Social Responsibility in Business - Essay Example

Social Responsibility in Business Introduction CRS ought to be a win-win situation. Corporations get profits and the society also benefits. However, who actually wins? Supposing the society benefits, which in most cases is suspicious, is the benefit to the society outweighed by huge losses to the society in some other aspects of the corporation’s operations where the corporation gains as a result of these losses? CSR had hidden intentions, Goodpaster (1996) notes that one study revealed that more than 80% of corporations got involved in CSR as a way of enhancing their brand image, while 77% used CRS as merely corporate philanthropy where they donate to charities. Most of these companies feel that they are giving away shareholders money, but they do so when they feel that there is a potential for them to gain in future. It is against this background that some observers argue that “Profit maximisation is the only realistic criterion by which business organisational effectiveness can be reasonably judged”. This easy critically evaluates this statement, and supports the statement on the basis the following points, competing claims, competitive disadvantage, lack of competence, legitimacy of CSR, and fairness aspect. Competing interests As Friedman (1996) reminds us, the idea of social responsibility in business is a major misconception of the way free economy operates. He adds that the role of a business is economic and not social. Thus a business should be directed and evaluated on economic basis only. Activities directed by any other objective apart from profit maximisation, interferes with the economic objective of the business and correspond to taxation on the financing such activities, most possibly the stockholders. In supporting this view Simon, et al. (1983) restates that the role of a business is to make profit and capitalise on social wellbeing of the people. They add that concern for any aspect other than making profit either leads in intentional forfeiting of profits or blurs the processes of corporate decision making in order to meddle with profitability. Thus, to borrow the words of Silk and Vogel (1976, 54) “in short, the corporation will best fulfill its duty to society by fulfilling its obligation to itself”. Today, corporations are under a lot of pressure from different stakeholders to spend more money on CSR. The pressure comes from shareholders, particularly institutional ones (Somerville, 2006) from employees on recognition of their rights, including health and safety, zero-layoff, stock ownership and promotions. Consumers on the other hand demand better products, low prices and greater information on products, while communities want businesses to take care of the environment, reduce pollution, support community projects, contribute to charities within the community, offer special training and employment and allow managers to work for free on public boards and other non-business duties, all these in the name of CRS (Goodpaster, 1996). Yet, at the same moment, competing pressure for better financial performance comes from investors who want maximum returns on their investors. In deed, as noted Goodpaste (1996) the wealth of majority of Americans families is currently closely linked to the stock market, and thus corporate managers are overwhelming pressure to do everything and anything to increase the share prices (Boatright, 1999). Thus, to avoid these competing interests and pressures, corporations should be allowed to do what they know best, make money, and satisfy the shareholders. Competitive disadvantage Competitive disadvantage is one other reason for not supporting corporate social responsibility. As suggested by Knowles, et al (1997) since social activities will cost the corporate, it results in competitive disadvantage. Thus, the government should take care of such activities, or at least enact laws and regulations that require all companies or industries to undertake similar social activities. Kiley (2001) reveal that such a viewpoint was among the main reasons why Alfred Sloan in 1929 refused to put safety glass to Chevrolets, though the glass was “one of the single most important protections ever formulated against avoidable automotive death, disfigurement and injury” Kiley (2001, 67) Mintz further explains that Sloan was worried about public concern over the safety of automobiles and he did not want to expose the dangers. In his communication with Lammont du Pont regarding the possibility of supplying the safety glass, Sloan pointed out that in spite of General Motors fitting their Cadillac and La Salles with the safety glass, the volume sales of Packard, a competitor to General Motors were not affected in any where. Thus, Sloan concluded that he did not think that from the viewpoint of the shareholders, the move by GM was justified (Kiley 2001). Kiley (2001) explains that Sloan remained unwilling to fit the safety glass though he understood that they will eventually be required at sometime, he simply did not wish to hurry them. He argument that the fitting the glass then would reduce the profits of not only his company but also those of his competitors. Even though when Du Pont pointed out that Ford Motors had begun to fit the safety glass in each of their cars, Sloan answered that, it was not his duty to sell the safety glass. Carroll (2001)argues that the rejection of Sloan to fit the safety glass merely because it would add extra costs to the company yet his competitors did not have the same, could not be possible at the present moment since companies could request the government to stipulate minimum standards, thus preventing putting the company at a competitive disadvantage. However, where