A social contract is a mutual agreement between two parties. Social contracts reflect societal expectations from businesses, especially in the social aspect. The social contract theories in business hold that all businesses are obligated to improve the status of societies. In order to achieve this, businesses are required to have employees’ interests in mind without having to break the rules of justice in any given society. Social contract theories in business are derived from the traditional models of a social contract.

Theory of Extant Social Contracts

The theory of extant social contracts illustrates how business enterprises are portrayed using several existing social agreements that incorporate actual behavior standards derived from shared beliefs and goals with societal attitudes. These contracts present the views of societies in relation to proper behavior as set out by existing communities. This, therefore, implies that businesses are obliged to abide to these agreements as long as the agreements are ethically acceptable.

Business Ethics Theory

Among the key objectives in businesses is the importance of giving back to society, a role that has come to be known as social responsibility. Businesses have an ethical obligation toward members of a given society. The business ethics theory creates and embeds mutual agreement between members of societies and established businesses. The members of a society permit business to be created in these establishments for certain specified benefits that enhance the welfare of the societies. These benefits include economic efficiency, improved decision-making and improving the capacity of acquisition and use of modern technology and resources. This societal permission is equated to the acquisition of legal recognition and authorization for use of societal natural and human resources. All these, however, have to be carried out within the limits of the stipulated laws in these societies.

Traditional Concept Theory

The traditional theory explains the existence of an agreement that is embedded between a society and any entity created by man. In this case, a society accepts the existence and operationalization of these entities only if societal benefits are incorporated in them. This theory also is closely linked to political factors that ultimately explain the role of governments to societies.