Chapter 3

The social perspective

The human centered paradigm, from a viewpoint that looks at the motivations for an individual to behave morally, is founded on the premises, values, beliefs and assumptions that were explicated in the previous chapter. When the individual connects to others or when a larger group of individuals acts collectively, these motivations will materialize through value-based social interactions. For management and managers, these are business interactions. In any society, everyone is a client, a supplier or a shareholder in some sense and is affected by business decisions and business structures. This applies to both moral and immoral outcomes of those decisions and structures. Quite a lot of media reporting focuses on bad outcomes, but this is not necessarily negative (even though one would wish more storytelling on good outcomes): members of a society often have a propensity to overlook events that do not concern them directly, and when media reports point out what is going wrong, this indifference will much less create an immoral atmosphere which spreads and eventually affect all members of a society. Leaders in businesses and in governmental institutions therefore not only have to work at disseminating principles of morality, but they also have to fight indifference towards their neglect. This is why the first section of this chapter, on corporate social responsibility, will look at how and why firms do both good and evil. The discussion begins by asking about the purpose of business.

3.1 Corporate social responsibility

Is the purpose of business just business? And is the responsibility of business just to increase its profits? Contrary to the now infamous words of Milton Friedman (1970) and his followers who still uphold the argument, it has become widely accepted that businesses do indeed have responsibilities beyond simply making a profit. At minimum, corporations take on those social responsibilities out of “enlightened self-interest,” that is, they do so because it serves them well. They might be rewarded with more customers, whereas perceived irresponsibility might result in consumer boycotts; employees who are committed to moral values might be attracted to work for the firm, and these employees usually tend to be good professionals; and a community that feels that a firm positively contributes to society might become a stable and secure context for the firm in which to do steady business.

There is only one claim of Friedman’s that everybody would go along with: it is people who do good and it is people who do evil. But when Friedman refers to the corporate executive as a person “in his own right” who “may have many responsibilities that he recognizes or assumes voluntarily – to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country” but claims he cannot apply this type of “social responsibility in his capacity as businessman” (Friedman 1970, p. SM 18), how can Friedman seriously believe that a person can split up her or his “feelings”? Friedman resorts to the argument that the corporate executive must act as an agent for the shareholders. Now, if the shareholders’ opinion counts and if they request the corporation to pursue a social cause, would the corporate executive have to oppose that? Would he have to tell them that a social attitude on their behalf will strengthen the “view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces”? (Friedman 1970, p. SM 19).

To Friedman’s credit, we have to acknowledge that the world has changed since he wrote his statement in 1970. There have been corporate scandals that may be taken as an evidence of executives acting without moral reasoning; there is globalization, which drives corporations to take account of underserved markets with frail consumers and to deal with underprivileged societies; and there is a worldwide network of data and information that detects and enables prosecution of corporate abuse wherever it occurs. Kofi Annan, when he was UN Secretary-General, called on the business community to support a Global Compact with society, a “contract” based on human rights, labor standards and environmental principles (United Nations 1999). And the joint World Economic Forum (WEF) and UN declaration of 2002 exhorted businesses to embrace a responsible business agenda, signed by 34 of the world largest multinational corporations (see World Economic Forum 2002).

The Global Compact was designed to encourage businesses to make a positive contribution to the social, economic and environmental well-being of the world’s population. The title of the WEF and UN declaration shows that it is all about governance and morality: “Global Corporate Citizenship – the Leadership Challenge for CEOs and Boards” (World Economic Forum 2002). So, beyond the enlightened self-interest mentioned earlier, which may also be called a strategic motive, businesses have a wide array of guidance when it comes to arguing why and how to perform social responsibility. But a business leader will also have to look for justification from the inside: is there a business case for corporate social responsibility? And what are the visible outcomes? This issue will be discussed in the next section, together with two others. One relates to the question of how to distinguish between business ethics and corporate social responsibility, and the other is about the human centered facet of corporate social responsibility. It is not the intention of this book to replicate what has been said on corporate social responsibility in the vast body of scholarly papers and pragmatic writings. We are concerned here with the relevance of leadership and morality to the topic.

3.1.1 The business case for corporate social responsibility

The business case refers to the rationale that would support a business accepting and advancing the corporate social responsibility “cause.” The primary question would be to determine what a business and the business community get out of corporate social responsibility and how they visibly benefit from engaging in socially responsible policies, activities and practices.

Returning to enlightened self-interest, the contention is that businesses ensure long-term viability by taking actions now (e.g., towards the community of neighbors of manufacturing facilities) that will be rewarded in the future (producing a healthy climate for debates about, e.g., impacts of facility expansion or of new manufacturing technologies). This would also pave the way for moving business ethics up to the level of public interest (Dorasamy 2010). A second argument is that favorable stakeholder relations will ward off government regulation, as businesses have a reservoir of management talent, expertise and capital that should be employed to solve social problems (arriving, e.g., at self-disciplined standards that fulfill society’s expectations of business). Another justification is that being proactive on social problems (anticipating, planning and initiating) is more practical and less costly than simply reacting once the problems have surfaced (Carroll and Shabana 2010).

A different analysis, which focuses on specific activities and their outcomes, is based on Carroll’s (1991) four-part definition of corporate social responsibility, which identifies four categories of responsibilities: economic, legal, ethical (moral) and discretionary/philanthropic.

