social contract

noun
an implicit agreement among the members of a society to cooperate for social benefits,
for example by sacrificing some individual freedom for state protection. Theories of a
social contract became popular in the 16th, 17th, and 18th centuries among theorists
such as Thomas Hobbes, John Locke, and Jean-Jacques Rousseau, as a means of
explaining the origin of government and the obligations of subjects.

1.

The Corporate Social Contract

If corporations have the rights of the individual, they also have the
responsibilities.
By Simon Mainwaring
Can you imagine a world in which the majority of leading
corporations accept a higher level of social responsibility, where
they voluntarily support and work towards sustainability, fair trade, ethical
conduct, human values, and purpose over profit? A world in which Wall Street
investors support altruistic companies that miss their quarterly profit projections by
one or two cents? A world in which CEOs pay themselves only 50 or 100 times
what their average employee makes instead of 500 or 800 times? A world in which
delivering prosperity to as many people as possible is the persistent goal of
capitalism?
My guess is that your answer is No. Yet I am among those who believe that
capitalism can be reengineered to become a vibrant economic engine that, working
in tandem with democratic policies, can bring prosperity and peace to the majority
of the worlds population.
This belief is based on an emerging dynamic that gives consumers far more power
to influence corporate behavior. It is fueled by social technologies that are
connecting consumers into vast networks and communities based on shared values.
Through social technologies like Facebook, Twitter, FourSquare, YouTube, and
smart phone apps, ordinary citizens and consumers are gaining a voice to express
their opinions and talk back to irresponsible companies and the bad actors among
CEOs, executives, and boards.
Social media also facilitates on-the-street social activism, providing consumers
with new capabilities to launch widespread protests, boycotts, and buycotts to
punish or reward companies depending on their conduct. Smart phone apps like
the GoodGuide give consumers the ability right in the shopping aisle to make

smarter, more mindful purchases by being able to scan a products bar code and
immediately retrieve information on a brands ethical and social responsibility
footprint.
Consumers can reject products from companies known to have unsustainable or
environmentally unfriendly practices, or that treat employees or suppliers unfairly.
On the other hand, brands that reach out to consumers and demonstrate their
commitment to social responsibility can capture consumer respect and purchasing
loyalty.
Lobbying for Corporate Social Contracts
But consumers can go much further to persuade or cajole corporations into real
change. Using the organizational and lobbying power that social media affords
them, consumers can begin insisting that corporations declare and abide by some
type of social contract or terms of agreement they are willing to offer society.
Any company that does not publish a social contract clearly stating their
philosophy regarding the role they will play in society becomes fair game for
consumer pushback pointing out their duplicity and anti-social posture.
Social contract theory posits that every citizen on the planet has inalienable rights,
but to live among others in society, each of us must tacitly agree to yield some of
those natural rights in exchange for the benefits of mutual peace and prosperity.
Everyone living under the social contract has a duty to act responsibly, to obey the
laws, and to abandon certain natural self-interest rights that conflict with the
general good.
Since the origins of free market capitalism, however, many corporate founders and
investors have argued that their companies are entities, not citizens, and so do not
owe anything back to society. If you were to study the history of corporate social
responsibility, you would see that when the corporate form of business began to
take off in the last two decades of the late 1800s, federal laws, as well as the laws
of every state in the United States that granted corporate charters, expressly
forbade corporations even from contributing to charities, because the money
belonged to investors. In the first decades of the 20th century as well, corporations
strongly resisted the notion that they had a responsibility to society. Only during
the Great Depression did Congress finally pass a bill authorizing a tax deduction
up to five percent of corporate income for charitable donations.
In the 1970s, the noted economist Milton Friedman, who eventually guided the
Reagan administrations economic policies, launched an entire school of economic
thought that famously insisted the only social obligation of corporations was to
increase profits for their shareholders. He firmly believed that spending investors

