Corporate Social Responsibility Ideas of M. Friedman - Essay Example

?Corporate Social Responsibility Corporate social responsibility or CSR is a process through which a corporation balances its environmental and socio-economic responsibilities within its functional operations in order to meet the expectations of various stakeholders and shareholders. CSR is often referred to as corporate ethics, corporate accountability, corporate responsibility, and triple-E bottom line (environmental, ethical and economical). CSR is a part of current management practice, which is important to modern business operations and often imbibed into a corporation’s values and activities through its strategies, decision-making processes, work culture, values, and reporting methods. CSR has however remained a debatable topic, as regards actual role played by corporation within societies, as firms have attempted to minimise their CSR roles or devised ways to use social responsibility as another method (a branding tool) for increasing their profits. Milton Friedman has been a major proponent of anti CSR movement, and has written articles, which are considered as seminal pieces of work against CSR and corporations that promote CSR. This is evident in his 1970 article, “The Social Responsibility of Business is to Increase its Profits,” published by The New York Times Magazine in 1970, where he claimed “businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades” (Friedman, 1970: 1). He further suggested that social and economic goals are distinctly different entities for any corporation and the two cannot work hand in hand. In this context, the article will explore Friedman’s ideas in the light of different views about the nature of the corporation, as discussed by Klonoski’s (1991) in his article, “Foundational Considerations in the Corporate Social Responsibility Debate.” The researcher’s stand that CSR is an important part of modern business strategy will be illustrated with examples from scholarly articles and real life instances. Discussion There is a great deal of significance associated with the concept of CSR, as conducting business is a process selected by society for manufacture and dissemination of products and services. Initially, it was felt that any business firm could ful?l its social obligations by merely sustaining in the competitive market and optimizing their pro?ts. The business firms could use all social and natural resources for making profits simply by adhering to the basic governmental rules imposed for controlling malpractices. The existing market system created a framework essential for monitoring and controlling the system, while pro?ts guaranteed efficiency and incentives. Under this system, self-interest and ethics (workplace and individual) formed to be main guiding principles for a corporation’s operations. Therefore, by generating pro?ts, firms helped in growth and development of a country’s economic system that in turn created a scope for increased employment and income generation for more people (Beck, 1992). Therefore, CSR was limited to improving the bottom line, and it was generally acknowledged that a business firm would fail to survive without making pro?ts; hence, the question of assuming a social role was never raised. It was only recently experts opined that besides having profit-making goals (or economic objectives), corporations must work towards addressing certain public expectations, that is, aim at social welfare. Owing to this, the very concept of social responsibility associated with pro?t optimization underwent changes, and social and economic goals both received equal attention. Buchholz (1991), while defining CSR, distinguished ?ve main elements that delineate the term. These are: Business firms have obligations that go beyond manufacturing products and providing services at a financial gain; These obligations help to resolve significant social issues, especially ones created by the firms themselves; The impact from the operational activities of business firms go well beyond financial transactions and profits; Business firms have a wider commune than their stockholders; With a focus on social values, corporations tend to provide for a broader range of ethics and values that cannot be captured by focusing only on financial values (Buchholz, 1991: 19). However, according to Friedman, instead of corporations, individual people hold responsibilities towards society. Individual employees are under obligations to help their employers in achieving their objectives, which are primarily associated with making profits. In this context, Freidman contended that an individual employee might have certain perceived obligations associated in areas not related to business. Freidman refers to these obligations as “social responsibilities…[however] in these respects he [the employee] is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibilities," they are the social responsibilities of individuals, not of business” (Friedman, 1970: 2). Friedman in his analysis tends to dissolve the representation of businesses into individual businesspersons and presents them as groups of individuals employed to follow the owners’ instructions. Therefore, employees should solely aim to carry out their obligations towards generating more profit for firm owners and not show concern as regards firm’s role in social welfare. Here Friedman implicated that there should be no place within the realms of the free market for an individual working with a social conscience. While from an economic perspective this argument seems logical to some extent, Friedman’s delineation of CSR from an overall perspective appears narrow and rather strongly focused on the aspect of business within a free market, which is archaic for contemporary business notions. While making logical and theoretically valid points during dissolving the business representation, he fails to take into consideration a major shareholder: the public (comprising of consumer segment), which form an important attribute of CSR. While Freidman may have viewed corporations in a factual manner where employees work to make only financial benefits for the owner, public (consumers) perception may not be the same. They would view the corporation as a single entity (including owners and employees) and an error in judgement (by an employee) leading to a social disaster, would be seen as a mistake of the company as a whole (not just the employee). This was evident in DOW Chemical’s disaster in Bhopal-India, where anti-CSR polies followed by a few in the management level led to environmental disaster killing thousands of innocent people and paralysing many more, and the incident still garners strong negative social