Ethics and Morality of Business: Corporate Social Responsibility - Assignment Example

? Ethics and morality of business: Corporate social responsibility Corporate social responsibility 0 Introduction Corporate social responsibility (CRS) can be defined as the way business organisations conduct their business activities with the aim of producing an overall impact on society (Gupta 2009). Other scholars have defined CSR as the continued commitment of a business organisation to ethical behaviour and participate in social welfare of the society by improving the quality of life of the local community. CSR entails not only serving the interests of the shareholders, but also considering the welfare and interests of employees, the society, suppliers, the local communities and the ecological environment (Gupta 2009). CRS has become an integral part of wealth creation and enhancing the competitiveness of business organisations. Modern companies have integrated environmental and social concerns in their business operations and in maximizing the wealth of the shareholders (Gupta 2009). The doctrine of CSR emerged in 1950s. Many scholars have argued for and against the case of CSR from either business point of view or the ethical point of view. Friedman argued that each individual should maximize his interests alone in order to enhance the cumulative welfare of the society (Friedman 1970). The paper will mainly dwell on the debate surrounding the value of CSR in business from both business interest and ethical perspectives. The paper will be divided in to three sections. The first section is the introduction on the history of corporate social responsibility, and the second section will discuss arguments for and against social responsibility. The last part of the paper will deal with the value of corporate social responsibility in organisations. Some of the critical questions that will be explored include whether CSR contributes to the welfare of society or business and whether it is acceptable for business organisations to engage in ethical and social activities with the aim of accruing business success (Werther and David 2011). 2.0The case for corporate social responsibility (CSR) The concept of corporate social responsibility has attracted a wide definition. Business organisations should go beyond their legal and economic requirements in implementing activities and policies that confer social benefits to society. a. Promotes long-run business self-interests One of the arguments for case of CSR is the promotion of long-run self-interests of business. Keith Davis and Carroll argued that it is in the best interest of the business organisations to engage in social programmes in the community. The local community provides the demand for the goods and services thus socially responsible firms will easily attract customers for their products (Carroll, A.B and Shabana 2010: 101). CSR will also enable the business easily reduce the recruitment costs and attain employee loyalty through improving the welfare of the society. CSR will facilitate reduction of social problems such as crime thus leading to reduction in taxes that have to be paid by the corporate since governments need to support security forces to protect the business property. The proponents of this argument, a socially responsible business will experience low costs of production in the long term due to the improved welfare of the local communities and society. Reduction of costs and risks will enable the firm attain a cost leadership advantage in the market. Unique CSR activities such as equal employment policies will reduce the costs associated with labor recruitment thus leading to competitive strength of the firm in the market (Ward and Smith 2006). b. Leads to improvement of public image Another business interest argument for CSR that has been put forward is the improvement of the public image and reputation of the business. All business organisations desire to have the best public reputation in order to attract and sustain customers and employees. Since the society and local communities desire the social goods like schools and hospitals, business organisations should capitalize on the provision of the social programs in order to enhance the recognition and public image in the society. CSR activities will strengthen external relationships with stakeholders such as customers and suppliers. For instance, these social initiatives enhance brand loyalty and attract investments in the firm. According to Smith (2005), investors will prefer companies that stick to their mission and goals through corporate governance, employee relations and environmental stewardship. Firms can only increase the wealth of shareholders if only they conform to the expectations of other stakeholders like the employees and society in general (Mallin 2009). c. Ensuring long term business viability The third business interest argument for corporate social responsibility is ensuring the viability of the business. The local community provides the framework for the existence of businesses. Businesses exist to serve the expectations of the society. The charter of existence can be terminated thus the business should serve the needs of the society in order to survive in the long-term. The business should utilize its resources according to the expectations of the society in order to thrive in the long term. According to Iron Law of responsibility, if business organisations fail in the social roles, the society will dilute their economic power and allow other responsible firms enter in the market in order to assume the social responsibilities. In this regard, business organisations should balance the social power granted the society with their social responsibilities to the society in order to ensure long term business survival (Freeman and Liedtka, 1991: p 96). Firms can utilize CSR activities to differentiate their business strategies and gain a competitive edge in the market. Companies that attain long term survival in the society do so through improved marketing abilities, brand loyalty, established customer relationships and empowerment of the employees. For instance, companies like McDonalds and Coca-Cola engage in CSR activities with the aim of improving the welfare of local communities. Companies should