By Morrell Heald
ASSOCIATE PROFESSOR OF HISTORY
AT CASE INSTITUTE OF TECHNOLOGY
Management's Responsibility to Society:
The Growth of an Idea *
V Even in laissez-faire days there was a "corporate conscience," weU-
defined and with active, if limited, manifestations. Over the course of
years not only criticism but changing social forces and modifications of
the economic system itself exerted a broadening influence on the attitude
of American business toward its public responsibilities.
In recent years we Americans have been engaging in a nation-
wide "name-the-product" contest: the object, a new, presumably
more accurate and more attractive term to describe the nature and
performance of our economic system. The venture has, indeed, been
something more than a public relations gimmick, more even than
a tactical move on the ideological checkerboard of the cold war.
While government officials and popular journalists seem, at least
for the moment, to have settled upon the term "people's capitalism,"
social scientists have increasingly turned to the phrase "welfare
capitalism" as expressing most adequately the character of contem-
porary American economic life. We still have our critics and skep-
tics who argue that the leopard has not changed his spots, but there
is apparent a growing belief that the private enterprise system,
American style, is a far cry from the laissez-faire capitalism of fifty,
or even thirty, years ago.
A prominent aspect of the new capitalism, according to business-
men and nonbusinessmen alike, is the emergence of a "corporate
conscience," a recognition on the part of management of an obliga-
tion to the society it serves not only for maximum economic per-
formance but for humane and constructive social policies as well.
Much has been written about the contemporary manifestations of
this aspect of business thought; but relatively little attention, so far,
has been paid to its origins and the factors which have contributed
* This article was read as a paper at a meeting of the Humanistic-Social
Division of the American Society for Engineering Education at Cornell Univer-
sity on June 17, 1957.
376 MOBBELL HEALD
to its growth. It is with the history of this new approach on the
part of management to its social relations that this article is con-
cerned. Like many other social phenomena it appears, on closer
examination, to be not quite so new as the current upsurge of in-
terest and comment may suggest.
In a notable effort to explain what they saw, in 1951, as the
emergence of a humane and socially responsible economic system in
America, the editors of Fortune magazine described business prac-
tices at the turn of the century: ". . . American capitalism seemed
to be what Marx predicted it would be and what all the muckrakers
said it was — the inhuman offspring of greed and irresponsibility.
. . . It seemed to provide overwhelming proof of the theory that pri-
vate ownership could honor no obligation except the obligation to
pile up profits."1 Yet, a severe contemporary critic of American busi-
ness of that time, William J. Ghent, was less stringent in his condem-
nation. Ghent saw, in the large-scale combinations of the day, an
economic feudalism comparable to that of the Middle Ages; but
he grudgingly admitted that it was at least a "Benevolent Feudal-
ism." He noted an increase in "conspicuous giving . . . always
shrewdly disposed with an eye to the allayment of pain and the
quieting of discontent." This took the form of contributions by
wealthy businessmen to hospitals, colleges, libraries, the construction
and maintenance of model industrial communities, and similar
philanthropies. Such gifts Ghent attributed to a number of causes.
Outstanding among them was a fear of the growing power of the
labor movement and a desire to forestall public criticism and regu-
lation of business in the age of Progressive reforms. Further, Ghent
saw, growing hand in hand with the power of the industrial mag-
nates, a greater self-consciousness of authority and responsibility. He
anticipated that this paternalistic, "seignorial" attitude would ulti-
mately be restrained by "a sense of the latent strength of democracy"
and "a growing sense of ethics." He conceded that, ". . . the prin-
ciple of the 'trusteeship of great wealth' has won a number of ad-
herents. . . . A duty to society has been apprehended, and these
are its first fruits. It is a duty, true enough, which is but dimly seen
and imperfectly fulfilled." 2
Most of the philanthropic activities upon which Ghent commented
were, of course, those of wealthy individuals rather than of business
1
The Editors of Fortune in collaboration with Russell W. Davenport, U.S.A.
