Frederick, 2006; May et al., 2007; Reich, 2007; 2009; Blowfield & Murray, 2008;
The Economist, 2009f).
Theme 2: The Weberian distinction between formal and substantive
independently of any prospects of external success” (Weber, 1964: 115 quoted in Podolny et al., 2010; Guthey, 2012). Swedberg (1998: 36) concisely states “The key idea here is that formal rationality is centered on calculation, while substantive rationality is related to absolute values.”
Friedman’s contention that “the social responsibility of business is to increase its profits” and his associated comments (1964; 1970; 1982; 2002) indicate a higher order belief that society is best served when the corporation maximizes profits.
Such a higher order belief indicates this is the realm of substantive rationality. In this view, the corporation is described as the possession of the shareholders where Friedman contends that when profits are maximized and delivered to the shareholders the shareholders can exercise their free choice to do whatever they wish to do with this wealth. Friedman asserts this is a key element of a free and democratic society that he expresses constitutes a good society, where this is the realm of substantive rationality.
From this standpoint, achievement of corporate profits by practitioners enters the realm of formal rationality because these managerial activities “are ultimately concerned with productivity, and with the efficiency of means to induce it, rather than with the desirability of productivity itself as defined and measured against some system of superordinate beliefs or values” (Guthey, 2012). This is an important distinction that merits calling out for the purposes of this dissertation.
The maximization of corporate profits are the realm of substantive rationality from the neoclassical economics standpoint represented by Friedman for all of the aforementioned reasons whereas the process whereby practitioners go about doing it is the realm of formal rationality. The neoclassical economics view as represented by Friedman prescribes that practitioners do not consider issues of substantive rationality (such as values, ethics, and the like) but rather practitioners
of the corporation are instructed to focus solely on applying the most efficient means to achieve specified ends (eg. Abrahamson, 1996) to maximize profits.
While Friedman (1970) states practitioners must consider “ethical custom” he describes them as a constraint similar to the law that limits the range of possibilities the practitioner can consider en route to achieving the singular end of profit maximization.
Guthey states “tensions and conflicts” are inevitable when expectations to simultaneously conform to norms of formal and substantive rationalities exist. In a space in which the neoclassical economics discourse as represented by Friedman dominates, the opportunity for such tensions to be apparent for practitioners are limited because formally rational activities (i.e. improving efficiency and productivity) are considered consistent with the substantively rational ends to increase profits. In this space there, there is only one end to consider (i.e.
maximize profits) and one means to achieve it (i.e. efficiency) and therefore tensions are unlikely to be apparent to practitioners. So long as these practitioners stay within a space in which the neoclassical economics discourse dominates, and hence do not reflect upon how their activities may be helping or harming society, tensions are not likely to be apparent to these practitioners. The prescription for these practitioners is to focus on efficiency because that leads to profits and that is all they should consider.
However, the CSR agenda complicates the singular end for the corporation to just consider maximizing profits by calling on corporations to consider substantively rational ends from the multiplicity of other standpoints represented by its stakeholders (European Commission, 2001). Here, tensions are likely to become quickly apparent to practitioners. With the CSR agenda all of a sudden consideration for issues in the realm of substantive rationality becomes pertinent
for practitioners. And with the introduction of the potential for a multiplicity of substantively rational ends, no longer is the assumption that formally rational means will lead to the substantively rational ends valid.
I define that a tension exists when some ‘thing’ is considered substantively rational from one standpoint but substantively irrational from a different standpoint. This definition is built from the offerings of Lewis (2000) and Smith
& Lewis (2011) who describes tensions as the underlying source of paradox.
Lewis cites Ford & Backoff (1988:89) who describe paradox as “some ‘thing’ that is constructed by individuals when oppositional tendencies are brought into recognizable proximity through reflection or interaction.” Gond & Crane (2010) and Margolis & Walsh (2003) use the expression tension in a similar manner.