1. 1 With the economic responsibility of business being to produce goods and services that society desires and to sell them at a profit, the determination of profit resurfaces once more. But even Friedman had a moral perspective in mind with regard to profits when he claimed that engaging in activities designed to increase its profits is acceptable to a business “as long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (Friedman 1970, p. SM 120).
2. Drucker strikes a note that could be seen as balancing mere shareholder interest and the interest in maintaining the corporation for the benefit of all its stakeholders in the long run. He argues that profit performs three main functions: first, it measures the effectiveness of business activities; second, it provides a “risk premium” necessary for the corporation to stay in business; and third, it insures the future supply of capital (Drucker 1954/2006, pp. 76–77). The emphasis is on the long-term view. Balancing the social and economic responsibilities of the corporation will produce shareholder wealth in the long run; short-term profit maximization will not.
3. 2 The connection of legal responsibility to the moral perspective is that laws and regulations constitute but one category of compliance and only partially fulfill the social contract between business and society. The other category is ruled by a society’s common values. The debate is whether these, and how much, need to be codified, that is, whether a regulatory framework for corporate social responsibility should be created (e.g., De Schutter 2008). The opposing argument is that there is enough control by the markets (products and services market, labor market, finance market) to ensure that voluntary engagement in corporate social responsibility activities gets rewarded and failure to engage is penalized.
4. In the UK, a ministerial cabinet post was created in March 2000 designed to coordinate corporate social responsibility across government. Critics have argued that this might create conditions in which UK central government departments are compelled to engage with activities while at the same time it compounds the visibility of business activities (Turner and Fairbrass 2001). But so far, the UK government has abstained from even a light regulatory approach. This is pointing towards the borderline between legal and moral responsibilities.
5. 3 Moral responsibility refers to a corporation’s activities for promoting and pursuing social goals that extend beyond its legal responsibilities. The firm will identify the goals that are important to society or to different stakeholders in society. The importance of these social goals to society may be inferred from measuring how they are accomplished, and a firm will report how it is contributing to this achievement (“the outcome”).
6. Achievements and outcomes of moral responsibility are the subject of social sustainability reporting. Some of this will be covered in Chapters 6 and 7, which deal with the implementation of human centered management. At this stage, reference will be made only to the Kinder, Lydenberg, Domini (KLD) social performance index that was mentioned earlier in connection with stakeholder management. The KLD index covers a wide scope: environmental, social and governance outcomes all together. Environmental issues include climate change, products and services, and operations and management; social issues include community, diversity, employee relations, human rights and product; governance issues include reporting and structure; and finally, controversial business issues include abortion, adult entertainment, alcohol, contraceptives, firearms, gambling, military, nuclear power and tobacco (Chatterji et al. 2009). An example of what the index can reveal about the human perspective is given in section 3.1.3.
7. Even though discretionary/philanthropic activities are the most voluntary of the four categories, the term responsibility applies as well. Engaging in acts or programs to promote human welfare or good will, such as making donations directed at education, community improvement, arts and culture and so forth may seem to be left to the discretion of the firm. But first, community relations are not a one-way street and community improvement gets its reward; second, historically, promoting arts and culture at locations that were far away from traditional cultural centers was necessary for attracting well-educated scientists and technicians to areas that may have been called “remote” – for example, when the chemical industry built production sites in the mid-1800s in Europe and in the US.
8. The philanthropic activities of the chemical industry from the 1800s onwards were (and are today) about improving competitive advantage through higher attractiveness as an employer; similarly, improved marketing and selling capabilities, or better relationships with governmental and nongovernmental organizations, will serve the purpose as well. The range goes beyond communities that are directly impacted by manufacturing, and this compares to the community partnerships of Unilever and Chevron that were mentioned earlier. Deutsche Lufthansa, to take another example, enhances its relationship with communities in which it operates by running a community-involvement program (Bruch and Walter 2005, p. 50).

In all, research on the topic has identified five main areas of business benefits (Weber 2008):

1. 1 Positive effects on company image and reputation, which is influenced by communication messages. We have a human perspective here as well, since reputation builds on personal experiences and characteristics and includes a value judgment by people (Schwaiger 2004).
2. 2 Positive effects on employee motivation, retention and recruitment. Apart from an impact from improved reputation, there also is a direct influence on employees as they might be more motivated working in a better environment or draw motivation from the participation in the firm’s social activities, such as volunteering programs.
3. 3 Cost savings: efficiency gains resulting from a substitution of materials in the implementation of a sustainability strategy, improved contacts with certain stakeholders such as regulators resulting in time savings, or easier access to capital (Epstein and Buhovac 2014).
4. 4 Revenue increases from higher sales and market share, as consumers wish to reward firms that practice social responsibility.
5. 5 Risk reduction or management, because social responsibility programs can also reduce or manage risks such as negative press or customer reviews and boycotts from civil society organizations.

Empirical research on the business case for corporate social responsibility has employed statistical analyses to account for the causality between social and financial performance. One example is a study by Philipp Schreck (2011), who studied differences between industries. The results indicate that there is a strong link between single stakeholder-related issues of corporate social responsibility and financial performance, even though they provide no evidence that there is a universal model for causality within these relationships.

Another way to look at outcomes is related to the concept of public goods. Defining and comprehending this concept is even more complicated than defining the concept of social capital. For the purpose of this book, it must suffice to state that public goods are those that are consumed by society as a whole and not necessarily by an individual consumer. Using public goods is open to everyone; no one can be excluded from using them, and their use by one individual does not reduce their availability to others (Morrell 2009, p. 543). They comprise infrastructure – from street lighting to flood control systems, availability of water and fresh air, access to knowledge, the education system, the legal system, the labor market, up to national security and all the political resources that enable free global trade. There is a simple logic that connects public goods to corporate social responsibility: as firms use public goods, they should have an interest in maintaining those goods and improving their quality if necessary. This is about “giving back to the community,” which is what corporate social responsibility aspires to, and the outcome certainly is that the firm benefits from well-functioning public goods.

But it is not about outcomes only: corporate social responsibility relies on the involvement of the employees as the major stakeholders in its co-creation and implementation. From this human perspective, corporate social responsibility is a dynamic and developing process. Involving employees from the initiation stage of social activities will contribute favorably to the later stages. It goes without saying that a socially responsible organization will focus on its own people first when it comes to transfer corporate social responsibility from philosophy into action. In the early stages, employees will ask “Why corporate social responsibility?” and “What is corporate social responsibility?” Leaders who can give the right answers will successfully motivate their employees to take part in programs and initiatives directed towards the communities that surround their workplace.

