Private Management and Public Policy

The Principle of Public Responsibility

James Post, Lee E. Preston

• Publisher: Stanford Business Books
• Year: 2012
• ISBN:
  9780804784740
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Gobierno y empresas

Private Management and Public Policy is a landmark work at the intersection of business and society. First published in 1975, it focuses on the management processes that companies use to respond to social issues. The text develops the "principle of public responsibility" as an alternative to the notion that firms have unlimited accountability. And, it presents one of the first systems-based approaches to corporate responsibility, providing theoretical support for business involvement in public policy. Arguably, the book's major contribution is its broad outline of an alternative theory of the firm in society—one that offers the possibility of overcoming traditional public and private dichotomies.

CHAPTER ONE

Issues and Definitions

An Overview of the Argument

Some Definitions

Management

Managerial Organizations

Society

Social Involvement

Public Policy

Summary

The social responsibility of business is to increase its profits.

Milton Friedman

• • •

It is the duty of the man of wealth to consider all surplus revenues, . . . . as trust funds, which he is called upon to administer. . . . for his poorer brethren, . . . . doing for them better than they would or could do for themselves.

Andrew Carnegie

• • •

The duty of business in a democracy is. . . . to follow the social obligations which are defined by the whole community. . . .

Howard Bowen

What is, in fact, the purpose and role of private business management in our society? Is it, as Friedman contends, simply to meet the tests of the marketplace and thereby “increase its profits”? Or is it, as Bowen argues, to meet a wide range of social performance goals “defined by the whole community”? Even a casual scanning of current business periodicals and corporate press releases suggests that the latter viewpoint is gradually replacing the former. As a recent Fortune article notes, “The doctrine that business has responsibilities ‘beyond business’. . . . is still picking up steam.”¹

But changes in official corporate rhetoric, and a wide variety of specific policy initiatives and activities on the part of individual corporations and industries, do not dispose of the basic questions themselves. Indeed, the more seriously one takes the idea that balance sheets and income statements do not provide a fully comprehensive basis for evaluating corporate social performance, the more one returns to the basic issues—the social purpose of business activity, the directions and limits of corporate involvement in society, and the objectives and standards to be achieved.

Evidently it is not possible for individual corporations, even very large ones, to take an active role in every sphere of economic and social life. On the other hand, the alternatives of complete withdrawal, mere charitable activity, or ad hoc response to specific demands and crises are equally unsatisfactory. Lectured from every viewpoint and confronted with an avalanche of prescriptions and criticisms, the business community is understandably confused and defensive. Little wonder that the whole problem of business involvement in society and what to do about it has come to be referred to as “the corporate dilemma.”²

AN OVERVIEW OF THE ARGUMENT

In this book we present an analysis of “corporate dilemma” and suggest a basis for resolving it. Our analysis is focused on two fundamental social processes. One is the process of management itself; that is, the process of organizing and directing the individual organizational units that perform productive tasks within, and for the benefit of, the larger society. In our own society most of these organizational units are private businesses, and by far the largest part of private business activity is conducted by corporations of substantial size. Hence, managerial processes and problems characteristic of the larger corporate business organization are our primary concern.

The second element in our analysis is the public policy process. Through the public policy process the members of society—individuals, organizations, and interest groups—identify issues of public concern, explore conflicting viewpoints, negotiate and bargain, and—if a resolution is reached—establish objectives and select means of obtaining them. In the ongoing process the structure of government and the political mechanism of society are of central importance. Yet, in both origin and impact, the process itself extends far beyond the boundaries of legislative action and direct governmental activity. In particular, since private business organizations account for much of the character and activity of society as a whole, they are also important stimuli, participants, and respondents within the public policy process itself.

Both the public policy process and the managerial process are well-established areas of academic study and practical activity. Social decision making has been a principal topic in philosophy since the days of Plato and forms the primary subject matter of modern political science. Private business management has been recognized as an important area of teaching and research for at least a century. Yet the idea that there may be—perhaps even must be—a normal and mutually sustaining relationship between the two processes is relatively new and somewhat controversial, at least in the United States. The traditional American view has been that the public and private sectors of economic life are separate and distinct and that there is a “natural predominance of private enterprise in the economic sphere and . . . subordinate role of public initiative in any situation other than manifest national emergency.”³

Of course, this traditional separation of public and private roles in economic life is itself both a reflection of and a basis for public policy. The delegation of most of the economic tasks of society to independent private enterprises is a social decision of the first magnitude; and many large and powerful business entities have arisen specifically in response to public policy decisions. (One thinks particularly of the railroads and the aerospace industries.) Then, once established, business enterprises have inevitably come to participate in the public policy process in pursuit of their own private organizational advantages and goals. At the same time, the expanding role of government and governmental protection of other groups within society—such as labor unions, consumers, and taxpayers—has resulted in a counter-penetration of public policy into the activities of private management.

The fact of frequent and varied interpenetration and interdependence between private management and public policy is now generally recognized. However, this fact continues to give rise to expressions of surprise and alarm, both by business executives confronted with new public concerns and requirements and by social critics concerned over the prominent role of business interests in political life. Further, instances of interpenetration and interdependence are commonly regarded as exceptions—each based upon special circumstances—to the general rule of independence between micro-managerial and macro-societal decision processes.

