,1990). Forexample, if corporate
responses to social misery are evaluated only in terms of
their instrumentalbenefits for the firmand its shareholders,
we never learnabout their impact on society, most notably
on the intended beneficiariesof these initiatives.Nor do we
investigate the conditions underwhich it is permissibleto act
on stakeholderinterests that are inconsistent with sharehold-
er interests. The corporateinitiativesthat were the focus of
Meznar,Nigh, and Kwok's(1994) event study of firms
announcingtheirdivestment from South Africaand the event
study of TIAA-CREF's boarddiversityinitiatives(Carleton,Nel-
son, and Weisbach, 1998) were both met with negative mar-
ket reactions. Does that mean that firms should have stayed
to work with an apartheidgovernment or that attempts to
add AfricanAmericansto boards of directorsshould be halt-
ed? Financialperformancemay not be the finalarbiterof
questions that implicatea range of values and concerns,
even when firms are the actors. Ratherthan theorizingaway
the collision of objectives and interests, organizationalschol-
ars would do well to explore it (Alexander,1988).
By adoptingeconomic assumptions, organizationtheory and
research handicapsitself in yet anotherway. It leaves organi-
zations that seek to respond to these calls for social involve-
ment bereft of prescriptiveguidance for how to do so. Sim-
ply knowing that the economic tide is with them does not
providemanagers with insight about how to respond properly
and effectively. Organizationsface a troublesome reality,in
which specific requests to help fight AIDS, supporthomeless
282/ASQ, June 2003
Social Initiatives by Business

shelters, or improvelocal schools may or may not generate

economic gains for the firm.The field of organizationstudies
has largelybeen silent about how to consider and manage
the tradeoffs and dilemmas that arise when companies con-
front dueling expectations.
A Reorienting Perspective
The grip of economic assumptions must be released in favor
of an alternativepremise, one that expands the focus of
organizationalscholarship.We suggest adoptinga pragmatic
stance toward questions about the firm's role in society, one
articulatedmost clearlyby WilliamJames (1975: 97): "Grant
an idea or belief to be true," it [pragmatism]says, "what con-
crete difference will its being true make in anyone's actual
life? How will the truthbe realized?What experiences will be
differentfrom those that would obtain if the belief were
false? What, in short, is the truth'scash-value in experiential
terms?"
The first step of James's pragmaticapproachis to assume
that an idea is true. In this case, we need to begin with the
idea that organizationscan play an effective role in ameliorat-
ing social misery. Fromthat beginning, pragmatismthen
instructs us to look at the consequences of acting on this
belief. Do companies reallymake a concrete difference in
curing social ills when they act as though they can do so?
The lens of research shifts away from confirmingthe consis-
tency between corporateactions and economic premises
about the firm. Research would instead focus on unearthing
the effects that corporateactions to redress social ills actual-
ly have. The pragmaticperspective poses a second ques-
tion: How can the assumed truththat companies can be
effective agents, not just of economic efficiency but of
social repair,be realized?How can the concrete differences
be achieved? This lays out a new directionfor theory. What
are the conditions under which, and the processes through
which, the intended beneficiaries and institutionscentral to a
healthy society indeed benefit from these corporateactions?
Systematic descriptive research is just as necessary to
examine the consequences of corporate actions as it is to
identifytheir antecedents and the processes that bringthem
about.
Althoughwe are proposingan alternativestartingpoint for
inquiryinto the role of the firm in society, we are not making
a steadfast normativeclaim about the appropriaterole for the
