Corporate Responsibility - Case Study Example

Running Head: CORPORATE RESPONSIBILITY Corporate Responsibility Name Institution Corporate Responsibility Introduction Corporate social responsibility involves the voluntary activities that a company or organization undertakes to operate in an economic social and environmentally sustainable manner (Banerjee, 2007). The idea of corporate social responsibility shows that an organization, other than earning a fair return and ensuring they obey the law, have other responsibilities towards the society. This includes moral, ethical and philanthropic activities. This shows that other than stakeholders, an organization must ensure that its operations meet the expectation of the society in general. The society expects organizations to be efficient and profitable, abide by the laws set by government, to conduct their affairs in a fair and just way, and to be involved in philanthropic activities that will benefit the society. The society thus tends to look into the activities of a business or corporation around them to see to it that it does it duties towards the society. This is beneficial to these corporations as they improve their public self-image. Many arguments for and against corporate social responsibility have come up. Theories, which can be broadly categorized into three, have been formulated to assess the need for social responsibility of organizations (Carey, 2013). These theories include; the classical economic view that mostly has the works of Milton Friedman, the social economic view and the broad social view. Corporations deal with social issues and problems, including environmental issues, global issues and technological issues. These issues have to be addressed and thus the need for assessment of corporate social responsibility. The Classical Economic View The classical economic view, Milton Friedman, has argued that the primary responsibility of businesses is to make a profit for the owner while complying with the law and set ethical conduct. According to this theory a social problem is the responsibility of the government and businesses should not address such issues. Maximizing profits is seen as a social responsibility as self-interested pursuit for profits leads to society good in the long run. More jobs are created, shareholders wealth increases and economic growth is achieved because huge profits lead to more taxes and thus government revenue is maximized. Friedman’s main arguments against businesses practicing corporate social responsibility that he termed social responsibility in a broader sense include, the tax argument; tax is intolerable and antidemocratic (Banerjee, 2007). This is imposing costs on businesses, and it is even worse because the tax collectors spend it on what they want. According to him tax collection should be done democratically and with elected officials and not private individuals who act like the government. He terms taxation as anti-democratic and an act by those who call for corporate social responsibility and have failed to achieve what they want through the political process. Milton Friedman in the agency argument argues that managers are shareholders employees, and therefore, they have a responsibility of meeting the interests of the shareholders which is mainly increasing the shareholders wealth. This is done through maximizing profit and not practicing social responsibility, which reduces the company’s profits. He also addresses free society characterized by free markets. Corporate social responsibility tends to undermine the free society and may lead abolition of capitalism and introduction of socialism. In this case, ownership is moved from businesses to the public (Karake, 1999). He argues that if executives allocate resource for social goals instead of working on profit maximizing goals then they should not be shareholders’ employees but rather elected society representatives, and if they are elected and controlling resources it becomes socialism as they represent the public. The classical argument poses a question; how are the executives supposed to know what is best for society while they are busy running their businesses. Phillip Morris and the eight other tobacco companies mainly operated on the classical argument. As much as they had the duty to test their products, design a safe product and to warn users about the dangers of their product, they failed to do this. They even went further to research on how to advertise to children. Their main goal was maximizing profits despite the health hazards their products caused. They, however, failed to follow Friedman’s rule of following the law and the set ethical conducts. Children cannot access the risks of smoking, and they made them their target market (Banerjee, 2007). They went ahead to suppress research of the risks of a product that killed 400000to 500000 Americans a year. The Social Economic View The socio-economic view, commonly known as the harm principle, advocates that a person’s actions should be limited to things that do not harm others. This means that a person is allowed to do whatever they want as long as those actions do not infringe the right of others. John Stuart Mill asserts that the only time one is allowed to act contrary to the right of others should be when they are defending themselves (Banerjee, 2007). He views harm and wrongdoing as synonymous and also says that harm is also the failure to meet obligations. This view focuses mainly on the interaction between business and society and the responsibility that businesses have to society. BHP Billiton stressed on the company’s sustainability while causing zero harm to people and the community around. Socio-economic theory emphasizes on the strong responsibility of businesses towards the society and the