The Permanent Revolution (New York, 1951), pp. 88, 67.
a
W . J. Ghent, Our Benevolent Feudalism (New York, 1902), pp. 9-47, 59-
64,182fF., passim.
MANAGEMENT'S RESPONSIBILITY 377
corporations as such. These men were following the precepts of
Andrew Carnegie, who for years had preached the gospel of the
trusteeship of wealth on behalf of the rest of the community. To
disarm the mounting criticism of great fortunes and aggregations of
economic power which accompanied industrial expansion, Carnegie
had proposed the devotion of surplus wealth to "the reconciliation
of the rich and the poor — a reign of harmony" among men of all
classes.3 Yet corporations, too, were undertaking the work. During
the 1880's and 1890's, the railroads had initiated a policy of financial
support for the activities of the Y.M.C.A. among their employees;
and this support was gradually broadened to include contributions
from other industries as well. Corporate donations to local chari-
ties of other types were few, but increasing in number, in the years
before the First World War.4 In many instances these activities and
those described by Ghent filled a real need and represented a
recognition on the part of employers of an obligation to, and a
stake in, the well-being of their workers. Sometimes they were un-
dertaken with even more ambitious objectives in view. The Colo-
rado Fuel and Iron Company, for instance, announced that it was
"the purpose of this corporation to solve the social problem."5
Worthy as these goals might be, their weakness lay in the fact
that both "the social problem" and its solution were often defined
from the standpoint of the employer without true recognition of
the needs and attitudes of others.
Of greater immediate value to the worker than these experiments
in "enlightened absolutism" was the increase in interest and atten-
tion on the part of management to safety and sanitary conditions in
its plants, to payments for accidents, retirement, and death. Such
policies were the direct result of labor, public, and political pres-
sures; but they at least implied an obligation on the part of man-
agement for the health and welfare of those most directly affected
by its operations.
In addition to programs limited in their scope to industrial work-
ers alone, there were a number of companies in the pre-World
War I years whose rapid growth, great size, or unique characteris-
tics created special problems of public relations and forced upon
their managements the need to obtain the approval of the general
'Andrew Carnegie, The Gospel of Wealth (Garden City, 1933 ed.), p. 11.
'Pierce Williams and Frederick E. Croxton, Corporation Contributions to
Organized Community Welfare Services (New York, 1930), pp. 50-53, 76-
79.
"Ghent, op. dt., p. 61.
378 MORRELL HEALD
public. One of these was the Bell System which, in combining a
nationwide network of telephone facilities, had assumed many of
the characteristics of a public utility. Recognizing the inevitability of
government supervision of its business, the Bell management under
the leadership of Theodore N. Vail publicly welcomed this regula-
tion. So effective was the effort to humanize the corporation in the
eyes of the public that Vail has been ranked as "one of the first
leaders of American industry to appreciate the problems of public
relations in a farsighted way and to find a basis for their long-term
adjustment." 6 The Bell management believed that regulation need
not and should not mean direct interference with corporate poli-
cies. Through steady emphasis on efficient and economical service
and through frequent reports to its shareholders, it strove to demon-
strate a conviction on the part of management that, "We feel our
obligation to the general public as strongly as to our investing pub-
he, or to our own personal interests."7 A similar policy of fuller
reports to stockholders was pursued by the United States Steel Com-
pany, whose chairman, Elbert H. Gary, apparently sensed the
quasi-public nature of an enterprise of such scope.8 The Standard
Oil management, too, began to modify its traditional position that
economic performance alone was the measure of its obligation to
society. Under steady attack, Rockefeller and his associates came
to recognize that this policy neither convinced nor satisfied the
public. Their efforts to win social approval through wider pub-
licity, like those of other managements, were undoubtedly directed
more toward public persuasion than toward self-examination. Never-
theless, a new sensitivity to community opinion had begun to take
form.9
George W. Perkins, an outspoken director of U. S. Steel and Inter-
national Harvester, held more advanced views. He argued in 1908
that "The larger the corporation becomes, the greater become its
responsibilities to the entire community." Economic concentration
meant for Perkins that "The corporations of the future must be
those that are semi-public servants, serving the public, with owner-
6
Norton E. Long, "Public Relations Policies of the Bell System," Public
Opinion Quarterly, Vol. I (Oct., 1937), pp. 6-19.
