The Aim of Companies Is to Make Profit, Not to Address Social Responsibilities - Coursework Example

A Discussion on “The Aim of Companies is to Make Profit and not to Address Social Responsibilities” Name: Institution: Course Title: Instructor: A Discussion on “The Aim of Companies is to Make Profit and not to Address Social Responsibilities” 1.0 Introduction In the approach of bounded rational decisional making and consequentialism theories such as utilitarian model, and the ultimate goal of business is to make profit irrespective of other side effect (Hodgkinson & Starbuck, 2008, p.457). The basis of this argument is that business should engage in venture where pleasure is more that pain. In business term this means where returns are higher than losses (Chandra, Krovi and Rajagopalan, 2009, p.48). This kind of thinking is anchored from the approach that a company gain market leadership through understanding the needs of consumers and executing strategies that generate superior quality, value and service (Moorman & Rust, 1999 p.180). This was informed by the shareholders framework and economic responsibilities approach in business. On the other hand, there is the realization that firms can not only base their performance on profits recouped alone (Geraghty, 2010, p.141). This realisation has been shaped by various socio-economic and political factors. Ethical approaches to doing business have over the years gained a paramount position. Moreover, Kantian ethics demand that human beings engage in what are morally upright and ought to be upheld. Corporate social responsibility (CSR) forms a level of appreciation by business organizations for being given opportunity by the host community to conduct business amongst them by drawing resource from their community. The chief benefit is brand value. Firms are able to ride on the good reputation they have created amongst their clients (Geraghty, 2010, p.143). This essay aims at discussing the phrase “the aim of the companies is to make profit and not to address social responsibilities (CSR). 2.0 Business Stakeholders and Their Expectations To build the basis of argument for this paper, it is important to indulge and look into the expectations of the stakeholders in the business fraternity. The essence of this is that different stakeholders have different expectations which they would want to be achieved. These expectations are like a cross road to corporate management since some are incompatible and if they were to be addressed all, then there has to be a compromised middle ground. There are various theories that can be used to explain human expectations and how they are shaped. These expectations if not met are likely to cause reluctance, withdrawal and even social unrest. The understanding of stakeholders’ expectations is important in defining how the concept of social responsibility has grown and how businesses have gradually shifted from pure profit oriented approach. This is based on Caroll (1991, p.40) that factors like sustainable development, occupational health & safety, consumer safety and equal employment opportunities have given rise to CSR. Expectation theory looks at performance in relation to anticipated satisfaction of valued goals set by the interested parties. According to Victor Vroom (1964) cited in Brim (2012, p.3), people adapt their behaviour in certain way so as to attain desired goals. For instance this means if the business is not of good name in the society they are likely to shun even through mass action. On the other hand investors will shy away from businesses that operate like charities since they do not guarantee high returns. This then calls for a mid ground approach. The same can be analysed in the context of bounded rationality framework. Jones (1999, p.297) notes that bounded rationality approach to decision making asserts that decision makers are goal-oriented or rather objective and adaptive in their decision making. As such, in bounded rationality decision makers are intentional in their decisions. The ultimate goal of business shareholders is to earn revenue from their business. This means at all cost the business has to make profit by creating value to the end customers and locking them in. on the other hand, the ultimate aim of customers to satisfy their needs by buying goods or services that create value to them. The host community aim is to have a responsible business that has a good reputation in terms of employment policy, diversity and environmental conservation among others. The other is the employees. Their role is to provide man power that enables company to create value. In return they expect to be rewarded by the firm. This reward can only come when organisations make profits. Apart from the reward, employees expect to work in environment that is safe, healthy & free from discrimination and offers opportunity for development. The government aim is to offer level playing field by ensuring that businesses comply with legal provisions (Iamandi, 2007, p.5). The above framework shows that CSR is bigger than economic success and legal provisions. One has to be ethically and philanthropically responsible (Caroll, 1991).The advantage of this approach was that the company was guaranteed higher profits, but this was in short term especially when a new competitor emerged. The reason behind this is that while the company made profits, it had no good public relations with the society. The basis is that they internally did good, but externally bad. 3.0 Business Ethics in the Context of Profits and Corporate Social Responsibilities 3.1 Concept of Purely