A company offering a good example of involving employees in visible community engagement is the US building material retailer Home Depot, which has established numerous links with local communities through activities such as company-sponsored voluntary work to build playgrounds for children (Snider, Hill, and Martin 2003). Experiences like this will make employees receptive to policies of the firm that are directed towards, for example, convincing suppliers to improve their social standards, or educating customers to avoid excessive refuse. Employee involvement will contribute to preventing these initiatives from failing before they reach implementation, and it will broadly enhance the implementation process. When reaching a stage where employees are visible to third parties of as part of the firm’s corporate social responsibility “brand,” the firm will have created what Pursey et al. (2008) describe as an “authenticity bonus” – not as a result of public relation campaigns but because involving employees in its business matters has truly represented the firm’s concern for its local political, economic, and social environment (Bolton, Kim, and O’Gorman 2011).

3.1.2 Which of the two ranks higher: business ethics or corporate social responsibility?

What is the relationship between the terms business ethics and corporate social responsibility? This can best be accessed by stating that corporations are a part of society and make a contribution to social life. Because of that, any discussion about corporate social responsibility includes not just the question of what corporations should do, but also where the limits of their responsibilities lie (Lin Hi 2008). This comes to the fore explicitly with corporations in the pharmaceutical industry. For many diseases in developing countries, the pharmaceutical industry does not provide (affordable) medicine. Furthermore, active pharmaceutical ingredients for life-threatening but rare diseases are mostly not researched by industry. But there are limits to spending for research, even in research networks and collaborations between universities and industry. There is a dilemma here: ethically, and following George W. Merck’s statement referred to earlier (“medicine is for the people”), researching into all diseases would be the responsibility of industry. But business decisions taken by pharmaceutical firms have to depend on their financial potential. This imposes a limit to responsibility – and so we would have to say that business ethics reaches beyond corporate social responsibility.

Another solution might be derived from one practitioner-oriented definition of corporate social responsibility which states that it “addresses topics of business ethics, corporate social performance, global corporate citizenship, and stakeholder management” (D’Amato, Henderson, and Florence 2009, p. 2). In this definition, topics of citizenship and stakeholder management are instrumental by nature and less conceptual. So would the concept of business ethics be a part of corporate social responsibility, or would it be the concept that sets the stage for the other components to be deployed? A clarification comes from the Stanford Encyclopedia of Philosophy:

A newer source goes even further:

Thus, whichever way round, and whether one of the two terms corporate social responsibility and business ethics is ranged above or below the other, they certainly overlap and are often used interchangeably. There is no simple answer, as with the interchangeable use of the terms ethical and moral, but one short comment will be made here: The word responsibility carries a ring of reaction, of responding, of taking action after being questioned. In the words of the great C. K. Prahalad at the occasion of celebrating what would have been Peter Drucker’s 100th birthday in Vienna in 2009: “responsibility is compliance, accountability is commitment” (Weber 2009). Thus, where responsibility is reactive, accountability (which is linked to ethical reasoning) is proactive.

3.1.3 Corporate social responsibility and the human centered paradigm

While the conceptualization of corporate social responsibility, as we have seen, is very broad and the domains of socially responsible behavior are many and diverse, it is evident that the main focus is on people. We turn to the KLD statistics for clarity (KLD was introduced in section 2.4.2). The KLD database reduces corporate social responsibility initiatives into six broad domains:

1. 1 Community support (e.g., support of arts and health programs, educational and housing initiatives for the economically disadvantaged, generous/innovative giving);
2. 2 Diversity (e.g., sex, race, family or sexual orientation, and disability-based diversity record and initiatives, or lack thereof, within and outside the firm);
3. 3 Employee support (e.g., concern for safety, job security, profit sharing, union relations, employee involvement);
4. 4 Environment (e.g., environment-friendly products, hazardous-waste management, use of ozone-depleting chemicals, animal testing, pollution control, recycling);
5. 5 Foreign operations (e.g., overseas labor practices [including sweatshops], operations in countries with human rights violations);
6. 6 Product (e.g., product safety, research and development/innovation, marketing/contracting controversies, antitrust disputes).

All affect human well-being. But can corporate social responsibility produce even more? Can socially responsible corporations trigger or at least substantially contribute to equitable conditions and social justice for members of a society where these conditions are underdeveloped?

There is, however, one other feature in the human aspect of corporate social responsibility that needs to be investigated before getting to the topic of equitability and social justice. As it is humans who care for humans, we should consider that it is the personality of business leaders (and not the commercial imperative or the quest for achieving an advantage) that drives social responsibility. Personality, here, may be reduced to a person being idealistic or altruistic, but it is in this person where the locus of responsibility is to be found. One cannot be separated from the other. This becomes apparent when looking at small business where the owner drives the activities that develop in her or his firm. The owner’s leadership must be participative and interactive, through ongoing joint activities amid an easily manageable system that is marked, however, by ongoing changes or expansions of the system. Individuals’ understandings and motives are much more visible in this system than in the large corporation.

A large corporation, at least in most cases, is a grouping of small entities that work like small businesses – with a leader in each entity who leads in a participatory and interactive manner, through ongoing joint activities. The author of this book, when he joined a large corporation in 1970, was often confronted with the question of who was “in charge” of the 51,000 employees who worked in the facilities of the huge headquarters. Who was in charge were the approximately 1,000 managers of the various production, engineering and research facilities and administrative units. They were held together by cohesion and consistency through a joint commitment: fulfilling a duty, acting with respect for each other and sharing a common responsibility. Each one knew what she or he contributed to the business; each one was involved, to some extent, in one or more of the six domains that the KLD statistics identify to be constitutive for social responsibility (community, diversity and employee affairs, environmental and production issues, relation to foreign business) and each one, personally, liked it. There was room for managerial discretion, and there was professional pride (e.g., being proud of maintaining standards above those required by competitive conditions). This is how social responsibility was built within the corporation: bottom-up and horizontally. The leaders at the top had to mainly set an appropriate climate. One might say there was “corporate conscience” according to the term introduced at about the same time by the US business ethicist Kenneth E. Goodpaster and on which he has reflected in many of his writings since (see, e.g., Goodpaster and Matthews 1982; Goodpaster 2004).

