Rresearch Paper on Corporate Social Responsibility
Corporate Social Responsibility Ronald Bellamy MBA 6001-10F-S5A11-S3 Professor: Dr. Marie Gould June 18, 2011 In a 1970 Times Magazine article, economist Milton Friedman argued that businesses’ sole purpose is to generate profit for shareholders. Friedman maintained that companies that chose to adopt “responsible” attitudes would be faced with more binding constraints than companies that did not take a socially responsible position, rendering them less competitive. Unfortunately, not everyone accepted Friedman’s view on social responsibility.
In 1979, Quaker Oats president, Kenneth Mason stated, “Friedman’s profits-are-everything philosophy are a dreary and demeaning view of the role of business and business leaders in our society. Making a profit is no more the purpose of a corporation than getting enough to eat is the purpose of life. Getting enough to eat is a requirement of life; life’s purpose…likewise with business and profit (Makower, 2006). ” The purpose of this paper is to weigh the pros and cons of social responsibility in today’s global economy. Corporate Responsibility Defined
Corporate Responsibility is a manager’s or corporation’s duty or obligation to make decisions that nurture, protect, enhance, and promote the welfare and well-being of stakeholders and society as a whole (Jones, G. , 2010, pg. 200). Stakeholders are important in reference to corporate social responsibility because stakeholders are people who have an interest, claim, or stake in an organization, in what it does, and how well it performs. It can easily be said that social responsibility is the “do the right thing” of business.
There are four different approaches that corporations can take in reference to social responsibility: – Obstructionist Approach where managers choose not to behave in a socially responsible manner. As a result, they behave unethically and illegally and do everything in their ability to prevent outsiders and stakeholders and other organizations from finding out about their behavior (Jones, G. , 2010). Prior to the enforcement by the Surgeon General of the United States, cigarettes manufacturers, i. e. , Philip Morris, took an obstructionist approach.
Cigarette manufacturers had full knowledge that the nicotine in cigarettes was harmful to the lungs and refrained from informing the public. – Defensive approach is when managers and corporations have at least a commitment to ethical behavior. When managers take a defensive approach to social responsibility, they ensure that they abide by all laws; but, they make not attempt to exercise social responsibility beyond they legal requirements. In the defensive approach managers also ensure that their employees behave ethically and do not harm others.
Yet, these same managers always put the claims and interest of the stakeholders first—even if it is at the expense of other stakeholders (Jones, G. , 2010, pg. 201). Again, the cigarette manufacturers are a good example of taking a defensive approach. After it was mandated that the public be warned (legal requirement), the cigarette manufacturers placed the following warning: Warning: smoking causes lung cancer, heart disease, emphysema, and may complicate pregnancy. The manufacturers at this point had met the legal requirement; but, absolutely did nothing else, i. . , setting up a fund for patients with lung cancer or funding programs to prevent teen smoking. – Accommodative approach is basically the acknowledgement of the need to support social responsibility. Managers using this approach realize that the organization should act in a socially responsible manner and should behave legally and ethically. The accommodative manager does his best to balance the interest of different stakeholders against one another in order to insure the claims of stakeholders and seen in relation to the claims of other stakeholders (Jones, G. 2011, pg. 202). In these organizations, when managers have a problem they implement a social responsibility strategy in which the company chooses to accept responsibility for the problem and do everything in their power to solve the problem in a manner that meets the expectations of society and stakeholders as a whole. – Proactive approach is the approach where corporations and managers fully embrace the need to behave in a socially responsible manner. Managers take a collaborative approach to ensuring that they behave ethically and legally at all times.
To ensure the corporation is socially responsible, they are willing to use corporate resources to promote the interest of stockholders while simultaneously supporting the claims of stakeholders. The perfect example of proactive social responsibility happened on September 1992 when Saturn found a fault in 1,696 of its new cars. An article in the Seattle Times stated, “A crush on 1,696 new cars: A new GM Saturn car sits in a crusher, while others are lined up at the Saturn plant in Spring Hill, TN.
A faulty coolant that included a corrosive was discovered in the cars, and Saturn Corporation officials decided to crush all 1,696 of them to make sure no faulty models or parts got into the marketplace” (Seattle Times, 1992). It is totally up to a corporation which approach they would like to take towards socially responsibility; but, in today’s competitive global business environment, social responsibility and looking out for the interests of stockholders and stakeholders play an integral part in the success of a corporation. According to John R.