money on social causes was a moral wrong, and that corporations should leave
charity up to the individual investors and employees who should make their own
decisions.
The fact is American corporate law has long been based on the premise that
businesses exist only to make profits for their shareholders. As long as it is legal,
companies can do whatever they desire to produce income for their shareholders.
Meanwhile, by virtue of their legal status, corporations are protected from their
mistakes by the grant of limited liability to their shareholders, except in cases of
proven fraud or misconduct. Whatever effects corporations have on society, the
shareholders are immune from liability.
Yet in the 21st century, the world has greatly changed. We are living in a complex,
interconnected environment where the actions of one company or one executive
can negatively impact millions of people in seconds.
We need a new approach to the issues of corporate responsibility. It is time for
consumers to demand social contract theory be applied to corporations, binding
them to act like responsible citizens in return for the tacit authorization society
gives them to operate. The new logic must be that corporations are no different
from individuals; since they exist within society, which grants to them the right to
do business among the people, they have an obligation to behave and give up some
of their self-interest for the greater good.
Ironically, this argument has been greatly buttressed by the 2010 Supreme Court
decision, Citizens United v. Federal Election Commission, that grants corporations
the same rights as individuals when it comes to political spending on election
campaigns. Given this court ruling, it is only logical that if corporations want the
same rights as individual citizens, they should be held equally accountable when it
comes to social responsibility.
Consumers must begin using social media to pressure companies to create a
written document spelling out their agreements with society. If a company refuses,
consumers can use their voices and purchasing leverage to create enough
reputational damage that the company reassesses its decision. Consumers should
never underestimate the persuasive power they have to promote greater social
responsibility from companies in exchange for their loyalty and business.
A Sample Social Contract
Here is an example of how a social contract might read. The language in this
contract can, of course, be modified in any way needed to accommodate the
specific circumstances of an industry or an individual company.

Social Contract Between [Brand X] and Its Customers

We recognize that we live in a new world, where reckless profit and self-interest
hurt our business, our own lives and those of people we care about, as well as
millions of human beings around the world. We believe that a better future depends
on an integration of profit and purpose within the private sector. To that end, our
company and our customers must become partners in social change to build a
better world. We agree that the following principles will guide our own behavior
and in the relationship between us:
1. We believe our company has a right to innovation,
entrepreneurship, and profit-making while our consumers have a right to a healthy
society and planet for living.
2. We recognize an interdependent, global community requires an
expanded definition of self-interest that acknowledges the needs of all inhabitants
of the planet.
3. We define success through prosperity, which means the wellbeing of many, not the wealth of a few.
4. We believe that the future of profit is purpose. We will seek
to value the purpose we can serve in the world as much as
the profit we might make in the commerce we create around that purpose.
5. We believe that the interests of our company and our customers
are best served through a sustainable practice of capitalism economically,
morally, ethically, environmentally, and socially.
6. We believe that our company and our customers owe each
other an equal duty of transparent, authentic, and accountable communication.
7. We believe that social technology, business, and shopping
have the potential to change our world through new modes of engagement,
collaboration, and contribution.
8. We believe in these values to guide our daily practice
of capitalism: sustainability, fairness of rewards, fiscal responsibility,
accountability, purposefulness, engagement, and global citizenship.
9. We believe that our company and our consumers are dutybound to serve as custodians of global well-being for this and all future
generations.

10. We believe that the entire private sector must cooperate, collaborate, and
coordinate with governments and NGOs to create a unified force for social good.
To this end, we will undertake partnership and collaborations as possible to work
with other companies in bringing out meaningful social change.
Your Consumer Social Contract
If you are willing to apply social contract theory to corporations, you must also be
willing to apply it to yourself as a consumer. What actions are you taking to work
for the general good in return for your membership in society? Are you being as
socially responsible as you want corporations to be? Are you using some of your
resources, expertise, and energy to help improve society?
Our society can only be as productive, creative, and prosperous as we collectively
make it. If each of us is not fulfilling our own part in a social contract with society,
we must begin taking some action to participate. If you are an executive or
business person, seek to influence your company towards more responsible
behaviors. If you are citizen, take part in political movements and campaigns to
spread social justice, fairness, and equal opportunity throughout your community
and in our nation. If you are a consumer (and we all are), become a mindful
shopper by rewarding socially responsible companies and refusing to purchase
from irresponsible ones.
Above all, start using social media to ensure your voice is heard. Join a community
of concerned citizens, engage in online and offline social activism, write a blog, or
organize a boycott or buycott that attracts other consumers in support of the causes
you care about.
Social technologies present an extraordinary opportunity to build a better world,
but as always, it turns on our individual commitment to fulfill our duties within
social contracts that are binding on all of us.
Simon Mainwaring is the founder of We First, a social branding consultancy. This
article was adapted from his book, We First: How Brands and Consumers Use
Social Media to Build a Better World. For more information, visit
www.wefirstbook.com.
http://www.thecro.com/topics/business-ethics/the-corporate-social-contract/