7
From the 1913 Annual Report, quoted in "Report of the Structure of the
Bell System and Some of its Fundamental Principals" (New York, 1922), p. 38.
8
Ida M. Tarbell, The Life of Elbert H. Gary: The Story of Steel (New York,
1925), pp. 138-144; Arundel Cotter, United States Steel, A Corporation with a
Soul (New York, 1922), pp. 7, 106, 178.
"Ralph W. and Muriel E. Hidy, Pioneering in Big Business, 1882-1911
(New York, 1955), pp. 209-218, 652-663.
MANAGEMENT'S BESPONSIBILITY 379
ship widespread among the public, and with labor so fairly and
equitably treated that it will look upon its corporation as its
friend. . . ." 1 0 He advocated profit-sharing, a national corporation
law and at least limited government supervision of large-scale en-
terprises. Perkins became a close friend and adviser of Theodore
Roosevelt and a leader of the conservative wing of the Progressive
Party in 1912.
Underlying the appearance of this tentative, but recognizable,
concept of social accountability in the Progressive period were two
major conditions. The first was the emergence of an economic
order based increasingly upon large-scale enterprise with interests
which affected an ever-widening circle of citizens. Secondly, popu-
lar reaction to this change and the resulting activities of state and
national governments led business leaders to see their ultimate de-
pendence upon a favorable social climate and the need for more
than economic performance alone in order to maintain that climate.
To these forces a third was added by the advent of the First
World War. Not only did the war call forth in extraordinary measure
a spirit of self-sacrifice and service to the nation, it also imposed
demands for massive social assistance programs. The care and
maintenance of an Army, the dislocation of thousands of industrial
workers, and the claims upon humanitarianism represented by the
plight of many thousands of Europeans created an unprecedented
need for organized welfare activities. Business contributions of
leadership and funds were substantial and a practice of corporate
giving for community welfare programs was firmly established. Even
after the enthusiasm and need of the war years relaxed, such sup-
port remained a policy of many, though far from all business firms.
Postwar conditions brought a decline but not an end to the accept-
ance of these new responsibilities.11
Once the attention of businessmen could be fully devoted to
peacetime problems again, it appeared that still further social and
economic changes pointed in the direction of new social relation-
ships for management. Among these were the wider distribution of
stock ownership and an accompanying increase of management's
independence from stockholder control. By the time Berle and
Means had produced their classic analysis of this evolution at the
end of the 1920's, many businessmen had recognized it and begun
to act upon it. Even more important was the acceptance and appli-
10
n
George W. Perkins, "The Modern Corporation" (New York, 1908).
Williams and Croxton, op. cit., pp. 5&-93.
380 MOBKELL HEALD
cation of the principles of mass production and a growing aware-
ness of their broader implications. The dependence of mass pro-
duction on the creation and maintenance of a mass market had
been dramatically demonstrated by Henry Ford. Widely preached
by Ford, E. A. Filene, and others, it was somewhat less widely
practiced — as later events were to show. Still, the need for an ever-
widening market for American industry was sufficiently evident to
spark a boom in management's interest in advertising and public
relations. With the help of the publicity men, and with obvious
intent to maintain the prestige and leadership regained during the
war years, "service" became the motto of business in the twenties.
For each of the developments just mentioned precedents can be
found in the prewar years. In one major respect, however, the cli-
mate of "normalcy" differed notably from the Progressive Era.
Business in the twenties was seldom faced with the widespread,
organized, and outspoken criticism to which it had been subjected
by the age of the muckrakers. On the contrary, although business-
men may have feared a recurrence of government supervision and
reform, and while the threat of Bolshevism loomed ominously on
the horizons of the timid, for the most part the business community
was relatively free in this peaceful decade from effective external
pressures and criticisms. Management had the opportunity to
define "service" largely in accordance with its own views of the
nature and limits of its social obligations.