Equitability and social justice are also best built from below and horizontally, with leaders creating the appropriate enablers.

3.2 Equitability and social justice

The issue of social justice has been controversial since the term was used in the writings of Thomas Paine (1737–1809), an English-American political activist, philosopher, political theorist and revolutionary, and was then becoming a motive for the 1848 revolutions in Europe. What Paine had in mind, though, was to attack the legitimacy of the British monarch in America (Claeys 2014); it was the early Franco-Swiss libertarian philosopher Jean Jacques Sismondi (1773–1842) who transferred the term into the revolutionist movements of his time. His famous statement, “chacun selon ses capacités, à chacun selon ses nécessités” (“each one [has to give] according to his abilities and to each one [will be given] according to his needs”) is the most radical expression of communism (Lutz 2015). He was reproached early on with being unable to understand the mechanisms of an economic system. But the controversy has continued.

The controversy arises from a fundamental misunderstanding: justice is about fair distribution of wealth in a society, and not about each member of the society getting an equal share. “Fair” would be somewhere in the continuum between “pure” laissez-faire and a far-reaching welfare system. Equality would relate to liberty: all are entitled to as much liberty as they can exercise without undermining the liberty of others. But there would have to be inequalities, for example, in income and possession of property, which all members of the society would accept if they were to the advantage of all, especially the least well off. Achieving one’s share would have to be subject to fair competition, which would have to include competition for attaining positions of power in the society.

Thoughts on fair distribution of wealth were most elaborately articulated by the American social philosopher John Rawls (1921–2002), who arrived at a system of cooperation for mutual advantage through the concept of distributive justice – a distribution of wealth and income permitting only those social and economic inequalities that work to the advantage of the least well-off members of society (Rawls 2001; Sandel 2009). This will lead to societal cooperation in everyday life, which produces a gain for all its members; however, for this type of fruitful cooperation, certain preconditions must be present that will ensure that everyone’s legitimate interests are met. What is needed are reliable conditions (the level playing field) that protect individuals from being exploited while providing incentives for cooperation. Social justice is thus equated with the notion of equality or equal opportunity.

Some authors prefer to use the term equitability instead of equality, which concurs with the philosophical notion that submitting unequal units to “equal” conditions will not to produce equality. The Irish philosopher Thomas M. Kettle gives the example of letting “a stray dog and an express train freely compete for the temporary occupation of the same tract of the railway” which will have a very foreseeable negative result for the dog (Kettle 1912 p. 149). It is, then, about conditions that enable free competition, it is about eliminating barriers and it is about equitable treatment.

Equitable treatment, thus, does not mean that all inequalities are eradicated. As in Rawls’s clarification, social and economic inequalities will be accepted by the least well-off members of society if they work to their advantage. When inequalities are felt to be unjust, this acceptance will dissolve. This would begin with opportunities to achieve a job or a certain position in society becoming obstructed: public offices and social positions have to be “open” in the formal sense, and all should have a fair chance to attain them.

Rawls is very explicit on what might be the consequences of reserving societal positions for just a few:

Though he never used the term, Rawls’s principles lead the way to what may be called a just market. But there is a caveat. The idea of a just market has aroused the fiercest criticism against social justice. The argument is from the distinguished economist von Hayek: “the very idea of social justice is meaningless, religious, self-contradictory, and ideological; that realizing any degree of social justice is unfeasible; and that aiming to do so must destroy all liberty” (von Hayek quoted in Lukes 1997, p. 65). Of which, with all due respect, one of his disciples, the English economist George Lennox Sharman Shackle, noted: “I think [economists] should give up giving advice, except on the most hesitant, the most broad grounds. I think they should introduce an ethical element, a more than ethical element … an arrangement with conscience” (Littlechild 2003, p. 115). For business people, Shackle demanded them to be persons of conscience and of a generous mind (Earl and Littleboy 2014).

3.2.1 The just market: intertwining the social perspective with the moral perspective

From an “arrangement with conscience,” as per Shackle’s rebuke to von Hayek’s rejection of social justice, the characteristic of a just market would go beyond representation of the interests of all stakeholders (the social perspective) to a moral perspective: it would emphasize that it is particularly the interest of impoverished consumers that has to be respected. We reconnect here to the social teaching of the Catholic Church (see 2.2.1), from where five key features of a “just” market have been identified (Santos and Laczniak 2008):

1. 1 Authentic engagement with consumers, particularly impoverished ones, with non-exploitive intent.
2. 2 Co-creation of value with customers, particularly, those who are underserved.
3. 3 Investment in future consumption.
4. 4 Interest representation of all stakeholders, particularly those customers who need more voice.
5. 5 Focus on long-term profit management rather than short-term profit maximization.

This list shows what constitutes “just market” situations, where “just” means acting with righteousness and on equitable conditions beyond laws and regulations. This is not to suggest that laws and regulations have no place in markets, but they should not overshadow the effects that flow from the social nature of people, from their personal interconnectedness with one another and to the greater community. When these relationships are governed by fairness and equity, they will promote growth, as the World Development Report (World Bank 2006, p. 17) points out, “greater equity can, over the long term, underpin faster growth.” Not even the sternest advocate of liberalization will be able to deny this effect.

The constitution of a just market is another example of creations that develop bottom-up and horizontally. Again, there is a human aspect: whoever makes business decisions will look for some justification. Moral philosophy holds that there are certain principles that people know and follow intuitively. The Scottish ethicist Sir William D. Ross (1877–1971) calls these principles prima facie duties and lists six such duties: (1) duties of fidelity, (2) duties of gratitude, (3) duties of justice, (4) duties of beneficence, (5) duties of self-improvement, and (6) duties of non-maleficence. Long before the discussion on corporate social responsibility was coming to life, Ross (1930) connected these prima facie duties to the actions of people in business. For example, the duties of beneficence, he says, rest on the notion that providing a service to others can improve the intelligence, virtue or happiness of others. This, then, is a basic characteristic not only of building a just market, but of any marketing activity – engaging customers in an active, explicit and ongoing dialogue. But the “market” is more than merely supplier–buyer relations; it encompasses the wider relations of solidarity, associateship and citizenship.