reviews for the firm, both in India and in other foreign countries. There are many such instances, which distinctly reveal that while economic benefits of CSR remain unexplored largely, a negative CSR policy followed by a business firm can cause a fall in its profits. As for example, Nike is still facing “the backlash of a UK-instigated campaign that accused it of employing child labour in developing countries... [and despite its current positive CSR policies] in a recent survey of most ‘ethical’ brands …Nike did not appear anywhere in the UK ranking” (Russell-Walling, 2007: 47). In his analysis, Drucker (1992) while agreeing that economic objectives are one of the most important concerns of a business firm, also contended that Friedman’s emphasis on generating profits (for overall social benefit) appears as a shallow concept, especially in the context of modern globalisation and business strategies. He stated that “A business that does not show a profit at least equal to its cost of capital is irresponsible…But economic performance is not the only responsibility of a business…Every organization must assume responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. That is social responsibility” (Drucker, 2012:75). Here it is clear that Russell-Walling and Drucker believed CSR to be an important part of business strategy, even though financial profitability (as emphasised by Friedman) also remained a significant objective. In this context, Klonoski (1991) reviewed the social nature of corporations, in order to find the significance of CSR within modern business strategies. Klonoski proposed three basic theories, as regards shareholders perspectives towards business firms: amoral, personal, and social. Amoral view: This is traditional viewpoint where a corporation is deemed as a “highly individualized rights bearing economic entity designed for pro?t making and legitimatized by the laws governing incorporated businesses” (Klonoski, 1991: 16). Supporters of free market and theorists that endorse legal standards have this viewpoint, where CSR is of little or no value. The amoral perspective (different from an immoral viewpoint) refers to a situation that is neither immoral nor moral, and lacks any moral principles, restrictions or standards. Thus, according to this theory, business firms need not take into consideration any moral responsibilities for social and environmental welfare, which however provides an incomplete perspective of corporation operations. Enron, which faced bankruptcy, provides an example that shows ethical (social) views should not be substituted by legal (amoral) views (Heath, 1997) The Personal View: This perspective involves around the discussion, as whether business firms are complete moral persons or mere moral agents. Since corporations are collectives that function as individuals, they also exist as legal individuals, hence liable for their activities. When corporations are viewed as persons, they become responsible for their own actions (thus, morally accountable), in a similar manner in which individuals are held responsible for their own actions. Theorists who do not view corporations as individuals (Freidman 1991; Manne 2006) contended that moral punishments or sanctions cannot be imposed on corporations, and only individual employees are responsible for judgement errors. The personal view, which is placed between social and amoral views, leaves the issue unresolved. The Social View: According to this view, activities of any business firm take place within a social context, where the firm is viewed as a social institution with social and environmental responsibilities; since individuals working here collaborate to achieve goals associated with product and service provisions. In the modern context, corporations are able to operate only because they are allowed by society to function in that form, and a majority of experts feel that modern corporations operate within social view of CSR and not within the amoral view, since the latter provides an incomplete perspective. Another perspective that shows the importance of CSR is Carroll’s pyramid, a theory that conceptualises social responsibility should be acknowledged by all conscientious business firms. According to Carroll, there are four kinds of social responsibilities—philanthropic, ethical, legal and economic (fig 1). Fig 1: “The pyramid of Corporate Social Responsibility” (Carroll, 1991: 42). Carroll’s pyramid is one of the first management theories that integrated economic and social responsibilities of a business firm (which Freidman denoted to as two separate entities within a corporation). Current researches also endorse consideration of social (intangible) and economic (tangible) responsibilities where: 1. Social (ethical) and economic (pro?ts) responsibilities are not two different entities; 2. social and economic responsibilities are often integrated and cannot be separated; 3. Corporations that integrate CSR with business strategies outperform corporations that perform solely based on economic objectives (Cochran, 2007). Conclusion CSR has been in practice for a long time and is not considered a mere trend, but an important business strategy, essential for a firm’s success within modern socio-economic and business environment. Friedman in his article fails to take into consideration the herd instinct of humans, and hence separates the social and economic aspects and objectives of a business firm. Failing to comprehend this human instinct, he overlooked the various chances presented by CSR that help a business firm resolve various social issues without actually undertaking any risks and facing economic losses. References Beck, U, 1992. Risk Society. London: Sage.  Buchholz, R., July-August 1991. Corporate Responsibility and the Good Society, from Economics to Ecology. Business Horizons, 19-31. Carroll, A., 1991. The pyramid of Corporate Social Responsibility: toward the moral management of organisational stakeholders. Business Horizons 34 (4), 39-48. Cochran, P., 2007. The evolution of Corporate Social Responsibility. Public Relations Review 50 (4), 449-454.  Drucker, P., 2012. Managing in a Time of Great Change. NY: Routledge. Friedman, M., 1970. The Social Responsibility of Business is to Increase its Profits. New York: The New York Times Company. Heath, R., 1997. Strategic Issues Management. London: Sage. Klonoski, R., 1991. Foundational Considerations in the corporate social responsibility debate. Business Horizons 34 (4), 9-18.  Manne, H., November 24 2006. Milton Friedman was right; Corporate Social Responsibility is bunk. The Wall Street Journal. Russell-Walling, E., 2008. 50 Management Ideas You Really Need to Know. London: Quercus Publishing Plc. Read More