Profit Driven Business The utilitarian principle of utility seeks to either approve or disapprove the actions of individuals depending on whether or not they promote/increase the amount of an individual’s happiness (one’s interests). Utilitarianism ethical theory is in principle related to the theory of hedonism. These principles reiterate that the actions, behaviours and policies of individuals are geared towards achieving pleasure and avoiding pain. As such, humankind will always act, behave and formulate policies which enable leads them towards the acquisition of wealth, power, position, good health, as well as virtue among others. These enhance individual’s chances towards achieving or maximizing pleasure while avoiding pain (Sunita, 2005, p.112). This approach to CSR is based on the Friedman (1970) cited in Iamandi (2007, p.6) view of businesses. He noted that the role of businesses is to “The Social Responsibility of Business Is to Increase its Profits”. The concept later expanded to stakeholder’s approach where it was seen that stakeholders had the power of impacting on business operations (Iamandi, 2007, p.6). 3.2 Concept of Corporate Social Responsibilities The pure profit driven is based on the share-holder value approach as envisaged by Adam Smith. In a face value view, it is the government that is supposed to regulate the failures associated with pure economic approaches. However, there has been great recognition that this can’t be left to government alone. Business have equal task of addressing the same (Pigou, 1920 cited in Benabou & Tirole, 2010, p.1). Kantian ethics stresses for the need of doing the right things in the way they ought to be. The theory is against bad will and ill motives. Businesses can be seen to have a social contract with the rest of the public. Good faith concept in contractual agreement requires that one acts honestly and fairly in meeting his contractual obligation (Zeller, 2003, p.4). Iamandi (2007, p.6) notes that there are three levels of CSR. However, the ultimate one is the societal approach. The societal approach is built on social democratic and socio-economic framework where all operations of human beings are tied to promoting social welfare of society. Werhane (2010) provides the platform of understanding the need for corporate social responsibilities. Werhane (2010, p. 696) conducts analysis on two sets of guidelines. The first is the Global Economic Ethic (GEE). The second is the United Nations Global Compact (UNCG). The reason for these choices is because these standards are clearly articulated and do not tolerate much leeway for discretion. In her initial investigation, she notes that article 3 of GEE posits that one of the company’s duties is to promote good and avoid evil. Further she notes that the other duty in this standard as articulated in article five is to avoid the impairment of people’s health through adverse working conditions. Lastly in her examination, she notes that article six advocates for sustainable treatment of the natural environment and avoidance of waste. The ultimate thinking is that people are becoming more conscious of organisation’s behaviour and those that can’t guarantee good behaviours are castigated. For instance issue of Kyoto Protocol and Global Warming has highlighted this. Others include the labour relations that a company has. The companies which engage in CSR have outlined various reasons why they do so. The first justification is based on pragmatic and rational reasons. The reason behind this is that firms want to improve their public image. Companies that engage in CSR have higher ratings in terms of image as opposed to those who do not. The second reason is deontological view. This is the sense that a business has a moral obligation to the society. The last is the social pressure. This is the worst route because the company has entrenched the concept out of societal pressure (Iamandi, 2007, p.7). 3.3 Examples of Social Corporate Social Responsibilities The first example is sustainability reporting. Nature if not well treated is unforgiving. This lies on what we withdraw and what we inject in the environment. Basically speaking, the performance of any economic sector is directly or indirectly tied to the environmental situations. Thus, the performance of firms even if not present is tied to the environmental situation. Hence, there is need to conserve it (Aras and Crowther, 2008, p.281). The adoption of the sustainability reporting by a firm is a true indication of how they value the physical environment they operate in, and which forms and dictate their future existence. Sustainability reporting shows the level of commitment that a company has towards social responsibility. The other example that can be cited is diversity management so that a work place is an all inclusive area. As globalization continues to take its toll around the world and fierce market competition continues to exist among business organizations, the workplace continues to be more diverse (Horwitz & Horwitz, 2007, p.988). The management of organizations is mandated with the responsibility of ensuring their workforce operates in an environment that is conducive and enhances their performance. Achieving this mandate in a diverse workplace is not easy and requires the management’s leadership commitment in walking the talk. This will enable them win the trust of the diverse workforce. Leadership in this case involves mentoring and coaching diverse workforce, educating the workforce diversity and inclusion as an important business value. 