firm in society. The pragmaticstance does not requirethat
other beliefs be relinquished.Those who believe that society
is best served if companies focus solely on maximizing
wealth can adhere to their convictions, as can those who
believe that other stakeholders beyond the shareholder
deserve attention,whatever the repercussions for profitabili-
ty. The aim here is to test a pragmaticbelief to determine if
acting on the basis of that belief produces the desired conse-
quences. How those consequences are to be weighed and
pursued relativeto others is a matterfor normativetheory.
Here too, organizationalscholarshipmust extend its efforts.
The challenge for those who study organizationsis to investi-
gate what happens when it is assumed that instrumentaleffi-
283/ASQ, June 2003
ciency and humanbeneficence, wealth maximizationand the
ameliorationof social misery, and shareholderrightsand
stakeholder rightsall matter.A normativetheory of the firm
will acknowledge these competing conceptions and accom-
modate the tension. Instead of tryingto assert the legitimacy
of one set of claims and deny the legitimacyof the other, or
to imagine that all of these competing interests can some-
how be syntheticallyreconciled,theorists must undertakethe
task of workingout the principlesand guidelines for manag-
ing tradeoffs. A startingpoint for buildingsuch a theory
requiresa systematic descriptive inquiryinto corporations'
responses to calls for an expanded role. These insights can
then combine inductivelywith a rigorousphilosophicalanaly-
sis to construct a normativeconception of the firmand its
purpose. A descriptiveresearch agenda lays the foundation
for the inductivedevelopment of a normativetheory of the
firm.As we investigate how corporationsdo or do not
respond to misery,we can thinkabout how they ought to
respond to misery.
TOWARDA NORMATIVE THEORYOF THEFIRM
The antinomyposes a fundamentalquestion for organization
theorists and managers: How can business organizations
respond to human misery while also sustaining their legitima-
cy, securing vital resources, and enhancing financialperfor-
mance? This question may best be addressed througha part-
nershipbetween systematic descriptive research and
inductivenormativetheory. We need to painta clear and
comprehensive portraitof how firms navigate these compet-
ing objectives in their responses to social ills. To do this, eco-
nomic assumptions about business organizationsmust be
dislodged, though not discardedor discounted, in favor of a
pragmaticassumption that permits examination,before
cross-examination,of corporateresponses to misery. Here
we echo a recent call in psychology to investigate complex
social phenomena as they occur in the real world before
moving to tests of theoreticalpropositions(Rozin,2001). A
portraitof corporateresponses to social misery then informs
normativeinquiryinto the antinomyitself.
Ratherthan stating the firm's preeminent role and purpose,
defending it, and deductivelyderivingprinciplesof action that
follow, our inductiveapproachbegins with the complex inter-
play of vying objectives, duties, and concerns. Inductivenor-
mative theorizingasks the question, How might the role, pur-
pose, and functionof the firm be specified so as to
acknowledge a range of inconsistent concerns and still facili-
tate action? While acknowledgingthe conflict between social
misery and economic efficiency, an inductivenormativetheo-
ry seeks not to resolve the conflict but to clarifythe compet-
ing considerations,probe what gives them weight, and
explore their relationship.The goal is to craft a purpose and
role for the firmthat builds internalcoherence among com-
peting and incommensurableobjectives, duties, and con-
cerns (Richardson,1997). While the aim of our descriptive
agenda is to survey the state of corporateresponses to
social misery, and thereby ascertainhow companies do
indeed navigatethroughthe antinomy,the aim of our norma-
284/ASQ, June 2003
Social Initiatives by Business