there no government regulation, it is clear that profit of the company will suffer if company gets involved in activities that does not add profitability. This issue of competitive disadvantage was also noted by Adam Smith who com done by commented that he has never known a lot of social responsibility by companies that are involved in making profit from the public. In spite of some supporters of corporate social responsibility arguments that the oligopolistic nature of most industries and increased consumer awareness makes it necessary for companies to get involved more in corporate social responsibility, this argument fails to point out that the main reason of businesses is maximizing profits. Novak, M. (1996) made the following observations, on the advantages and disadvantages of corporate social responsibility and pointed out that it is unnecessary for corporations to be involved in early response. Perhaps more importantly, is the acknowledgement that a number of companies in present times such as AIG, which have heavily been involved in corporate social responsibility, have posted big losses. Though, this can not be attributed to CSR alone, it is logical to argued that the huge sums of money spend on CSR contributed to loses the company has suffered. Competence Friedman poses an interesting question; he asks “if businesspeople do have a social responsibility rather than making maximum profits for stockholders, how are they supposed to know what it is?” Accordingly, this statement goes on to imply that corporations do have the required competences for corporate social responsibility. In contributing to this argument, Simon, et al (1983) identified three ways that can be used to support this claim of competence: one, companies lack the technical knowledge to tackle social problems. Simon, et al (1983) suggests that this will differ from one case to another, owing to the concept of last resort contained in the Kew Gardens Principle, which states that responsibility can only be legitimate when some other person can perform the work better. Two, as claimed by Simon, et al (1983) companies are not fully aware of what is good or bad for the society, but some institutions like the government have a better understanding of what the society wants; Three, incompetent efforts by companies to try and address social problems misuse shareholder’s money (Simon, et al (1983). This is very true as management is required to be accountable to the shareholders on what the company is doing. Shareholders are much more interested in the profitability of the company and not social efforts of the company. Bradshaw the President of Atlantic Richfied Company, contributing to this debate explains that corporations cannot take care of all social problems, and, in fact, in most cases should never attempt (Simon, et al. 1983). He went on to state nations are richly endowed with numerous institutions , and social change can effectively be achieved through these numerous institution but not through corporations that can effectively carry out social responsibility. He further argues that business people ought to focus on their competencies, though, they should note that the business environment is changing. Similarly, Silk and Vogel (1976) reported that views of managers at a conference board meetings agreed that if were to operate beyond their specialized field of competence they would constantly get into problems. The managers restated that they should not be expected to take responsibility for what they do not have knowledge about. Silk and Vogel (1976) underlined that a lot of social problems do not offer much possibility for solution by corporations. More so, it is not practical to expect businesspeople to take a leading responsibility in with balancing social requirements economic importance, since this would be conflicting with the political views of corporations. Thus, on the competency point, one could conclude that though to some extent corporations have a moral duty to minimal be involved in social activities, they are restricted by what they can offer, competent, and prepared to do. Fairness Friedman ones asked, it is acceptable that public duties of taxation, control, and expenditure be done by people who by chance are managing certain businesses, selected for those positions by private individuals? In this is unfair for people to expect businesses to take corporate social responsibility. Carroll (2001) was concerned about corporations taking the role of savior. Similarly, Jones (1997) asserts that joining social activities with basic economic activities of corporations would give corporations lot of power, which would end up threatening the pluralistic separation of powers which the institutions hold nowadays, possibly reducing the feasibility of this free society. In his contribution Levitt (1983) says that the corporations would finally put themselves in a lot of embracing responsibilities, duties, and eventually powers. He adds that corporations have narrow objectives and basically unsocial requirement. Big corporations acting according to the ideas of corporate social responsibility presents managers with more unrestricted authority over the lives of people in three different manners, Simon, et al (1983) explains that the corporation get powers in political action through lobbying, formation of private government , created within the organisations and lastly through smothering effect, through domination of business values. Economic role of business Goodpaster and Matthews (2001) observes that regarding to social welfare, individuals and charities offer a better alternative to governments and corporations. Thus, it should be the duty of individuals, and not corporations to offer social