Business Law and Ethics - Book Report/Review Example

? Business Law and Ethics Introduction Business exists to supply goods and services to s, rather than to supply jobs to workers and managers,or even dividends to stockholders. So basically, businesses exist to serve the needs of customers. If you have no customers, you have no business. So what about profit? Business school teaches us to maximize long-term shareholder value. Doesn't that mean maximize profit? (Philosophy of Business – What is the Purpose of Business?, 2005) Business is an activity which provides goods and services to others who demand it. We can classify the entire population in this world under two broad categories; goods/service providers and goods/service takers. Historically, the intention of all the non-charitable service providers or business people will always to maximize their profit at any cost. In order to maximize their profit, business people usually adopt different profit maximization strategies. This may include, setting higher prices, reduction of quality of the product or service offered, reduce the overhead expenses, monopolize the market etc. It is often said that profit maximization is the only realistic criterion by which business organizational effectiveness can be reasonably judged. However, the entry of globalization and subsequent growth of international or cross cultural business forced business people to redefine the definition and purpose of business slightly. Corporate Social Responsibility and Sustainable business are popular business terms in the business circle at present. This is because of the awareness that no business can last long if it sacrifices the interests of the community or the environment in which it operates. The importance of protecting the environment and protecting the interests of the community are well documented in modern organizational principles and scientific business management theories. In this paper I argue against the theory that profit maximization alone is the realistic criterion by which business organizational effectiveness can be reasonably judged. The effectiveness of an organization can be judged from two different angles; one from the perspectives of the organization and the other from the perspectives of the society. These two perspectives are entirely different and it travels in the opposite direction. In other words, it is difficult for an organization to maximize its profits and fulfill the requirements of the society at the same time. There should be a compromise between the needs of the organization and the needs of the society in order to judge whether an organization is effective or not. An organization which concentrates only on making profits may be effective as far as the perspectives or the objectives of the organization are concerned. On the other hand, an organization which contributes something in return to the society for the exploitation of community resources can be termed as an effective organization in societal perspectives. Hawkins, (2006) has pointed out that it is “the society which provides both customers and resources to fulfill the business objectives of the corporate companies” (Hawkins, 2006, p.2). In other words, it is the duty of the organizations to help the society in return to the resources exploited from the community or society. Organizations which fail to obey the above principle may not survive in the current world. In short, organizations which are successful in making profits without sacrificing the interests of the community can be referred as effective organizations. Such organizations will always try to achieve a compromise between the needs of the society and the needs of the organization while doing business. A company can never functions in vacuum. It requires resources in the form of manpower, machine, material and money for successful operation. Manpower and the materials are provided by the community even though money and machines could be imported from some other channels. Corporate social responsibility is a popular term in the business circle at present because of the realization of organizations that it is necessary to provide something in return to the society for the sustainment of business. Nexen (2009) has pointed out that Corporate Social Responsibility is “the commitment to behave ethically and contribute to economic development while improving the quality of life of our workforce and their families as well as the local community at large” (Nexen, 2009). Even biggest organizations struggled in the past in sustaining their businesses at some parts of the world because of their failure in demonstrating corporate social responsibility. For example, Coca Cola, the biggest soft drink manufacturer in the world failed to sustain their business in Kerala, the southernmost state of India because of its failure in demonstrating corporate social responsibility. During the latter part of 1990, Coca Cola purchased around 40 acres of land in Perumatty in Kerala, India for its operation in Kerala. Coca-Cola bought a property of some 40 acres held by a couple of large landowners, built a plant, sank six bore wells, and commenced operations. Within six months the villagers saw the level of their water drop sharply, even run dry. The water they did draw was awful. It gave some people diarrhea and bouts of dizziness. To wash in it was to get skin rashes, a burning feel on the skin. It left their hair greasy and sticky. The women found that rice and dal did not get cooked but became hard. A thousand families have been directly affected, and well water affected up to a three or four kilometers from the plant. On April 22, 2002 the locals commenced peaceful agitation and shut the plant down (Cockburn, 2005) Coke’s failure in Kerala should be served as an eye opener for other companies which fail to demonstrate their social responsibility. Coke tried to exploit both ground water and under water