tive agenda is to crafta frameworkfor how companies

should navigatethat antinomy.
A Descriptive Research Agenda
Firmsmake social investments in the face of compellingeco-
nomic reasoning not to do so. The discrepancybetween
actual practiceand the theoreticallyespoused purpose of the
firm prompts a quest for explanation.It is a classic sense-
makingsituation.To make sense of corporateconduct, it is
especially appropriateto follow Weick's (1995: 183) counsel
to "talkthe walk": "To'talkthe walk' is to be opportunisticin
the best sense of the word. It is to search for words that
make sense of currentwalkingthat is adaptivefor reasons
that are not yet clear."To make sense of corporaterespons-
es to misery and discern the functionof those responses, we
need to understandwhich firms respond to which social
problems, with what consequences, for both the firms and
society. It is best to explore this kindof broadresearch ter-
rainwith a map in hand (Weick, 1995: 54-55, 121). Used as a
retrospectivesensemaking guide, the core theories of organi-
zationaldecision makingand action providea useful map for
this descriptiveexploration(Janisand Mann, 1977; Weick,
1979; Tushmanand Romanelli,1985; Cyertand March,
1992). Five areas of inquiryinvite descriptive research:how
companies extract and appraisethe stimulifor action; how
companies generate response options; how companies eval-
uate these options and select a course of action; how the
selected course is implemented;and, finally,what conse-
quences follow from corporateefforts to amelioratesocial
ills. We outline orientingresearch questions in each of these
five areas.
Appraising the stimuli. Researchers first need to under-
stand which social ills garnerattention by which firms. Orga-
nizationsobserve feedback from their context (Cyertand
March,1992) or enact their context in such a way (Weick,
1979) that a stimulus for action is recognized and assessed
(Kieslerand Sproull,1982). What then explains which set of
issues catch a firm'sattention?Janis and Mann(1977)
observed that these stimulifor action often come in two
forms: communicationsand events.
Communicationsto act in the social domain can come both
from internalagents (Anderssonand Bateman, 2000; Bansal,
2003) and externalagents, whether solicited (Adkins,1999)
or unsolicited(Mannheim,2001). Chroniclingwho these
agents are, what communicationtactics they employ, and
how the differentagents use differentcommunicationstrate-
gies for greater and lesser effect are all ripe research ques-
tions. More must be learned, as well, about the kindof
events that trigger,or fail to trigger,corporateaction. Why do
firms respond to some communicationsand events and not
others? Perhapsa set of features of triggeringstimuli
increase the likelihoodof response. Extanttheory suggests
that an appellant'spower, legitimacy,and urgency might
determine the extent to which managers attend to a claim
(Mitchell,Agle, and Wood, 1997). Alternatively,problemsand
solutions may simply attach themselves to organizationsin a
285/ASQ, June 2003
nearlyinexplicablefashion (Cohen, March,and Olsen, 1972;
Cyertand March,1992: 96).
Once the features of the stimulatingproblems and the orga-
nizationsinvolvedare better understood,we can then exam-
ine how companies appraisethis information.Organizations
might frame these stimulias a cost or investment, a burden
or responsibility,a threat or an opportunity(Jacksonand Dut-
ton, 1988), or some combinationof these kinds of polar
extremes (Gilbert,2003), to greater or lesser effect. Inthe
end, descriptive inquirycan unearththe criteriathat qualify
certainproblems for action and guide managers to select, or
discard,problems to address.
Generating response options. Once a problem has been
identifiedand enacted as warrantinga response, a search
ensues for a solution (Cyertand March,1992). How do com-
panies generate response options? The classic dichotomy
between behavioralprocesses, in which an action option is
tried and either selected or discardedbased on the ensuing
feedback (Levittand March,1988; Gavettiand Levinthal,
2000), and cognitive processes, in which options are generat-
ed and weighed in advance of behavioraltrial(Marchand
Simon, 1958; Gavettiand Levinthal,2000), provideone lens
for diagnosing how companies generate responses to social
ills. Whether options are tried out first behaviorallyand then
assessed or cognitivelyformulatedand then assessed before
they are executed, we also need greater insight into how the
plausibleoptions are generated.
Why do companies end up consideringthe set of options
they do? At least three possible approaches can be identified.
First,a firm may deliberatelyappraise its assets and capabili-
ties and then generate options that tap into these resources
(Dunfee and Hess, 2000). UPS, for example, drew on its
logistics capabilitieswhen it created a technical service man-
ual for food rescue programs(www.community.ups).Second,
a firm may look to potentialpartnersin civil society and
develop a relationshipthat might even grow over time
(Sagawa and Segal, 2000). The relationshipbetween Timber-
landand CityYearrepresents how these collaborationscan
deepen throughthe years (Austin,2000). Finally,the process
may be more externallydrivenand nearlyautomatic.Compa-
nies may identifywidely practicedoptions that adhere to
standardsof accepted conduct. Galaskiewicz(1991) illuminat-
ed the deliberateconstructionof philanthropicinstitutions
and ideology in Minneapolis-SaintPaul.Once established,
the charitablecontributionsflowed at the same rate each
year, regardless of who was leadingthe firms (Galaskiewicz,
1997).
Inadditionto identifyingthe process of generating options,
the content of those options begs for systematic descriptive
research. Just as the problems that stimulate corporate
responses to social ills can be catalogued and analyzedfor
patterns, so can the content of potentialcorporaterespons-
es. What are companies doing in response to social ills, and
what is the range of activities they consider? Two fundamen-
tal questions, bearingon the definitionof the phenomenon
itself, arise at this point for descriptiveresearch. Forsimplici-
286/ASQ, June 2003
Social Initiatives by Business