Social Contract Theories in

Business
by Jeremy Bradley

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Social contract theory is an ancient philosophical idea that
states that an individual's ethical and political obligations
relate to an agreement he has with every other individual
within a society. The agreement can be written, as in the
form of laws, or it can be a tacit agreement, an unspoken or
unwritten agreement of social norms and customs. In
business, social contract theory includes the obligations that

businesses of all sizes owe to the communities in which they

operate and to the world as a whole. This involves corporate
philanthropy, corporate social responsibility and corporate
governance.
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The Changing Business Climate

In 2012, McKinsey & Co. conducted a study of the changing
face of businesses in the United States. The study found that
84 percent of corporate executives and small business
owners believe society as a whole expects corporations to
take an active role in social, political and environmental
issues. Not only do consumers expect businesses to obey the
law, but they also expect businesses to reinvest in their
communities and to help struggling people and nonprofit
organizations in meeting their needs.

Corporate Philanthropy
To answer the call for more involvement in the local
community, businesses can draw on social contract theory to
interact with society. While it is no secret that businesses
must follow laws and regulations, they also must meet
implicit non-legal expectations. These expectations are
encompassed in the idea of corporate philanthropy, or dogooding. Businesses can show that they are concerned with
their communities and appreciative of the revenue streams

the community provides by allocating resources for

community projects, by volunteering in local charities or
schools, by donating products and by running
environmentally friendly ad campaigns. These things
illustrate that a business is serious about its social contract
and that it recognizes the value of giving back.

Corporate Social Responsibility

Corporate Social Responsibility is an idea closely related to
corporate philanthropy but is focused more narrowly on
creating sustainable and renewable business solutions.
When a business employs a CSR strategy, it does so in
response to the wants and needs of its stakeholders,
including customers, employees and the public at large. CSR
functions as an internal mechanism for ensuring that ethical
standards in business are always followed to prevent the
business from doing anything illegal, from violating the
public's trust or from unnecessarily harming the
environment. Small business owners often have a tighter
control on the inflows and outflows of products and services
so can better impact CSR.

Corporate Governance
An important concept of the social theory contract in
business is follow-through, or making sure that the business
is holding up its end of the bargain and not just paying lip
service to the community. Corporate governance structures
are policies that a company enacts to keep itself on an
ethical and legal path. You can think of these structures as
internal laws for the business. Corporate governance
dictates the standards to which a company holds itself and
the punishments that detractors from the standards incur.
Corporate governance is therefore important for keeping
corporate philanthropy, CSR and the overall social contract
theory at the forefront of a business' strategy plan.
http://smallbusiness.chron.com/social-contract-theories-business-59955.html

Pros & Cons of the Social

Contract Approach to Business
by Neil Kokemuller

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Ethical Issues Within Organizations

[Social Responsibility] Corporate Social Responsibility &

Small Businesses
The social contract approach to business refers to the
strategy a company chooses when it accepts informal
expectations from the public and makes social and
environmental responsibility important to its business
operations. Some companies take on this informal social
contract as a point of business differentiation, while others

do so to influence potential public scrutiny and backlash for

noncompliance. Small businesses can distinguish themselves
from larger corporations by making social responsibility a
major point of business.
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Damage Protection
Meeting informal social responsibility guidelines gives
businesses significant protection against possible legal and
reputation risks that come with walking an ethical line in
business. In the information age, consumer and
environmental watch groups do a good job calling attention
to businesses that either stand out as social responsibility
leaders or fail to deliver on expectations. Failures to
participate in your communities, to treat customers and
employees fairly, and to preserve the environment can all
attract negative attention.

