The Pandemic & Evolution of the Social Role of Business

By CEIBS Associate Professor of Management Terence Tsai, Researchers Zhang Yunlu and Chen Lujie, and Research Assistant Liu Jie

Michael Kpade

Oct 27, 2022

The social role of corporations and its development after the covid 19 pandemic.

Since over 50 years ago, the debate on the social role of the corporation has been of great controversy. Despite the continuous research and intellectual critique on the subject, it appears to either have had no influence on the social activities of corporations or an inadequate influence. In the present day, the extent at which businesses are held accountable is slightly more progressive than it was over 50 years ago. With Coca-Cola and its shift to recycling, Adidas and its recent cutting of ties with major revenue earner Kanye West, and even the Levi Strauss company and its reduction of water waste in the production of jeans. These are all things that businesses would never have considered in the 1960s, but today things have changed. Nevertheless, the social role of business is still a misunderstood subject, and its development during a crisis is integral to the future of corporations, and corporate power.

To understand exactly what, and why there exists a social responsibility for business there are three main components that necessitate its existence.

Corporate Power and Responsibility

Over 50 years ago, Milton Friedman, an American economist, claimed that the social responsibility of business is to increase its profits. His first argument was that “Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities” This is a valid argument. Without clarity, what can it mean for the activity of business itself to have a role behind the acquisition of profits? It does not. However this argument reifies business itself as a commodity. In reality however, business itself appears as a socio-economic structure. It is dependent on social relationships. According to Adam Hayes, economics sociologist, "Business refers to an organization or enterprising entity engaged in commercial, industrial, or professional activities'' for the purpose of profit. The social role of business is not separate from its economic purpose. There is a necessary business relationship that sets up the condition for fruitful business. In the absence of this social relationship, business is either conducted unfairly, or improperly. To claim that business inherently has no social purpose is to neglect the social structure that predetermines business.

Since we have established that there is a social purpose to business, we need to understand who holds that responsibility, why and to what extent. Keith Davis, a professor of management at Arizona State University, offers insight into the nature of social responsibility in business. He makes the historical claim that "responsibility goes with power". In Davis' argument, he implies that businessmen today have considerable social power— social power being the influence one has over a community through words and actions.

According to Davis, "the idea that responsibility and power go hand in hand appears to be as old as civilization itself. Wherever one looks in ancient and medieval history-Palestine, Rome, Britain-men were concerned with balancing power and responsibility" this balance of power and responsibility, though historically imperfect, has always been seen as a necessity and businesses are no stranger to it. Within the social structure of businesses, there exists a balancing of social power and responsibility, and so therefore there is a social role that businesses play within and outside of the corporation.

Nevertheless there are some misconceptions with social responsibility. As Professor Davis puts it, “On the one hand, it is argued that business is business and anything which smacks of social responsibility is out of bounds (i.e., keep the power but accept no responsibility). On the other hand, some would have business assume responsibilities as sort of a social godfather, looking after widows, orphans, water conservation, or any other social need, simply because business has large economic resources” He also argues that this analogy is false. In a study conducted by Erika WIlson for the Journal of Small Business Management to determine small business owners perception of social responsibilities of business, 12 percent of 180 small business owners said they had no social responsibility, the remaining 88 percent specified their social responsibility to either their community, their employers, consumers and environment. They also discovered that within this ratio, 88 percent of employers were a type who pursued social responsibility only to the extent that it maximizes their profits in the long run while only 12 percent pursued social responsibility with values that extended beyond the acquisition of profit.

This suggests that social responsibility is directly intertwined with economic purposes of a business. The level of responsibility is wholly dependent on the social power and impact businesses may have on the people in their community. While most corporations attempt to shy away from social responsibility, small business owners recognize it as a necessary strategy to improve business in the long run.

The socio-economic and human responsibilities of business

Professor Keith Davis claims that “If power and responsibility are to be relatively equal, then the avoidance of social responsibility leads to gradual erosion of social power. To the extent that businessmen do not accept social-responsibility opportunities as they arise, other groups will step in to assume these responsibilities” This role has been taken by governments and labor unions. If a business fails to deliver on the social and economic satisfaction of the community in which their power resides, forces will arise that oppose them. For example, The New School as an institution has a certain considerable social power. By failing to provide for the needs of their employees adequately, they risk losing their social power as a business and are subject to unconventional socio-economic conditions. Even within Erika Wilson’s research of small business owners, one-third of the respondents asserted their responsibility to their employees including profit sharing, proper working conditions etc. The inherent recognition of providing employment, benefits and retaining workers is integral to long run profit maximization. Businesses have a duty to be economically accountable for all their socio-economic relationships in order to maintain their power and avoid the opposition of government or what Friedman calls “undemocratic practices”.

Within these responsibilities lies businesses' responsibility to see to man’s inherent human needs. They are responsible for cultivating the values that make business fulfilling and progressive. Professor Davis argues that “by giving people motivation, social goals, and work fulfillment, business might over the long pull be termed a "movement" in the same way that history refers to the labor movement.” It is easy to dismiss this as a romantic notion, however the goals of business have always aided in the innovation of society. To the extent that business social power exists, the economic structure is eternally tied to the social human structure of business. In efforts to “make work meaningful again”, mankind takes a step in and through capitalism into a better and more productive society. Only businesses have the potential to help achieve this.

The Pandemic & The Social Role Of Business.

In the aftermath of the pandemic, reflection is required on what we have learnt as components of the business world. While intense pressure has been put on business for decades now, the pandemic has raised an ethical concern on the meaning of consumption and its impact as consumers. In a joint paper by Lloyd Harris, and Hongwei He of Birmingham and Manchester Business School, they argue that “The pandemic has given opportunity and time to the consumers to reflect on the basic meaning of consumption and the impact of their consumption not just on themselves but on others and the general society and the environment.” The paper details the shift in marketing philosophy, Corporate Social Responsibility and Consumer Ethics during pandemic. According to Harris and He, the pandemic put corporate ethical behavior to the test — To remain short sighted and use the opportunity to maximize short term profits, or to continue to invest in CSR (corporate social responsibility) for long run profitability. According to the paper, “Fortunately, we have observed that many companies not only have resisted unethical business practices during this crisis, but also have proactively engaged in various CSR activities, particularly those that can offer immediate help and assistance to the fight against the virus.”

The pandemic may appear to linger barely, but the effects are still obnoxiously prominent. The crisis is not over. Perhaps the lessons of the pandemic will help us put a more serious stake in corporate social responsibility in the future.

Works Cited

Davis, Keith. “Can Business Afford to Ignore Social Responsibilities?” California Management Review, vol. 2, no. 3, 1960, pp. 70–76., https://doi.org/10.2307/41166246.

Friedman, Milton. “A Friedman Doctrine‐- the Social Responsibility of Business Is to Increase Its Profits.” The New York Times, The New York Times, 13 Sept. 1970, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html.

He, Hongwei, and Lloyd Harris. “The Impact of Covid-19 Pandemic on Corporate Social Responsibility and Marketing Philosophy.” Journal of Business Research, Elsevier Inc., Aug. 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7241379/.

Wilson, Erika. "Social Responsibility of Business: What are the Small Business Perspectives?" Journal of Small Business Management (pre-1986) 18.000003 (1980): 17. ProQuest. 27 Oct. 2022 .