ty, we have operated with the assumption that responses to

misery are appendages to companies' core productiveactivi-
ty and that corporatesocial performanceconsists of respons-
es to human misery. In examiningthe responses companies
actuallyconsider, both of these assumptions open them-
selves to inquiry.First,to what extent are companies
respondingwith for-profitinitiatives,initiativesthat treat
social ills akinto any other set of business opportunities,dis-
cerninga market (Prahaladand Hammond,2002) or an emer-
gent productclass (Tushmanand Romanelli,1985) to be
entered or a cost to be reduced? Alternatively,to what
extent, and when, do companies respond with charitable
activities decoupled from their core for-profitactivities,donat-
ing some sort of resource? Second, to what extent is corpo-
rate social performancetrulya response to human misery?
The options companies consider, and even the problemsthat
get pressed upon them, may invoke a role that extends
beyond a narroweconomic function and yet does not touch
upon human misery.What is the actual proximitybetween
corporateresponses classified as social performanceand
efforts to redress human misery?
Evaluating options. What assessment criteriaare appliedto
corporateefforts to amelioratesocial ills? In makingdeci-
sions, managers tend to follow a logic of consequences,
weighing costs and benefits, or a logic of appropriateness,
weighing the fit of potentialoptions with conceptions of their
(andthe company's)role identityand its implicationsfor the
given situation(Cyertand March,1992; March,1994).
Research can reveal when the criteriaare applied:do compa-
nies weigh and evaluate potentialoptions in advance of act-
ing (Marchand Simon, 1958), or do they make sense of their
social initiativesretrospectively(Weick,1979, 1995), assign-
ing a meaningful(but retroactive)explanationfor why the
selected course was taken?
In unearthingthe criteriacompanies use to assess responses
to human misery, descriptiveresearch can reveal how com-
panies wrestle with the competing expectations that contest-
ed conceptions of the firm's role and purpose impose. If con-
sequences are used to evaluate response options, the set of
consequences may reflect the ways in which conflictingcon-
ceptions of the firm'srole are being negotiated. Forexample,
what sort of returnis assessed when companies evaluate
options by calculatinga returnon investment? Perhapscom-
panies try to calculatethe financialbenefits to the firm,mim-
ickingthe research conducted for over 30 years, or perhaps
they employ a more expansive definitionof returnand focus
their attention on worker morale and commitment, corporate
reputationin capitaland productmarkets, or the legitimacy
gained with regulatoryauthorities.Alternatively,companies
may evaluate the benefits for society, estimating, for exam-
ple, the greatest humanitariangain per dollarspent. If so,
how is the humanitariangain assessed? Conflictingconcep-
tions of the firm's role and purpose may also be reflected in
how the appropriatenessof corporatesocial initiativesis eval-
uated. Inthe face of the shareholderwealth maximization
ideology, using criteriaof appropriatenesspermits consisten-
cy between this ideology and corporatesocial initiatives.
287/ASQ, June 2003
Enlightenedself-interest (Galaskiewicz,1991) is one such cri-
terion. It provides economic grounds on which to validatethe
fit of the economic identityof the firmwith virtuallyany
option selected.
Implementation. Once problems have been identifiedand
selected, and once response options have been generated
and evaluated, a response must be implemented. How then
do companies playtheir social role? How are such contested
acts managed? Cyertand March(1992: 164) argued that
"most organizationsmost of the time exist and thrivewith
considerable latent conflict of goals." Quasi-resolutionof con-
flict is made possible, in their view, throughsatisficing deci-
sion rules and sequential attention to goals. Corporateefforts
to respond to social ills, however, are not only in conflict with
other objectives, they are themselves inherentlyprovocative,
highlightingin their very purpose their inconsistency with the
firm'seconomic objective. Therefore,these corporateefforts
pose distinct management challenges. Ameliorativeinitiatives
are simultaneouslylegitimacy-seekingand legitimacy-threat-
ening acts, adheringto one set of expectations, social in
nature,while violatinganother,economic in nature. In addi-
tion, as companies find themselves with an elaboratedmoral
personality(Paine,2002), corporatesocial initiativesare
simultaneouslyidentity-bridging and identity-beggingactivi-
ties: corporateefforts to redress social ills are a means of
accommodatinga new construalof companies as social insti-
tutions while raisingfundamentalquestions about the firm's
purpose. Corporatesocial initiativesare complicatedeven
more by their mixed motives. Managersmay seek to relieve
normativeand coercive calls for involvement;secure their
companies' legitimacy,reputation,and abilityto function;and
actuallyaid society. How are corporateefforts to redress
social ills managed-executed, controlled,monitored,and
disciplined-amid this crossfire of competing purposes,
expectations, identities, and motives? If companies approach
prospective action with cognitive maps that outline the
course of action and anticipatedconsequences (Gavettiand
Levinthal,2000), how is the plan converted into action and
directed toward the desired consequences? If companies fol-
low a process resembling experientialsearch (Gavettiand
Levinthal,2000), how is that search-the trialand error
process-navigated throughthe mixtureof expectations and
motives, so that the firm's intended aims are met or
readjusted?
If one way of navigatingequivocalsituations is to design
equivocal (Weick,1979: 223-224), ambivalent(Merton,
1976), or ambidextrousresponses (Tushmanand O'Reilly,
2002), then companies might navigateconflictingexpecta-
tions and collidingperspectives on their role with an equivo-
cal response. Creativeallocationof controland resources
may providebusiness organizationswith this sort of dexteri-
ty, enablingcompanies to acknowledge the social illand gain
the benefits of response while sustainingflexibilityand mini-
mizingthe risks of response (Weick,1979: 223-224). Design
options include make, buy, and hybridarrangements,each of
which entails differenttypes and degrees of investment and
control.
288/ASQ, June 2003
Social Initiatives by Business

