Corporate Legitimacy and Social Responsibility : The Role of Law

References to the “large, contemporary corporation” in this paper are limited to the types and sizes of business institutions encompassed by Fortune's annual listing of the “500” largest.

See Jaffe Louis L. , “Law Making by Private Groups,” Harvard Law Review, LI (1937), 201.

See Friedman Wolfgang G. , “Corporate Power, Government by Private Groups, and the Law,” Columbia Law Review, LVII (1957), 155.

Brewster Kingman Jr. , “The Corporation and Economic Federalism,” in The Corporation in Modern Society, Mason Edward , ed. (Cambridge: Harvard Univ. Press, 1959), p. 72.

Miller Arthur S. , “Private Governments and the Constitution,” in The Corporation Take-Over, Hacker Andrew , ed. (New York: Harper and Row, 1964), p. 117.

Berle Adolf A. Means Gardiner , The Modern Corporation and Private Property (New York: Macmillan Co., 1932).

Drucker Peter F. , The Concept of the Corporation (Boston: Beacon Press, 1946).

See Berle Adolf A. , The 20th Century Capitalist Revolution (New York: Harcourt, Brace & World, 1954).

Eells Richard Walton Clarence , Conceptual Foundations of Business (Homewood, Ill.: Richard D. Irwin, 1961) p. 168.

Galbraith John Kenneth , The New Industrial State (Boston: Houghton Mifflin, 1967).

Hacker Andrew , “Introduction: Corporate America,” The Corporation Take-Over, p. 7.

Dewey John , The Public and its Problems (New York: Holt, 1927), pp. 12–28.

See Bowen Howard , Social Responsibilities of the Businessman (New York: Harper, 1953); Eells Walton , Conceptual Foundations, pp. 455–476; Levitt Theodore , “The Dangers of Social Responsibility,” Harvard Business Review, XXXVI (1958), 41; Henderson Hazel , “Should Business Tackle Society's Problems,” Harvard Business Review, XLVI (1968), 4; Rostow Eugene V. , “To Whom and For What Ends is Corporate Management Responsible?” in The Corporation in Modern Society, p. 46; and Walton Clarence , Corporate Social Responsibilities (Belmont, Calif.: Wadsworth Publishing Co., 1967).

There have been, however, some modest attempts to view the subject in terms of traditional economic and legal analysis. See Johnson Harold L. , “Socially Responsible Firms: An Empty Box or a Universal Set?” Journal of Business, XXXIX (1966), 394; Kreps Theodore , “Measurement of the Social Performance of Business,” Annals of the American Academy of Political and Social Science, XX (1962); and Ruder David S. , “Public Obligations of Private Corporations,” University of Pennsylvania Law Review, CXIV (1965), 209.

Eells Richard , The Meaning of Modern Business (New York: Columbia Univ. Press, 1960).

New York Times, May 18, 1967, p. 1:6.

As this was being written, the steel industry had just concluded a new wage pact with the Steelworkers Union and had announced a price rise. According to contemporary press accounts, they argued in the wage negotiations that they had a “social” duty not to reach an “inflationary” agreement. After the price increases were announced, the Johnson administration argued that the companies had failed to perceive such a role in pricing policy.

Galbraith John Kenneth , American Capitalism (Boston: Houghton Mifflin, 1952).

Latham Earl , “The Body Politic of the Corporation,” in The Corporation in Modern Society, p. 218.

Galbraith , The New Industrial State, chap. 15.

Lipset Seymour , Political Man (Garden City, N.Y.: Doubleday, 1960), pp. 64–70.

Ibid. p. 70.

Ibid., p. 64.

Galbraith claims that this is currently the case in American society, and he attempts to explain it in terms of a theory of motivation in The New Industrial State, pp. 128–165.

See Sternberger Dolf , “Legitimacy,” International Encyclopedia of the Social Sciences (New York: Macmillan Co., 1967) IX: 244–250; Runciman Walter G. , Social Science and Political Theory (Cambridge, England: Cambridge Univ. Press, 1965), pp. 56–63; and Dahl Robert A. , Modern Political Analysis (Englewood Cliffs, N.J.: Prentice-Hall, 1964), p. 19.

When I refer to “corporate” legitimacy, I mean both the corporate institution and its management.

Berle refers to this as a “kind of quasi-amateur democratic legitimacy”; see his “Economic Power and the Free Society,” in The Corporation Take-Over, p. 91.