Speaking in the light of the war experience, John D. Rockefeller,
Jr., in 1923 asked:
Shall we cling to the conception of industry as an institution primarily of private
interests, which enables certain individuals to accumulate wealth, too often irre-
spective of the well-being, the health, and the happiness of those engaged in
its production? Or shall we adopt the modem viewpoint and regard industry
as being a form of social service, quite as much as a revenue-producing process?
For Rockefeller, the answer was clear; the old order was past. "To
cling to such a conception is only to arouse antagonisms and to
court trouble. In the light of the present every thoughtful man
must concede that the purpose of industry is quite as much the
advancement of social well-being as the production of wealth."
As Rockefeller saw it, "The parties to industry are four in number;
capital, management, labor, and the community." He was prepared
to see all four represented in the councils of business.12 Like
"John D. Rockefeller, Jr., The Personal Relation in Industry (New York,
1928), pp. 11-21.
MANAGEMENT'S RESPONSIBILITY 381
Rockefeller, Judge Gary of U. S. Steel saw business as an insti-
tution in which each of the "parties" had a stake and an interest.
Gary, as a representative of the emerging management class, how-
ever, placed his own group in a special relation to the other three.
Management stood in a "position of balance" between the other
claimants and must reserve to itself the final determination of their
interests.13 Owen D. Young of the General Electric Company, also,
spoke of his position as "trustee" for the various interests affected
by corporate policy in terms which anticipated the business outlook
of the 1950's. In addition to the rights of stockholders and em-
ployees, "Customers have a right to demand that a concern so large
[as General Electric] shall not only do its business honestly and
properly, but further, that it shall meet its public obligations and
perform its public duties . . . in a word, vast as it is, that it should
be a good citizen."14
Henry Ford, too, emphasized service to the community, "service
before profit"; but service to Ford meant primarily the increase of
production and productivity. This was the greatest contribution
business could make to the national welfare. Industry devoted to
this kind of service, Ford wrote, ". . . removes the need for philan-
thropy. Philanthropy, no matter how noble its motive, does not
make for self-reliance. We must have self-reliance. A community
is the better for being discontented, for being dissatisfied with
what it has."1B The argument that mass production itself was the
major contribution of business to social health was presented most
persuasively by Edward A. Filene. Filene agreed that "Real service
in business consists in making and selling merchandise of reliable
quality for the lowest practically possible price, provided that the
merchandise is made and sold under just conditions." Production
for the masses forces recognition of the essential interdependence
of business and society:
We cannot distinguish between the old and the new capitalism by saying that
one gives service whereas the other did not. Business has always given service
to someone; and it has given some sort of service, often, even to those whom
it robbed and cheated and exploited. It is the discovery that it pays to give
service, and that it pays best to give the greatest possible service to the greatest
possible number, which is now not only revolutionizing business but revolution-
u
Elbert H. Gary, "Principles and Policies of the United States Steel Corpora-
tion" (n.p., n.d., 1921), pp. 5-6. See also Alfred P. Sloan, Jr., "Modem Ideals
of Business," World's Work (Sept., 1926), pp. 694ff.
" Quoted in J. D. Glover, The Attack on Big Business (Boston, 1954), p. 338.
"Henry Ford in collaboration with Samuel Crowther, My Life and Work
(New York, 1922), pp. 20, 206, 208-210.
382 MOBBELL HEALD
izing the whole world in which we live. . . . What is new is the discovery
that the machinery of modern business does make the whole world one, that
we are all "members one of another," that no individual and no group can
be independent of others, but that we are mutually dependent and must, if we
are to give expression to our very will to live, go in with all our heart for mutual
service.