Companies may create the responses themselves, the

"make"option, when they have a distinctivecapabilitythat
fits a specific, evident social need (Dunfee and Hess, 2000).
Charitablecontributions,the "buy"option, may be the select-
ed design option either when a firm lacks any specific capa-
bilityto address a social need, yet the need is pressing, or
when existing institutionshave excellent capabilitiesin the
area in which the firm seeks to invest. A "hybrid"strategy, or
public-privatepartnership,may be the option of choice when
the firm has something to give and gain from others when it
makes its social investments (Austin,2000). A highlyrecog-
nizablepartner,such as Amnesty International,may reduce
uncertaintyfor managers and increase the likelihoodof repu-
tationalbenefits for the firm. Examplesof such partnerships
abound (Sagawa and Segal, 2000) and seem to be increasing
(Zadek,2001: 91). Categorizingcorporateresponses using
this scheme of make, buy, or hybridcan provideinsight into
the factors that shape companies' investment and control
decisions surroundingresponses to social ills.
Beyond their design, little is known about how companies
internallycontrol, monitor,and disciplinetheir social initia-
tives. First,how much do companies choose to invest, in
total and as a percentage of availableinvestment capital,in
amelioratingsocietal ills? Economic logic suggests a level
that meets a bare minimumfor derivingbenefits for the firm
(Friedman,1970), whereas behavioralresearch suggests that
standardsof fairness (Kahneman,Knetsch,and Thaler,1986),
irrationalby economic standards, may shape allocationdeci-
sions. Second, corporateresponses to social misery have
aims distinctfrom other corporateactivities,so corporate
controlof these initiativeswarrantsscrutinyas well. Under-
standing the forms of controlused to steer social initiatives
toward their aims and exploringhow those forms of control
commingle with traditionalforms of financialcontrolis central
to a descriptive research agenda. The calls for the Securities
and ExchangeCommissionto regulate disclosure of philan-
thropiccontributions(Kahn,1997; Bagley and Page, 1999;
Gillmorand Bremer,1999) suggest that monitoringand con-
trol mechanisms are underdeveloped.With a varietyof
instrumental,moral,political,and institutionalconsiderations
motivatingsocial initiatives,we need to know how corporate
social initiativesare monitoredand disciplined.
Consequences. Althoughthe financialeffects of corporate
social performancehave been extensively studied, littleis
known about any other consequences of corporatesocial ini-
tiatives. Most notably,as calls for corporateinvolvement
increase, there is a vital need to understandhow corporate
efforts to redress social misery actuallyaffect their intended
beneficiaries.Again, a first step is simply to ascertainthe
consequences and discern salient patterns.What are the
conditions underwhich positive consequences result for ben-
eficiaries?As firms become involvedin fixing societal prob-
lems, we also need to know what happens to publicpolitical
processes. Kahn(1997: 635), for example, was concerned
about "the dangers impliedby the concentrationof not only
the factors of production,but also communal resources in
the hands of corporatemanagement." The street protests
289/ASQ, June 2003
against the work of the WorldTradeOrganization(Economist,
1999) and both the InternationalMonetaryFundand the
WorldBank (Economist,2000) suggest that members of soci-
ety are asking these same kinds of questions. Some may
consider Friedman's(1970) concerns alarmist,but asking
companies to advance educationalreform, assist with repro-
ductive health, and fund cancer research does give firms and
their executives significantinfluence over publicpolicy,typi-
cally considered to be the domainof elected officials. How
do these investments affect the politicalsphere, most
notablydemocraticprocesses and accountability?Even if
these investments meet their intended humanitariangoals,
they might carryunintendedconsequences for government
functioning(Reich, 1998).
Lookingbeyond the content of corporateprograms,the
processes throughwhich corporateactivities are generated,
selected, and implemented may have differentialeffects
worth uncovering.Understandingthe consequences of cor-
porate involvement-the impact on targeted problems and on
the functioningof other civiland politicalinstitutions,as well
as on the firm itself-lies at the heart of questions about the
relationshipbetween organizationsand societies. Research
into those consequences can help highlightthe tradeoffs of
seeking corporateinvolvement,informdecisions about when
to involve and when to limitsuch corporateinvolvement,and
guide policies for managingthe consequences when compa-
nies do get involved.Examiningand evaluatingthese conse-
quences, however, invites another line of inquiry,normative
in nature.
A Normative Research Agenda
Business organizationsoperate in the face of a sometimes
irreducibleconflict between humanitarianneeds and econom-
ic objectives. As descriptive research begins to capturewhat
companies are doing to respond, the pressing normative
question is, How should companies respond? Merton(1976:
88) recognizedthe problemalmost thirtyyears ago: "Leaders
of business have only begun to wrestle with the problemof
how to do both in appropriatescale. Forthey are at work in a
rapidlychanging moralenvironmentwhich requiresthem to
make new assessments of purpose."When contrasted with
the clear normativepositions evident in economic theories of
the firm, and when seen in the shadow of the starkantinomy
confrontingorganizations,organizationalscholarshipseems
conspicuously quiet, in need of a line of systematic philo-
sophical investigation.This integrationof philosophicalinquiry
into organizationtheory is long overdue (Zald,1996).
Normativequestions prompttwo differenttypes of inquiry
(Donaldsonand Preston, 1995), one reflectingthe common
social scientific use of the term "normative,"and another,its
philosophicaluse. The social scientific use of normative
refers to instrumentaland hypotheticalguidance, grounded in
empiricalfindingsand theories about cause-and-effect rela-
tionships. If one wishes to bringabout certainoutcomes,
then research suggests a set of actions that increases the
likelihoodof those outcomes. In lightof priorfindingsand
theoretical models that assemble those findings into orderly
290/ASQ, June 2003
Social Initiatives by Business