Schermerhorn, Jr. , the four approaches to social responsibility and the stakeholders affected can be easily defined as (Schermerhorn, Jr. , 2010): • Proactive strategy—take leadership in social initiatives, meet economic, legal, ethical, and discretionary responsibilities. • Accommodative strategy—do minimum ethically required and meet economic, legal, and ethical responsibilities. • Defensive Strategy-do minimum legally required and meet economic and legal responsibilities • Obstructionist Strategy—fight social demands and meet economic responsibilities
Stakeholders Affected by Social Responsibility Stakeholders are the people who have an interest, claim, or stake in the organization, in what it does, and how well it performs (Jones, G. , 2010, pg. 28). There are two man groups of stakeholders—inside and outside stakeholders. According to Gareth Jones, “inside stakeholders are the people who are closest to an organization and have the strongest or most direct claim on organizational resources, i. e. , shareholders, managers, and the workforce.
Outside stakeholders are people who do not own the organization, are not employed by it, but do have some claim or interest in it. Customers, suppliers, the government trade unions, local communities, and the general public are types of stakeholders (Jones, G. , 2010, pgs. 28-30). Rethinking Social Responsibility In October 2002, a debate occurred between Milton Friedman (currently a senior researcher at the Hoover Institution and a Distinguished Service Professor Emeritus of Economics at the University of Chicago), John Mackey (CEO Whole Foods), and T. J. Rodgers (founder and CEO of Cypress Semiconductors).
Friedman strongly believed that businessmen practicing social responsibility are products of pure and unadulterated socialism. In his mind, businessmen who focus their actions on being socially responsible were, “unwitting puppets of the intellectual forces that have been undermining the basis of a free society for decades (Friedman, Mackey, & Rodgers, 1992). During the debate, John Mackey strongly disagreed with the ideas of Friedman concept that the only social responsibility a law abiding business has is to maximize profits for its share holders. Mackey stated during his argument, “I strongly disagree.
I’m a businessman and a free market libertarian, but I believe that the enlightened corporation should try to create value for all of its constituencies. From an investor’s perspective, the purpose of the business is to maximize profits. But that’s not the purpose for other stakeholders-for customers, employees, suppliers, and the community… Not that we’re only concerned with customers. At Whole Foods, we measure our success by how much value we can create for all six of our most important stakeholders: customers, team members (employees), investors, vendors, communities, and the environment” (Friedman, Mackey, & Rodgers, 1992).
Mackey was a firm believer that there was no magic formula to calculate the value each stakeholder should receive from a corporation; but, he felt it was a dynamic process and that no stakeholder remains satisfied for long. Mackey’s opinion was that the function of company leadership was to develop solutions that continually for the common good. T. J. Rodgers, who was dubbed one of America’s toughest bosses by Fortune Magazine, argued that corporations add far more to society by maximizing “long-term shareholder value” than they do by donating time and money to charity (Friedman, Mackey, & Rodgers, 1992).
Is Corporate Social Responsibility Responsible? In 2006, an article in Forbes debated over whether corporate social responsibility was really responsible. According to the article, the concept of corporate social responsibility deserves to be challenged. Why? Because some people strongly feel that political correctness has slowly obstructed the way business is done. According to the author of the article, Betsy Adkins, “the corporation’s goal is to act on behalf of the owners. The company’s owners—its shareholders—can certainly donate their own assets to charities that promote causes they believe in.
They can buy hybrid cars to cut back on fossil fuel consumption or support organizations that train the hard-core unemployed; but, it would be irresponsible for the management and directors of a company, whose stock these investors purchased, to deploy corporate assets for social causes” (Atkins, 2006). The bottom-line-up-front, Ms. Atkins feels that corporations should act socially responsible; but, not at the cost of the investors. Investors pay for profit and not social responsibility. Everyone does not feel like Ms. Atkins. There are corporations like Saturn who are willing to take a loss to ensure they are socially responsible.
Saturn lost millions of dollars; but, publically crushing the cars and letting society know the reason they were being crushed saved the corporations image with the public. Current and Past Issues in Social Responsibility In 2010, Penn Olson, an Asian Corporation, made a list of the top ten most socially responsible corporations. Listed below are the top five and the reasons they are considered the most socially responsible: – Vodafone was listed as number one because of its promise to cut down their carbon dioxide emissions in half by 2020 by improving the energy efficiency of its global mobile phone networks.
