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Drucker on Corporate Social Responsibility

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03/02/2006

Oftentimes, Peter Drucker's philosophy on business ethics and corporate social responsibility has been misrepresented to attempt to support the modern, Ivy League-MBA version of the stakeholder theory. Drucker is most certainly not perfect, but always interesting. Indeed he placed emphasis on normative standards within business practice, introduced the role of the large institutional shareholder in the governance of today's publicly held businesses, and defined business people as converting consumer wants into "effective demand"-- though his definition of the "purpose of business" is clearly based on the suppositions of Say's Law. But he understood utility as used by the Austrians. He could be quite confused in regards to economics.

As pertains to some of his work on the social responsibility objectives of the corporation, Drucker notes that business must, before anything else, conform to the wishes of consumers in the marketplace. Thus, in his own words, Drucker mirrors Mises's thoughts of the sovereignty of the consumer in economic matters. Mises says, in Bureaucracy:

The capitalist system of production is an economic democracy in which every penny gives a right to vote. The consumers are the sovereign people. The capitalists, the entrepreneurs, and the farmers are the peoples mandatories.

...The real bosses, in the capitalist system of market economy, are the consumers.

In Frontiers of Management (1986), Drucker maintained:

the first responsibility of business is to make enough profit to cover the costs for the future. If this social responsibility is not met, no other social responsibility can be met....the proper social responsibility of business ...is to turn a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth.

Consequently, Drucker defends the concept of corporate social responsibility, but only as a planned wealth endeavor that is profitable for shareholders, and not on the basis of the distorted view of social responsibilty that revolves around the stakeholder concept. Says he:

That such objectives (social responsibility objectives) need to be built into the strategy of a business, rather than merely be statements of good intentions, needs to be stressed here. Those are objectives that are needed not because the manager has a responsibility to society. They are needed because the manager has a responsibility to the enterprise.

Drucker criticized the anti-sovereign business-stakeholder body politic as advocates of unlimited social responsibility. He applauded Ralph Nadar for pressing corporations to take responsibility for product safety and quality, and in fact considered such non-coercive actions (persuasion) to be entirely legitimate. On Nadar he added:

But Nadar demands above all, that big business assume responsibility in a multitude of areas beyond products and services.

...Management must resist responsibility for a social problem that would compromise or impair the performance capacity of its business. It must resist when demand goes beyond the institution's competence. It must resist when responsibility would, in fact, be illegitimate authority.

As to economics, Drucker was a mixed bag, and could be very discombobulated concerning his use of terminology and theory.

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