preserve their core capabilities by participating in CSR activities in areas where they have competence. For instance, consulting firms should offer charitable services to local populations and education institutions while Health organisations should offer health related information and care to the society for free (Mallin 2009). CSR activities build the legitimacy of the firm. For instance, cause marketing will improve the legitimacy and reputation of the business through charitable giving and stressing out the benefits of the product. Burton and Thakur (1998) asserts that companies will demonstrate to the society their goals of meeting the interests of all stakeholders like meeting the profitability objectives and enhancing the welfare of the society. The buy (RED) initiative is one of the credible cause marketing CSR initiatives that enable the participating companies to demonstrate their moral obligation to the society since they donate a percentage of the profits from the consumer purchases through donating towards the purchase of antiretroviral medicine for need AIDs patients in Africa. Cause marketing aligns the competing business objectives together thus satisfying the needs of all stakeholders. d. Avoidance of strict government regulations Another argument for the case of CSR is the need to avoid government regulations. Legal requirements restrict the business decision making process. This argument takes a political philosophy view since democratic governments decentralize power thus requiring business organisations to use the social power in improving the social welfare of the society. Socially responsible business organisations are able to convince the government to not introduce stringent new legal constraints on their activities (Crowther 2003). e. Socio-cultural norms According to this argument, business organisations are guided by the same cultural constrains and requirements in the society just like individuals. Social cultural norms control the activities of individuals and business organisations. Changes in social norms also require businesses to adapt and comply with the changes in norms. Many managers desire to attain success and make decisions with the guidance of their social norms like the need of improving the social welfare of the society (Carroll, 1991: 45). According to utility theory, the business will have multiple goals to accomplish at the same time. While the core goal is to make a profit, the business will weigh the profit maximization goal against other secondary goals such as enhancing the welfare of employees and utilizing natural resources like water efficiently. Business decisions are usually influenced by the desired goals such as attaining public image and improving the welfare of the society. According to Suchman (1995), the actions of any firm are desirable and acceptable within the society if they conform to the societal norms, beliefs and values. The firm will be able to operate while conforming to the norms and meeting the expectations of all stakeholders (Crowther 2003). f. Enlightened self-interest argument (ethical approach to CSR) Mintzberg offers an ethical approach to corporate social responsibility. He believes that some people are more enlightened than others and the business community will benefit as a whole from engaging in social causes in the society. For instance, he asserts that the crime levels in the society will reduce thus leading to reduction in tax expenditure utilized in safeguarding the firm’s property. A better society offers a favourable environment for business activities. The main argument is that the society is the neighbor of the firms and should be treated well if the business wishes to have a favorable operating environment (Mintzberg, 1983: p 14). g. Social investment theory Edward Bowman offers an instrumental approach for the case of CSR. He asserts that corporate social behavior acts as a ‘neo-invisible hand’ that influences the stocks prices of the firms. His theory demonstrates that CSR activities do not conflict with investors interests since social initiatives enhance the stock values. CSR activities will boost the stock prices since many institutional investors desire to invest in socially responsible firms. Companies that pursue economic objectives only are considered riskier investments by churches and universities (Mallin 2009). 3.0 Arguments against corporate social responsibility Although the doctrine of corporate social responsibility is generally accepted as a worthwhile cause in ensuring the long term interests of firms, it also suffers some limitations and criticisms. CSR activities are hardly rewarded and lead to empowerment of the consumers thus reducing the bargaining power of the business organisations (Mallin 2009). a. Competing claims and role of profits Friedman postulates that CSR is a misguided notion according to the fundamental purpose of business in a free economy. Firms should be judged according to their economic objectives alone and not social activities (Davis 219). Businesses should maximize profits through ensuring efficient utilization of resources. Friedman is of the view that consideration of any other factors that lead to decline in the profitability such as CSR activities will impair the profitability and return to the shareholders who are the real owners of the firm (Hillebrand 2008). b. Competitive disadvantage argument According to this argument, CSR activities will entail sacrificing the profits of the firm thus leading to a competitive disadvantage. Social initiatives should be the work of the government and not business organisations. Accordingly, firms are not accountable for the social welfare of the society (Mallin 2009). It is the role of the government to implement a regulatory framework that safeguards the interests of the public. All firms in the industry should have the same playing ground since CSR activities by one firm will lead to competitive disadvantage of the other firms. The primary duty of providing public goods lies with the government and not business organisations (Carroll 2009). c. Competence argument against CSR According to Friedman, businessmen do not understand any other responsibility other than profit maximization. Businessmen lack the skills to deal with social issues