3.2.2 Beyond mere commerciality: solidarity, associateship and citizenship

Relations in a society have various foundations. The most commonly understood relationships are found within the family, where the normal case is that its members care for each other at all times. Each member is expected to contribute to relieving the needs of other members as far as he or she is able to do so. The extent of this liability depends upon how close the ties of community are between members in each case. The members will feel solidary within this community as long as they feel that wealth is distributed fairly among them. “Wealth” would comprise goods and jobs and positions and opportunities in society including education, medical care, child care, care for the elderly, personal security and so forth. We are back with John Rawls’s distributive justice. But there is a refinement to his theory that was introduced by David Miller, professor of political theory at Nuffield College in Oxford.

In denominating “wealth” as “advantage,” Miller (1999) opens the stage for disadvantages as well: whether the community is felt to be just or unjust also depends on whether disadvantages are distributed appropriately. Disadvantages might include military service, dangerous work, other hardships and punishment for wrongdoing. This is one of the refinements added by Miller; the other is that Miller distinguishes between three modes by which advantages and disadvantages are distributed: need, desert (merit) or equality. If the distributive criterion is “need,” we have a solidary community such as family and kinship. But this type of solidarity through mutual understanding and mutual trust may be found in other groups such as work teams or collections of individuals organized around religious or idealistic beliefs. And Solidarność (Solidarity) was a name well chosen for the Polish trade union that was founded in September 1980 under the leadership of Lech Wałęsa, the first trade union in a Warsaw Pact country that was not controlled by a communist party, using methods of civil resistance to boost the causes of workers’ rights and social change.

A distribution of goods solely by need may be felt to be insufficient in contexts where people feel they have to be rewarded on the basis of their merits, their “just deserts.” This would apply to almost all areas of business and the economy, as they depend on each member of a group deploying his or her skills and talents that he deploys to advance the goals of this group – these skills and talents are instrumental for the group to survive, hence Miller’s term instrumental association (Miller 1999 p. 25). But we may find quite a few situations in the context of business where people whose merits are highly manifest renounce rewards that correspond to the performance achieved through deployment of their skills and talents. There are quite a few companies which report that pay differentials between jobs at the top of the hierarchy and at the bottom are becoming smaller (Evans, Kelley, and Peoples 2010). This may be the result, among others, of concerns raised on the issue by large asset management funds like Grosvenor on behalf of big clients such as CalPERS (California Public Employees’ Retirement System). They acknowledge that high pay disparities inside a company can hurt employee morale and productivity and have a negative impact on a company’s overall performance (Mueller, Ouimet, and Simintzi 2016).

There is a third way of allocating advantages and disadvantages, and this would be the way in which governments distribute benefits and rights. When a society regards and treats its citizens as equals, benefits and rights have to be distributed equally. Equality, then, is Miller’s uppermost category, and it connects to the bonds of citizenship – an “ongoing cooperation between free and equal persons committed to reciprocity” (De Bres 2012, p. 323). Depending on which mode of human relationship is being considered, need, desert or equality takes precedence. It is not possible to generalize the concept of social justice. But whichever mode of social relations, there is one principle that outweighs all others. This is the principle of inclusiveness: no one is to be left behind.

3.3 Inclusiveness

Inclusiveness has been on the social agenda at all times and at all levels. At the United Nations, the expression “No one is to be left behind” was recently applied by Secretary-General Ban Ki-moon to the implementation of the 2015 Sustainable Development Goals (United Nations 2015). While this is a program for governments of the member countries, with the outcomes expected to be in the economic, ecological, social and political spheres, the goals will not be achieved without businesses and many other institutions providing support of all kinds. This would be expertise, financial and technical resources for data management and personnel assigned to special partnership projects.

Businesses, especially when under human centered management, have the experience of including the interests of all stakeholders. Internally, and with regard to business partners such as customers and suppliers, practicing participative leadership means that all people are taken into account. From its community relations and its accountability for all consequences of business decisions, the firm will also care for a wider constituency. The creation of jobs and job opportunities is instrumental for economic growth, for promoting better standards of living and for giving voice to underprivileged people. And a business leader who comprehends the wider meaning of the social contract will also make the firm contribute to transitions towards ecological inclusiveness.

3.3.1 Economic inclusiveness – creating employment and growth

On the macro-economic level, inclusive growth is regarded as a sustained and long-term development that is shared by all strata of society, especially those in society who have historically been underserved and have not benefited from growth policies that heretofore focused on the wealthy in the society. With globalization, where even decisions made in smaller firms at the local level can have a far-reaching impact, business leaders will direct the gaze on inclusive growth to poorer countries where their products are to be sold or where they have investment projects. The impacts can be gleaned from the African Development Bank’s definition of inclusive growth: “Economic growth that results in a wider access to sustainable socio-economic opportunities for a broader number of people, countries or regions, while protecting the vulnerable, all being done in an environment of fairness, equal justice, and political plurality” (Kanu, Salami, and Numasawa 2014, p. iii).

Staying with Africa, the example that best elucidates what is meant here is the agriculture sector: the African labor market is characterized by an excess supply of young and unskilled labor, a dominance of agricultural and informal employment and a small share of private industrial employment. The limited or low-quality employment opportunities in many African countries are also the source of low productivity and poor and low-income households not reaping the benefits of economic growth.

To increase and sustain per capita growth in agricultural production, businesses and governments are joining efforts to invest more in agriculture-related infrastructure (e.g., rural roads and access to electricity, water and sanitation programs), and to promote agribusiness and small/medium entrepreneurship (e.g., creating an enabling environment for private sector development and investment). A large number of international and local businesses, small and large, are involved in the endeavors, partnering with state and local government authorities, civil society organizations and farmers’ associations. Responsible business leaders from all over the world have initiated or joined these partnerships. Recent contributions are listed in, among other places, a German Development Bank publication (Köhn 2014). The author of this book on an assignment in Ghana in 2016 witnessed one of these projects – Ghana Grains Partnership with Yara International ASA, a leading global chemical company. The partnership started bottom-up dialogue with local growers in 2009 and has since become one of West Africa’s largest grain growing associations. This remarkable success is due to farsighted leadership and the highly active commitment of all that take part in the venture.