causal associations, normativeguidance prescribes advisable

behaviorif an actor wishes to achieve certainoutcomes.
In its philosophicalsense, and the way we use it here, nor-
mative refers to the underlyingjustificationthat gives moral
weight (Korsgaard,1996b):the source of value that makes
certainoptions, decisions, and courses of action those wor-
thy of selection. The instrumentalbenefit of some courses of
action is one source of philosophicallynormativejustification,
but it begs the deeper question of why those outcomes
themselves are to be sought. Normativeinquiryof the philo-
sophical sort investigates how we ought to act in lightof
why, weighing various considerations,that is the right,just,
or good course of action (Scanlon,1992).
Normativetheory is directed toward actors on the cusp of
takingaction. It is about clarifyingand constructingthe rea-
sons and grounds that ought to informthe actor's choice of
action, ratherthan discoveringthe causal explanationsof
what will occur as a result of the action (Putnam,1994; Kors-
gaard, 1996a, 1996b). It is not about advisinga course of
action based on what will happen to air quality,profitability,
corporatereputation,or the docilityof regulatorsif the com-
pany lowers factory emissions. Rather,it is about why, upon
consideringoptions for action and their potentialoutcomes,
air qualityand stock price are worthy of orientingaction in
the first place and what the actor is to do if a course of
action will damage one of those objectives. Putnam(1994:
168) concisely capturedthe essence of this research orienta-
tion: ". .. the agent point of view, the first-person normative
point of view, and the concepts indispensableto that point of
view should be taken just as seriously as the concepts indis-
pensable to the third-persondescriptive point of view." The
best way to meet this challenge is to buildon our descriptive
work and follow a philosophicalpath to this new theory.
The approachto normativeinquirywe propose starts with a
given situationand asks the question, How should I act?
(Moody-Adams,1990; Korsgaard,1996a: 205). An inductive
approachto normativetheory begins with the set of consid-
erations-objectives, duties, and concerns-that arise in try-
ing to answer that question. Fromthe start, an inductive
approachtakes seriously the conflict among those considera-
tions (Nussbaum, 1986: 81). The aim is to clarifyeach of the
salient objectives, duties, and concerns in lightof one anoth-
er, permittingfurtherspecificationof each and greater under-
standing of the relationshipamong them (Richardson,1997).
Tensions are not irritantsto be removed by dismissing certain
considerationsor justifyingthe preeminence of others.
Instead, the inductiveapproachuses tensions and inconsis-
tencies between considerationsto promptelaborationand
clarificationof each objective, duty, and concern. The induc-
tive route travels from identifyinga core set of considerations
(Rawls, 1971; Scanlon, 1992) to juxtaposingthem so as to
elaboratetheir moralweight and refine them (Nussbaum,
1986; Richardson,1997), especially in lightof the specific sit-
uation being examined. A frameworkfor action is then formu-
lated by exploringhow these considerationsinteractwith fea-
tures of the situation,specifying what is obligatory,
permissible,and prohibited.
291/ASQ, June 2003
To take up our specific antinomy,a first step is to identifyand
probe the set of objectives, duties, and concerns that arise
when business organizationsconfrontthe question of
whether to help redress human misery.We need to identify
the centralconsiderationsunderlyingthe initialconcerns and
judgments provokedby the question (Rawls, 1971; Scanlon,
1992). Forexample, at least three economic arguments
against corporateefforts need to be explored. The first repre-
sents the claims of property(Hsieh,2003), claims that give
rise to concerns about misappropriation. The rightful
claimantsto certainresources ought not to have those
resources used for purposes they neither license nor receive
compensation for. Second, there are concerns surrounding
efficiency (Donaldsonand Dunfee, 1999). Resources should
be devoted to purposes for which they are designed and not
misallocatedto purposes for which they are not well suited.
Third,there are concerns of due process, which requirethat
even justifiableactions be taken in accord with procedures
that respect rightsand affordsubsequent accountability.
Juxtaposed to these three concerns are three forms of the
duty to aid and respond. First,there is the duty to respond
that attaches to a company when it contributesto the condi-
tions that necessitate a response, conditionsthat create
some form of cost, violation,or degradationthat others bear.
This is the intuitivelysensible but intellectuallycomplex ter-
rainin which causal responsibilitygives rise to moralrespon-
sibility(Hartand Honore, 1985; Schoeman, 1987). Second,
there is the duty to respond to deleterious or unjustcondi-
tions from which a company benefits, but to which it has not
contributed(Hsieh, 2003). This is an acute extension of the
domainof fair play (Rawls, 1971; Applbaum,1996; Phillips,
1997), in which the derivationof benefits (even from unwit-
ting parties)calls for some compensatory exchange. Even
when a company compensates those from whom it has
derived immediate benefits, such as assembly workers in
low-wage countries, furtherduties may exist because those
benefits are made possible by the persistence of unjustcon-
ditions (Kant,1963: 194-195; Herman,2002). Third,there is
the duty of beneficence (Murphy,2000; Herman,2002): the
duty to promote the well-being of others, in particularto pro-
vide aid to prevent or relieve sufferingor dire conditions
(Murphy,2000: 3; Herman,2002). The immediate fear is that
this last source of duty has no limit.Althoughseemingly insa-
tiable, the duty of beneficence has been circumscribedby
philosophers(Elster,1989: 56; Murphy,2000; Herman,2002;
Hsieh, 2003) throughwhat one philosopherhas termed "the
collective principleof beneficence" (Murphy,2000: 7): an
individualneed only aid others to the extent that would be
requiredwere everyone to comply with the duty to aid
others.
The purpose of inductivetheory is to provideneithera way to
reconcile the two sets of considerationsnor a method, theo-
ry,or argumentthat demonstrates the dominance of one set
of claims over another (Nussbaum, 1986; Richardson,1997).
It is certainlypossible that when cast in one another's light,
juxtaposed considerationsmight suggest means of reconcilia-
tion or illuminatethe clear priorityof some considerations
292/ASQ, June 2003
Social Initiatives by Business

