Corporate Responsibility Analysis on Drug Companies Monopoly and Profitability - Coursework Example

Student name: Professor: Course: Date: Semester: Table of contents 1.0 Introduction …………………………………………………………………………………3 2.0 Classical view of social responsibility………………………………………………………3 3.0 The socio-economic view of CSR…………………………………………………………..5 4.0 Bold maximal view of CSR…………………………………………………………………7 5.0 Johnson and Johnson’ initiative towards CSR……………………………………………8 6.0 Conclusion……………………………………………………………………………………9 References ……………………………………………………………………………………..10 Corporate Responsibility analysis on drug companies monopoly and profitability 1.0 Introduction Social responsibility is the act of a business engaging in social activities that are not otherwise regarded as its core business or a requirement by laws and/or regulations (Hond& Bakker, 2007). In the 21st century, it is no longer an unnecessary cost but a competitive advantage as consumers become more enlightened (Idowu & Filho, 2009). Businesses operate within the society from which they make their profit. Business aims should therefore be broader than to be narrowed down to profitability and growth as it is the assumption of the classical CSR proponents like Milton Friedman. Organizations have an obligation to help solve society’s problems. This paper will seek to analyze the case study on Drug companies-monopolies and profits against the different views for and against corporate social Responsibility from three different perspectives under the subsequent headings. 2.0 Classical view of social responsibility According to the classical view of the economy, the primary goal of any business is profit maximization. This view holds that a business should only be concerned on purely economic affairs and leave other social concerns to other institutions in the society. Engaging in social endeavors means that the business will lower its efficiency by reducing profits, reducing wages, increasing prices and eventually reducing revenues due to sales dropping. In all this scenarios, the chief stakeholders; shareholders, customers and employees will have to lose (Lecture 1, PPT, pg. 13-30). It is against this backdrop that Friedman and smith attempt to model a social responsibility approach for business. Milton Friedman is a major agitator of the free market system or capitalism. He believes that a free society should be allowed to have a free market economic system and those agitating for corporate social responsibilities are just bowing to the ideologies of socialism. According to Friedman, managers are agents appointed by shareholders to act for their best interest which is majorly generating profit. It is therefore inappropriate for managers to allocate funds to CSR at the expense of profit to the shareholders. Social responsibility to Friedman can be better achieved if the business increases its profitability through open competition for as long as it sticks to the stipulated laws (Klein, 2010). Smith is a classical economist who believes that if everybody is allowed to pursue their self interests as far as business is concerned, then we shall have a self sustaining economy (Lecture note, PPT, Pg 13-30. Smith advocates for near total restrain from the government when it comes to economic matters. The assumption by smith is that everybody will exercise respect for others, justice and benevolence (Klein, 2010). These two views by Milton and Smith are very narrow and can only apply in an ideal situation where everybody is expected to operate within the rules but it is not the case in the world economies today. If we take a look at our case study for instance, the drugs companies are raking into massive profits, at some point in 2009 averaging 7 times the profits for all other manufacturing sectors in the US. This is a classical case of supernormal profits facilitated by the monopolizing patents awarded to the drug companies. These companies are applying the Milton fried man approach to CSR whereby they are claiming to make profits within the law and thereby helping the society by putting capital into good use such as in research and also paying out dividends to shareholders. The free market model envisioned by smith is not practical as the government does not allow development of generic drugs to fight diseases amongst the disadvantaged in the society contrary to the expectation that the government should be allowing competition and market forces to determine the price, the government is in particular enforcing patent laws to ensure monopoly of the drug companies. Therefore the invisible hand is not the economic factor in play but rather government interference. In a way then the classical understanding of social responsibility is practical in terms of profitability but not value to the consumers as the drugs are expensive and out of reach for many. 3.0 The socio-economic view of CSR The socio-economic view radically moves a way from the contention that a business should only be concerned with profit making and disregard any other endeavor that may see it engaging in other business apart from its core business of maximizing profit. The minimum moral obligation being to proactively preventing harm by implementing measures to prevent hazards like environmental pollution and degradation (Lecture notes, PPT, Pg 30-46). Affirmative duties to do “good” as highlighted by Simon, Powers & Gunneman (1972) is another step towards social responsibility and the finally the understanding that justice and common good should be an endeavor of any business. The business has the moral obligation of not engaging in activities that cause harm. It should also prevent harm and affirmatively promote good. The obligation to prevent harm may be anchored on the Kew Garden principles of: Need Proximity capability Last resort It is understood that a person and this case an organization is bound to not only obey the rules but go an extra mile to ensuring the welfare of another person(s) when there is need to do so. The person or organization should be within the proximity of the endangered person and no only within the proximity but also should be in a position to notice the need for him to be held responsible if he/she did not take any action. A person should not be held responsible for not responding to a critical need if he/she did not have the capability at the time to respond to the need. One can only be held accountable if there is a need he or she is reasonably expected to do to meet the need at the particular time being considered. In complex situations and contexts it is difficult to know who the last resort is as everyone hopes that someone else who is the last resort will act to contain a situation. Determining responsibility is therefore more reliant on the other principles of Kew garden than the last resort principle. An action should be taken if the other three principles are present (Simon, Powers & Gunneman, 1972). In light of these principles then it is logical to hold the view that a business should seek to satisfy all its stakeholders and not just the shareholders and the employees of the business. Looking back to our case study, it will be observed that the drug companies are mainly concerned about the profits they make and place saving lives second. The fact they the companies hold monopolies to produce drugs to fight aids cancer and diabetes means they can charge exorbitant prices for the drugs at the expense of millions in need of the drug. This goes against the Kew garden principles which place a responsibility to save any one in grave danger. In the sense of socio economic view, social responsibility may be achieved in other ways by the drugs companies, but certainly not in the context of this case study. 