How Managers Comply Social Responsibility - Essay Example

The Role of Social Responsibility: How Managers Comply British Petroleum has recently been sued by shareholders because of a decline in share value due to management’s failure to properly maintain their oil facility at Prudhoe Bay. The negligence on the part of management disrupted oil supplies, diminished investor confidence, and threatened the local environment (Herman 2006). This comes on the heels of a class action lawsuit against Ahold, a Dutch supermarket group, which involved management’s overstatement of company performance. These actions are acts of social irresponsibility. The cost goes beyond the £500 million cost that the Ahold suit was settled for. These actions threatened the firm, the employees, the community, and global financial concerns. With the proliferation of technology and hypercompetition, the drive to enhance the bottom line has often found firms in legal trouble or in a public relations nightmare. What part does the manager play in social responsibility? It’s managements role to set policies and guidelines for implementing a socially responsible agenda. Directors and managers need to maintain an awareness that the decisions they make affect the community, their health and safety, and the quality of life for people in a wide area. The welfare of the wider community has to be considered in any decision making process. Success is not measured by the immediate profit gained by the shareholders. When we define socially responsible policy, it is a concern for the well being of all the stakeholders and not just the owners. The social responsibilities of the directors and managers are the firms responsibilities towards society as implemented by management. Some of the most direct beneficiaries of a socially responsible policy are the employees of the firm. They are provided with a safe place to work whilst the firms responsible behaviour increases the level of job security. By creating a positive climate to work in, the firm is able to attract better and more dedicated employees. In this scenario, an investment in employee well being is returned through a better workforce. Almost all socially responsible policies and management decisions have a positive return. However, the firm often views these activities as expenses and will not, or can not, calculate their true cost or value. Policies need to be put in place to protect the health and safety of the customers and consumers. Managers that fail to act responsibly must be held accountable for their decisions. According to Davidmann (2002), "Those who wish to maximise profits regardless of the cost to the community are restrained by the fear of likely consequences to themselves". It is therefore necessary that the penalty be severe enough to deter any harmful action and serve as a goal to rigorously enforce the policy and protect the community. If the government fails to adequately regulate or legislate an environmental issue, it is still the responsibility of the socially conscious firm to be proactive in its approach. A firm that uses legality rather than responsibility as its standard will find itself falling out of favour with the public and into the risk of future lawsuits. Corporate responsibility costs money. Processing waste products beyond the point of local environmental standards becomes an added expense for the firm. There is a temptation to pass on these intangible costs to the local community or moving them to a country with less visible environmental awareness. Social responsibility dictates that these costs of protecting the community be considered as a cost of production. These socially responsible costs need to be allowed for when making business decisions, and need to be charged to the firm that creates them. What needs to be noted here is that the firm, as an organisation, will not act in a socially responsible fashion. The firm is designed to make a profit and to maximise shareholder return. It is up to the individuals, and the policies they create, to stand up and make decisions that may seem counter-intuitive to the interest of the organisation. Management policy needs to encourage this thought and not impede managers from acting on socially responsible goals. "There has come a point at which the interests of the community must and do take precedence over the politics of power and the interests of the owners"(Davidmann 2002). If a manager sees an irresponsible decision or practice, they are obligated to bring pressure to affect the end decision. The pressure may be internal as the manager implements better safety and health equipment, or it may come from other avenues. Often, firms are only forced to act by the dictates of legislation that is only passed after overwhelming public dissent and pressure makes the issue politically popular. The first awareness of a problem usually comes from a whistle blower. Since it is impractical to engage the community at large in the firms decision making process, maintaining social responsibility within the community will require management members stepping forward. In the areas of public interest, a firms policy needs to establish a goal of protecting and supporting the whistle blower. A major goal of corporate responsible policy is what Patrima Bansal refers to as "triple bottom line accounting" (quoted in Bernhut 2002 p.20) This requires firms to report the financial, environmental, community, and social footprint of their activities. Usually a business goes through a planning phase and quantifies its resources and liabilities. The triple bottom line accounting forces the firm to put a quantified value or cost on the social assets and liabilities it has. These may be in the form of good community service, environmentally responsible reputation, or employee safety record. It may also be impending lawsuits over lax maintenance policies or past accounting practices. By using this method, firms are better able to evaluate the impact that they have on the community and society. They can begin to see the numerous intangible benefits associated with setting socially responsible policies. They can also see and avert the negative consequences of failing to act in the interest of all the stakeholders. A firms policy on social responsibility should require every manager to answer for the social impact of the decisions they make. The overriding policy would become; What is the social benefit and what is the social cost of this decision? This attitude would prevail in all decisions involving vendor relationships, customers, employees, and the community. Owners and shareholders would benefit from the long-term stability and the intangible benefits derived. As Bansal says, "Until managers can measure these intangible benefits, corporate social responsibility will always be considered a marginal activity rather than a core value" (quoted in Bernhut 2002 p.20). The managers task is to ask the question and the firms task is to quantify the answer. References Herman, M. (2006) BP sued over Prudhoe Bay. Times Online [Internet], 15 August. Available from: [Accessed 13 February 2006] Davidmann, M. (2002) Social responsibility and accountability: Summary [Internet], Available from: [Accessed 13 February 2006] Bernhut, S. (2002) Corporate responsibility with Pratima Bansil. Ivey Business Journal. March/April, pp.17-20 Read More