over others. Thatwould be a propitiousproduct,but not the

intended purpose of inductivenormativetheorizing.The aim
is to understandthe compellinggrounds that exist for taking
alternativecourses of action and to refine those grounds in
lightof one another.To illustrate,when concern with efficien-
cy and misallocationis juxtaposed with the duty to aid, coun-
terintuitiveconclusions may emerge. It may well be true that
companies are poorlysuited to respond to illiteracyor conta-
minatedwater, problems to which, in addition,a company
has not contributed.But it may nonetheless be that corporate
efforts to amelioratethese problems are at least permissible,
if not obligatory.Undera duty of beneficence (Herman,2002)
or assistance (Hsieh, 2003), firms have grounds for assisting
those in need, regardless of corporateculpabilityfor the prob-
lem. If no other institutionsare positioned or equipped as
well as business organizationsto respond, then concerns
with misallocationlook quite differentfrom the classic case
in which a more efficient response is available.The converse
may also be true. Forexample, if the release of mercuryinto
water can be traced directlyto a company, the strongest
grounds for obligatoryresponse may exist. But concerns with
efficiency and properallocationof institutionalinstruments
might suggest that, under some conditions, companies be
left as unencumberedas possible to fulfilla wealth-producing
purpose. As a result, even in those instances in which com-
panies either have a justifiableresponsibilityor their involve-
ment in redressing social misery would be valuable,society
should find alternativeways to fulfillthe responsibilityand
meet the need, so as not to dilute companies' capacityto
produce wealth. The duty to aid, in this case, looks quite dif-
ferent in the lightof concerns for the efficient allocationof
societal resources.
This brief example can only outline the process of inductive
normativeanalysis, highlightingtwo of its features. The first
is that normativeinquiryof the inductivesort requiresa sys-
tematic process of setting competing objectives, duties, and
concerns side by side and exploringthe range of conclusions
that can be drawnwhen interactioneffects are explored.The
second is that this juxtapositionand analysis requiresa return
to the specific content of the situationthat posed the ques-
tion of how to act in the first place. But then how does one
proceed with the motivatingquestion, how should the firm
act? One proceeds by scrutinizingthe conditions underwhich
the vying considerationshave been invoked.
If articulatingthe centralconsiderationsthat bear on a norma-
tive question is the first step of the inductiveapproach,and if
juxtaposingthose considerationsin orderto refine them indi-
viduallyand explore their relationshipis the second step,
then a thirdstep consists of workingout how competing
considerationsare to be integratedinto a course of action.
Integrationclarifieswhat is to be done, formulatinga frame-
work for action by exploringhow the collidingconsiderations
interactwith features of the situation. Forcorporatesocial ini-
tiatives, three sets of features will interactwith normative
considerationsto shape the frameworkfor action. How a
company should respond will be a function, in part,of fea-
tures of the problem,features of the company-in particular,
293/ASQ, June 2003
the company's relationshipto the problem-and features of
the impact the company's response would have.
Features of the problem. Features of the specific societal ill
to which a company is consideringa response include its
depth and breadth.The propercorporateresponse to a soci-
etal illwill hinge in parton the severity of the ill'seffect on
essential humanfunctioning(Herman,2002). What is consid-
ered essential to humanfunctioningis of course subject to
debate, so it is helpfulto draw on the idea of human capabili-
ties advanced by Sen (1985, 1992, 1993) and Nussbaum
(1988, 2000). Based on Aristotle'sconception of the virtues,
economic and anthropologicalresearch on developing coun-
tries, and politicalphilosophy,Sen and Nussbaum identified
ten domains of human capabilityvital "to trulyhumanfunc-
tioningthat can command a broadcross-culturalconsensus"
(Nussbaum, 2000: 74). They includesuch factors as bodily
health (havingadequate nourishment,medical care, and shel-
ter), controlover one's environment(effectively participating
in the politicalchoices that govern one's life, holdingproper-
ty, and access to employment), emotions (experiencingthe
range of emotions essential to human life), and affiliation
(havingmeaningfulpersonal and work relationshipsof mutual
recognitionand dignity).
Whether the vying objectives, duties, and concerns intersect
to obligate, permit,or proscribea corporateresponse will
hinge, in part,on the magnitude,the depth and breadth,of
the problem'sconsequences for these central human capabil-
ities. The preliminaryassessment of depth focuses on
whether the problemplagues an essential humancapability.
Then assessments of degree must be made. The severity of
the problem must be considered: does the problementail
active impairmentof a capabilityor failureto promote, but
not active impairmentof, the capability?Alongside these two
assessments of depth, the breadthof the problemmust also
be considered. How many capabilitiesare affected, and how
many people are affected? Sizing up the problemopens
many questions. Forexample, it can be difficultto distinguish
between an impairmentand absence of enhancement. Illiter-
acy can be seen in either light.The line between essential
capabilitiesand less-than-essentialcapabilitiescan also be dif-
ficultto draw. Supportfor the arts may reasonablyfall on
either side of that line. Ouraim here is to sketch the process
of inquiry;the absence of clear answers underscores the
importanceof dedicated attentionto these questions.
Features of the firm. The features of the firm'srelationship
to the problemalso bear on how a company ought to
respond to a societal ill. First,there is the company's contri-
butionto the problem.Presumably,a problemcreated by the
firm,or one to which it has contributedsizably,will impose a
stronger duty to act than a problemnot of the firm's making.
Second, the company's potentialcontributionto the prob-
lem's solution must be considered. The relevance of the
firm'scapabilitiesand resources to the societal ill being con-
sidered bears on the efficiency and effectiveness of the com-
pany's response, which in turnshape the strength of an
imperativeto respond. Third,the response requiredmay vary
in strength with a company's proximityto, or extent of mem-
294/ASQ, June 2003
Social Initiatives by Business

