How Can Maximizing Profit Be Concerned with Corporate Social Responsibility - Essay Example

If a business wants to maximize profit, it cannot be concerned with corporate social responsibility’. Critically discuss this statement. Name: Institution: Professor: Course: Date: In this age of globalization, a business has to meet their shareholders/owners main goal of maximizing profits thereby increasing wealth; however, it is vital that at the same time for the business to achieve its four main goals of profitability, growth, survival, and overall performance, it actively engage in corporate social responsibility. Nonetheless, corporate social responsibility is viewed by pro profit proponents as a non-profit function that only works to decrease financial performance of a business, whereas, pro corporate social responsibility advocate for a balanced organization that has the interest of all stakeholders at heart where it becomes evident that in the long run CSR is a function of profit. In this light this paper is going to define corporate social responsibility, highlight argument for and against CSR and draw a conclusion. For many decades now, many large global organizations have been faced with allegations of violating human rights, pollution of the environment, and other issues relating to various stakeholders they are accountable. As talked about above, the question is what does it mean for a firm to be socially responsible? This question enlists debate among two different points of view: the classicists-purely economic and the socioeconomics proponents. The classicists hold that the management’s only social responsibility is to make profits. Friedman, the central man, argued that primarily mangers have to act in the interest of the shareholders, whose single concern remains financial return.1 Moreover, he argues that managers have to decide on their own whether to spend on social good or not. If they do, then the additional cost to the organization should either go down to consumers as higher prices, or to shareholders in terms of reduced dividends. In this argument, one thing stands out Friedman recognizes the significance of social responsibility, but believed that primarily this should not be at the expense of organizational profits for maximization of owners wealthy. On the side of the coin, socioeconomics holds that management role of social responsibility extends beyond making profits to incorporate safeguarding and enhancing the welfare of the society. An organization must show accountability, not only to its shareholders or owners but to other stakeholders in its environment who contribute to its existence, in one way or another, such as the employee who work for it, society that buys its products and services, and the government that is the custodian of the laws and regulations that govern its existence and welfare of all. In fact, one of the proponents of this view tells as that profit maximization is a second priority for a company, not its first. 2 Several multinational companies, just to name but a few, coca cola, Nike, Shell, Manville, and Tobacco companies, have a history of going against social responsibility in the socioeconomic view and have either experienced problems on their survival, or profitability due to pressure from different civil rights groups and various lawsuits. Some of them are even still grappling with lawsuits and pressures in especially in developing countries, ranging from water usage, wages, working conditions, pollution, and violation of human rights. It is at this point that socioeconomics proponents argue that managers have not to pursue profit maximization in the long run, and if they have to, then they should accept the social liabilities and the cost that come with them. They should safeguard the welfare of the society bay avoiding, discrimination, pollution, and deceptive advertising. This coupled with contributions to charitable organizations and participation in community activities. Hence, socioeconomics proponents can argue that in the contemporary world with various organizations owning up to the reality, are involved in safeguarding and improving the welfare of society by coming up with programs and activities to that effect.3 Looking at both views comparatively one will notice that the classical view talks about shareholder or owners interest being financial return whereas the socioeconomic view brings in the interests of various groups, collectively referred to as stakeholders. Therefore, the socioeconomic view turns out to be rather an extension of the classical view than a contradiction per se. This is evident when stages of social responsibility are brought into the discussion. In the first stage management is busy pursuing shareholders’ goal of maximizing financial return. Secondly, the management brings on boards the plight of the workforce-their rights, human resource concerns and increase job security. Thirdly, management considers the concerns of other stakeholders, customers and suppliers, involving among others, pricing, quality of products and services, and good supplier relations. Lastly after the plight of all stakeholders has been addressed management feel a responsibility to the society in its entirety; a characteristic of the highest commitment of socioeconomics. This level of considering public good and accepting of the social responsibility by management makes a difference through preservation of the environment, promotion of the environment, and support for social and cultural activities. This is done