Industries, Nations and Time
Chapter 1: Varieties of business responsibility
The belief that capitalist enterprises have a wider responsibility to, and for, society and the natural environment beyond exclusively making profits for their owners has a long history. One recent study has traced the history of what is now called “corporate social responsibility” (hereafter, CSR) concepts in the United States back to the eighteenth century.1 This reflects the fact that although the term CSR was coined in the second half of the twentieth century, many core concepts can be found in earlier traditions of business paternalism and philanthropy. It is equally evident that an understanding of what business is, or should be, responsible for has remained diffuse and contested.2
This book is primarily concerned with how some business leaders have pursued sustainability in different industries, countries and time periods. The purpose of this opening chapter is to place this story in a broader context. It considers the different varieties of business responsibility which can be seen in the history of capitalism. The chapter proceeds chronologically. Section II examines the emergence of concepts of business responsibility during the opening era of modern industrialization. Section III looks at the further development of concepts of business responsibility as a result of the Great Depression. Section IV explores the evolution of concepts of business responsibility in Asia and Latin America. Section V looks at the highpoint of business responsibility in postwar Europe and in the United States, and Section VI looks at business responsibility in the era of quarterly capitalism after 1980. Section VII turns to green businesses, and places the remaining chapters of the book in context. Section VIII offers conclusions.
II BUSINESS RESPONSIBILITY IN THE ERA OF MODERN INDUSTRIALIZATION
As capitalism emerged in the Western world, it had an ambiguous relationship with the social values of the dominant religion, Christianity. Famously, the German sociologist Max Weber associated the advent of modern capitalism with the Reformation in the sixteenth century, arguing that the ascetic, rational and individualist nature of Lutheran and Calvinist beliefs set them apart from Catholic and Orthodox Christianity, and shaped behavior. He identified the “Protestant work ethic” that encouraged people to work hard, be frugal and strive for success as proof of personal faith. In other words, it shaped entrepreneurs whose values were aligned with “the spirit of capitalism.”3
Weber set off a famous debate among historians on the cultural basis of entrepreneurial success, which has continued to the present day; but this debate also overshadowed other issues concerning Christianity and the morality of capitalism. In the Gospel of Luke in the New Testament, Jesus was recorded as saying that “it is easier for a camel to go through a needle’s eye than for a rich man to enter the kingdom of God.” This hardly provided a compelling incentive to engage in capitalist endeavors. Medieval European societies struggled with the tensions between riches and religion, and the tensions did not go away as the modern world emerged. In 1776, Adam Smith, in The Wealth of Nations, argued that the market was value-neutral and that its invisible hand promoted public good out of private self-interest. He considered the science of economics as “the great antidote to the poison of enthusiasm and superstition.”4 However these observations were made within the context of his earlier book, Theory of Moral Sentiments, published in 1767, which sharply differentiated between individualism and egoism, and emphasized that competition took place within the context of mutual cooperation.5 Other writers stressed the role of God in business and economic affairs. Thomas Malthus, a Christian minister, published An Essay on the Principle of Population in 1798, putting God and morality together in a central place in political economy.
As the Industrial Revolution took hold during the eighteenth century, the institutionalization of economic activity in the form of firms expanded. The concept of the corporation as a legal person separate from its owners was an invention of Western societies, originating in Roman law during the first two centuries ad, developed during the Middle Ages in both Church and civil law, and further codified by the British and American common law tradition.6 The responsibilities of such corporations were less clear. At first, the family ownership of almost all corporations blurred the issue, as the personal values of founders and owners were expressed in their firms. The Christian values of founders helped shape a wider societal role for firms in the form of industrial paternalism and welfare capitalism. In Britain, a succession of entrepreneurs – from Josiah Wedgwood in the eighteenth-century pottery industry, to George Cadbury and William Lever in the late-nineteenth century, of the chocolate and soap industries, respectively – provided houses, villages, and health and recreational facilities for their workers. Self-interest coexisted with religious concerns in these endeavors, as entrepreneurs sought to build loyal and stable workforces inculcated with the values of industrial capitalism. Economics also mattered. It was the firms in especially favorable market positions, including Lever and Cadbury, which offered extended welfare benefits. Most large British firms did not.7
Mixed motives are evident in the literature on nineteenth-century paternalism in both Britain and the United States.8 Lever built an exemplary model industrial village in 1888 for his employees at Port Sunlight, outside of Liverpool in Britain. However, in order to counter the threat of socialism, he also appointed a Wesleyan minister as the company’s welfare officer and minister at the church he built in 1904; this was a blatant strategy to keep ideological dissent under control. In an extraordinary departure from convention, he even confined membership of his church to his employees.9 George Cadbury, a Quaker, built a garden village around a new chocolate factory in Bournville, which was four miles outside of the crowded industrial city of Birmingham; this seemed to go above and beyond concerns to build a stable and docile workforce. In 1900 he even donated the village to a separate trust. Six years later, Cadbury articulated his “theory of giving”:
Begin at home with your work people, see to their comfort, health … See that your workshops are light and well-ventilated … give your people the advantage of living where there is plenty of space. This was our main object in removing from Birmingham into the country. It was morally right and proved financially to be a success, because the business had room to expand.10
The balance between morality and profits can be debated as much in the Cadbury case as in others, but the evidence of fervent religious views driving an agenda concerning responsibility is strong. However, it is important to note, as a study of another British Quaker – chocolate manufacturer Joseph Rowntree – has stressed, religiously motivated concerns for the welfare of employees was positioned within the context of seeking efficiency for a business growing in scale.11 As one author observed, “the Quaker business ethic legitimized but also tempered capitalism by defining the proper means and ends of business.”12