3.3.2 Social inclusiveness – promoting social protection and standards of living

While it is apparent that business undertakings that promote inclusive growth will also contribute to improving social inclusiveness, there is still a need for businesses to support autonomous social initiatives. One such initiative, which has a wide impact internationally, is the Global Agenda for Social Work and Social Development of the International Federation of Social Workers, a Geneva-based institution representing 90 professional social work associations with over 750,000 social workers. It has formal consultative status with the United Nations, and its main objective is to set and review the international standards of social work and to promote good practice outcomes (International Federation of Social Workers et al. 2012).

Social workers can significantly support the bottom-up creation of a more favorable business climate in what Prahalad (2010) has called “base of the pyramid (BOP) regions,” where impoverished socio-economic groups have suffered from social exclusion. At these local levels, linkages between social workers, government authorities and entrepreneurs produce highly fruitful outcomes (Jones and Truell 2012).

Partnering with social workers for improving the propensity to learn may also be a means for firms that wish to improve the attitudes of their workforce as the employees often do not have access to other training programs. One example is the cement producer CEMEX, which partnered with social workers and masonry education projects to create a more educational environment within its Mexican facilities (Letelier, Flores, and Spinosa 2003). Leveling up the workers’ capabilities contributed to both better inclusion of workers and better corporate performance.

The issue of social protection comes into the limelight when considering abusive employment practices in many regions of the world – from the status of undocumented migrant workers in Europe (see, e.g., Bell 2004) and in the US (see, e.g., Gallagher 2004) to forced labor and slavery-like conditions in Africa (e.g., Dottridge 2005) and slave labor in many of the industrial fisheries in Asia (Marschke and Vandergeest 2016), not to speak of child labor almost anywhere in Africa and Asia. It goes without saying that responsible entrepreneurs will refrain from entering into business with firms or people that practice these abuses.

With child labor, the argument is often made that their families need the income provided through the children’s work. Let us look at the renowned economic analysis of the problem of child labor by Kaushik Basu, an Indian professor at Cornell University who is chief economist of the World Bank. He questions the common ethical judgment on the topic and his analysis justifies an alternative approach to this ethical problem. When parents do not earn enough and send children to work in a country that is relatively well off, a ban on child labor can be effective even though coordinate action through legal measures would be required. If the country is very poor, a total ban on child labor will not work, as companies cannot afford to entirely replace child labor with more expensive adult labor. Legal action will most likely lead to counterproductive results: if children are not allowed to work and if companies cannot afford to employ enough adults, families will be subject to hunger and starvation. Thus, for very poor countries, Basu (1999) recommends compulsory schooling combined with (light) work. Schooling will enable children to earn higher incomes later, and so help the economy avoid the child labor trap in the long run.

It is hoped that child labor will become eliminated and children will be fully protected somewhere in the future. The UN Sustainable Development Goals set this date as 2030. But we need time and careful reasoning. The worst scenario would be a specific ban in the export sector. If the international community categorically decides not to import goods manufactured with the aid of child labor, this may, Basu argues, result in child labor shifting into other, more hazardous, areas of the economy instead of attaining the original moral intention. The ethical dilemma here lies less with business leaders who will understand Basu’s reasoning than with the many concerned members of quite a few civil society organizations who are not open to economic argument. The same applies to the topic of environmental protection and ecological inclusiveness.

3.3.3 Ecological inclusiveness – sharing rights, responsibilities and risks

The dilemma with environmental protection, to continue from the previous section, is that solutions for ecology issues (or the issues themselves) are not transferable, for example, from the Western world to the developing world, or from rich countries to poor countries, or from industries that are advanced to those that are have not yet achieved a high level of development. We have seen the hot discussions on the Kyoto Protocol on Global Warming and we are witnessing debates and fights about pollution and emission control almost every day and everywhere on all levels. Responsible leaders who take part in these debates will not always be able to make sure that all arguments be heard. But both globally and locally, progress will be made in sustainable development only if all stakeholders are heard and their interests respected. Interests, however, include accepting rights, responsibilities and risks. All those who are affected must agree that rights, responsibilities and risks be shared between them.

Environmental inclusiveness emerges from three different strands: (1) The poor people in poor regions depending almost solely on their local ecosystem for surviving (subsistence economy), (2) their extreme vulnerability through the effects of climate change and (3) the accelerating demand for limited land and water resources (Gupta and Vegelin 2016).

Living and trying to progress within the limits of a subsistence economy requires a different vision on prosperity and well-being. It calls for equitably allocating rights (i.e., who has the right to access resources and when can these rights be curtailed), responsibilities (i.e., who has relevant responsibilities and how can such responsibilities be monitored and implemented) and risks (i.e., who faces the risks caused by abuse of rights and responsibilities and who compensates for these risks; Gough and McGregor 2007). Engaging the relevant stakeholders in defining and implementing this inclusiveness properly will challenge human centered management in the private and public sectors everywhere.

3.3.4 Political inclusiveness – voice and accountability

There is a prerequisite for sharing rights, responsibilities and risks: universal moral respect, which is the recognition of the right of all human beings to participate in any conversation, as laid down the contemporary philosopher Seyla Benhabib (referred to in section 1.2.1). Sadly, the roots of direct and indirect drivers of inequality often lie in the ideological foundations of society and in false argumentation. This calls for the downward accountability of institutions that claim to present the underprivileged as well as for greater local accountability: where societal groups at the local level are enabled to take part in decision-making through business firms and government authorities, trust in government and businesses will rise (Rogers 2013; Narayan, Pritchett and Kapoor 2009.