Service was, thus, not only a legitimate objective, it was the essential
means to profit under mass production. Filene rejected "mere
benevolence," yet, in almost the same breath, he found business
committed to "the liberation of the masses . . . the inevitable goal
of mass production. . . ."16
No doubt the ideas of those cited here were atypical of business
thought in the twenties. Certainly these were men whose station
and responsibilities made them especially conscious of their rela-
tionship to the public. Most businessmen probably thought of pub-
lic relations in terms of convincing consumers of the merit of their
products and citizens of the correctness of their economic views
and practices. No clear and agreed-upon philosophy of corporate
responsibility for community welfare had yet emerged, but new
criteria for business policy were winning attention. As noted earlier,
one of the conditions which characterized the predepression decade
was the virtual absence of effective external criticism of business
performance. The debate over the social consequences of business
policy had become, in effect, a monologue. In part this was a tribute
to the success of business statements and policies in persuading the
public that the general interest was, in fact, being served under
the new dispensation. In any case, the lack of external criticism
was compensated for with a vengeance after 1929.
The depression of the thirties convinced many Americans, rightly
or wrongly, that the new prescriptions for business responsibility
had been largely intended for public consumption and "not to be
taken internally." Dissatisfaction and disillusionment with business
performance reached new levels of bitterness. And the public poli-
cies growing out of this climate of opinion have played a central
part in the more careful examination of the issues which has char-
acterized business thought in recent years. Without examining in
detail the contemporary situation, we can safely assert that today
16
Edward A. Filene, "A Simple Code of Business Ethics," Annals of the
American Academy of Political and Social Sciences, Vol. CI (May, 1922), pp.
223-228; Successful Living in This Machine Age (New York, 1932), pp. 79ff.,
196.
MANAGEMENT'S KESPONSIBrLITY 383
we have more strongly entrenched potential critics of business
performance than ever before — largely as a result of the public
disenchantment of the New Deal days. Still, recently, the critical
voices have once again seemed muted and restrained. Attacks on
business and its policies are seldom heard, and still less frequently
listened to.
Our review of a half century's evolution in the thinking of Ameri-
can businessmen on the subject of their social role and responsibili-
ties has, I believe, shown that two chief categories of causes are in-
volved. Primary, of course, have been the internal factors in indus-
trial growth: the development of large-scale enterprise spanning
the nation in its activities and concerns, the unification of the labor
force, the application of mass production and the growing awareness
of its dependence upon an ever-widening circle of willing and able
consumers, and the capital requirements of an expanding economy
leading to widespread stock ownership and a redefinition of the
role of management. A second group of factors, external to the direct
processes of industrial growth, has also been of major importance.
Among these factors have been the traditional values of individual-
ism and equality of opportunity which entered into the antitrust
movement and the continuing suspicion of the power of collective
wealth, the idealism and spirit of service growing out of wartime
experience, the growing political power of organized labor and
other nonbusiness groups, the acceptance of the principle of the
ultimate responsibility of government for social welfare in those
areas where private efforts fail, and the involvement of the United
States in a world-wide struggle of democracy with totalitarianism
in its various forms. It would take a fine scale, indeed, on which
to weigh the relative importance of these two types of influences.
But the record suggests that, in the past, external criticism, some-
times even irresponsible criticism, of the social consequences of
business policies, has made a vital contribution to management's
acceptance of a larger concept of obligation to the community.
In 1951, Frank W. Abrams, chairman of the board of Standard Oil
of New Jersey and one of the most active and effective exponents
of current management thought, wrote: 17
. . . management's responsibility, in the broadest sense, extends beyond the
search for a balance among respective claims. Management, as a good citizen,
and because it cannot function properly in an acrimonious and contentious
atmosphere, has the positive duty to work for peaceful relations and understand-
" Quoted in Glover, op. dt., pp. 338-339.
384 MORBELL HEALD
ing among men — for a restoration of faith of men in each other in all walks
of life.
But is there not at least an equal grain of wisdom in Henry Ford's
apparently cantankerous and self-centered statement, "A community
is the better for being discontented, for being dissatisfied with what
it has?"
