Essays on Drug Company Monopolies and Ethics Case Study

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The paper "Drug Company Monopolies and Ethics" is a perfect example of a management case study.   According to Friedman (1970), businesses have an obligation to maximize the shareholders’ wealth. In addition, he emphasizes that organizations need not engage in activities that will serve to increase their costs. Moreover, he viewed any social cost as a tax, and according to him, businesses are obliged to pay taxes to the government, and therefore, such social responsibilities should be left to the authorities (Blowfield & Murray, 2008). A neo-classical proponent, Milton Friedman argued that profitability, when achieved through ethical means and in the obedience of the law is sufficient to express corporate social responsibility (CSR).

According to Werhane (2000), the classical narrow view stresses that the management sole responsibility is to maximize business profits. This view was equally shared by Friedman (1970) who claimed that the primary objective of the company’ s directors and managers was to operate in the best interest of shareholders who are the owners’ of the business. According to Sharp (2003), corporate expenditure on social-related programs is a major violation of management responsibility to the shareholders.

As echoed by Wilson (1989), the sole social responsibility of the business involves the efficient use of resources to finance activities that increase profitability while observing the law. Further, he echoed proponents of the classical narrow view that manager's responsibility is to operate with a view of maximizing the organization’ s financial returns for the interest of the shareholders. In respect of social responsibility initiatives, Friedman argues that if such actions add up to the cost of the business, they will serve to reduce the returns which will go contrary to the interest of shareholders, reducing employees pay, and for the worst, increasing products cost as such costs will ultimately be factored into product costs.

Friedman’ s view is echoed by Carrol (1979) who argued that those who are opposed to CSR activities fear that such activities could dilute the business economic activity and such activities do not generate returns to cover their costs. Most proponents of classical narrow view argue that CSR programs are extremely dangerous as they distract the business from its primary objective of maximizing shareholders’ wealth (Nunan, 1988).

In this vein, such individuals argue that when business get concerned with the employees, for instance, building them hospitals and schools for their children, the business serves to portray itself as “ fashionable” or a great innovator (Garriga & Mele, 2004). From the case study, the drug companies prove to be profit-minded for their lack of concern to human life. In addition, they take advantage of their drug monopoly to impose prohibitive prices on their products making them available only to the rich. Regrettably, these companies cause social injury since their actions are not in the best interest of all. To the contrary, Shaw (1988) defies Friedman argument by establishing a positive relationship between company profitability and CSR efforts.

Shaw (1988) sharply differs with proponents of narrow classical view who argued that CSR activities amount to extra taxes on business. He argued that even though, the company does not engage in CSR activities for any direct financial gain, the long term effect of such activities serves to enhance business profitability. This is because, those businesses that undertake social programs endear themselves to the society by creating a good image, and therefore, many people would prefer to consume their products.

Nonetheless, as the issue of CSR remains a significant challenge to the proponents of the pure classical approach, the social-economic approach views the management responsibility beyond that of ensuring business profitability. Interestingly, social-economists argue that businesses have an obligation to protect the society within which it exists. This view is echoed by Mulligan (1993) who suggested that businesses can further be classified based on the approach taken towards CSR. In this respect, Mulligan (1993) categorized businesses into two main classifications, namely; those that engage in relational responsibility and those that engage in social activism.

Relational responsibility refers to the adoption of social-economic measures to protect welfare groups including customers and employees who are most affected by business operations. On the other hand, social activism occurs when businesses adopt social-economic approaches with a view of protecting society as a whole. In this regard, many businesses engage in CSR activities irrespective of whether their operations have or have no negative impacts on society.

References

Beauchamp, T. L., Bowie, N. E. & Arnold, D. G. (2008), Ethical Theory and Business, 8th ed, Pearson Education Inc, New Jersey.

Black, L.D., (2006). Corporate Social Responsibility as Capability, Journal of Corporate Citizenship, 23, 25-38.

Blowfield, M. & Murray, A. (2008). Corporate Responsibility, Oxford, Oxford, UK.

Bowie, N.E., (1991). New Direction in Corporate Social Responsibility. Foundation for the School of Business at Indiana University, 56-65

Carrol, A.B. (1979). A three-dimensional Conceptual Model of Corporate performance. Academy of Management Review, 4.4, 497-505

Friedman, M(1970), “The social responsibility od business is to increase its profit”, New York Times Magazine, September 13

Garriga, E. & Mele, D. (2004). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 53, 51-71.

Kotler, P. & Lee, N. (2005). Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause. Wiley & Sons Ltd.

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McAleer, S. (2003). Friedman’s Stockholder Theory of Corporate Moral Responsibility. Teaching Business Ethics, 7, 437-451.

Mulligan, T. (1986). A Critique of Milton Friedman’s Essay ‘The Social Responsibility of Business Is to Increase Its Profits’. Journal of Business Ethics, 5, 265-269.

Mulligan, T. (1993). The Moral Mission of Business. In Beauchamp, T. & Bowie, N. (1993) Ethical Theory and Business (4th ed.). Prentice Hall, Upper Saddle River, NJ.

Nunan, R. (1988). The Libertarian Conception of Corporate Property: A Critique of Milton Friedman’s Views on the Social Responsibility of Business. Journal of Business Ethics, 7, 891-906.

Prahalad, C.K. & Porter, M.E. (2003). Harvard Business Review on Corporate Responsibility, Harvard Business School Press, Boston MA.

Sharp, L. (2003). Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance, McGraw-Hill, Boston MA.

Shaw, B. (1988). A Reply to Thomas Mulligan’s “Critique of Milton Friedman’s Essay ‘The Social Responsibility of Business Is to Increase Its Profits’. Journal of Business Ethics, 7, 537-543.

Vogel, D. (2005). The Market for Virtue: The Potential and Limits Of Corporate Social Responsibility, The Brookings Institution, Washington DC.

Werhane, P.H. (2000). Business ethics and the origins of contemporary capitalism: Economics and ethics in the work of Adam Smith and Herbert Spencer, Journal of Business Ethics, 24, 3,185-198.

Wilson, J.Q. (1989). Adam Smith on Business Ethics. California management review, 32.1, 59-72.

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