The Social Responsibility of Business: Friedman vs Drucker - Book Report/Review Example

The Social Responsibility of Business: Friedman vs Drucker The 1970 article by Milton Friedman titled "The Social Responsibility of Business is to Increase its Profits" argues that businesses were to engage in socially responsible activities it would be equivalent to practicing socialism. Peter Drucker, in his 1981 article, objects to the term "business ethics" and calls it "Casuistry" because it requires different ethical behavior for businesses than it does for individuals. He goes on to denounce various approaches to "business ethics" and suggests an ethics of Prudence that involves business executives and managers to shun behavior they would not respect in others. Both Friedman and Drucker object to the use of the term "social responsibility" and "business ethics", although they do not inherently object to the actions and activities undertaken by businesses and executives in the name of social responsibility and business ethics. Friedman argues that the only responsibility of a business is to make profit for its various stakeholders. According to him, if a business diverts money from profits and uses the money for some social good, the business or the executives running the business are in essence imposing a tax on the stakeholders and deciding for themselves how spend the tax proceeds. He calls this undemocratic because there are no checks and balances as those imposed on democratically elected governments. He argues that the job of imposing tax is that of the government and if the government interferes in the way that the businesses spend their profit, it will slowly lead to socialism. Drucker on the other hand objects to the term "business ethics" which he contends is the new "in" subject replacing "social responsibility". Drucker's argument is that different scholars have approached ethics in different ways and that there is no one definition of what is ethical. Under the circumstance, business ethics becomes a very ambiguous term that is difficult to define. Drucker goes on look at business ethics from various approaches. He explains that the western religious traditions of ethics for individuals do not work in the business environment and so concludes that the definition of what is ethical is different for an individual and different for corporations. However, he argues, that having such different standards for individuals and corporations in not really ethics but "Casuistry". Casuistry is a 17th century concept according to which what is ethical for a ruler is different from what is ethical for the individual since the ruler is "someone whose actions have impact on other". As such, a ruler must put social responsibility ahead of individual conscience. Drucker denounces casuistry because it "considers social responsibility to be an ethical absolute" and because it makes ethics a political objective of businesses and business executives. Drucker further gives examples to demonstrate how casuistry is not compatible with what is considered ethical. Next Drucker looks at business ethics as Ethics of Prudence. According to this approach, every person in a corporation has some degree of leadership and a leader must never act in a way that his actions need to be explained to others. Although Drucker feels that Ethics of Prudence has the potential of becoming practice in public relations, he feels that it is appropriate in a "society of organizations". Drucker defines a "society of organization" as one in which a large number of individuals are in important positions of power. However, this power is not conferred by birth but is result of their position and so they have a responsibility to take right actions. According to him, Ethics of Prudence is not business ethics because it lays down the same ethical principle for everyone and is based on authority while business ethics rejects any authority. Finally, Drucker approaches ethics as the Confucian ethics of interdependence. According to this approach, every individual is interdependent on another individual and his or her actions should be such that they lead to mutual benefits for both parties. In conclusion, Drucker contends that ethics should be concerned with interdependence and must be about ethics of prudence and the term business ethics is not clearly able to define such a universal ethical behavior. Neither Friedman nor Drucker are essentially against being ethical or socially responsible. As Friedman says, a business executive's responsibility is to "engage in open and free competition without deception and fraud". Drucker also advocates behavior that is appropriate and one would respect in others. However, they both object to the use of the terms "social responsibility" and "business ethics". Friedman claims that it is alright for businesses to engage in activities that may directly or indirectly benefit the society, as long as its end result is to maximize profits for the business. And if a business engages in such social activities, it is actually acting in its own interest of maximizing profit and so should not be called social responsibility. Drucker on the other hand attacks the term "business ethics" saying that the term does not fully capture the appropriate behavior required of business executives because ethics can have different meaning in different context and for different people. Reading the two articles, it is obvious that irrespective of what the terminology we use, practices like social responsibility and business ethics are important not only for the society but also for the business. Friedman is right in saying the main responsibility of a business is to maximize profits. However, if a business can maximize profits while at the same time contributing to the society, it becomes a win-win situation for all concerned. It does not really matter whether such actions are called social responsibility or by any other name. However, when we talk about social responsibility of a business, no one is suggesting that a business should engage in activities that would lower its profits while benefiting the society. Instead social responsibility of businesses implies conducting business in such a way that it is mutually beneficial to all the stakeholders including the customers who make up the society. Friedman talks about businesses being long-sighted. Indeed, it is beneficial for businesses to invest in the society so that they may reap benefits in the long run. Such socially responsible actions may be called investments in building the business or investments in building clients or they may be called social responsibilities of business. These are just terminologies, however, in the end, a business that cares about its environment is going to benefit over a business that is only concerned with short-term profits because no business can operate exclusive of its environment. As far as business ethics is concerned, Drucker wrote the article over 30 years ago and the subject has evolved a great deal since then. Today, business ethics is essentially defined as not doing things that would harm the organization or its various stakeholders and has much more absolute definitions than those discussed by Drucker. Business ethics is about carrying out a business in a way to maximize profits while ensuring that the actions of the executives now or at a later stage, do not directly or indirectly harm the public. In the long run, doing business ethically is beneficial for a corporation because it can become difficult to sustain unethical business practices over longer periods. And once the public becomes aware of a corporations unethical behavior, they lose trust in the corporation, leading to eventual decline. Thus, ethical and socially responsible behavior always pays in the long run. References Drucker, P.F. (1981). What is "Business Ethics"? The Public Interest, 63, 18-36. Friedman, M. (September 13, 1970). The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine. Retrieved from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html Read More