and their training is within economic objectives (Mallin 2009). Corporations lack the technical skills to deal with social issues and the government is better equipped with dealing with social responsibility activities. Corporations cannot identify what is good for the society, and any incompetent social initiatives will be a waste of the shareholders’ wealth. Businessmen should stick to activities that they are competent thus firms should balance the social needs with the economic objective. d. Fairness argument against CSR According to Friedman, engaging in both social activities and economic activities will threaten the division of power among institutions in the society thus reducing the free nature of the society. The corporations will eventually entrust themselves with unnecessary social power thus which they can inappropriately apply to the lives of individuals in the society. Corporations are some of the most powerful institutions in the society and engaging in social activities will exert more power that they can misuse against the society (Banerjee 2007). e. Legitimacy (role of government) argument against CSR This is a weighty argument against the case for CSR. Corporations support the government through payment of taxes that governments have legitimate social concerns. All non-economic contribution by firms should be voluntary since this amount to encroachment of government’s obligation. CSR activities reduce the government’s legitimacy for existence and role in society (Schermerhorn 2011). f. CRS is illusionary and public relations affair According to the ethical argument against CSR activities, social responsibilities do not add any value to society. CSR activities appeal to the desires of the public thus aiding the firms to build brand loyalty. CSR activities will only greenwash the firm’s image through saturating the advertising media with the positive reputation of the firm CSR activities. Companies will be capable of claiming a positive progress in improving the welfare of the society despite any tangible evidence on the social impact of the CSR activities in the society. The case of ExxonMobil reinforces this argument that CSR is nothing more than a public exercise that make corporations make false and misleading statements in defending their public image (Smith 1990). g. CSR is a strategy of avoiding government regulation Another ethical argument against CSR is that corporations will participate in social causes in order to lobby the government to avoid imposing more regulations. Corporations have a long history of destroying any attempts by the government to introduce international regulations (Mallin 2009). A clear example is International Chamber of Commerce (ICC) that lobbied against legal emission targets contained in the Kyoto Protocol. If corporations are responsible, it begs the questions as to why many of them restrict any government attempts to introduce regulations that compel them to promote the best practices. Companies that participate in social responsibility activities do not do so because they believe it is moral and ethical to do so, but they only aim at diverting the attention of the public from their bad practices such as air pollution and employee harassment in the workplace (Schwartz 2011). Corporations are not artificial persons thus they lack rights that it will be imprudent to describe them as ‘corporate citizens’. Such attempts of referring firms as citizens with feelings and legitimate social responsibilities should not be acceptable since it diminishes their primary economic objectives and forces them to behave in a moral manner (Bacher 2007). 4.0 Conclusion In my view, there are numerous indicators of success and well-being of firms other than profitability. Pursuing social responsibility will increase the profitability of the firm in the long-term. Efficient use of business resources will require firms to allocate resources and monitor the social consequences of their decision-making. CSR activities such as non-discrimination in employment and environmental conservation initiatives such as avoidance of air and water pollution will enhance the wealth of shareholders in the future through reduced risks and costs. Business decision should be a mixture of both economic interests and good social stewardship. Managers should make decisions that meet the expectations of all stakeholders including the public regardless of the economic costs involved. Since the society provides the market for the products, the labor, and the charter of existence, the managers should meet the social expectations of the society. Social norms, values and beliefs define the expectations of the society thus CSR activities will add value to the firm through improving the reputation of the business and reducing the overall costs of business operations in the society. Corporations should seek win-win outcomes through pursuing business decisions that improve the welfare of all stakeholders. The managers should consider the differing interests of all stakeholders in their decision. I agree with Porter that companies attain competitive advantage through charitable education that will also improve the talent of human resources that the firm would wish to recruit in the future. Drucker also clearly points out that corporate philanthropy ultimately turns the social problems in the society to lucrative business opportunities, productive workforce and higher economic wealth creation. Despite the misgivings, CSR adds value to both the firm and society. For instance, McKinsey & Co has attained a reputable global image through offering free consultancy services to education institutions and non-governmental institutions. Companies that participate in CSR activities eventually increase their profitability due to enhanced relationships with customers, employees, reduced regulation and good reputation in the society. It is prudent that firms engage in social goals in order to gain a competitive edge and ensure sustainability of their economic activities in the society. Bibliography: Bacher, C. 2007. Corporate social responsibility. Munchen. Verlag. Banerjee, Bobby. 2007. Corporate social responsibility: the good, the bad and the ugly. Cheltenham. Edward Elgar. 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