The late Milton Friedmann once argued that "in a free enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers.

That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both of those embodied in law and those in ethical custom.

Many free market thinkers have invoked these arguments advanced by Friedman to argue that corporations have no role in society besides making profit while producing goods and services of the highest quality.

Friedman, a Nobel Prize economist noted in the same 1970 essay that these arguments were not inconsistent with a factory building some public facilities in the town it is located. After all, it was in the interest of the company to have access roads and other utilities to be able to conduct its business affairs.

The fact that these utilities had dual use for the company and its residents was Friedman's version of a company's social responsibility. Friedman's arguments in this regard are known as the classical theory of corporate social responsibility. It is a narrow concept since the shareholders are the primary and near exclusive constituency of the corporation and its profit making goal rises above all others.

Friedman's essay was written during the height of the cold war and together with some of his writings of the period, were some of the best refutations of government control of business and the economy. That is why Friedman argued that road construction and other public amenities were the concern of government and not of the private sector.

Unlike Friedman's classical theory, modern understandings of corporate social responsibility are premised on the fact that companies have roles that are ancillary to and indirectly related to their profit making objectives.

Under this understanding companies are regarded as citizens in an economic community. The community is therefore not just a company's shareholders or even its customer base. Rather a company's constituency includes the community that the company must relate to in order to win good will and a favourable business environment.

Thus our leading corporations have a business credo and institutions to support good works. Many companies have established foundations to engage in such activities.

Under this modern understanding of corporate social responsibility, companies can justify funding causes such as universities on the premise that they are preparing the kind of workforce and business leaders that strong fountains of knowledge are created to produce. Supporting public welfare initiatives incidental even if only remotely to the primary objectives of a corporation therefore fall within this modern understanding of corporate social responsibility.

That is why after the post-election violence earlier this year, company after company donated to the plight of those internally displaced and affected by the crisis.

These humanitarian gestures demonstrated that these companies understood themselves as members of the Kenyan community. This giving happened notwithstanding the fact that our Companies Act does not require them to undertake such public interest and welfare initiatives. This is because charitable, benevolent and philanthropic objectives have become an expectation of our public corporation.

In 2002, the Capital Markets Authority issued guidelines on good corporate governance for listed public companies. They are largely unenforceable and do not in any event say anything about corporate social responsibility.

Similarly, the Central Bank of Kenya's Prudential Guidelines for Institutions licensed under the Banking Act do not address issues of corporate social responsibility.

In recent times, the Kenya Bureau of Standards has been involved in drafting some guidelines on corporate social responsibility. These standards as well as those that companies have voluntarily adopted and the voluntary ISO standards being developed form a backdrop against which to measure corporate social responsibility.

One cannot of course forget here the numerous efforts of the United Nations to promulgate guidelines on the behaviour of multinational corporations. Such recent efforts include the Global Compact and the UN's Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights.

Corporate giving for purposes indirectly related to a corporation's profit making goals may be controversial. However, a company's responsibility to comply with the law should not. In fact, the kernel of corporate social responsibility as understood by classicists such as Friedman regard compliance with the law as a supreme objective of a company.

That is why we expect our companies to comply with laws prohibiting corruption, economic as well as financial crimes. Our companies must also comply with other laws passed by parliament including those contained in our bill of rights.

This responsibility attaches to all citizens whether natural or corporate. Compliance with environmental laws remains a big challenge for our companies. One need only visit those gapping excavation sites for building stones, sand and other building materials around the country to witness the height of corporate irresponsibility.

A draft Companies Bill lying in the Kenya Law Reform Commission provides that the objectives of a company are unrestricted. This provision if passed into law would remove a major potential impediment to corporate social responsibility. This is because shareholders intent on enforcing the current law may argue companies engaging in corporate social responsibility such as giving are exceeding their legally mandated objectives. This is known as the ultra vires doctrine.

While it may be dead in practice, it is still alive and well in our statute books. As the Kenya Law Reform Commission continues soliciting comments on the humongous draft Companies Bill, it could well consider amplifying the provisions relating to corporate social responsibility. For example, would it not be wise and prudent to limit reasonable corporate giving to say one per cent of capital and surplus unless the board of directors got shareholders to approve additional giving?

There is nothing that prevents the new law to provide that corporate giving not only be reasonable in relation to a company's interest but also to bear some reasonable relation to the company's financial condition.

That way, directors would be restrained from abusing their discretion to decide on such matters or only to give to pet charities or engage in such other conduct that would run counter to the objectives of corporate social responsibility.

Gathii is the Governor George E. Pataki Professor of International Commercial Law and Associate Dean for Research and Scholarship Designate at Albany Law School, NY.