In a recent article by Michael Porter (and colleague Mark Kramer) (Porter &
Kramer, 2011), Porter contends that those who argue that tensions and the potential need for trade-offs arise when the purpose of the corporation is redefined as creating value for society are wrong because creating value for society is about managers discovering all of the win-win opportunities that they are currently failing to identify. Porter suggests managers fail to identify the win-win scenarios because they follow the prescriptions of neoclassical economists who, in Porter’s words, “have legitimized the idea that to provide societal benefits, companies must temper their economic success.” Hence, Porter contends if managers would reflect upon where the corporation can do more help and less harm in society and pursue these opportunities as a means through which to maximize profit, these managers will realize all of the win-win scenarios without having to consider tensions or accept trade-offs.
In a review of this article titled “Oh, Mr Porter,” The Economist (2011b) retorts that tensions are inherent in business and that Porter glosses over the hard task managers face in negotiating tensions. The Economist’s review asserts:
His arguments have some common flaws: he persistently plays down the difficult trade-offs that businesses often have to make, even in ventures with clear potential for social good (eg, advising a ravaged country on how to cut poverty, at the risk of bolstering its dictatorship)…
The Economist’s example illuminates the tensions can always be present where perhaps the question is not whether tensions are present, but whether they are identified and negotiated by managers. In this example, if the practitioner strictly adheres to the neoclassical economics discourse as represented Friedman’s contention the purpose of the corporation is to maximize profits for the shareholders, the prescription for the practitioner is to ignore the tensions. The dictatorship is the law of the land so there are no issues regarding potentially breaking any laws, and thus all the practitioner should worry about is assessing whether the corporation can make a profit from the venture.
However, if the purpose of the corporation is instead considered to create value for society as Porter more recently contends, then the tension may not be ignored.
The alleviation of poverty can be considered a substantively rational ends for entirely its own sake (eg. UNDP, 2012) and the support of a free and democratic society is considered a substantively rational ends for entirely its own sake also (eg. Friedman, 2002). Therefore, in this example what may be considered as conforming to norms of substantive rationality from one standpoint may be in violation of conforming to norms of substantive rationality from another standpoint. This means a tension exists.
Just because a tension exists does not mean a trade-off is imminent. Freeman et al. (2010: 9, n.13) contend “Of course, stakeholder interests may be in partial conflict, but if the possibility of innovation and the redefinition of interests is always present, then we can more profitably focus on the jointness of interests rather than on the conflict” (Freeman et al., 2010: 9, n.13). Freeman et al. (2010:
247) continue:
Instead of simply taking a trade-off at face value, it would help the firm to achieve its rich value proposition if managers were to reflect [my italics] on how they and their stakeholders have constructed that trade-off, and imagine and innovate ways of constructing it that can reduce or remove that trade-offs. We acknowledge that this strategy will not always be effective and some trade-offs cannot be reconstructed, but without trying to dissolve some of these either-or choices, managers will make more [trade-offs] than they have to and potentially destroy value in the process.
Thus Freeman et al. stress the importance of practitioners having space for reflection whereby they to consider the tensions that exist, and to negotiate these tensions and create value in the process. The Weberian distinction between formal and substantive rationality helps to describe these tensions and helps to explain why debates about the proper role of the corporation in society will not go away.
As long as there are differing higher-order beliefs standpoints regarding the purpose of the corporation, which there always will be, there will be tensions.
Friedman’s argument for practitioners to pursue what others have described as
“egoist business practices” (Bowie, 1991: 153; Beauchamp, Bowie, & Arnold, 2009: 17; Crane & Matten, 2010: 100-1) on behalf of the firm’s interests to make profits can also be considered as a means to suppress the consideration for potential tensions. Wang et al. (2011) contend there is little that distinguishes self-interested egoist business practices from the concept of greed and, as such, Gordon Gecko’s contention that “Greed is right, greed works. Greed clarifies”
(Wall Street, 1987) is applicable here. Egoist business practices clarify and simplify the range of possible activities for practitioners to consider.
Furthermore, this distinction between formal and substantive rationality proves useful in this study of the CSR bureaucracy. A bureaucracy entails the deployment of formally rational tools in service of substantively rational ends (from some explicitly defined standpoint) (Brubaker, 1991).
Theme 3: The CSR bureaucracy can provide a space for reflection in the