The need for more participation might call for global constitutionalism and a rule of law in order to ensure that powerful actors such as governments, entities and banks are subject to common imperatives (see, e.g., Koskenniemi 2009). But the proponents for tighter regulations should not rule out the possibility that a great part of the job can also be done by close collaboration of rule setters, responsible business leaders and all stakeholders.

Giving voice to all stakeholders is the essence of true corporate citizenship. The factual raison d’être of corporate citizenship is that business firms take on an active role in rule-finding discourses and rule-setting processes. Through this, firms can (help to) achieve moral desiderata within the setting of a competitive market economy, and they can help to overcome dilemmas such as having to choose between mass dismissals or firm closure. A moral desideratum, in such a case, would be to alleviate the consequences for those that are affected and to demonstrate that those who may have caused the problem will be held accountable. Acting prudently in situations like this will contribute to easing the tension-filled relationship between profit and morality.

Whenever there are clashes between private interest and public interest and conflicts between profit-seeking by corporate actors and the legitimate concerns of other actors, an open dialogue should at least point to possible solutions. This approach to arriving at a common understanding would also neutralize the reproach that companies, when they act as corporate citizens, do not really mean it but are just displaying another skillful profit-seeking public relations strategy. If voice is given to all stakeholders, they might accept that a corporation is willing to consider moral objectives as well as the profit motive.

Considering moral objectives and the profit motive is not just a theoretical concept. In section 3.2.2 we referred to cases where business leaders refrained from taking advantages in favor of producing benefits for their stakeholders. We shall take a brief look here at a theoretical foundation that explains the moral objective. The point is that moral objectives and the profit motive can be conjoined through win–win design schemes. A win–win situation means that corporate actors search for arrangements that will bring their private interest in line with the interest of stakeholders. The question, then, is not whether the profit motive is too strong, and thus needs to be weakened in favor of moral objectives, or whether the profit motive is inherently good or bad. Instead, the question to be asked is whether – and, more specifically, how – a situation in which profit-seeking is detrimental to stakeholder interest can be transformed into a situation in which profit-seeking becomes supportive of stakeholder interest.

A prominent example given by Pies, Hielscher, and Beckmann (2009) is Henry Ford’s public announcement of the $5-per-day program in 1914, a morally highly desirable program for which, at the time of introduction, Henry Ford was heavily criticized by stockholders and competitors. The program included a reduction in the length of the workday from nine hours to eight, a six-day workweek, and a doubling of the going rate for minimum daily pay from $2.34 to $5 for qualified workers. Ford’s innovative program was designed to solve a particular problem. At the time, the industrial workforce typically consisted of migrant workers with high absenteeism and a huge turnover rate. The average employee recruited on January 1 would have already left the company by April 15. But manufacturing cars on an assembly line made workers highly dependent on each other, and high turnover rates and absenteeism created huge problems at the plants. The dramatic increase in wages and the 48-hour, six-day workweek, therefore, induced workers to bind themselves to the company. Productivity increased so much that Ford realized a high increase in net profits. The $5 workday caused a productive response by workers and thus proved to be a prudent win–win strategy. A lesson for today’s entrepreneurs?

3.4 Social business and the role of social entrepreneurs

Ford’s $5 minimum daily wage move might be seen as an early example of social business. Since then, the term has taken on a different connotation, with the definition by Nobel Peace Prize laureate Professor Muhammad Yunus (2007). It regards a business created to address a social problem through a non-loss, non-dividend company that is financially self-sustainable and whose profits are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact. The spectrum is wide because the term is also used interchangeably with social enterprise, ranging from profit-first corporations to non-profits or charities, with social enterprises closer to non-profits and social businesses closer to for-profits. But the issue is outcomes, not delimitations.

The concept has proven to open up employment opportunities and at the same time promote responsible use of resources in developed countries, developing countries and transition economies. This holds true also for the expanded concept of eco-social business. Eco-social business, since the seminal publication of Bennett (1991) on the concept of eco-preneurship, has postulated an intersection of entrepreneurship with environmentally and socially responsible behavior (see, e.g., Cohen 2006). What has been created is a variety of entrepreneurial activities. The incorporation of sustainability also suggests an implicit commitment to a wider social dimension. Efforts in poor countries range from support to subsistence farmers in remote areas to equipping whole communities with training, access to technology, housing, education and healthcare.

There are a lot of opportunities in this area – we take the example of social entrepreneurship activities directed at balancing community and ecological concerns. Exhibit 3.1 is taken from a commentary of the United Nations Conference on Trade and Development (UNCTAD) on the impact objectives of social entrepreneurship.

Responsible leadership in this field would have to go as far as including the activities in the informal sector, since it has been estimated that well over half of the total economic activity in the developing world takes place in informal sector relationships, where relations primarily are grounded in social instead of legal contracts (de Soto 2000). What we have here has been called the “wider linkage phenomenon,” linkages occurring not just between trades and industries, but spreading to new business activities in an environment that has had no business at all (or just informal business transactions). This outreach will provoke changes of thought, even of values, and of social order (Buckley 2009).

3.5 Impacts of culture

Both morality and leadership are considered differently in societies whose culture is different. Not only is culture a notoriously difficult term to define (in 1952 two American anthropologists compiled a list of 164 different definitions; see Kroeber and Kluckhohn 1952), but the difficulty gets worse when looking at culture in conjunction with what is moral in leadership. Let us use the wording of Dutch sociologist Geert Hofstede (1980a, p. 5): “the collective programming of the mind which distinguishes the members of one group or category of people from another,” to which we should add Matsumoto’s (1996, p. 16) specification: “the set of attitudes, values, beliefs, and behaviors shared by a group of people … communicated from one generation to the next.” With the acceleration of global interdependence, even though there are values of universal purview as said in Chapter 1, the impact of culture on moral behavior is becoming more visible. So, moral issues must be grasped from what is bestowed by society at large and organizations in particular. Generally speaking, within an individualistic culture, moral liabilities of leaders are essentially meant for persons, whereas a collectivist culture wishes leaders to integrate into a group.

