Social Responsibilities of the Businessman

9. Why Are Businessmen Concerned About Their Social Responsibilities? (Continued)

9 Why Are Businessmen Concerned Ab~ut Their Social Responsibilities? (Continued) In this chapter we shall consider several more factors responsible for the greater interest in social responsibilities. These factors derive primarily from changes in the organization and control of corporate enterprise during the past fifty to seventy-five years. So we shall begin with a brief discussion of the much-publicized "separation of ownership and control" in the large corporation. SEPARATION OF OWNERSHIP AND CONTROL IN THE LARGE CORPORATION A phenomenon frequently noted by students of industrial organization has been the widespread separation of the functions of ownership (in the sense of legal title to equity capital) and control (in the sense of direction or management) within the large corporation.' This development was the result of the great diffusion of ownership of corporate securities as our corporations grew to many times the size that could be financed by single individuals or small groups of individuals. Indeed, one of the classic advantages of the corporate form of organization is that it provides a method for pooling the capital of many individuals into a single enterprise. With this diffusion of ownership, sometimes among hundreds of thousands of persons, the stockholders increasingly confined their concern with "their" corporations to the price of shares on the stock market and to actual or prospective earnings. They were in no position to 1The classic analysis of this tendency is found in A. A. Berle, [r., and G. C. Means, The Modem Corporation and Private Property, Chicago, Commerce Clearing House, 1932. Earlier writers referred to a somewhat different aspect of the same phenomenon by the term "absentee ownership." Cf. Thorstein Veblen, Absentee Ownership, New York, Viking Press, 1923. 84 WHY ARE BUSINESSMEN CONCERNED? gain access to the facts necessary for judging the conduct of the business and they were not interested in taking an active part in management even if they were able to do so. As a result, and with the aid of proxy voting, effective control of our large corporations passed largely into the hands of professional salaried managers," If most large corporations have come under the control of professional salaried managers, as most authorities agree, does a corporation under this type of control respond to different motives, or react to given events, in a different way from a corporation under the control of owner-managers? On this question, the authorities are not in clear agreement. There are those who hold that the professional managers align themselves, on the whole, with wealthy and conservative people, and that their social philosophies and their conception of the proper role of business (especially regarding profits) are very similar to that of the wealthy classes. Indeed, many of these professional managers are themselves wealthy men. Therefore, it is contended that whatever other importance may be ascribed to the separation of ownership and control , one should not leap to the conclusion that it has an important effect upon the overt behavior of the corporation," In discussions of the motivation of managers, it is pointed out, moreover, that they have a strong sense of identification with the corporation and its welfare. They regard the corporation as "their" company or as an extension of their own personalities." Their motives are in many ways similar to those of owner-managers. The opposing view is that the assumption of corporate control by salaried managers does have a significant influence upon the behavior of the corporation and may be expected to have an even greater influence in the future," Few writers, however, with the possible exception of Burnham, have ascribed overwhelming irn2 Mr. James Burnham in The Managerial Revolution, New York, John Day Company, 1941, expanded this idea into a whole theory of future social organization . See Walter Lippmann, Preface to Morals, New York, The Macmillan Company , 1929, pp. 254-59, for an excellent early account of this process;also, John H. Sears, The New Place of the Stockholder, New York, Harper & Brothers, 1929. 3 Cf. N. S. Buchanan, The Economics of Corporate Enterprise, New York, Henry Holt & Company, 1940, pp. 443-49· 4 Cf. George Katona, Psychological Analysis of Economic Behavior, New York, McGraw-Hill Book Company, 1951, p. 197. 5 The most complete discussionof this subject is to be found in the able study by ProfessorR. A. Gordon, Business Leadership in the Large Corporation, Washington , BrookingsInstitution, 1945. Cf. also, Berle and Means, op. cit., P' 355. 86 SOCIAL RESPONSIBILITffiS OF...