Long-Term Profitability
More positive benefits of meeting social responsibility
expectations from the public can include stronger customer
relationships and better long-term profit potential. Though
detractors sometimes question the direct business benefits
of social responsibility, a main purpose is to build deeper
relationships with customers and the community. Over time,
this deeper connection undoubtedly produces more sales

and better profits. This is especially true of small businesses.

Some customers in local markets make it a point to support
local businesses that set the standard in meeting social
responsibility contracts.

Costs
Meeting social contract expectations costs money.
Committing to fair treatment of employees means that your
company invests in training to build a culture of tolerance
and acceptance. It also means that you give back to the
communities you earn profits from by giving to charitable
organizations and community programs. On the
environmental responsibility front, it costs money to manage
recycling programs and to use environmental-friendly
materials and business processes.

Focus
Another common argument against social responsibility in
business is that it distracts companies from a core business
pursuit of profits. Detractors suggest that each dollar and
minute spent focusing on social responsibility is time and
money not spent on product development, marketing or
other profit-generating activities. Additionally, shareholders
sometimes have concerns about companies they invest in
spending money to meet social expectations of the public.
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http://smallbusiness.chron.com/pros-cons-social-contract-approach-business20993.html

Lesson Transcript

Instructor: Matthew Schandler

Matthew teaches university-level History and is currently

finishing a PhD at Lehigh University.
Since the beginning of human civilization, social contracts
have helped structure how people and governments worked
together. Learn about social contract theory and what some
important thinkers from the 1600s onward had to say about it.

Definition of Social Contract

Theory
You're likely already familiar with the concept of contracts.
Marriage, citizenship, and employment are all forms of
contracts. Put simply, a contract is an agreement between two

parties. If one party violates the terms of the agreement, the

contract is no longer valid.
Societies are controlled by governments. This is the starting
point for discussing social contract theory. Thinkers who
believe in this theory argue that people benefit from living
together in countries, kingdoms, or under other types of
governmental oversight. Living in society, however, requires
rules and laws. Societies are the result of compromises,
and social contracts provide the framework for how people
and governments interact.
Individuals who live within a social structure gain protection
from outsiders who may seek to harm them. In return, they
must give up certain freedoms (like the ability to commit crimes

without being punished), and they should contribute to making

society stable, wealthy, and happy.

Examples of Social Contract

Theory
The idea of a social contract has a long history dating as far
back as Ancient Mesopotamia. However, it was not until
the Enlightenment of the 17th and 18th centuries that social
contract theory gained widespread attention from philosophers
and historians. The Enlightenment was a time when
intellectuals began to question established views relating to
religion, science, economics, and government.

Social contract theory challenged both the moral and political

elements of traditional sources of power in Europe. In fact,
morality and politics were seen as linked. Rulers were to
govern fairly, and people were supposed to help improve
societies.
Three Enlightenment thinkers are usually credited with
establishing a standard view of social contract theory: Thomas
Hobbes, John Locke, and Jean-Jacques Rousseau. They each
had different interpretations of social contracts, but the
underlying idea was similar.
Thomas Hobbes held a dark view of humans, which was likely
influenced by the chaotic political events he witnessed in
England during his life. Hobbes believed that in nature,
individuals had to do whatever was necessary to survive. But

he also believed that people were still likely to fight even if they
lived together. Therefore, a contract was necessary. In Hobbes'
view of the social contract, people were not capable of living in
a democratic society. A powerful, single ruler was needed. If
everyone did his or her part, society could function relatively
smoothly.

Thomas Hobbes, the 17th century English

philosopher, held a dark view of human nature

You are likely familiar with John Locke's philosophy without

even realizing it. His ideas are expressed in the
American Declaration of Independence. He argued that people
deserve life, liberty, and property. This trio forms an essential
part of social contracts. Governments need to protect
individuals' lives, ensure they are free to prosper, and enforce
a system of laws that rewards efforts to improve society
economically.