environment. This theory views businesses as social institutions and thus has to use power responsibly. The assumption of the classical theory that a business only responsibility to the society is to create wealth is attacked. Though the theory advocates for responsibility of businesses towards the society, it rejects total responsibility. Businesses have to make profits and acquire economic benefits while maintaining social responsibility. In their operations businesses have to respect the rights of others and to respect human dignity. Social responsibilities come from consent. Some ground rules regarding the foundation of economics have to be set (Banerjee, 2007). Stakeholders’ theory asserts that employees deserve consideration by virtue that they can be affected by organizations decision making. Stakeholders’ theory shows that there is a relationship between a firm’s corporate social responsibility and other performance factors like profitability, revenue and returns on investments. A firm that takes into consideration the needs of all its stakeholders is bound to succeed. Stakeholders theory shows that a firm profitability cannot be harmed by corporate social responsibility as Friedman asserted In general the socio-economic theory tends to reform the classical theory or rather, it is an extension of the classical theory as it stresses on the fact that businesses need to make profits within the law but in the processes they have to recognize the rights of individuals and see to it that justice and the common good of people and the society is observed. Phillip Morris and the eight other tobacco companies do not consider the common good of the society in their production. It is the right of the public to be informed about the products they use. Tobacco is harmful to individual’s health, and as a tobacco producing company, it is their responsibility to inform the public on the dangers of tobacco. These companies have failed in this and thus putting the lives of several people in danger while amassing wealth. They instead tend to reject research that proves that smoking causes disease. The Broad Maximal View Broad maximal view of corporate social responsibility looks at how business integrates social demands. It argues that organizations depend on the society around them for survival, that is, businesses are not independent of the society around them. Businesses, therefore, should ensure that they operate in accordance with social values. This view is based on the right thing to do, and the necessities to achieve a better society. Businesses should neither be harmful to or a parasite to the society. It is their responsibility to give back to the society as a form of gratitude. Business should use the economic resources they have at hand to support the society and correct the social problems in the society. When businesses commit to corporate social responsibility they succeed in achieving a good relationship between the business and the surrounding society, and this is vital in increasing their sales and thus achieving profitability. To achieve the good of the society corporations should ensure they get to know what the society expects of them and the gap between these expectations and what they actually do. Certain groups such as the NGO’s have helped in pushing for corporate social responsibility. This view is more preventive than restorative. It entails anticipating the future needs of the society and moving towards satisfying them. Managers are thus placed in a position of social responsibility and not just working for economic means and ends. Phillip Morris and the other eight tobacco companies tend to look at their own self-interests and not regarding the needs of the society (Banerjee, 2007). They focus on increasing wealth and neglect their responsibility of maintaining a good environment in the society in which they are accommodated (Velasquez, 2012). Phillip could use the profits they have to introduce a product that was less harmful to the society or rather design their product in a way that would reduce the addictive nature of tobacco. They could also create rehabilitation centers to prevent further deaths from tobacco consumption. The organizations should ensure that their products are sold to people who can make rational decisions and not children who do not understand what is harmful and what is not. Conclusion Corporate social responsibility depends on the nature of the organization. Banks would not have a high environmental responsibility like mining companies. In the pursuit of social responsibility, there are certain factors that organizations should not neglect, and these include goal attainment, adaptation, integration and latency. This three have to be integrated on all the corporate social responsibility view. As much Friedman’s view may seem selfish, certain values like economic growth through wealth creation can be extracted from it. Current corporate responsibility views tend to emphasize on managers using business powers responsibly, contributing to a good society, meeting objectives that produce long term profits and integrating social demands in business operations. However, companies should not focus more on social responsibilities and neglect organizational goals as stakeholders desires have to be met. References Banerjee, S. B. (2007). Corporate social responsibility: The good, the bad and the ugly. Cheltenham, UK: Edward Elgar. Carey, L. (2013). Business Ethics Managing Values and Corporate Responsibility. Frenchs Forrest, Sydney: Pearson. Karake, Z. A. (1999). Organizational downsizing, discrimination, and corporate social responsibility. Westport, Conn.: Quorum Books. Velasquez, M. (2012). Business Ethics: Concepts & Cases (7th ed.). Upper Saddle River, N.J: Pearson Education Inc. Read More