Debates on the motives of the American corporate paternalists of the nineteenth and early twentieth centuries in using their wealth to support philanthropic ventures, and engaging in sophisticated urban and social planning, are similar to the debates on the British paternalists. The prominent examples of welfare capitalism are well-known figures in American business history. These include, for example, the Houghton family, who built the glass company Corning in the town of Corning, New York; Milton Hershey, of the Hershey chocolate company; and George Pullman, the railcar manufacturer, who built a large town outside of Chicago in 1880 for his workers. Company towns became a feature of the American industrial landscape as the century progressed, though, as Green has suggested, they fell ostensibly into two types: paternalistic and downright exploitative.13
Major differences between the United States and Europe were the growing scale of American businesses and the enormous wealth of successful business leaders, such as Andrew Carnegie and John D. Rockefeller. An underlying driver of this philanthropy might have been the huge income and wealth inequality which had emerged in the United States by the early twentieth century: by the 1920s inequality had reached levels not to be seen again until the early twenty-first century.14 These wealth disparities were fully understood, and provoked much criticism of “robber barons” and the abuse of power by “trusts” such as Rockefeller’s Standard Oil. However, size also stimulated thoughts of responsibility among business leaders. “I was taught,” wrote Henry J. Heinz, the founder of the Heinz Company, “that a certain responsibility goes with … any large business affecting many people.”15
Andrew Carnegie, who built a huge steel business, took the concept of charity to the next level. Believing that “hoarding millions is avarice, not thrift,” he went beyond offering his workers good conditions and guaranteed employment to propose what he termed The Gospel of Wealth. Carnegie insisted that entrepreneurs had a responsibility to use their wealth to promote social good not by leaving money to their families but by funding public institutions, such as schools and libraries, which would offer further opportunities for others. Carnegie gave away almost all of his personal fortune of $10 billion (in today’s dollars), and laid down the framework of modern American philanthropy by establishing the Carnegie Foundation in 1911, beginning “the art of spending money for the common good.”16 The foundation was a new form of institution designed to administer large resources and deliver them to multiple recipients. Carnegie had been distressed by sectarian divisions in Scotland, and initially showed little interest in religious matters, but by the time he began his large philanthropy projects, he was an active Presbyterian. Among the first big projects was the donation of thousands of organs to churches.17
Carnegie began a distinctly American view of the responsibility of business leaders: if they made a lot of money, they should give it away to promote the public good. This reflected the idiosyncratic American system that was at once highly individualistic yet also had a strong sense of community, and that was committed to making profits yet also believed in pursuing social justice. The Rockefeller Foundation was created in 1913. Between 1915 and 1930, as Zunz has noted in his study of American philanthropy, the number of foundations in the United States grew from 77 to 200.18 More foundations followed, with the Ford Foundation created in 1936, and the hotelier Conrad Hilton establishing his foundation in 1944. There were strong religious beliefs behind many of these initiatives: the Rockefellers were Baptists; the Guggenheims, Jewish; and Hilton, a Roman Catholic.
Multiple authors have pointed out that business philanthropy was about more than giving away money; for example, American philanthropy has been seen as an investment in shaping the future. “Individual Americans return to society some monetary gain,” Zunz observed, “with the motivation that it might benefit them in the long run.”19 Harvey and coauthors, using the example of Carnegie, employed the term entrepreneurial philanthropists to describe people who deployed financial wealth to achieve high social rates of return. From their perspective, Carnegie and subsequent philanthropists sought to deflect criticisms of huge wealth and establish their legitimacy, which would in turn enable them to engage “in the business of world making.”20
By the 1920s, there were strong traditions of business responsibility in major industrial nations, including the United States and Britain, and in both countries some manufacturers practiced large-scale paternalism. In the United States, Carnegie started the tradition of creating philanthropic foundations. The motives for these acts varied, and religious and ethical motivations were clearly articulated, but other rationales were also present. Paternalism created stable labor forces, and philanthropy gave legitimacy to great wealth created in business.
III THE GREAT DEPRESSION AND ITS AFTERMATH
During the interwar years, the emergence of the concept of management as a profession took hold. This reflected and coincided with the growth of large corporations that increasingly dominated business activity. In the United States, the creation of business schools attached to prestigious universities, such as Columbia, Harvard and Dartmouth, led to a push to make management a profession on a par with law or medicine.21 This was a particular concern of Wallace Donham, a lawyer who became dean of the Harvard Business School in 1919, and who strove to make the school as prestigious as the longer-established Harvard Law School. He wanted to develop a code of ethics for managers, and spoke abroad on multiple occasions on the broader responsibilities of business.22 In 1927, in the Harvard Business School alumni newsletter, he warned, “Unless more of our business leaders learn to exercise their powers and responsibilities with a definitely increased sense of responsibility towards other groups in the community, our civilization may well head for one of its periodic periods of decline.”23
The Great Depression and the consequent public criticism of Wall Street, in particular, and unfettered capitalism, in general, prompted extensive discussion of the responsibility of managers. Donham’s ideas evolved further. In 1933 he published a widely cited article in Harvard Business Review in which he maintained that business had the responsibility to be ethical, and he warned that if it was not that governments would impose unwise and unnecessary laws on it. He wrote:
The solution of problems of business ethics, the task of learning how to conduct business so as to add to general security and happiness, must be undertaken primarily by business leaders. Their object must be to do the job so well that the law and the policeman are unnecessary.24
During the 1930s, within the context of President Franklin D. Roosevelt’s New Deal, there was extensive debate on the responsibility of business. In 1932 Adolphe Berle, the corporate lawyer who became an adviser to Roosevelt, coauthored with Gardiner Means The Modern Corporation and Private Property. This landmark study laid out the problems of separating ownership and control in large modern corporations. A key component of the argument, although subsequently overlooked, was that the growth of professional managers had broken what he considered the historic link between capitalism and social and moral responsibilities to the societies in which firms were based. Berle’s view of what had transpired in the past may not have been historically accurate, but it is evident that the emergence of limited liability and the joint stock company proved a considerable challenge for business leaders who sought to combine wealth accumulation with a wider societal role. As their companies went public, managers assumed a fiduciary responsibility to shareholders and the creation of shareholder value.