John Locke, an American philosopher, argued

that the government should insure the

protection of people

Locke's contractual theory of government outlines his ideal

for a modern society. People had to willingly do things like pay
taxes and serve in the military, but in return, the government
had to listen to their desires and provide for their needs. Locke
challenged the idea that a king was to rule unquestioned.
Kings might still rule, but the people had a say in how they
went about doing so. For Locke, governments were created to
ensure that wealth and property were protected. In a primitive
state of nature, this would be impossible. Dangerous
competition would be the norm and a cooperative society could
not exist.

Jean-Jacques Rousseau wrote, 'Man is born free, and

everywhere he is in chains.' What he meant was that many
European kings and queens ruled unfairly. They took
advantage of their subjects and made life difficult. In order to
check the authority of these monarchs, ordinary people
needed access to education. They could then defend
themselves against abuses of power and maybe even
participate in government.
If people learned what a truly fair society should look like, they
could take steps to make life better for everyone. Rousseau
wanted to rewrite the contract. He believed that everyone could
cooperate and that human nature was not as bad as Hobbes
believed.
http://study.com/academy/lesson/social-contract-theory-definitionexamples.html

Social Contract Theories in Business

by Scott Thompson

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According to social contract theory, moral and ethical codes

are the principles all rational people would adopt as rules of life
if they could count on others to do the same. Social contract
theory can be used to examine questions in business ethics.
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The Social Contract

The social contract is a concept in the philosophy of ethics and

political science that has more recently been applied to the
study of business ethics. According to this theory, valid and
universally applicable moral rules can be determined by asking
what rules people would voluntarily make if there were no
rules. Not everyone would agree on the best type of music or
the best books, so these cannot legitimately be the subject of

universal moral rules. Everyone would agree to outlaw theft,

fraud and murder, so these can be. The social contract is an
unwritten and strictly hypothetical agreement not to violate
moral rules. All members of society are said to agree to this
contract simply by participating in the society.
Theories of Business Ethics

As of publication, there are three mainstream theories of

business ethics. The stockholder theory holds that a company
has no ethical obligations to society other than to earn the
largest possible profit for its stockholders or owners within the
limits of business ethics and the law. The stakeholder theory
holds that a company is morally obligated to all parties with a
stake in the outcome of its activities, including employees, the
community and the environment as well as stockholders.
Social contract theory holds that all businesses operate under
an unwritten contract with the society as a whole, in which the
society allows the company to do business under the condition
that its actions benefit society.
Application

Ethical decisions in business can be strongly affected by which

theory of business ethics informs the decision-making process.
For example, if a small business owner receives a buyout offer
from a major company, stockholder theory would support
whichever decision was most profitable to the owner.

Stakeholder theory would require the owner to consider the

impact of selling the company on the employees and
community. Social contract theory would require the owner to
consider the impact of the decision on society as a whole, not
just those immediately affected.
Controversy

Social contract theory is a controversial concept in the study of

business ethics, because it is tied in to broader political issues
about which many people disagree. People who believe
strongly in the laissez faire model of capitalism usually argue
that companies benefit society by creating wealth, providing
services and employing people. According to this view,
companies can do the most good by concentrating on making
profits rather than on difficult and subjective ethical concerns.
People who believe in the concept of corporate social
responsibility argue that companies receive substantial
benefits from society and should reciprocate by acting in the
common interest.
http://yourbusiness.azcentral.com/social-contract-theories-business17357.html

Thursday, June 21, 2012

CSR | Corporate Social

Responsibility Social contract
approach

Social contract approach

Social contract approach is the perspective that a

corporation has an obligation to society over and
above the expectations of its shareholders.

Prior years, the primary focus of the social

contract was an economic one, assuming that
continued economic growth would bring an equal
advancement in the quality of life.

The modern social contract approach argues that since the corporation
depends on society for its existence and continued growth, there is an
obligation for the corporation to meet the demands of that society rather
than just the demands of a targeted group of customers.
http://mybussethics.blogspot.com/2012/06/business-ethics-corporatesocial_6263.html