Criticisms of The Doctrine

Criticisms of The Doctrine

Criticisms of the Doctrine

Economists have severely criticized the doctrine of socially responsible management because of its incompatibility with the price system. In the price system, rational calculation is carried on by sellers in order to maximize profits and by buyers to maximize consumption satisfaction. The market in which buyers and sellers come together is the control mechanism. There is no need for a central agency for planning and coordinating economic activity. All that is required for a price system is some standard upon which businessmen can base calculations of profit possibilities. Each seller makes decisions about which type of good to produce, the quality of the good, and the price to charge. Since there are many sellers all competing for the custom of the same buyers, competition among them controls their actions. Those who produce the goods most in demand and at prices consumers are willing to pay receive the highest profits.

The business enterprise must pursue the single goal of profit for the price system to work at maximum efficiency. It is the competitive interaction among enterprises in the market which activates the control mechanism in the price system. If businessmen take into account other goals besides profit, the price system loses much of its control over them. They become autonomous and no longer have an objective guideline for rational calculation. This interferes with the corporation's primary social function as the economizing unit in democratic capitalism. It performs the essential social task of allocating scarce resources in such a way as to bring about the greatest total economic satisfaction of the members of society. to the extent that it takes responsibility for accomplishing other broad social goals, the economizing process is interfered with and total economic satisfaction is reduced. Therefore, economists argue that the company should specialize in the production of goods and services and leave other social functions to the family, church, school, and government.

The concept of the conscience of the company has been particularly unacceptable to economists. Ben W. Lewis said, Certainly, if those who direct our corporate concentrates are to be free from regulation either by competition or government, I can only hope that they will be conscientious, responsible, and kindly men.

But, I shall be uneasy and a little ashamed to be living my economic life within the limits set by the gracious bounty of the precious few. If we are to have rulers, let them be men of good will; but above all, let us join in choosing our rulers-and in ruling them.

Carl Kaysen questioned the wisdom of displacing the invisible hand of the competitive market by the increasingly visible hand of powerful corporate management. This is irresponsible power, answerable only to itself, he charged. No matter how conscientious management is in balancing the interests of economic groups affected by the corporation, "it is ultimately its own conception of these interests and their desirable relations that rules.

Much the same position has been taken by lawyers. Dean Rostow of the Yale Law School has said that a firmly stated and widely accepted rule that the social duty of managers is to serve the best interests of stockholders will offer a better guide to corporate practice than any of the current formulations of management's responsibility to society.8 Wilber G. Katz, of the University of Chicago Law School, has misgivings about the doctrine of social responsibility because reliance on it may pave the way for destroying or weakening the institutions on which the traditional responsibility for economic performance rests.9 The fundamental criticism of the doctrine from the legal point of view is the absence of control over managers. Cable believes that managers can be effectively controlled by "inchoate law," by which he means "rules of conduct whose disregard entails consequences almost as foreseeable as does violation of specific statutes such as the antitrust laws."10 But lawyers believe in the "rule of law" and they want something more tangible to limit the wide scope of managerial discretion.

Political scientists criticize the doctrine because of the free rein it gives management. They mistrust any check on power other than power itself. Earl Latham has pointed out that power does not check power automatically and without human hands. "If the ... power of the company is to be curbed and controlled, the checks will have to be built into the structure of 'corporate enterprise, and not just merely laid on from without, nor entrusted to the subjective bias of the hierarchs within."" In the same vein, Michael Reagan said that for us to "leave to the consciences of business managers the fate of all groups and interests touched by their decisions is to say that we will hand over to them power to affect all of our lives.

Theodore Levitt has criticized the doctrine on broad social grounds. He says, "The business of business is profits. ...In the end business has only two responsibilities-to obey the every-day face-to-face civility (honesty, good faith, and so on) and to seek material gain." He foresees the new orthodoxy leading to "a new feudalism," with the company investing itself "with all-embracing duties, obligations, and finally powers-ministering to the whole man and moulding him and society in the image of the corporation's narrow ambitions and its essentially unsocial needs "

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