Berle’s solutions were regulatory and legal. He designed the new Securities and Exchange Act, which was designed to force disclosure of corporate information to make managers more responsive to social good. During the 1930s, Berle debated with E. Merrick Dodd, a Harvard University law professor, who argued that it should be formally recognized that large corporations were social institutions that had responsibilities to multiple stakeholders beyond shareholders. Berle was less confident that managers would ever be fit to exercise such responsibilities, and called for formal government regulations to oblige them to meet broader responsibilities.25
In the United States, there were also important regulatory and institutional developments to facilitate corporate giving. In 1917 US law was changed to permit individuals to deduct charitable donations from their income tax. The primary motivation was to encourage gifts to charities related to the war effort. It was much more contested whether corporations could make such charitable donations, but then the 1935 Revenue Act permitted corporations to deduct charitable donations from their taxes. Corporate donations rose sharply thereafter. In the United States, a number of intermediate organizations emerged that were crucial to corporate philanthropy. In particular, the Young Men’s Christian Association (YMCA) pioneered methods of corporate fundraising between 1905 and 1916.26
There were echoes of American debates on the responsibility of business in many other Western countries, although they were framed within their distinctive cultures, traditions and political systems. In Britain, the Christian churches continued to play a role in making the case for the ethical responsibility of business. A book written by a Post Office executive and published by the Student Christian Movement in 1922 described a new generation of managers who “may provide a priesthood in industry, just as there is a priesthood in worship.”27
As in the United States, there was much discussion of the professionalization of management. Quaker business families, such as Rowntree and Cadbury, were especially important in the so-called management movement. The former family produced three of the most important interwar writers: Seebohn Rowntree, Oliver Sheldon and Lyndall Urwick.28 Sheldon’s The Philosophy of Management, published in 1923, included a chapter entitled “The Social Responsibility of Management,” which discussed in detail the responsibilities of business to the well-being of their broader communities and to maintaining high ethical standards.29
Meanwhile, beyond debates on societal responsibilities, some American business leaders saw their responsibilities extending also to international diplomacy. Among the more famous examples were Henry Ford’s Peace Ship during World War I, and the efforts by T.J. Watson, the chief executive of IBM, to head off mounting tensions in Europe in the late 1930s. In 1937 Watson, also the president of the International Chamber of Commerce, arranged a personal meeting with Adolf Hitler to discourage him from planning another war. Watson was rewarded by Hitler’s promise that there would be no war, as well as a special Nazi medal decorated with swastikas. As is well known, Watson had no more success than Ford, who received a similar medal from the Nazi regime; after the German invasion of France in 1940, Watson returned his medal.30
The continued growth of big business, the drive to make management a profession on par with the law and medicine, and the shock of the Great Depression contributed to a deepening of the discussion on the responsibilities of business to society. Harvard Business School deans, among others, were among those calling for business leaders to be more responsible to their societies, even for happiness. They also articulated concerns of enhanced government intervention if business was perceived to be acting badly or being responsible for social woes. However, other voices asserted that public corporations were legally bound to be responsible only to their shareholders. This began a debate that remains unresolved.
IV BUSINESS RESPONSIBILITY IN ASIA AND LATIN AMERICA
The previous sections have focused on the theory and practice of business in the industrialized West. Asia and Latin America lagged behind the West in modern industrialization, but nevertheless some of the most radical concepts of business responsibility were developed in those regions as modern business enterprises began to develop. This can be explained by several factors, including philosophic and religious beliefs, the extent of social deprivation and wealth inequality, and institutional voids which resulted in few public policies to address such deprivation.31
Japan was forced to open its long-closed economy by American naval forces in 1853, an event which led within 15 years to the overthrow of the feudal Tokugawa regime which had ruled the country for two and a half centuries. During the decades after the installation of the Emperor Meiji in 1868, Japan became the first non-Western country to achieve substantial modern industrial growth. As in the West, the business leaders of the era articulated highly divergent views on business responsibility. Yataro Iwasaki and Shibusawa Eiichi represented two extremes, even though both were highly successful businessmen.32 Iwasaki was a major shipping entrepreneur and the founder of the Mitsubishi Group.33 Shibusawa was a serial entrepreneur, founder of nearly 500 companies and the creator of the modern Japanese banking system. In a context in which Meiji Japan was threatened by expansionist Western imperial powers, both men were aware that Japan’s sovereignty rested on modernizing the economy. The views of the two men on the functions of capitalism, however, diverged. Iwasaki was a profit maximizer concerned about growing the wealth of his family. Shibusawa developed the concept of gapponshugi, which Kimura has translated as seeking to develop a business “by assembling the best possible people and funding to achieve the mission and with the aim of pursuing the public good.”34
Shibusawa’s ideas developed within a specific chronological and country context. Traveling to the Paris Exposition in 1867 as a member of a group of delegates, just as regime change was underway at home, Shibusawa encountered and was impressed by French accounting and asset management systems, and especially the joint stock system. Returning to Japan, he established the county’s first joint stock corporation.35 However he framed these and other reforms within the concept of Confucianism, the basic principle of the samurai and the ruling elite of the old regime. Confucianism was concerned with the behavior and relationships of lords to their vassals and parents to children. Shibusawa transferred Confucian concepts of morality to the emergent modern business sector, and he embedded these ideas in the hundreds of companies he started, as well as in numerous business associations.36
Shibusawa’s views changed over time, not least because he was an international traveler who was well aware of, and interacted with, discourses beyond Japan. In 1907, for example, he publically criticized John D. Rockefeller for holding on to his wealth instead of returning it to society. Yet his views had a consistent basis that realizing public good and accumulating private wealth were not contradictory. Shibusawa’s justification for business responsibility was secular, unlike almost all of his Western contemporaries, and reflected Confucian philosophy. It might be seen, as a result, as a precursor to the present day, in which the case for business responsibility is typically framed in secular terms, even if individuals hold strong religious views themselves.
