Introduction

‘Ha, ha! What a fool Honesty is! and Trust, his sworn brother, a very simple gentleman!’ So says Autolycus in Shakespeare's The Winter's Tale. The devious peddler, named for a mythological trickster, has just taken advantage of some naive shepherds, and Shakespeare alerts us to the multiple and ironic meanings of trust. Derived from the Old Norse traust, trust has as its primary denotation confidence in a person, thing or attribute, with the related meaning of strong, as in a strong faith or bond. But placing faith in someone also brings risk, a risk of betrayal as trust is used to quietly advance selfinterest. Trust as misplaced faith seems to enter the language in Shakespeare's era, a time when the English economy ran on credit. In a credit economy, trust could be a sign of failure, as in this quotation from Dr Johnson: ‘my master lived on trust at an alehouse.’ Historians have a tendency to use trust only in its simplest and most gentlemanly or gentlewomanly form, meaning a wellplaced confidence in others. But those who know trust know that it is often not to be trusted.

The positive side of trust dominates discussions in the literature on social capital. A network of affective relationships, spatial connections, shared identities and common values, social capital is often seen as encouraging trust, and thereby lubricating the wheels of industry, commerce and finance. If humans were angels, they could always trust each other and so deal at arm's length. Since they are not, they need mechanisms to either monitor and discipline bad behaviour, or encourage and cement trust. Business organisation can provide these mechanisms but, following the argument of Ronald Coase, corporations, and formal organisation more broadly, signify the failure of the market and the need to internalise transactions. Firms are thus the bastard child of our own fallen natures. Social capital, on the other hand, puts us on the road to redemption. When present in sufficient quantity, it takes us back to decentralised economic relationships among individuals or small firms, working on the basis of trust.

While many neoclassical economists look to trust and social capital as ways to bring the market back in, and push the corporation and the state back out, many business historians see trust and social capital as the allies of small firms and a more democratic organisation of production.

The story of corporate social responsibility in the 1990s takes place on two fronts, at home and abroad, as US-based multinational corporations extended their businesses internationally. On the domestic front, social responsibility became more deeply institutionalized as companies continued to integrate social considerations and requirements into their strategies, policies, and operations. During this period, responsibility became further normalized, systematized, standardized, and assimilated into the everyday functioning of business enterprises.

At the same time, corporate social responsibility was exported abroad as global capitalism expanded rapidly during the decade. The challenge for corporate managers was to identify and respond to social issues abroad by applying both accepted and novel practices and policies that would meet the needs of host countries, which were increasingly interested in some of the same social issues that businesses were facing in the United States. With the increasingly global nature of business competition in the 1990s, reputational risk increased dramatically. The new global visibility, and vulnerability of companies’ international images and brand reputations, gave them a strong incentive to carefully plan responsibility and ethics initiatives around the world. Multinational companies became responsible, not only for their behavior on the ground in foreign countries, but also for verifying and ensuring responsible practices (fair labor practices, health and safety issues, and more) all along their supply chains located abroad. The questions to whom, for what and how to be socially responsible required new answers and took on new dimensions.

Theodore Roosevelt took the oath of office in a nation that was bitterly divided on the economy and big business. Although the Democratic-Populist challenge had failed, farm belt discontent was hardly over. Populists would run candidates for several more elections. Meanwhile, a growing socialist movement led by union organizer Eugene Debs was doing even better. Debs had run on a socialist ticket in 1900, receiving a scant 88,000 votes. His total grew in the next three presidential races, however, topping 900,000 votes in 1912, or 6 percent of the electorate. It wasn’t socialism or populism or any third-party challenge that changed the relationship of business to society. It was a new movement captained by mainstream figures such as Theodore Roosevelt. By the end of his first term in office, Roosevelt would define, at a national level, a new relationship between the state and private business. In this movement government would lead, and business would follow, though with numerous opportunities to cooperate across the public and private sectors.

In the decade after 1900, many of the existing ideas about the relationship between business and society were overturned. Defense of corporate autonomy through doctrines such as Social Darwinism and laissez-faire economics fell or were seriously pushed back in the wake of a social reform critique of corporate power. Although labor was still at the center of the social problems associated with industrialization, unions played only one part in this counteraction against corporate autonomy. Middle-class social workers, professionals such as lawyers, and a new breed of professional managers within big firms all were major contributors to the “progressive” corporation. Key political figures included Republican and Democratic presidents and congressmen, as well as a large number of state and local politicians who had a close-up view of the social costs of urban and industrial society. A new, more tamed, corporation with explicitly social goals emerged out of this era by 1920. The once clear lines between the public sector and the private sector blurred as it became harder to separate private decisions made by large-scale corporations from the public issues that those decisions affected. Businessmen, and indeed most Americans, did not choose to abandon markets, but came to see that a healthy market that was open and competitive, yet also promoted a good society, often needed government intervention to protect the public interest from being overwhelmed by private interests.