4.0 Bold maximal view of CSR It is the responsibility of organizations and all of us in general to solve society’s problems for the benefit of us today and also for the future generation (lecture notes, PPT, Pg 46-51). Businesses again do not exist in isolation; they are interwoven with the society. Beyond satisfying its needs, a business should also meet the needs and desires of other people and generations to come (Colley & Doyle, 2002). Organizations control so much of the world’s wealth and resources. It will only be responsible for them to give back to the society which is the real custodian of these wealth and resources (Certo, 2011). But then the companies exempt themselves from this responsibility by abiding by the law which recognizes the responsibility to be on someone else especially the governments of the sick citizens. With mark ups of 5000 % it is not right to claim that the companies are here to help the society; they are here to make supernormal profits and monopolize the industry. Contrary to the view that justice and common good should be part of the companies’ objectives. Going back to our case study, the opposite is evident in terms of the broad maximal view of social responsibility. The drug companies may well support their case of generating high profits since they engage in research to develop better drugs to fight killer diseases in the society. But when we analyze the companies from another perspective, we can see that the profit maximization motive overrides the motive to help solve society’s problems. Why this contention? One would ask. The fact that many people are dying out of aids, diabetes and cancer may provide a good opportunity for drug companies to show social responsibility by making the drugs available at affordable prices. But contrary to this they are selling the drugs at high prices and monopolizing the drug business and are therefore not helping solve society’s problems but rather benefiting form society’s problems. 5.0 Johnson and Johnson’ initiative towards CSR Johnson and Johnson has very extensive approach towards corporate social responsibility, its 2011 responsibility report is a document that outlines the engagements that the company has made in its efforts to go an extra mile into helping the society and communities it works with. In this report the company reiterates its commitment towards the adherence of its codes and principles in relation to doing business, labor and employment and the environment (Johnson & Johnson, 2011). This means the company recognizes that all this is part of what the company is and therefore some codes and principles abound when it comes to dealing with them. It is the commitment of the company to ensure their products are quality and safe to use. This is achieved through conducting ingredients tests and analyzing customer satisfaction indicators such as feedbacks. The company is also engaging in responsible pricing of its products and ensuring people get access to drugs through supporting financially initiatives such as Partnership for Prescription assistance (PPA) which is a savings program for Americans that don’t have prescription drug coverage. Another program is the Global Access and Partnerships Program which provides sustainable and affordable HIV drugs through not-for-profit pricing in sub-Saharan Africa. Johnsons has also ensured that it is disposing less and less waste from its production. In the year 2011 it reported a 25% decrease in hazardous waste disposal (Johnson & Johnson, 2011). This report shows the company’s committed effort in ensuring a sustainable environment for future generations. It is also proactively helping the society by conserving biodiversity and reducing water consumption. All this is being achieved while the company is still increasing profitability and therefore value to its shareholders thereby achieving its goals and that of the solving society’s problems. 6.0 Conclusion From the above analysis and review of relevant literature it can be observed that social responsibility goes beyond making profit for shareholders and providing employment to a section of the community you are operating in. it even goes beyond adhering to the rules set out by the government and industry regulators. Companies have to take it upon themselves to solve the problems of the society by engaging actively in programs that seek to eradicate social problems such as poverty social degradation and diseases. According to Smallman, McDonald &Mueller (2010) is more than just using social responsibility as a public relations tool to appease consumers. In the new reality of multinationals raking in more profit than combined GDPs of underdeveloped countries in the world the big corporates have to play a big role in ensuring that their focus towards profitability does not disregard the objective of doing good to the society by offering quality and affordable products. Governments should also intervene responsibly to reduce monopolizing of industries that deal with essential products such as drugs. Currently governments such as the US government are actively promoting monopolies by issuing sanction threats to countries that are not keen on enforcing patents. References Certo .S., 2011, Modern Management: Concepts and Skills, Pearson Education Colley, J., & Doyle, J.(2002). Corporate Strategy. McGraw-Hill Ryerson . Hond,F., & Bakker, F. (2007). Managing corporate responsibility in action: Talking, doing and measuring, Ashgate publishing Idowu,S., & Filho,W. (2009). Global practices of corporate social responsibility, Springer Johnson & Johnson (2011).Responsibility Report 2011, [PDF] available online at http://www.jnj.com/wps/wcm/connect/e265d6804bc83ae392f6ffbf30c50c56/2011-responsibilty-report.pdf?MOD=AJPERES Klein,N. (2010). The shock Doctrine: The rise of disaster capitalism, Henry Holt and Company Simon,J., Powers,C., Gunneman,J. (1972) The responsibilities of corporations and their owners, the ethical investor, universities and corporate responsibility. Yale University press Smallman.C., McDonald.G., Mueller.J., (2010) Governing the corporation; structure process and behavior, journal of management and organization, 16: 194-198 Read More