Should Corporations Have a Social Responsibility - Essay Example

Should corporations have a social responsibility? Order No. 252591 November ‘08 Should corporations have a social responsibility? Outline The concept of corporate social responsibility has been gaining importance in recent years. With concerns about climate change, pollution and ethics in business mounting the debate about whether corporations should have social responsibility is gaining prominence in business circles. There is one set of people who believe that corporations should go beyond their main aim of making profits and assume responsibility of solving social problems. There is another set which believes that anything which is not profitable is not good for the corporation and self-interest and profitability should be the main concerns of a corporation. They also feel that companies in the pretext of social responsibility try to set right the tarnished images of their businesses. This paper will attempt to reason why corporations have a growing responsibility to solve social problems. Now to come to a decision as to whether corporations should have social responsibility it is necessary to know what corporate social responsibility is and what are its fundamentals. Corporate responsibility is a concept in which corporations take into condideration the interests of the society, the impact of their business activities on their employees, their customers, their shareholders, suppliers, the community and the environment while conducting their business. This they do voluntarily. Adam Smith (1759) in his book The Theory of Moral Sentiments says that it is in human nature to seek social approval. It is as important as self-interest. It is having a desire to uplift the society and create better economic and living conditions for their employees and the community and the society in general. Corporate social responsibility is all about being more responsible towards such issues as ethics, working conditions, environment, etc. Some of the fundamentals of corporate social responsibility are: 1. Respect and dignity for human resources principles According to Mel Cappe (1999), “It is no longer enough to do the right thing, but we must also ensure that we are doing things right. It is no longer sufficient to be a place where people work - the workplace itself must be built around the people and give them the support they need.” 2. Adopting accurate and transparent accounting principles and financial standards 3. Following business ethics 4. Having concern for the environment and social progress 5. Dedication in serving customers 6. Respect for competitors and suppliers 7. Compliance with government laws and regulations of the country or countries in which it operates. Here the words of Christopher Cox (2008) are very true. He says “In a profit and loss driven world, there is always a risk that companies facing an uncertain economic future may choose to cut compliance expenses as a shortsighted way to save money. But experience has taught us again and again that giving short shrift to regulatory compliance subjects a companys investors, employees, management, directors, and every other stakeholder to unacceptable risks.” Supporters of free markets, including Milton Friedman, have always argued that companies should concentrate on the pursuit of profit. People who believe that corporations do not have any social responsibility and that their aim should be to maximize their shareholder value often cite Milton Friedman, a great economic thinker and a free market proponent of the 20th century, to support their view. According to him business executive are agents of shareholders and not public servants. Their responsibility is to maximize profits. The primary goal of a company is its responsibility to its shareholders. Any deviation from this goal will harm the shareholder. Anything other than self-interest will be a diversion and harmful to the shareholder. In his book, Capitalism and Freedom, Friedman (1962) says “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”. He may be right here. But the fact is today many companies are using exploitative policies and using their financial clout to influence government policies in their favour. This unfortunately does not make for free and open competition. One can agree with Friedman if one were to live in a society where there is economic, social and political harmony and where there is equality and fair political and public processes and policies. But today where the weak are exploited by the powerful, where there is nexus between the government and business houses, where resources are exploited by unfair means, where government is influenced by special interests; it is all the more necessary that corporations take up social responsibility. Many who do not agree to the fact that a company has responsibility towards the community and environment argue that spending money on social causes means stealing money from investors. They argue that a corporation’s money legally belongs to the investor. Hence it is the management’s responsibility to maximize sharehlder value. Philanthropy does not help to maximize profits. They are right in their own way. But as John Mackey (2005) says, “the argument is not wrong so much as it is too narrow.” He further adds “there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors”. He gives an example here. On certain days, his company donates 5 percent of a stores total sales to a nonprofit organization. This helps brings hundreds of new customers into his stores, many of whom later become regular customers. This initiative not only supports worthwhile causes, but also doubles as an excellent marketing strategy that benefits investors too. Another example where ethical concern is good for business is when a company decides not to employ children as laborers. A consumer may refuse to buy goods made by children. Presenting a good image of the company is good for business. Consumers buy more from an ethical supplier. Hence social responsibility is something a corporation cannot overlook. The Corporations should not be guided by the investors alone. Corporations have the right to define the purpose of the company and need not work only towards making profit. They have to take up social responsibility. The shareholders own the stocks but they can sell their shares if they disagree just as customers and employees can leave the company if they are dissatisfied. Of course this does not mean that when a company takes up social responsibility a company does not have responsibility towards its investors. Again as John Mackey (2005) says “Its a question of finding the appropriate balance and trying to create value for all of our stakeholders”. Taking on social responsibility encourages and also helps a corporation to take notice of the social and environmental consequences of a business. It is the duty of businesses to be environmentally and socially conscientious. It is necessary for corporations to balance social responsibility with financial performance. According to J.DesJardins (1998), “the Neoclassical Model of corporate social responsibility ….. holds that corporations ought to seek profits while obeying a ‘moral minimum’.”  Another common practice a company may use in its endeavor to be socially responsible is to integrate social responsibility into its marketing strategies. A company to be morally responsible must use resources at appropriate rates and must compensate any losses incurred by the ecosystem. A company must ensure that its activities are ecologically sustainable. In conclusion it can be said taking on social responsibilities and making the correct moral choices will result in financial profit ultimately. Corporations form the foundation of the economy of a country. Liu Peng in an interview said “they the main force in practicing a scientific concept of development and building a harmonious socialist society. Practicing the scientific concept of development means that corporations must stick to the people-oriented principle, protect employee’s legal rights, and strive for a comprehensive, coordinated and sustainable development of the economy, society and environment.” These words aptly sum up the main thoughts of this paper. Sources 1. Cappe Mel,(1999) "Becoming an Exceptional Workplace of Choice" Quote retrieved from www.hr-guide.com on 15/11/08 2. Cox Christopher (2008), Quote retrieved from www.sec.gov on 15/11/08 3. DesJardins J (1998), Quote retrieved from www.sacredheart.edu/download/1378_dibella_woodilla_.doc o 16/11/08 4. Friedman Milton (1962), Capitalism and Freedom, University Of Chicago Press; 1 edition (November 15, 2002) 5. Mackey John (2005) Rethinking the Social Responsibility of Business, Retrieved from http://www.reason.com/news/show/32239.html on 15/11/08 6. Peng Liu, an interview to China Reading Weekly, Retrieved from http://www.beijingforum.org/en/ShowArticle.asp?ArticleID=657 on 15/11/08 7. Smith Adam, The Theory of Moral Sentiments Cambridge University Press; 1 edition (February 4, 2002) 8. http://www.blr.com/trial_vGWO/Step1.aspx?layoutID=283&id=77713 Read More