For two centuries, Americans have tried to reconcile two realities of modern capitalism. Corporations – capitalism's dominant organizational form – are very efficient mechanisms for producing wealth, meeting consumer needs, and building industries that employ millions. Yet corporations also often impose costly externalities on communities and the natural environment and cause unwanted transformational change. Government, citizens, and often business leaders themselves, have responded by insisting that corporations – individually and as a group – assume responsibility for more than their narrow economic results.

Corporate responsibility remains, however, a controversial concept. Should businesses have responsibility for providing society with health care, racial equality, support for education, arts and culture, while also minimizing climate change, promoting social optimism, participating in national politics, and effecting economic redistribution of wealth? Or should these “public goods” be the domain of government? Do corporations represent a progressive or regressive force in society? How has the debate over the appropriate degree of corporate responsibility evolved during different eras of American history, and how have corporations responded? The debate has grown broader and more complex as corporations have expanded their commercial influence, technological advances, and geographical reach. Where is it heading in the next few decades? When the revenues of our largest corporations exceed the gross domestic product of nations, and corporate profits set new records while vast segments of the population remain unemployed, people are prone to question the role, responsibility, and power of business.

By the mid-1970s, business executives began talking about “managing” corporate responsibility issues, not just “fighting fires.” Companies designed systems to address categories of significant issues (workplace discrimination, consumer protection, environmental protection) and developed methodologies for anticipating issues, formulating policy, and advocating corporate positions in the public square and the political arena. The idea that a corporation's responsibilities extended to various constituencies or stakeholders flourished, and many businesses and trade organizations embraced a multi-constituency model of business in society.

The social transformation of American business that began with the movements of the 1960s gained full force in the 1970s. New expectations meant new demands and the 1970s became a decade of deep change in American political and economic life. Advocacy groups felt empowered to press their claims. Business would be dramatically transformed. It became what one astute observer described as a “new reformation” that involved a “rewriting of the corporate social charter.”

This chapter sets the stage for the story of corporate responsibility by tracing some of the seminal ideas underpinning its development. At base are the recognition of the importance of human rights, the Industrial Revolution (the main engine for economic growth), the expansion of free enterprise, and the development and legitimacy of the modern corporation. These key ideas led to events that moved the nation from an agricultural and trade economy to a mature capitalistic enterprise in which corporate responsibility is an important element.

From the beginning of recorded history, human beings have been engaged in what the eighteenth-century political economist Adam Smith called the urge to “truck, barter and exchange.” Early on in various civilizations human beings owned, developed, and traded private property. But what distinguishes modern capitalism is not merely private ownership and trade. It is also the development of free markets for exchange, the capacity to organize labor efficiently for the production of goods and services, the ability to accumulate private capital, and the formation and legitimacy of corporations to do these things. Indeed, as Joyce Appleby writes, “capitalism has been described not merely as an economic system but more broadly as a cultural system rooted in economic practices that rotate around the imperative of private investors to turn a profit. Profit-seeking usually promotes production efficiencies [industrialization], like the division of labor, economies of scale, specialization, the expansion of the market for one's goods, and above all, innovation.”

The concept of corporate social responsibilty that had emerged from the turmoil of the 1960s, and became accepted as a cost of doing business in the 1970s – even as corporations faced serious economic challenges and greater public distrust – took on a new shape in the 1980s. During the decade, two paradigms of corporate responsibility – the stakeholder model and the classic ownership, or shareholder, model – clashed. Each provided very different answers to the questions of to whom, for what, and how to meet corporate reponsibility mandates. A strong backlash against government regulation and the election of Republican Ronald Reagan to the White House brought a political liberation of business from the regulatory and cost pressures of the social movements (civil rights, women's rights, environmentalism). By the end of the decade, the pressure to prioritize responsibilty to shareholders, over a broader set of stakeholders, had gained ground. Economic pressures, posed in part by global competitors and the threat of takeovers, had forced a new discipline on corporate social responsibility programs.

Business led the way in turning the conversation around to a different set of expectations of corporate behavior. Business leaders had come to understand that just as business activities must make social sense, social activities must make business sense. Corporate managers spoke of “strategic” philanthropy and social responsiveness. Companies offered a new rationale for public involvement: Charitable purposes could be advanced, alongside economic purposes, as with cause-related marketing. As one executive noted, “the key is to run corporate reponsibility like the rest of your business. The corporate responsibility plan must relate to the business plan.”