Our own analysis takes, and attempts to justify, a different viewpoint. We believe that interpenetration and interdependence between private managerial activity and social policy making are general and inevitable characteristics of modern, organized societies. Although this fundamental state of interrelatedness may contain potentials for danger—both to the managerial unit and to the public interest—it also contains potentials for constructive adaptation and social change. Interrelatedness between private management and public policy is simply a fact of modern social life.

On the basis of this viewpoint we raise two fundamental questions:

(1) What is the appropriate scope of private managerial responsibility within society; how far is the individual managerial unit supposed to go in anticipating and attempting to deal with social needs and problems?

(2) Within the defined scope, what are the criteria of appraisal and evaluation; how do corporate managers, their critics, and the general public distinguish good from bad performance, success from failure?

According to our analysis, the scope of managerial responsibility arises directly from the principal economic activity of the enterprise (raising apples, making steel, providing medical care) and all secondary or subsidiary activities ancillary thereto. Thus, the purview of management extends well beyond internal decision making and direct market contacts to include the impact of its activities, both anticipated and unanticipated, desired and undesired, on the larger society. At the same time, the scope of managerial responsibility is bounded; it does not extend to aspects of social life not related, either directly or indirectly, to the organization’s central activity.

Within the defined scope of managerial responsibility, the criteria of appraisal and evaluation, of success and failure, are established both by market forces and by public policy; therefore, the task of anticipating, understanding, evaluating, and responding to public policy developments within the host environment is itself a critical managerial task. Indeed, an understanding of the broad concerns of society embodied in public policy is as necessary to modern management as an understanding of the keys to market success—the sources of demand for products and services, the technological and cost alternatives relevant to the production activities. Changes in public policy and in the stimuli or limitations placed by society on the activities of the firm are normal phenomena, comparable to changes in tastes and technology within the corporation’s industries and markets, not unprecedented occurrences or intrusions upon managerial prerogatives. Further, since private business units constitute large and important organizational elements within our society, it should be expected that they will initiate and participate in, as well as respond to, the process of social decision making.

Our analysis focuses throughout on the process of management-society interaction rather than on any specific list of current social expectations, prohibitions, or standards. Although we refer throughout to examples, both current and historic, of managerial involvement in society and of public policy initiatives, these are illustrative rather than exhaustive. Within our model of the management-society relationship, the specific tasks of private management and the specific objectives of public policy are constantly being discovered, examined, defined, and revised. Our suggested basis for resolving the corporate dilemma, which we term the principle of public responsibility, provides a framework for adaptation and change in a changing world.

SOME DEFINITIONS

The remainder of this chapter presents some definitions of terms and concepts used in our analysis. These terms and concepts are significant in themselves, and their presentation at this point serves as a further introduction to the rest of the book, where these ideas are treated at much greater depth and with particular attention to the relationships among them. Here we omit such complexities in order to delineate fundamental concepts and critical distinctions.

Management

The term management has two important meanings. It refers both to the people who are responsible for making and implementing managerial decisions within micro-organizational units (i.e., to the managers, considered collectively and not as individuals) and to the managerial functions that these people perform. This combination of structural and functional meanings for the term management is not undesirable and should not lead to confusion. Indeed, the double meaning emphasizes the point that managerial functions cannot be seriously thought about without reference to the human beings performing them and that the position of managers within an organizational strucure is ultimately defined not by titles or formal organization charts but by the functions that they perform.

In some general discussions the term management is used interchangeably with “business” or, more abstractly, “the firm.” Such usage is specifically avoided here. These latter terms appear to encompass at least the stockholders, and very often the employees, dealers, franchisees, and other associates of private business enterprises. Management, however, refers only to those individuals, whether owners or employees, involved in managerial activity at a policy-making level. Our principal focus is on private management both because private business firms are the most numerous, and in the aggregate most important, managerial units within our society, and because the distinction between micro-organizational and societal considerations can be most sharply drawn in this context. However, we wish to include nonbusiness management within our analysis whenever relevant and convenient.

Managerial Organizations

Management structures exist and managerial functions are performed within organizations. An organization is a means of coordinating the activities of a number of people for the achievement of a common purpose or goal. Organizations generally involve both internal specialization—so that some people perform one activity while others perform another—and a hierarchy of authority and responsibility through which the various specialized activities are coordinated and directed toward the common purpose.⁴

The term organization is very broad. Religious groups, social clubs, and the units of political government (as distinguished from government agencies) are important organizational types within our society, but they cannot be described primarily as managerial in character. The distinguishing feature of the organizations with which we are concerned is that they are managed. They are neither loose associations of amateur enthusiasts nor congregations of the like-minded faithful. Rather, they exhibit explicit organizational structures within which functional roles are sharply differentiated and the direction and scope of authority are defined. Of course, most small managerial units lack formal organization charts, and even in large units with well-defined formal structures the actual flows of information and authority may be substantially different from those set forth in official organization plans. The availability and accuracy of any particular representation of formal organizational structure is not, however, at issue here. The point is simply that a specific internal structure, formal or informal, simple or complex, is characteristic of the managerial organizations with which we are concerned.

Both internally and externally, the structure and function of manageria...