These are the themes that Berle has documented so well throughout his career. See The Modern Corporation and Private Property, The 20th Century Capitalist Revolution , and Power Without Property (New York: Harcourt, Brace & World, 1959).

See Galbraith , The Affluent Society and The New Industrial State.

Mason , ed., The Corporation in Modern Society, pp. 5–7.

See Philipson Morris , ed., Automation: Implications for the Future (New York: Random House, 1962), esp. Goldberg Arthur J. , p. 3, Michael Donald , p. 78, Reuther Walter , p. 267, and Kassalow Everett , p. 316.

See “The Believability Gap on Campus,” Wall Street Journal, April 3, 1968, p. 34; also “Company Recruiters Try Harder, But Succeed Less as Collegians Stay Aloof,” Wall Street Journal, Jan. 10, 1968, p. 1.

It is possible, of course, to downgrade the crisis of legitimacy and argue that the rhetoric of social responsibility is mainly directed toward preserving managerial autonomy. Cf. Cheit Earl , “Why Managers Cultivate Social Responsibility,” California Management Review, VII:1 (1964), 3. Apart from having been rendered less sanguine than Cheit by recent signs of disintegration in our society, my main argument with his thesis lies in his failure to recognize legitimacy as a precondition to corporate autonomy.

See Johnson and Ruder, reference 14.

Thomas R. Reid (Ford Motor Company), “Company Social Responsibility—Too Much or Not Enough?” Conference Board Record, I:4 (April 1964), 7.

Ibid.

Gilbert W. Fitzhugh (Metropolitan Life Insurance Company), “Company Social Responsibility—Too Much or Not Enough?” in ibid., 13.

Berle , “Company Social Responsibility—Too Much or Not Enough?” in ibid., 11.

Hayek Friedrich A. , “The Corporation in a Democratic Society,” Management and Corporations, Anshen Melvin Bach George , eds. (New York: McGraw-Hill Book Co., 1960), p. 116.

Levitt , “The Dangers of Social Responsibility,” p. 41.

Harrington Michael , Toward a Democratic Left (New York: Macmillan Co., 1968).

Kaysen Carl , “The Corporation: How Much Power? What Scope?” The Corporation in Modern Society, p. 99.

Ibid.

Sternberger , “Legitimacy.”

Abram Chayes makes this point explicitly. See “The Modern Corporation and the Role of Law,” in The Corporation in Modern Society, pp. 31–32.

The legal analogy is so fruitful and the policy alternatives so necessary, that almost every observer of the contemporary corporation has proposed a substantial number of legal controls. Accordingly, it is almost impossible to attribute these proposals to given individuals. Rather, I would like to give general credit to a number of sources that have especially helped me clarify my own thinking on these matters. The voluminous writings of Berle and Miller are particularly perceptive as to the potential of the legal role. Michael Reagan has thoughtfully analyzed many viable policy alternatives in The Managed Economy (New York: Oxford Univ. Press, 1963). And, as the preceding citations make clear, I am particularly indebted to the insightful studies sponsored by the Fund for the Republic and gathered together in published form as The Corporation in Modern Society and The Corporation Take-Over.

See Bernstein Marver H. , Regulating Businesses by Independent Commission (Princeton, N.J.: Princeton Univ. Press, 1955); Hamilton Walton H. , The Politics of Industry (New York: Alfred A. Knof, 1957); Hector Louis , “Problems of the C.A.B. and the Independent Regulatory Commission,” Yale Law Journal, CXIX (May 1960), 931; and Huntington Samuel , “The Marasmus of the I.C.C.,” Yale Law Journal, CXI (April 1952), 467.

Riesman David , The Lonely Crowd (New Haven: Yale Univ. Press, 1950), chap. 10.

Galbraith , The New Industrial State, chap. 6.

But there is some important precedent to the contrary. See Marsh v. Alabama, 326 U.S. 501 (1946).

Shapiro Martin , Law and Politics in the Supreme Court (New York: Free Press, 1946), chap. 1.

Schlusberg , “Due Process: The Supreme Court Gets Turned On and Tuned In,” American Business Law Journal, VI:2 (1968), 501, 514–516.

Hacker , “Introduction: Corporate America,” The Corporation Take-Over, p. 13.

I have previously argued that the Supreme Court has begun to build a doctrinal base supporting this type of judicial intervention. See Schlusberg , “Due Process: The Supreme Court Gets Turned On and Tuned In.”