Individualistic and collectivist cultures are categorizations used by Hofstede in his studies on behavior in organizations, of which one specifically deals with how leadership differs and needs to be adapted in different cultures (Hofstede 1980b). He has used four main indicators of cultural differences that have been employed in a considerable number of comparative studies in economics and management: power distance; collectivist or individualist decision-making; feminine (= altruist) or masculine (= autocratic); and uncertainty avoidance. Anyone in a management position should be familiar with this and take account of it when preparing and executing business decisions.

Another cultural issue is that management models and leadership modes that apply in the US cannot be easily transferred to other cultures. Cross-cultural awareness is needed to help leaders avoid mistakes that may jeopardize business. Besides skills and competencies in conducting relations with a diverse work force and diverse authorities in foreign countries, certain diplomatic qualities will be required. Saner, Yiu, and Sondergaard (2000) cite the “Nicolson test,” named after the British diplomat Sir Harold Nicolson (1886–1968), which determines the qualities of a diplomat as consisting of truth, accuracy, calm, patience, good temper, modesty, loyalty, intelligence, knowledge, discernment, prudence, hospitality, charm, industry, courage and tact, and the ability to make compromises and adaptations. Responsible leaders will make sure that their managers have these qualities.

Taking account of cultural differences includes the knowledge that an important goal for leaders in one country may seem less important in another. Hofstede (2007) lists the five most and five least important perceived goals (out of 15) ascribed to successful business leaders in each of four countries (Table 3.1).

When surveying Table 3.1, should we consider the moral judgment of the Danish leader as higher than that of the US leader because the first one places responsibility towards employees among the important goals and the other does not? No. In the first place, both are necessarily influenced by their society’s culture, which may have historical, religious or ideological roots. And second, both will have been successful in their careers with their individual prioritization of goals. That is not to say that US leaders’ perception of their responsibilities towards employees is fragile. From Drucker’s emphasis on businesses’ responsibilities towards employees (Schwartz 2007) to the widely acknowledged recognition of putting close employee relations in small businesses at the forefront, there has been much more social resonance of the topic than negative critics would allow (Lepoutre and Heene 2006).

Table 3.1 The five most and five least important perceived goals ascribed to successful business leaders in four countries

China	India	Denmark	USA
Most important	Most important	Most important	Most important
Respecting ethical norms	Family interests	Creating something new	Growth of the business
Patriotism, national pride	Continuity of the business	Profits 10 years from now	Personal wealth
Power	Personal wealth	Honor, face, reputation	This year’s profits
Honor, face, reputation	Patriotism, national pride	Staying within the law	Power
Responsibility towards society	Power	Responsibility towards employees	Staying within the law
Least important	Least important	Least important	Least important
Creating something new	Staying within the law	Family interests	Profits 10 years from now
Game and gambling spirit	Creating something new	Power	Responsibility towards employees
This year’s profits	Responsibility towards employees	Responsibility towards society	Family interests
Personal wealth	Respecting ethical norms	Personal wealth	Continuity of the business
Staying within the law	Game and gambling spirit	Continuity of the business	Creating something new

Source: Hofstede (2007), p. 415

The American social psychologist Douglas Murray McGregor (1906–1964) said in The Human Side of Enterprise: “Behind every managerial decision or action are assumptions about human nature and human behavior” (McGregor 1966, p. 33). He postulated that more leaders should assume that their employees liked work, sought to develop their skills and furthered worthy organizational goals (he called these leaders “Theory Y managers”) rather than believing that their employees disliked work, wished to avoid responsibility and desired security above all (the “Theory X managers”).

From a cross-cultural perspective, is it possible to transfer Theory Y and the participatory leadership style that subsequently evolved in many US firms from those firms to another societal environment? And would it be a worthy case, morally speaking? There is considerable sympathy for models of management practiced in countries such as Sweden, Norway and Germany, where a type of “industrial democracy” prevails that welcomes initiatives from the bottom of the hierarchy and is codified, e.g., the German model of co-determination in corporate boards and worker-participation in shop-level decision-making (Mitbestimmung).

A US firm trading in Norway and Germany (and several other European countries) will have to make its expatriate leaders aware that they cannot choose their styles at will because what is feasible depends to a large extent on the cultural conditioning of their employees. But these expatriates must change their styles when they are transferred to countries where this “industrial democracy” does not fit at all. This would be the case in many African countries, especially the francophone ones with a long colonial history of autocratic governance by French rulers. France seems to be the colonial power most appreciated by its former colonies and seems to maintain the best postcolonial relationships – not the least because autocracy has produced relatively favorable conditions for their economies (Taylor, I. 2010). Employees in this cultural environment would feel very uncomfortable with leaders who tried to practice participatory management. Therefore the expatriate will have to sacrifice the well-meant intention of what he or she feels to be a moral commitment in order to prevent a culture clash that comes from a totally unexpected angle.

Preventing unnecessary culture clashes is a task for responsible leadership. Those clashes not only occur in business transactions with foreign countries, they may also arise between large firms and small firms, and between different industries (e.g., the chemical and pharmaceutical industries; see Weber and Tarba 2012). Much has been written about culture clashes, especially on mergers and acquisitions (a review of the literature is given in Shimizu et al. 2004).

One less researched issue is tourism development. But there is practical help through the Global Code for Ethics in Tourism Industry published in 1999 by the World Tourism Organization. This behavioral code for tourism has been received well by both the industry and governments (Chirilă 2009). It includes principles guiding all stakeholders in tourism: central and local administrations, local communities and suppliers of tourism services, as well as tourists at home and abroad. Considering the prediction that tourist circulation in the world will triple over the next 10–15 years (UNWTO 2016), it is thought that this initiative will help to minimize the negative impact of tourism on the environment and the cultural heritage and to maximize benefits for the populations of the countries of destination. Culture is increasingly exploited as a facility in selling a destination, and this will also encompass traditions and attitudes of people in the host countries. This requires leaders in the tourism industry as well as managers and hired hands to have high standards for moral behavior. Not only will dishonesty and cheating cause harm in business, professionals in the business who do not adopt fair play will lose their jobs sooner or later.