resources of Kerala to maximize their profits. They never bothered much about the problems which may cause to the general public as a result of the injudicious exploitation of water. In other words, the heavy exploitation of natural resources like water affected the people in Kerala which forced them to lead an agitation successfully against Coke like corporate giants. Apart from underwater exploitation Coke caused many other environmental problems in Kerala which made the life near the Coke plant extremely difficult. The waste disposal methods of the Coke were not much environmental friendly and the people in the Plachimada village suffered a lot because of it. In short, Coke may be an effective organization in its own means, but for the general public, it may not be so. Union Carbide is another example for ineffective companies with poor track record of exhibiting social responsibility. The 1984 Bhopal (India) gas tragedy, which accounted for the lives thousands of innocent people, was took place because of improper handling of toxic chemicals by the Union Carbide company. Even after the big tragedy which killed thousands of innocent people, Union Carbide did nothing to compensate the people in Bhopal even though Indian government asked them to pay compensation and make arrange for the treatment of affected people. The CEO of Union Carbide at that time, Warren Anderson was not ready to accept the responsibility and escaped from India and argued that it is impossible for the Indian courts to take legal against him (Bhopal gas tragedy: Accused awarded only 2 yrs in jail, get bail, 2010). The above incidents clearly show the poor track record of Union Carbide as far as corporate social responsibility is concerned. It should be noted that Union Carbide is no more functioning in India and it is difficult for them to expand their business in Asian regions because of their poor background in responding to the social needs. In short, Union Carbide might be an effective organization in its own regards; however it is not so when we analyze it with respect to social responsibility. Even though many companies have poor records of exhibiting social responsibility, a lot of companies currently taking social responsibility as an important aspect of their business. For example, British Petroleum (BP), the leading oil companies in the world has recently faced one of the toughest challenges in its history because of the Gulf of Mexico oil spill. It is estimated that around 4.9 million barrels ^ of crude oil spilled over the sea as a result of this accident. Along with marine and wild life, this accident negatively affected the tourism and fishing industries in this region. However, BP never tried to put the blame on other’s shoulder as did by Union Carbide. They never tried to escape from the scene. They tried to help the affected people as much as possible even though the company faced bankruptcy as a result of huge compensation paid to the affected people. “The U.S. completed negotiations with BP Plc to establish the $20 billion fund that will compensate victims of the Gulf of Mexico oil spill” (Blum & Snyder, 2010). In other words, BP showed enormous character when they faced difficult situations and they never tried safeguard their interests at the expense of the interests of the people. As a result of that, the public image of BP Company has increased a lot and their currently coming back strongly even amidst such huge setbacks and that also with the help of the communities. In other words, BP is one of the best examples of companies which are functioning effectively as a far as corporate social responsibility is concerned. Citibank, PepsiCo, Acer etc are some other companies which showed great examples of social responsibility in recent times. Citibank, along with other major financial institutions has developed criteria for assessing the environmental impacts of its lending decisions in developing countries. PepsiCo along with more than a dozen oil companies and consumer goods manufacturers has withdrawn its investments from Burma because of human right concerns. Chiquita has implemented stringent environmental practices for its suppliers of banana in Central America (Vogel, 2006, p.2) “Acer focuses on developing an effective corporate governance mechanism of CSR and sustainability issues, improving efficiency among working groups, initiating stakeholder engagement, and building for better internal and external communications”(CSR within Acer, n. d). Bigger organizations already realized the importance of helping the community. Two of the greatest business people produced by America in recent times; Bill Gates and Warren Buffet have recently announced their desire to help the poor communities with the help of their own assets and also by accepting contributions from the richest people in the world. Warren Buffet agreed to contribute around 90% of his assets to the charity purposes. According to Steven et al, (2007), “The society has already accepted the tension between corporate rationality and social responsibility as an inescapable condition of living prosperously” (Steven et al, 2007, p.17). Society or the community is the playground for the organizations. If the playground is not in good shape, it is difficult for the players to bring out their best in a competition. In other words, the ability of a company in performing well is entirely depends on the support it receives from the community. It should be noted that Japan is a place in which some of the biggest companies are operating. The recent tsunami and earthquake caused many damages in Japan. It is difficult for a company operating in Japan to sustain its business in Japan, if they show their back towards the suffering people. Some of the other companies which showed commitments to the society are given below. After Shell Oil was spotlighted trying to sink an oil platform in the North Atlantic in 1996, and then accused of