China lagged behind Japan’s modernization, but the new business leaders who began to develop manufacturing and other businesses in the late nineteenth century sometimes pursued wider social and cultural roles, especially in their local cities and regions. The influence of Confucian traditions was again significant. The case of Zhang Jian, who in the late nineteenth century founded the Dasheng Cotton Mill in Nantong, provides an important example. Zhang, who has been described “as one of the best known Confucians of his day,”37 invested extensively in local educational, welfare and cultural facilities in an extensive program aimed at modernizing a formerly backward area. He was well aware that these activities increased his social status and influence. He carefully handled his favorable image in local newspapers, while reducing his actual financial commitments by charging for the schools and libraries he founded and often handing over facilities his family founded to the local government.38
In nineteenth-century British India, it was not Confucianism but religious traditions which often shaped the views of business leaders about responsibility to society. In the middle of the century, a locally owned modern cotton textile industry emerged in Mumbai (then known as Bombay). The owners were from the small Parsi community, who followed Zoroastrian beliefs about the importance of doing good works in the material world.39 The most prominent Parsee business leaders were the Tata family, with whom Shibusawa had a close business relationship due to cotton trading.40 “In a free enterprise,” Jamsetji Tata, the group’s founder noted, “the community is not just another stake holder in the business but in fact the very purpose of its existence.”41 The Tata family developed a distinctive corporate culture characterized by the concept of service to the wider community and high ethical standards. The long-term commitment to wider social responsibility was equally strong in the Godrej family, also Parsee, whose business group was founded by Ardeshir Godrej in 1897.42
However, more radical views of business responsibility also emerged that were associated with the noted independence campaigner and supporter of passive resistance, Mohandas Gandhi. Gandhi’s economic views are most closely associated with the concept of rural self-sufficiency and opposition to modern industrialization. However, he also developed a trustee model of capitalism and ethical capitalism. In a speech to textile industrialists in 1928, Gandhi told them to hold all their “riches as a trust to be used solely in the interests of those who sweat for you.”43 Gandhi argued that the combination of self-interest and benevolence would lead to sustained economic development, which would integrate successful entrepreneurs into nation-building and the relief of poverty.44 The sources of Gandhi’s ideas of trusteeship were highly eclectic. He was influenced by aspects of Jain and Hindu traditional philosophies and practices, and also by Western thinkers such as John Ruskin and Henry David Thoreau. As with Shibusawa, there was also a secular component; Gandhi, a trained lawyer, transferred legal concepts of trusteeship from the law.45
Gandhi worked closely with a number of Marwari business leaders, who had developed the most influential business community by the interwar years. These included G.D. Birla and Jamnalal Bajaj.46 Bajaj, a manufacturer who supported Gandhi’s independence struggle against colonial rule, affirmed a trustee model of capitalism, emphasizing the responsibilities of firms to all stakeholders as well as the adoption of the highest ethical standards. Bajaj and his family pursued an ambitious social agenda focused on addressing the needs of the disenfranchised in society, especially the Untouchables (the lowest in India’s caste system) and women, as well as rural development and environmental sustainability.47
Like the Quaker families Cadbury and Rowntree, who strictly avoided businesses related to war out of their pacifist convictions, Bajaj insisted that it mattered how businesses made profits as well as how funds were used. During the 1930s, he refused to follow his peers in diversifying beyond sugar refining into the lucrative business of alcoholic drinks because Gandhi forbade consumption of alcohol. Bajaj’s belief that the use of handmade cloth was essential to solve the poverty of the Indian countryside and to provide employment opportunities for rural women to facilitate their emancipation also led him to avoid textile manufacturing.48 Bajaj was, it should be stressed, hardly typical. A recent study has observed that while many Indian business leaders of the time donated to schools and temples, the fact that they also engaged in extensive corruption suggests that their motives were primarily “to appease the gods they believed in” rather than demonstrate a commitment to trustee or stakeholder capitalism.49
In the Islamic world in Asia and elsewhere, strong beliefs about the importance of charity were manifested in a unique legal institution known as waqf. These institutions were founded throughout the Islamic world, represented by buildings and mosques, and services in hospital and medicine; more recently they have been associated with the growth of Islamic financial instruments.50 Traditional Islamic practices also inspired the creation of businesses. To give an early example from India, in 1906 Hakeem Hafiz Abdul Majeed established Harmdard clinic in Delhi to provide wide access to unani medicines. It developed into a significant pharmaceutical business manufacturing natural and herb-based products. The venture became a waqf in 1948, and successor firms remain active today in India, Bangladesh and Pakistan.51
There was no equivalent to Shibusawa or Bajaj among the business elites in Latin America, where substantial economic growth, especially in the southern cone of the subcontinent, occurred from the late nineteenth century. However, business leaders were influenced by the Roman Catholic Church and especially the Social Catholic Doctrine, dated from Pope Leo XIII’s 1891 encyclical letter, Rerum novarum, which condemned both capitalism and socialism. An example is provided by what became one of the largest Colombian business groups, Fundación Social (FS). Originally a savings fund for workers founded by a Spanish Jesuit immigrant priest in 1911, the FS was firstly launched as a foundation. It then started successive businesses to make profits, which were channeled to social action programs in education and provided credit for low-income housing and community development in poor, conflict-torn communities. The FS financial companies pioneered low-income credit practices from the 1910s.52
Elsewhere in Latin America, businesses often engaged in giving discrete donations to churches, sports teams, schools and other causes, while family foundations provided further sources of financial support.53 A study of the growth of philanthropy in Venezuela and Mexico points to the importance of families who built large business groups, such as Mendoza in the former and Zambrano in the latter, and the influence of the American business philanthropy role model.54
It was thus in Asia, and to some extent in Latin America, that the most radical concepts of business responsibility developed in the late nineteenth century and first half of the twentieth century. Both Shibusawa and Gandhi moved far beyond ideas of philanthropy and paternalism toward concepts of stakeholder capitalism, in which high ethical standards were seen as an integral component. They can be seen as pioneers of a belief that capitalism should be sustainable, and that pursuing public gain was, and should be, compatible with the pursuit of private gain. Various religious beliefs, from Zoroastrian and Jainism to Roman Catholicism, and secular philosophies such as Confucianism, were important, if not exclusive, motivating factors.