3.4 Roles and Advantages of CSR There are numerous advantages that can arise out of corporate social responsibilities. These advantages then can be used to support and thus, counter the notion that the aim of the companies is to make profit and not to address social responsibilities. The first advantage can be analysed from the context of sustainability reporting. Sustainability reporting falls in the context of conducting business in socially responsible business practices. The concept of sustainability reporting has continually developed over the last 12 years becoming a norm rather than exception in mainstreaming ethical practices into business operations. In Australia, it has been reported that approximately 66 % of firms engage in sustainability reporting (Geraghty, 2010, p.141, 142 and 143). The greatest benefit of sustainability reporting is the protection of environment from degradation as a result of firm’s economic activities. The next advantage can be seen from the marketing perspective of promotion. The chief benefit is brand value. Firms are able to ride on the good reputation they have created amongst their clients (Geraghty, 2010, p.143). For instance a company that sponsors a community event can significantly improve their brand value. Abrahamsom, Forsgren & Lundgren (2003, p.4) notes that sponsorship gives a company leeway to enjoy promotion mix. In their conceptual framework, they note that the roles of sponsorship in promotion mix. One important aspect is the ability to inform through advertising supply through sales promotion, create positive lasting image through public relations and interact with customers through personal selling. Under these approaches then, promotion is able to support company’s product and services by reaching target market and consequently increasing sales. The basis of improving corporate image is attainable in areas such as corporate social marketing, community volunteering, cause promotion and cause-related marketing (Iamandi, 2007, p.8). A firm that supports a cause say during famine or floods is likely to benefit from positive image since they have contributed to the cause during calamity. This is equally evident where the firm engages in corporate philanthropy by donating directly to an organisation. To prove this effect, various global organisations have engaged and spare a fraction of their revenue towards corporate philanthropy. Leading organisations like Google and Microsoft have realised the importance of this in enhancing their brand image globally. The underlying premise is a switch from a compulsory engagement to exploitation of the process as economic opportunity. The other positive aspect of sponsorship as CSR is on the ability to build an image for the company by having psychological effects on consumers (Kim, 2012, p.3). CSR falls under the promotion concept of 4Ps which is supply driven and in communication under the 4Cs. According to Kim (Kim, 2012, p.3), image of a company matters since it allows the consumers to relate with that brand name thus, creating psychological attachments. For instance, when companies sponsor sports event or music idols/ celebrities, when they perform and the brand name is displayed as well, the consumers are meant to believe that they will derive the same befit as those personalities. In a situation that a firm sponsors, charities or environmental clean ups they are able to build up image of responsible organisations. In a nutshell, corporate social responsibility is equally an aim of the business since it contributes to that desired profit. The context can be summarised through a marketing perspective. Marketing forms a salient feature of connecting the firm, market and the product (Aaker, Kumar and Day, 2001, p.3 & 4). CSR forms one of the approaches to marketing and part of integrated brand promotion approach. Integrated brand promotion connotes the efforts that firms create to convince consumers to purchase their products (O’Guinn, Allen & Semik, 2011, p.39). 4.0 Conclusion The purpose of this essay was to examine the term that “the aim of companies is to make profit and not to address social responsibilities. However, the contrary has emerged. While it’s the onus of every business to be successful by making profits through creation of value to end customers, the success of business cannot be measured in terms of profit recouped alone. Businesses extract a lot of resources from the host community and nature which calls for them to behave responsibly. This means going outside the boundary of being responsible to shareholders, the business itself and government. For a firm to gain a positive public image, it has to uphold social and economic ethics despite of the existing legal frameworks. These include philanthropy, sponsorship and sustainable development. The beauty of this is that apart from good image, it can be used as a marketing avenue through promotion. Thus, it is not true that the role of business is to make profit. The argument is that with the changed socio-economic and political environment this is not sustainable. References Aaker, D. A., Kumar, V. & Day, G. S. (2001). Marketing research. New York: John Wiley and Sons. Abrahamsom, J. T., Forsgren, T. & Lundgren, H. (2003). Sport sponsorship as a marketing communication tool. Lulea University of Technology. 2003: 133 SHU, ISSN: 1404 – 5508. Aras, G. and Crowther, D. (2009). Corporate sustainability reporting: a study in disingenuity. Journal of Business Ethics Vol. 87, pp. 279-288. Benabou, R. & Tirole, J. (2010). Individual and corporate social responsibility. 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