The company further pledged to recycle 95% of network equipment waste and reduce work-related accidents. Most importantly, Vodafone is the leading business in producing socially responsible pr4oducts such as “text –to-speech” software for blind people and user friendly handsets for the elderly (Noam, 2010). – The Body Shop was number two because it is considered one of the pioneers of social responsibility. In 1985, the corporation worked with Greenpeace and obtained more than 4,000,000 signatures against animal testing in the European Union.
The Body Shop’s founder, Anita Roddick, places great emphasis on the environment, animal rights, and human rights (Noam, 2010). – Starbucks Coffee has always been known for being socially responsible. Starbucks came in third place for most socially responsible companies. Starbucks has been steadfast in their goal to green coffee and supported Ethos Water. Ethos water is a corporation that provides clean potable water to billions of people who otherwise would not have safe drinking water. – Ben & Jerry’s Ice Cream notably came in fourth place. For years the company has been known for giving back to the community.
One of the most amazing aspects of Ben & Jerry is their promise to link their prosperity between the corporation, its employees, and the local community. From the time when the corporation was founded, the two brothers have donated 75% of their pretax profits to charitable organizations (Noam, 2010). – HSBC Holdings came in fifth place for being socially responsible. HSBC is known for providing small businesses with sustainability insurance options and developing an index for climate change (Noam, 2010). Furthermore, the corporation partnerships with other financial institutions to promote affordable home ownership.
Arguments Against and for Corporate Social Responsibility According to Schermerhorn, there are several arguments against social responsibility. Most importantly, as Friedman thought, it reduces business profits; increases business cost, dilutes the purpose of doing business—which is to make a profit, and causes lack of public accountability. In favor of social responsibility Schermerhorn finds that it adds long-run profit, improves the corporation’s public image, helps avoid the need for government regulation and intervention into corporate business policies, and finally provides business with resources and ethical obligations.
In conclusion, in today’s society most business people agree that the ethical and moral way to conduct business is for corporations to be socially responsible. If corporate America took the stand of Friedman, they would believe totally opposite. Corporations must do what their finances and budget can handle. On the norm, lack of social responsibility results in loss of revenue and valued customers and suppliers. As stated in the introductory paragraph, Friedman though corporate social responsibility was the end to free enterprise. The decision to practice corporate social responsibility will ultimately be up to the corporation.
The corporations will have to decide whether they are in pursuit of profit or in pursuit of acceptance by society for being socially responsible. As always, there will continue to be companies who strive for the pure love of money (profit). There will be those who also will consistently never place profit before society as a whole. The individuals who are in search of the almighty dollar at any cost—even at the cost of being socially responsible will always be around too. Those people will believe the pursuit of profit only is wicked.
In believing so they will be firm believers of Friedman statement, “The shortsightedness is also exemplified in speeches by businessmen on social responsibility. This may gain them kudos in the short run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats” (Friedman, 1970).
Works Cited Atkins, Betsy (2006). Is Corporate Social Responsibility Responsible?. Forbes. , retrieved from web May 17, 2011 from https://forbes. com/2006/11/06/leadership-philanthropy. Friedman, Milton (1970). The Social Responsibility of Business is to Increase Profits. , The New York Times Magazine. , The New York Times Company Mackey, John ((2005). Rethinking the Social Responsibility of Business. , Reason Magazine. , retrieved from web May 15, 2011 from http://reason. com/archives/2005/10/01/rethinking-the-social-responsibility. Makower, Joel (2006).
Milton Friedman and the Social Responsibility of Business. , retrieved from web on May 17, 2011 from http://www. worldchanging. com/archives/005373. html Schermerhorn, Jr. , John R. (2005). Management, 8th Edition: Valparaiso, In. , John Wiley & Sons, Inv. Seattle Times (1992). A Crush on 1696 New Cars. , retrieved from web on May 29, 2011 from http://community. seattletimes. nwsource. com. Hizan (2010). 5 Socially Responsible Companies: Penn Olson Asian Tech. , retrieved from web From www. penn_olson. com/2010/08/03/socially-responsible-companies.