V STAKEHOLDER CAPITALISM IN THE POSTWAR DECADES
World War II saw a sharp improvement in the reputation of big business in the United States, which was hailed as playing an essential role in the Allied victory. The corporations themselves invested heavily in reinforcing this improved public image.55 Berle, among others, hailed US corporations as accepting that they had a wide range of social and other responsibilities.56 The new dean of the Harvard Business School, Donald K. David, insisted that business needed to expand its wider role in American society. In 1946 he called for firms to move beyond serving shareholders to acknowledge the “public responsibilities of enterprise.”57 Three years later, in a landmark article in Harvard Business Review, he insisted that American business had a responsibility to show it was a superior system to Russian-style socialism. This meant avoiding a narrow focus on profits and, among other things, treating employees fairly, combating racial discrimination and assisting in the development of poorer countries.58
There remained a significant religious dimension to discourses on business responsibility. In 1953 the National Council of Churches, an interfaith organization, funded a book by Howard Bowen entitled Social Responsibilities of the Businessman. Bowen identified the multiple stakeholders in a business, and argued that managers needed to serve all of them. Firms made “commercial goods and services,” Bowen argued, but they also impacted the conditions in which such goods were made – including in providing employment and in marketing and advertising practices – and managers also had responsibility for these “social products.”59
During the same era, large American businesses ramped up their corporate philanthropy. These were prosperous and confident years for large American corporations, which dominated innovation and led the world in high-tech industries. During the 1950s, General Electric invested heavily in social programs in local communities and in education, and was encouraged by new laws that made corporate giving to charities tax-deductible. A new generation of firms established foundations, and firms in particular invested directly in higher education. Alfred Sloan (president of General Motors) and other business leaders who sat on the Council on Financial Aid encouraged firms to give to universities.60 During the 1960s, some American firms increased their corporate philanthropy further. The Minneapolis-based Dayton Hudson department store chain became noteworthy for giving away 5 percent of its pretax profits to philanthropy.61
The most radical exponent of the responsibility of corporations was the computer mainframe company Control Data Corporation and its founder, William C. Norris. The firm was founded in 1957 in Minneapolis and grew very rapidly, entering the Fortune 500 in 1965. Norris saw the responsibility of business as extending far beyond charitable giving, and made the case for businesses to identify social problems and to address them as opportunities. The company proactively sought to provide employment for people with physical disabilities and childcare for women employees, and it built factories in deprived inner city areas.62
The ambitious thoughts of Norris and other business leaders on business responsibility were not without critics. In 1958 the Harvard Business Review published an article by Theodore Levitt, a marketing consultant who would later join the Harvard Business School faculty; he become the Review’s editor from 1985 to 1989. The article was entitled “The Dangers of Social Responsibility,” and in it Levitt asserted flatly that companies were not designed to address social issues and were not equipped in such tasks.63 In 1970 the economist Milton Friedman published his now-classic article in New York Times Magazine, in which he stated, “The social responsibility of business is to increase profits.”64 The new liberal era had not yet dawned, but the intellectual case was being made.
It is not so easy to track the development of concepts of responsibility in European businesses during the postwar decade. European firms initially had to reconstruct their business rather than debate wider responsibilities, and European business leaders were more discreet than their American counterparts in discussing their strategies. Many of the foundations founded in Germany and elsewhere during the postwar decade were more concerned with retaining family ownership than with philanthropic activity.65 Europe lacked institutions such as the Harvard Business School, which could articulate theories of responsibility. Furthermore, European governments took responsibility for welfare and other issues in ways that the US government did not, reducing the perceived need for corporations to be involved in society. In Britain, France and elsewhere, large segments of the economy had also been nationalized.
Nevertheless, it is evident that a broadening view of the responsibility of large corporations was underway during the postwar decades. In the Netherlands, the executives of large corporations, including Philips, Shell and Unilever, articulated views on the wider responsibilities of companies. Unlike in the United States, there was limited interest in corporate philanthropy; instead, there was widespread support for concepts of trusteeship and the belief that firms had multiple stakeholders.66 The consumer products company Unilever was at the forefront of such trends. Paul Rijkens, the Dutch chairman of Unilever during the immediate postwar decade, was a strong advocate of the social responsibility of corporations. He insisted that Unilever had responsibilities not only to shareholders but also to employees, consumers and the environment.67
Rijkens recruited like-minded figures to Unilever, including Pieter Kuin, who became a director in 1961. Kuin, an economist and active Catholic, published a series of important studies concerning the responsibilities of business.68 In 1966 he told an international management conference in Rotterdam, “Management should never take up the cause of the rich against the poor, the privileged against the masses, the private against the public good.”69
It would however be a mistake to suggest that Unilever became a consistent exponent of social responsibility. Rijkens’s successors were less passionate about the subject, yet the corporate culture continued to insist that, in the words of an article in the house journal published in 1959, it was a “powerful force for good in the world.”70 During the 1960s, the firm’s large Indian affiliate, Hindustan Lever, began a program of rural development that over time emerged as a textbook case of how a large Western multinational could use business to promote development. Seeking more reliable milk supplies, Unilever provided small farmers with guidance and knowledge of animal husbandry, and intervened with banks to get the farmers loans without corrupt payments.71
During the postwar decades, then, a belief in the importance of business responsibility was widespread in both the United States and Western Europe. It was an era when large corporations held stable positions in oligopolistic industries. Managers needed to pay limited attention to rates of return to investors, and were more inclined to see their businesses as serving multiple stakeholders. Confidence in what capitalism could achieve after victory over fascism in World War II, and a desire to assert the superiority of the West during the Cold War, encouraged an expansive view of capitalism’s responsibilities.