bership in, the community in which the need arises (Herman,

2002). Finally,the duty to respond may also varywith the
benefits the corporationderives from the aggrieved con-
stituency (Hsieh, 2003). ChevronTexaco may have limited
firm-specificcapabilityto providewhat Nigeriancommunities
demand of it, but the integralpresence of the company in
Escravos, Nigeriaand the benefits the company derives from
its oil extractionfacilities, even if those benefits are the result
of explicit legal contracts, may obligate or at least license the
firmto do more to redress societal problems there (Moore,
2002). Onlysystematic normativeanalysis can work out the
imperativeof a response underthese conditions.
Features of the impact. The anticipatedimpactof a corpo-
rate response will also determine the ethical standing of that
response. Features of the impact includethe effects a corpo-
rate response is likelyto have on the problem,on the larger
society, and on the firm itself. The results of our descriptive
research agenda should help decipher these impacts. These
likelyconsequences will bear on the determinationof
whether a firm'sresponse is permissible, prohibited,or even
obligated. Exploringhow negative consequences are to be
weighed against positive consequences requiresa thorough
normativeanalysis. A company that can providea quicker
solution than a government agency to a problemmay also, in
so doing, weaken (or retardthe development of) political
institutionsessential to representativedemocracy. How are
these consequences to be weighed, not only in determining
whether corporateaction is permittedbut, if it is permitted,
in shaping how a response is selected, designed, and imple-
mented?
Boundaries. Understandingthe impactthat a corporate
response mighthave is also essential for understandingwhere
the boundariesto corporateresponses are erected. Contraryto
the fears of some and the hopes of others, the moralfounda-
tions for corporateresponses to misery do not necessarilydic-
tate that social objectives be given as much attentionas eco-
nomic objectives. Business organizationsmay have duties and
responsibilitiesthat reach beyond economic ones, but this
does not itself implythat those duties and responsibilities
requirecomparableattention,advancement,or resources.
Thereare two sorts of boundariesto consider.One set pro-
tects the recipientsof aid, reflectingthe negative conse-
quences that can resultfrom efforts to provideassistance. For
example, the type and deliveryof aid must aim to reverse
dependence ratherthan reinforceit (Herman,2002; Hsieh,
2003; Rawls, 1999: 111). The second set protectsthe firm's
capacityto performits primaryfunction,or functions,reflecting
the potentialimpairmentthat respondingto miserycan entail.
Ifa primaryfunctionof a business organizationis to produce
goods and services and, in so doing, generate wealth, then the
firm'scapacityto performthat functionreceives special protec-
tion. Again,contraryto the hopes of some and fears of others,
this boundaryis capacious.To be clear,it is the capacityof the
firmto performone of its centralfunctionsthat cannot be sac-
rificed,not actualperformanceof the functionitself. Ifa com-
pany reduces its profitabilityor productivityin orderto amelio-
rate misery,that is more likelyto lie withinthe permissible
295/ASQ, June 2003
boundary,whereas efforts to amelioratemisery that impairthe
company'scapacityto be profitableor productivewould more
likelybe prohibited.
CONCLUSION
Managersface a vexing reality.They must find a way to do
theirwork even as seemingly rivalfinancialand societal
demands intensify.To make mattersworse, each demand can
be justifiedor explainedaway by a particularconceptionof the
firm.These duelingconceptions have inspireda generationof
organizational scholarsto posit and demonstratethe economic
benefits of corporateresponses to social misery.This has left
a considerablegap in our descriptiveand normativetheories
about the impactof companies on society. The scholarlyagen-
da we envisionaccepts this tension as a startingpoint.The
dispute among justifiablebut competing demands reflects the
realitythat firmsface in society today. By honoringthe dispute
and exploringthe tension, we offer a differentstartingpointfor
organizationtheoryand research.Inthe end, this new scholar-
ship can informmanagersand citizens alikeas we struggleto
meet these dauntingchallenges.
The practicalsignificanceof the research agenda before us is
no less weighty than its theoreticalimplications.Publicpres-
sure to satisfy each set of responsibilities,to shareholders
and to other stakeholders, continues to mount (Useem,
1996; Paine, 2002). Accountability,however, can distort
behavioras much as it can enhance it (Lernerand Tetlock,
1999). Organizationtheory and research may illuminatehow
organizationscan move closer to actual fulfillmentof those
responsibilities,ratherthan offeringthe mere appearanceof
doing so (Kingand Lenox, 2000). What organizationalschol-
ars have to say about corporateinvolvement in societal
affairsseems essential, for the risks of involvingcompanies
in broadsocietal problems may match the risks of excluding
them: corporateinvolvementin addressing targeted prob-
lems is no guarantee of improvement,and organizationsmay
only furtherinsinuatethemselves into all aspects of human
life (Rosen, 1985; Kunda,1992; Willmott,1993). Corporate
involvement may well make problems worse, or even create
new ones, while reducingcompanies' effectiveness as eco-
nomic instruments.
What is being asked and expected of corporationstoday is
increasingeven as the economic contractarianmodel of the
firm itself has revealed clear practicallimitations(Gordon,
2002). The free market may not produce the inexorable
marchtoward worldwide prosperityand well-beingthat is so
often anticipated(Stiglitz,2002). Even as business organiza-
tions may be imperfect instrumentsfor advancinga narrowly
construed wealth-maximizingobjective, ironically,they may
also be the entities of last resort for achieving social objec-
tives of all stripes. In the face of these challenges, organiza-
tion theory and research can contributeto the construction,
reform,and assessment of the organizationsand institutions
that play such an essential role in society (Sternand Barley,
1996; Perrow,2000; Hiningsand Greenwood, 2002).
Manifest human misery and undeniablecorporateingenuity
should remindus that our centralchallenge may lie in blend-
296/ASQ, June 2003
 Social Initiatives by Business

ing the two. The many organizationalscholars who have

investigatedthe relationshipbetween social and financialper-
formance have been eager to develop empiricallyinformed
theory that stimulates, if not guides, practice. Paradoxically,
by acknowledgingthe fundamentaltension that exists
between the roles corporationsare asked to play,organiza-
tional scholars have the opportunityto informpractice-and
thereby help society-where past efforts to remove the ten-
sion have fallen short. Before rushingoff to find the missing
linkbetween a firm'ssocial and financialperformance,all in
hopes of advancingthe cause of social performance,we
need to understandthe conditions underwhich a corpora-
tion's efforts benefit society. This asks us to question corpo-
rate social performanceand competing conceptions of the
firm down to theirvery roots. Personalvalues and commit-
ments will no doubt orient the theories we preferand the
research questions we ask. To honorthose values and com-
mitments, however, we must acknowledge and question
them. Such appraisalsensure the qualityof our research and
the integrityof our commitments.
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