welfare requirements because for business to undertake these duties would be against the best interests of shareholders. As Goodpaster and Matthews (2001) notes, corporations are not welfare bodies, economic orgnisations with limited and specified responsibilities. The moment a business adds social objectives to existing demands by customers, workers issues and earning for shareholders, then the business suffers and shareholder starve. As argued by Benkert (1996) committing corporate resources to be used for social welfare is against an implied agreement with investors to maximize their earning and, amounts to stealing from shareholders. In a way, the shareholders are being taxed without their representation. There seem no cases where companies decide the specific social causes to aid. Furthermore, many corporations end up raising prices, laying off workers or reducing their salaries to remain profitable. Similarly, DeGeorge (1990) declares that corporations should not be left to take care of public welfare, since this would reduce, change or even eliminate critical aspects of public life. He adds that there is big danger in leaving corporations to take responsibility of social welfare since they already have huge powers and are not answerable to the public. Corporations should be left to do what they are competent of doing. Social welfare is the role of government The final argument presented in this paper against corporate social responsibility regards legitimacy. As pointed out by Friedman (1996) it is the concern of the government to address social issues. These sentiments were also echoed by one top executive who clearly pointed that the corporate pay governments very well. Thus the government should perform their duties and leave corporate to perform theirs. Likewise Silk and Vogel (1976) assert that, businesspeople feel “non business” payments or contributions ought to be voluntary and governments all over the world have justifiable and lawful social concerns, which are supported by corporations through taxes paid to these governments. Simon, et al (1983) established two key points in the above argument. One, unless corporations takes actions, the government will take action. with all the assistance disadvantages of government involvement pointed out by critics of government intervention of government, Simon, et al (1983) concludes that any involvement of the government through laws or regulations end up messing the business community. Two, as Levitt (1983) asserts, corporate intrusion in social issues is likely to be botched, which will finally result in government interference. This thus result in a drawback of government and business community interfering in private sector; again, a situation which is used to support the argument against corporate involvement in social issues. Though, some scholars argue that it’s only the government that can address market imperfections through its involvement, and hence regulations on social responsibility. Corporate can regulate themselves. In deed there are many internal and industry regulations that guide operations of business and thus there is no need for duplication of duties by the government. As Friedman (1996) outlines in his article “The Social responsibility of Business Is to Increase profits”, this paper has supported this view basing on five points it has clearly discussed above. These points are, competing interests, competitive disadvantage lack of competence, fairness economic role of business and Social welfare is the role of government. In deed in a free economy, the business has only one social responsibility, to apply its resources and get involved in activities meant to enhance its profits so long as it is operating within industry standards. Corporations have a duty to maximize the shareholders capital while following legal and ethical practices. As observed by Simon, et al (1983) solving social issues are the government’s role and social organisations, and not corporations. Friedman (1996) warned corporate leaders should avoid putting personal values in issues such as community projects or employees responsibilities when their profitability is under threat. In fact many corporations are today executing this warning as they close plants or branches that are non-performing and lay off workers as they restructure to ensure that they remain profitable even if employees lose their jobs. To conclude, though today corporations are under increased pressure to adopt CSR policies, many of them end up posting huge loses and even closing. Corporations should be left to do what they know best, make profits. Bibliography Carroll, A. B. (2001), “Ethical Challenges for business in the new millennium: corporate social responsibility and models of management morality,” in Business Ethics 01/02, Richardson, J.E.(Ed)., Dushkin/McGraw-Hill, Guilford, CT, pp.198-203. DeGeorge, R.T. (1990), Business Ethics, Third Edition, MacMillan Publishing Company, New York. Friedman, M. (1996): The social responsibility of business is to increase profits, in Rae, S. B., and Wong, K.L. (Eds)., Beyond Integrity: A Judeo-Christian Approach, Zondervan Publishing House, Grand Rapids, MI, pp. 241-245. Goodpaster, K.E. (1996): Business ethics and stakeholder analysis,” in Rae, S. B., and Wong, K.L. (Eds), Goodpaster, K.E., and Matthews, J.B. 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Silk,L & Vogel, D (1976):Ethics and profits: The crisis of confidence in American business:PublisherSimon and Schuster Simon, J.G., Powers, C.W., and Gunnemann, J.P. (1983): The responsibilities of corporations and their owners, in Beachamp, T.L., and Bowie, N.E.(Eds), Ethical Theory and Business, Second Edition, Prentice-Hall, Inc., Englewood Cliffs, NJ. Read More