VI BUSINESS RESPONSIBILITY AND QUARTERLY CAPITALISM
The decades since the 1980s have been ones with considerable paradoxes: (1) the pursuit of the wider corporate roles in society fell away in Western economies as investors acquired shorter time horizons, (2) finance theory followed Michael Jensen’s strictures on agency costs and (3) globalization weakened the connection between firms and communities. Sometimes dubbed the Anglo-Saxon model of capitalism, so-called shareholder capitalism diffused elsewhere, including Continental Europe and Japan, along with globalized capital markets.
This trend did not stop firms from talking about business responsibility; instead, it became institutionalized as CSR, which grew as a virtual industry in itself. Mainstream corporations pursued CSR programs for multiple reasons, including enhancing their reputations, building their legitimacy and even gaining competitive advantages.72 There was an extensive, if deeply under-researched, implementation of CSR by local companies in emerging markets such as Mexico.73 Everywhere the relationship between rhetoric and reality was almost impossible to disentangle. There appeared to be a spectrum of strategies, with a small minority of corporations actively implementing broad concepts of corporate responsibility, a majority aiming to conform to regulatory and societal requirements and expectations, and some employing rhetoric cynically as a pure public relations device. The concept of CSR remained ill-defined and evidently interpreted in different ways among countries, even in a single region like Europe.74
The first decades of the twenty-first century saw an intensifying loss of the legitimacy of capitalism. As in the opening decades of the twentieth century, this reflected the perceived unfairness of wealth and income inequality, as well a series of scandals and shocks. The United States passed through a decade of corporate wrongdoing, including the Enron accounting fraud, the Madoff investment scandal and the Galleon Group hedge fund scandal. It was hard to find a country outside of the United States in which some major corporate misdeed was not revealed.75 Low points of corporate behavior included the News Corporation phone-hacking scandal in Britain, the Satyam Computer Services fraud in India, and an ever-increasing list of once blue-chip manufacturing companies in Japan, including Olympus, Mitsubishi Materials, Nissan Motor, Takata, Toray, Toshiba and Kobe Steel, which were revealed to have engaged in accounting and standards fraud. Meanwhile, and at a system-wide level, the 2008 global financial crisis, which caused widespread economic and social dislocation in many parts of the world, was widely (and correctly) perceived to have been caused by systemic failures in the global financial system, including a willful lack of business responsibility in matters such as subprime lending and derivatives trading.
As in the earlier era, there was a new wave of business philanthropy, especially in the United States. This was largely funded by the huge fortunes made in financial services and, especially, high-tech industries. The Bill and Melinda Gates Foundation, created in 1995 by the founder of Microsoft, was symbolic of the new era of mega-foundations.76 Business philanthropy spread beyond the United States, especially in emerging markets. In 2006 Mo Ibrahim, a pioneering African cell phone entrepreneur, established a foundation targeted at improving leadership and governance in Africa. There was a sudden emergence of business philanthropy in China after the Sichuan earthquake in 2008, in response to Internet activism and criticism of excessive wealth.77
There was also new re-evaluations of the responsibility of capitalism by management thinkers and others. The Harvard Business School Strategy professor Michael Porter developed the concept of “shared value.” In a coauthored article with Mark Kramer, published in 2011, the authors argued that capitalism was “under siege” and being blamed for being “a major cause of social, environmental, and economic problems.” In response, they called for a reinvention of capitalism. The starting point of their analysis was the view that not all profits should be regarded as equal. Instead, they argued that profits that serve social purposes should be seen as more important than other types of profits. An underlying assumption of this model was that conventional CSR was not sufficient; indeed, it was more of a problem than a solution for firms. Porter and Kramer argued instead that firms needed to get beyond the view that social issues are at the periphery of a business and instead see them at its core.78 The shared value concept echoed Shibusawa’s view that business activities that increase the public good are the most important virtue, and that profitability and societal responsibility were fully compatible. Empirical studies found it hard to demonstrate a positive correlation between corporate profitability and CSR, at least in the United States.79
There were also many criticisms of constraints faced by public companies which needed to report their earnings quarterly. In 2011 Dominic Barton, the global managing director of the management consulting firm McKinsey, fearing a rupture “in the social contract between the capitalist system and the citizenry,” called for the need to rebuild capitalism around a longer-term vision and the replacement of what he termed quarterly capitalism. A longer-term capitalism, Barton suggested, would remove tensions “between creating value and serving the interests of employees, suppliers, customers, creditors, communities, and the environment.”80 It remained unclear, however, how such a longer-term capitalism could be achieved given the demands of global capital markets. In the United States there was a growing use of private capital markets, including venture capital, private equity and debt financing, but this was more related to securing greater freedom for risk-taking while retaining control, rather than the pursuit of wider stakeholder strategies.
There are some striking continuities between the present day and earlier historical periods with respect to beliefs about business responsibility to society. From nineteenth-century figures such as George Cadbury and Shibusawa Eiichi, through interwar Harvard Business School deans and Mohandas Gandhi, to Michael Porter and Dominic Barton today, a minority of business leaders and thinkers have argued both that business had broader responsibilities to society than making profits for owners, and that the pursuit of this responsibility need not involve a large trade-off with profitability. The motivation behind such beliefs has varied widely, but has often been underwritten by a belief that capitalism must be deemed legitimate if it was to be allowed to operate. Strikingly, these views have never achieved mainstream status.