ecological and labor abuses in Nigeria, the company began reporting on its global social and environmental efforts. It also initiated $50 million in annual social investments in Nigeria. Nike, targeted over its use of child labor, contributed $7.7 million dollars to the International Youth Foundation to found the Global Alliance for Workers and Communities to monitor labor conditions in its contract factories overseas. In response to outside criticism, Chiquita Brands obtained independent certification for its 119 banana farms in Central and South America, and upgraded its operations to reduce the use of chemicals (Corporate Responsibility and Globalization, 2007) The above examples clearly show the commitments of current corporations in demonstrating their social responsibilities. Some companies have the habit of showing some responsibility while their business grows whereas they show little consideration of the people when the business faces problems. Corporate social responsibility is not a mercy, but it is the right of the people to get some assistance from those who exploit their resources. Community resources are belonging to the people in the society and no organization can exploit it without paying adequate prices to the people. For example, Coca Cola has argued that they are providing employment to the locals for exploiting ground water resources. However, they are keeping a silent towards the fact that they paying the employees for the services they are receiving from the employees. In other words, they are paying nothing for the water resources they are exploiting. Organizations talk too much about their corporate social responsibility, but do little to keep their words. It should be noted that only those corporations which have given more emphasize to social responsibility, were successful in the past. CSR describes the practical reality that companies are increasingly being judged not just by the products and profits they make, but also by how these profits are made. It is important to stress however that this definition is limited to the societal and environmental constraints put upon a company's core function of profit maximization by the provision of goods and services. Companies respond to these constraints in response to the two classes of 'stakeholders' who really do matter to them: customers and shareholders. Corporate social responsibility is not an invitation for companies to take over charitable functions better left to foundations and publicly elected bodies. In economic terms it can be described as a constraint upon business activity which must be integrated into management decision-making in order to maximize long term profits. If executives really aim to maximize shareholder value, they should explicitly focus on long term profits (A Pragmatic Approach to Corporate Social Responsibility- Address Given to The School of Management, the London School of Economics, 2003, p.3-4) Conclusions Earlier, the effectiveness of the organizations was assessed purely based on the profits made by them irrespective of the method they adopted for maximizing their profits. Today organizations are assessed not only based on the profits it made, but also based on the manner in which they maximized their profits. An effective organization is one which maximizes its profits through sustainable business practices. In other words, only those organizations which are capable of making profits without causing any damages to the society or the environment can be considered are effective organizations of the current era. Apart from profit making, business has lot more other dimensions which were realized by the people lately. Business which limits its focus only on profit making may not survive long in a community whereas businesses which adopt sustainable business practices may survive long. The ultimate aim of business is to help the communities; not for filling the pockets of some people. References 1. A Pragmatic Approach to Corporate Social Responsibility- Address Given to The School of Management, the London School of Economics. (2003). [Online] Available at: http://cep.lse.ac.uk/seminarpapers/19-05-03-SPA.pdf [Accessed on 08 July 2011] 2. Blum, J & Snyder, J. (2010) BP, U.S. Agree on Establishment of $20 Billion Gulf of Mexico Spill Fund. [Online] Available at: http://www.bloomberg.com/news/2010-08-09/bp-20-billion-oil-spill-compensation-fund-agreement-completed-with-u-s-.html [Accessed on 08 July 2011] 3. Bhopal gas tragedy: Accused awarded only 2 yrs in jail, get bail, (2010), [Online], Available at: http://news.rediff.com/slide-show/2010/jun/07/slide-show-1-bhopal-gas-tragedy-verdict.htm [Accessed on 08 July 2011] 4. CSR within Acer, (n. d). [Online], Available at: http://www.acer-group.com/public/Sustainability/sustainability_main02-1.htm [Accessed on 08 July 2011] 5. Corporate Responsibility and Globalization, (2007) [Online], Available at: http://www.globalenvision.org/library/8/1433 [Accessed on 08 July 2011] 6. Cockburn A. (2005). Message in a Bottle. [Online] Available at: http://www.counterpunch.org/cockburn04162005.html [Accessed on 08 July 2011] 7. Hawkins D.E.(2006), Corporate Social Responsibility: Balancing Tomorrow's Sustainability and Today's Profitability Publisher: Palgrave Macmillan (September 4, 2006) 8. Nexen, (2009), Glossary, Online] Available at: http://www.nexeninc.com/Sustainability/glossary.asp [Accessed on 08 July 2011] 9. Philosophy of Business – What is the Purpose of Business?, (2005). [Online] Available at: http://www.businesspundit.com/philosophy-of-business-what-is-the-purpose-of-business/ [Accessed on 08 July 2011] 10. Steven M.K., Cheney G. & Roper J. (2007), The Debate over Corporate Social Responsibility Publisher: Oxford University Press, USA (April 12, 2007) 11. Vogel D. (2006) The Market for Virtue: The Potential And Limits of Corporate Social Responsibility Publisher: Brookings Institution Press (August 1, 2006) Read More