irrespective of making profits or no profits at all.4 As the views unfold, we shall have a social responsibility as an intention of a business to go beyond what it is required to achieve by law or economics and pursue long-term goals that are society’s welfare/good. This means besides its primary goal an organization distinguishes between right and wrong and take responsibility at that level for the public good.5 In support of social responsibility proponents raise a number of arguments that propose the debate. It meets the following: public expectations, long-term profits, ethical obligations, public image, better environment, discouragement of further government regulation, balance of responsibility and power, shareholder interest – long-term, possession of resources, and superiority of prevention over cure. Public always expects that a company initiates and participate in community activities, such as disease prevention, and treatment programs. Working for long-term profits is not only good to shareholders and other stakeholders but also beneficial for survival of the organization when coupled with the public image of the organization. Observation of ethical obligations and better environment of operation assures a good society, and growth of the company, and profitability. The government does not have to intervene when organizations are already observing the rules and going out of their way to comply with rules, beyond the set laws and regulations, thereby balancing responsibility and power for the fulfillment of the long-term interest of shareholders, stakeholders and the welfare of the society as a whole. In any case, someone can say that prevention is better than cure, and accepting social responsibilities prevents the damaging outcomes that more expensive to cure that to prevent, especially in the long-term.6 On the contrary, view, opposition of social responsibility argue that it does not conform and meet the following: violation of profit maximization, dilution of the purpose, and costs of being responsible, too much power socially/politically for business, lack of skills beyond economics, and lack of accountability. As argued by Friedman, it is not economical to engage in social responsibility because it cuts on profits and dilutes the main purpose of maximizing the wealth of shareholders. Moreover, social responsibility comes at a cost which are sometimes heavy and this in turn give organizations immense social/political power as they can determine how some decisions are made in a society which may be dangerous sometimes for the welfare of the society.7 Interesting to note is that economists believe that, beyond economics, an organization cannot claim to have the skills to guarantee it is the viability of its decisions. These coupled with the lack of accountability in social responsibility undertakings hold the authenticity and viability of the noble course at ransom. These arguments broadens the debate on which side one should associate himself, but as it unfolds on the wider perspective social responsibility takes the day in the interest of all stakeholders for welfare of the society. The society needs social responsibility to benefit from organizations in its various capacities, and the organization needs the society to achieve the goals of its stakeholders especially shareholders in the long run. A business has a social obligation to meet its legal and economic responsibilities. In any case, this is solely meeting the interest of shareholders as in the classical view. Nonetheless, a business has to be socially responsive, i.e. the capacity of a business to adapt to ever changing needs or conditions.8 Management at this level will read the necessary community programs and activities to support for the welfare of the society because they are economical viable in that way. Hence, they go beyond their legal, statutory and economic objectives to uplift the society welfare in its entirety. In summary, there is a positive relationship between social involvement and the economic performance of the organization. However, there some problems: public perceptions (subjective), economic performance (more objective, but short term) and social screening (long term). All these affirm the general observation that an organization’s social actions do not damage its long-term performance. Hence, corporate social responsibility is worthy for the growth, survival, and financial performance of an organization. Reference list 1. S.L. Wartick and P.L.Cochran, ‘The evolution of the corporate social performance model’, Academy of Management Review, October 1985, p. 766. 2. M. Fried, Capitalism and Freedom (Chicago: University of Chicago Press, 1962). 3. M. Friedman, ‘The social responsibility of business is to increase profits’, The New York Times Magazine, 13 September 1970, P. 33. 4. S.W. Gellerman, “Why “good” managers make poor ethical choices’, Harvard Business Review, July-August 1986, p. 89. 5. D. J. Wood, ‘Corporate social performance revisited’, Academy of Management Review, October 1991, pp. 703-8. 6. J.D. Margolis and J.P. Walsh, ‘Misery loves companies: Rethinking social initiatives by business’, Administrative Science Quarterly, Vol. 48, No. 2, 2003, pp. 268-305 7. R.J. Monsen, Jr, ‘The social attitudes of management’, in J.M. McGuire (ed.), Contemporary Management: Issues and Views (Upper Saddle River, NJ: Prentice Hall, 1974), P. 616 8. K.B. Boal and N. Peery, ‘The cognitive structure of social responsibility’, Journal of Management, Fall-Winter 1985, pp. 71-82. Read More