VII VARIETIES OF GREEN BUSINESS
The remaining chapters of this book will address the specific topic of business responsibility for the natural environment. Concerns about the impact of modern business and industrialization on the natural environment began early in the nineteenth century.81 The response was a conservationist movement that had become institutionalized by the second half of the century. The world’s first national park, Yellowstone National Park, was created in the United States in 1872. Environmentalist nongovernmental organizations (NGOs) followed, even earlier than the charitable foundations begun by Carnegie. In 1892 the Sierra Club was founded in San Francisco.82 In 1907 US President Teddy Roosevelt, an active conservationist, used his presidential address to assert that “the conservation of our natural resources and their proper use constitute the fundamental problem which underlies almost every other problem of our National life.” The approach taken by Roosevelt and organizations such as the US Forest Service were different to more romantic conservationists, in their optimism that modern technology could be harnessed to conserve the scarce resources of nature.83
Many of the individuals discussed in this chapter included ecological components in their arguments and actions. George Cadbury’s garden village in Bournville included plentiful green spaces and gardens, and was designed as a self-sufficient sustainable community. Gandhi’s views on rural self-sufficiency and critiques of overconsumption can be interpreted in ecological terms.84 In his book Social Responsibilities of the Businessman, Bowen wrote that it could “be argued that obviously wasteful use of natural resources is morally indefensible, and that businessmen should be continuously searching for more economical methods of using them and striving to find reproducible substitutes.”85 However, Bowen added that there were limits to what could “reasonably be expected of businessmen” and that the “interests of future generations probably must be handled largely through government policy.”86
The case studies in this book contribute to a growing scholarly literature on business, the environment, and green and sustainable entrepreneurship.87 Although generally believed to be a recent phenomenon, current historical research has demonstrated that the first entrepreneurs concerned with sustainability, broadly defined, appeared in the nineteenth century. By 1980 the basic concepts of organic food, recycling waste, renewable energy, ecological architecture, green banking and other sustainable industries had been put in place, although none of these categories were very large. From the 1980s onward, there was significant growth. Solar and wind energy grew enormously in scale, as did recycling, the consumption of organic food and many other green industries. Books with titles such as The Green Capitalists and The Ecology of Commerce made the intellectual case that sustainability and profitability were compatible.88 Like CSR, sustainability reports proliferated in big business.89
The greening of business in recent decades took place in the context of the mounting scientific evidence concerning the scale of human-driven climate change and other signs of environmental stress. As scientists described the new Anthropocene age, when the Earth’s geology was for the first time fundamentally altered by human activities, governments introduced more wide-ranging environmental policies.90 The number of national climate change laws and policies worldwide increased from around 60 in 1997 to 1,200 in 2017.91 However, neither the increased number of laws nor corporate commitments to sustainability have stopped the continued deterioration of the natural environment.
As with the general concept of business responsibility, the history of green business as a whole has been neither linear nor evenly spread. Green businesses have appeared and evolved at different times, in different industries and in different countries. The following chapters provide rich new empirical evidence on the variety of green businesses. The limited existing literature on green business often explores positive cases. In contrast, the following chapters examine many situations in which progress was slow or reversed, and apparent success contained problematic outcomes. The settings deliberately varied in time, industry and place.
Chapter 2 is focused on the management of waste, which can be regarded as the first great environmental challenge. In preindustrial societies, the amount of waste – certainly in the rural areas in which most populations lived – was limited. The growing urban populations of industrialized countries in the nineteenth century began generating far more waste and recycled much less of it. This reflected the fact that rising incomes permitted people to waste more food and materials than in the past. Also, new materials such as glass and metal packaging were not biodegradable. The chapter explores the emergence of entrepreneurial firms in Germany and central Europe that sought to create profitable businesses out of conserving and returning waste resources to productive use, while maintaining public sanitation and in some cases offering nascent environmental protections. It draws on archives and secondary literature largely unfamiliar to English-speaking audiences. A number of these pioneering firms had strikingly modern views of ecological challenges and the need to overcome them.
Chapter 3 is concerned with solar energy in the formative period from the late nineteenth century to 1990. Modern industrialization rested on the use of coal and other fossil fuels. There was no understanding of the impact of fossil fuels on climate change until the late twentieth century, but there were concerns about their finite nature and about the sustainability of communities without access to coal. This chapter discusses early attempts to develop solar energy from parabolic troughs, the use of passive solar in architecture and the early growth of the modern photovoltaic industry after World War II.
Chapter 4 turns to finance. Shibusawa Eiichi, discussed earlier in this chapter, was an early exponent of the importance of functioning financial markets for capitalism to be productive. However, for most of the era of modern capitalism, banks and capital markets have been the problem rather than the salvation for green industries. Typically, the pursuit of sustainability has been riskier and less profitable than conventional businesses, making it unattractive for banks and capital markets to support. Beginning in the 1970s, and accelerating after 1980, a number of social banks were established. Chapter 4 examines why and how these banks were founded, and explores their impact. It then compares and contrasts the emergence of the much larger microfinance industry, primarily in emerging markets.
Chapter 5 is concerned with organic food. The impact on both human health and the health of the soil were two of the earliest environmental concerns in the nineteenth century. During the first half of the twentieth century, the principles of organic farming were developed. However, it proved challenging to persuade farmers to grow organic food and to encourage consumers to pay more for it. This chapter examines why, starting in the 1970s, organic agriculture and food consumption developed more in some countries than in others. The focus is on the limited growth of the New Zealand organic food sector in contrast with Denmark: they are similar countries in size and share significant export agribusiness sectors, but Denmark’s organic food sector became significantly larger.
Chapter 6 examines why the organic wine industry has remained so small compared to the organic food industry. Even though the first organic wine ventures started in the 1970s in Germany and the United States, the organic wine industry developed slower than its organic counterparts in food and beverages, especially tea. Again, within this context, large variations in the growing and consumption of certified organic wine became apparent.
Chapter 7 looks at the growth of ecotourism in Costa Rica. Unlike the previous two chapters, this is a story of success, at least in terms of the size of the sector. This chapter explores why Costa Rica became one of the world’s leading ecotourism destinations. It suggests that although Costa Rica benefits from biodiversity and a pleasant climate, the country’s preeminence in ecotourism needs to be explained by more than its natural environment. While the government and NGOs have been important actors, this chapter draws particular attention to the critical role of small entrepreneurs, many of them expatriates.
