Business and Society: How Much Responsibility a Company Carries

Why the question of responsibility is being asked anew

Twenty years ago, an owner asked about their social responsibility would probably have answered: good work, wages paid on time, taxes paid, and a donation for the village fair in summer. Today, further expectations have been added. Large customers send questionnaires on human rights and emissions, applicants ask about values, banks about sustainability, and every statement a company makes is judged on social media.

At the same time, policymakers have withdrawn some of these expectations. In 2026, the EU restricted sustainability reporting obligations to large companies, and supply chain due diligence obligations now apply only to very large corporations after the omnibus amendment, as Supply chain act and EU directive describes. For small businesses, however, the question remains, because it reaches them through customers, employees, and their own town.

Put simply, the question is: How much responsibility toward society does a small or midsize business carry, and where does it end? To answer it, we contrast two classic answers, explain Carroll’s level model, look at what research knows about small businesses, and finally draw a line that can be applied in everyday business.

Two classic answers: Friedman and Carroll

The best-known narrow answer comes from the economist Milton Friedman. In a 1970 essay, he wrote that the social responsibility of a business is to increase its profits as long as it stays within the rules of the game, that is, engages in open and free competition without deception or fraud. A manager who pursues social goals with the owners’ money is spending other people’s money, which he has no right to decide on. Social goals are a matter for politics and individual citizens.

The best-known broad answer comes from the management scholar Archie Carroll. In 1979, he defined a company’s responsibility to society with four categories, which he presented as a pyramid in 1991. In a 2025 retrospective, he stresses that economic responsibility remains the foundation: without profit, a company cannot fulfill any of its other tasks. The pyramid therefore does not replace Friedman’s answer; it builds on it.

Friedman and Carroll agree on one point that is often overlooked: a business that does not make money helps nobody.

The mental model: Carroll’s pyramid of responsibility

Carroll’s model arranges a company’s responsibility into four levels that build on one another. The most important idea lies in the right-hand column of the table: the levels differ in how bindingly society demands them.

An everyday analogy makes the levels tangible. A good neighbor pays the rent first, or they will soon live elsewhere. They follow the house rules because they apply. They say hello, help carry things, and give notice when they will be noisy at night, although nobody requires it. And sometimes they bake a cake for the courtyard party. Someone who only bakes cakes but does not pay the rent and ignores the house rules is not a good neighbor.

In his original model, Carroll also describes how companies can respond to social expectations: reactively, defensively, accommodatingly, or proactively. For small businesses, this distinction is useful because it shows that responsibility is not only a question of what, but also of how and when.

What research shows about small businesses

Research on the responsibility of small businesses repeatedly arrives at a similar picture. Small businesses often act responsibly without calling it that. Owners know their employees, are known in town, and are judged there by their behavior. Tomasella and Ali (2019), in interviews with 24 owners of small food service businesses in Sheffield, found that personal values and hospitality determine how these businesses perceive responsibility and that this benefits the business in the long run.

Mette Morsing and Laura Spence (2019) describe a downside. They distinguish implicit responsibility, which resides in values and habits without being reported, from explicit responsibility, which is made visible in programs, reports, and labels. When large customers press their small suppliers to put their quiet responsibility into reports, the authors see three dilemmas arise: responsibility becomes a selling point and loses authenticity, values are controlled from outside, and the business’s self-understanding is disrupted.

The worked example is not a measurement, but it makes a point the debate often overlooks. The largest social contribution of a small business is secure jobs, paid contributions, and proper work. Donations and sponsorship are visible but small by comparison. How an owner thinks about the well-being of their employees is discussed in Responsibility for employees.

Two views: as little as necessary or as much as possible?

The first view follows Friedman. A small business has limited means, and every euro spent on social purposes is missing for investment, wages, or reserves. Setting social goals is the task of politics, not of the owner. Whoever runs the business properly and follows the rules has fulfilled their responsibility. Anything beyond that is a private matter and should not be sold as an obligation.

The second view follows a broad understanding. A business uses roads, schools, skilled workers, and trust that others have created. Laws lag behind reality, and where they are missing, the entrepreneur’s decency decides. Small businesses are also part of their town, and their reputation there depends on more than price. Responsibility beyond the law is therefore not a luxury but part of business.

I consider both views incomplete and see the balance in Carroll’s distinction of bindingness. Friedman is right that the lower levels are the foundation and that a business does not have to make policy. But he underestimates the third level. Decency beyond the letter of the law is not a voluntary extra but an expectation by which customers, employees, and neighbors judge a business. Where rules are missing, what Doing business decently describes applies: things usually become unethical not out of malice, but because nobody notices that it was an ethical question. The fourth level, by contrast, is truly free. No business owes society a sponsorship.

Where responsibility ends

A line that works in everyday business can be derived from the pyramid. It has three parts. First, a business’s responsibility does not end at its own door, but it begins there: with wages, safety, quality, and honest advice. Second, it extends as far as the business actually has influence. A small business can do something about the working conditions of its direct suppliers, but usually little about raw material extraction on the other side of the world. Third, it ends where the business itself would be endangered, because a business that puts its existence at risk loses the foundation for all other levels.

1. Check the foundation

   Are wages, contributions, safety, and quality in order? Gaps here weigh more heavily than any engagement.

2. Take laws seriously

   Are there rules that are interpreted generously day to day, for example on working hours, data protection, or warranty?

3. Name the gray areas

   Where does the business act according to the letter but not the spirit of the rules? Where are rules missing, and how are decisions made there?

4. Define the sphere of influence

   What can the business actually take care of: its own employees, direct suppliers, its own town?

5. Choose voluntary engagement deliberately

   Choose a few engagements that suit the business and can be sustained over time, rather than many small gestures.

What carries over and what does not

For communication, the finding of Morsing and Spence suggests caution. Whoever makes responsibility visible should stick to what can be substantiated. A small business does not have to write sustainability reports, and claims without evidence are becoming increasingly expensive, as Greenwashing shows. Where large customers demand evidence, a sober answer helps more than a glossy brochure, as Sustainability as a selling point describes.

The limits of this essay are clear. Carroll’s pyramid is an ordering model, not an empirically tested theory, and Carroll himself writes that no metaphor is perfect. The studies on small businesses cited are qualitative and come from Britain. The worked example uses freely chosen figures. And exactly where the line between expected and voluntary responsibility lies is also a question of culture and place.

Conclusion: how much responsibility a business carries

To the guiding question: a small or midsize business carries responsibility at four levels. Society requires it to be economically sound and to comply with the law. It expects it to act decently where the law is silent or regulates only the letter. It desires engagement beyond that, but the business does not owe it. Responsibility extends as far as the business has influence and ends where it would endanger its own foundation. Friedman was right about the foundation, Carroll about what stands on it. Research on small businesses adds that much of this happens quietly and does not become worse just because it is not in a report.

A business’s social responsibility rarely shows in its sponsorship. It shows on an ordinary Tuesday, when nobody is watching.