Finally, Chapter 8 examines the impact of entrepreneurs who have offered alternative paths to reach their shared goal of a more sustainable world. Yvon Chouinard and Doug Tompkins were, respectively, founders of the prominent outdoor apparel brands Patagonia and The North Face in the United States. Chouinard pursued incremental sustainability strategies over decades at his firm. Tompkins, who went on to manage the fashion company Esprit, opted in 1989 to exit business entirely, having concluded that capitalism could never be sufficiently sustainable to significantly reverse environmental degradation. He and his wife, Kristine McDivitt Tompkins, who had been a highly successful CEO of Patagonia, purchased 1.5 million hectares of land in Chile and Argentina that they converted to protected areas and national parks.
The belief that business has a responsibility for society and the natural environment in which it operates has a long history. It is striking how contemporary some of the views of Carnegie, Shibusawa, Gandhi and Donham sound. They were not prophets crying in a wilderness, but neither were they representative of general practice. During the late twentieth century, and especially after 2000, the rhetoric of corporate responsibility and sustainability became globalized. By 2018 there is hardly a large corporation anywhere in the world claiming in its published annual report that its primary purpose was solely to maximize the wealth of its shareholders. The reality, however, is often quite different. Plenty of negative social and environmental externalities from business remain, as do overall wide variations in what “corporate responsibility” means, the relationship between rhetoric and practice, and corporate motivations. This book shows both the potential for capitalism to make the world more sustainable, and the enormous challenges it continues to face in doing so.
* This chapter appeared in an earlier version as Jones, Geoffrey, “Debating the Responsibility of Capitalism in Historical and Global Perspective,” Harvard Business School Working Paper 14-004 (July 8, 2013). A later version was published as Jones, Geoffrey (2017), “Gapponshugi in Global Perspective: Debating the Responsibility of Capitalism,” in Patrick Fridenson and Takeo Kikkawa (eds.) Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective, Toronto: University of Toronto Press, 144–69.
1 Carroll et al., Corporate.
2 Moon, Corporate, 3–5.
3 Weber, Protestant.
4 Quoted in Young, “Christianity,” 43.
5 Werhane, Adam Smith.
6 Avi-Yonah, “Cyclical.”
7 Gospel, Markets, 27–8.
8 Brandes, American.
9 Jeremy, “Enlightened.”
10 Gardiner, Life, 120.
11 Fitzgerald, Rowntree, 217–76.
12 Dellheim, “Creation,” 13–44.
13 Green, Company.
14 Piketty, Capital.
15 Cited in Carroll et al., Corporate, 81.
16 Zunz, Philanthropy, 1.
17 Carroll et al., Corporate, 85–7; Zunz, Philanthropy, 23.
18 Zunz, Philanthropy, 22.
19 Ibid., 296.
20 Harvey et al., “Andrew Carnegie.”
21 Khurana, Higher.
22 Carroll et al., Corporate, 132–4.
23 Donham, “Social.”
24 Donham, “Failure,” 423; Carroll et al., Corporate, 179.
25 Carroll et al., Corporate, 169–71; Berle and Means, Modern.
26 Muirhead, Corporate; Hopkins, History.
27 Jeremy, Ethics, 365–6.
28 Wilson and Thomson, Making, 180.
29 Sheldon, Philosophy, Chapter 3.
30 Jones and Brown, “Thomas J. Watson.”
31 Austin, Dávila and Jones, “Alternative.”
32 Here and elsewhere Japanese names are shown in Western form, with first name first and surname last. Iwasaki and Shibusawa are the family surnames.
33 Wray, Mitsubishi.
34 Kimura, “Shibusawa,” 124.
35 Ibid., 122–3.
36 Kikkawa, “Introduction,” 6–8; Tanaka, “Harmony.”
37 Juntao, “Confucian,” 76.
38 Köll, Cotton Mill, 230–47.
39 Dobbin, Asian, 97.
40 Desai, “Origins,” 307–18; Tripathi, Oxford.
41 TATA Corporate Social Responsibility – A Century of Trust (2010), accessed January 5, 2018 at https://www.slideshare.net/Odishadevelopment/tata-corporate-social-responsibility-a-century-of-trust.
42 Kananjia, Godrej.
43 Balakrishnan et al., “Multi-level,” 137.
44 Ibid., 135–50.
45 Ibid., 137 n6.
46 Tripathi, Oxford, 260.
47 Nanda, Gandhi’s Footsteps.
48 Jones, Kothandaraman, and Herman, “Jamnalal Bajaj.”
49 Tripathi and Jumani, Oxford, 223.
50 Brown, Islam.
52 Dávila et al., Business Goals.
53 Durand, “Business.”
54 Puig, “Origins.”
55 Marchand, Creating.
56 Berle, Twentieth Century; Carroll et al., Corporate, 199.
57 Spector, “Business,” 318.
58 Ibid., 329; David, “Business”; Carroll et al., Corporate, 210–1.
59 Bowen, Social; Carroll et al., Corporate, 212–14.
60 Carroll et al., Corporate, 217–19; Heald, Social.
61 Carroll et al., Corporate, 246–8, 250–51.
62 Nicholas and Singleton, “Control Data”; Carroll et al., Corporate, 248–9.
63 Levitt, “Dangers.”
64 Friedman, “Social.”
65 Rey-Garcia and Puig, “Globalization.”
66 Sluyterman, “Corporate.”
67 Jones, Renewing, 247–8.
68 Kuin, Management.
69 Sluyterman, “Corporate,” 328.
70 Jones, Renewing, 249.
71 Ibid., 173, 175.
72 Carroll et al., Corporate, Chapter 10; Carroll, “History.”
73 Muller and Kok, “CSR.”
74 Habisch et al., Corporate.
75 Balleisen, Fraud, Part V.
76 Zunz, Philanthropy, 284.
77 Luo et al.,“Mobilization.”
78 Porter and Kramer, “Creating.”
79 Margolis and Walsh, “Misery.”
80 Barton, “Capitalism.”
81 Guha, Environmentalism, 4.
82 Ibid., 49–54.
83 Kirk, Counterculture, 19.
84 Guha, “Mahatma.”
85 Bowen, Social, 227.
87 Bansal and Hoffman, Oxford Handbook; Schaper, Ecopreneurs.
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