Is Increasing of Profits the Social Responsibility of Business - Literature review Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2013 Introduction The notion that organizations do not exist in a vacuum, but rather there is an environment around the business that has to be cared for, has prompted many companies to adopt corporate social responsibility. The inception of the CSR movement into organizational practices therefore brought about the human touch to the business objective of making profit. Consequently, many organizations today have integrated corporate social responsibility as part of their core business activities. The major areas of CSR involve the organization’s stakeholders, such as employees, the environmental and in particular broader society. In general, defining corporate social responsibility has become problematic. This is because various managers and scholars have varied views concerning what corporate social responsibility is all about. Waddell and George (2011, p 155) provide a concise definition of CSR as the way an organization achieves a balance between its business processes to produce an overall positive impact on society. Research evidence on the other hand suggests that an organization’s CSR actions provide greater benefit to the organization than they do to society and other stakeholders. In deed corporate social responsibility has become the new philosophy of business for most organizations, nevertheless, the big question is whether CSR actions provide greater benefit to the organization than they do to society and other stakeholders. This particular paper seeks to evaluate the notion of whether CSR actions provide greater benefit to the organization than they do to society and other stakeholders. In one perspective, it can be argued that corporate responsibility provides a greater benefit to the organization than they do to the society and other stakeholders. A compelling argument to support the notion was propagated by Milton Friedman in his classic essay ‘’ The social responsibility of business to increase profits. According to Friedman (1970, p122) the only social responsibility of a business is to maximize the wealth of the stakeholders. Friedman further argues that the executives of an organization have an immediate responsibility to the owners, which is to execute business in harmony with their desires. In general, the desires of the stakeholders are basically to make as much profits as possible. Friedman asserts that the objective of maximizing profits for the shareholders is exemplified in the law and also within the ethical custom of the organization. Therefore, in the quest of attaining this particular objective, the executives must abide by the law and the ethical customs of the organization. Friedman’s assertion can be argued to be true in the sense that as Schwartz and Saila, (2012, p8-9) reveal that at no point does Friedman indicate that a business has no social responsibility. Nevertheless, the social responsibility of the organization is clearly to make profit, while still following the rules of the game and also the rules of the society in which the business operates. Friedman recognizes a constrained CSR which is to maximize profits and in actual sense this is what most organizations do. Consequently, based on Friedman assertion; the notion that corporate responsibility provides a greater benefit to the organization than they do to the society and other stakeholders can actually be argued as true. Also, the argument that CSR actions provide greater benefit to the organization than they do to society and other stakeholders can be argued as true based on the fact that organizations may be inclined to using CSR as a strategy of making more profits for the organization. Schwartz and Saila, (2012, p10-11) highlight that a firm can get involved in activities such engaging in charity, environmental conservation and many other initiatives. Nevertheless, by doing this, the executives of the organization can be of the perception that by doing so, they are actually maximizing the profits of the shareholders. For instance; if a company engages in caring about the welfare of the customer through the production of quality and healthy products, then the demand of the products will definitely increase and thus increasing the profits of the organization. Also when executives ensure employee morale, the employees are bound to work hard and effectively in order to ensure that the organization is successful. This may further increase the profits of the organizations based on the fact that well motived employees have the capability of working effectively towards the success of the organization. In general, although the executives may adopt corporate social responsibility initiatives in order to prove just how beneficial they are to the society. What is evident is that their final objective which is to maximize the wealth of the stakeholders will always be on the forefront. As a result corporate social responsibility can just be described as a means to an end which is to make profits for the stakeholders of the organization. The actions of organizations in their CSR activities can also be argued to be only geared towards benefiting the organization more as opposed to the society. Subhabrata, (2008, p52) points out to a case of the infamous East Indian Company which was run by Britain during the colonial era. The company was involved in eliminating competition, securing resources, building strategic alliances and securing cheap raw materials. Although the company was founded with the objective of improving the economic conditions of colonies such as India, nevertheless the actions of the company gave an indication of the wrongful side of the CSR adopted by the company. This is because instead of benefiting India, the company assisted the British Empire to enhance the technological superiority of the textile industry in Britain. This resulted to a systematic destruction of the indigenous industries in India. As a result of the negative implications that arise due to CSR activities of organizations, it can be stated that CSR activities of mainly geared towards benefiting the organization as opposed to the society. Corporate social responsibility is currently also undertaken as a win-win situation for the organization, beginning with the assumption that it develops good business sense and also enhances value for the stakeholders (Subhabrata, 2008, p61). A case in point is the debate concerning CEO compensation. Subhabrata, (2008, p61) discloses that a recent study has revealed that in the largest US corporations, the largest raises of CEO pay were connected to the largest layoffs. While the pay rise for CEO was 6% in the year 2002, the figure increased by 44 % in 2003, in company’s that announced the biggest layoffs. In despite of this particular increase in CEO compensation, the company’s presented slick, polished reports of corporate social responsibility annually. Yet on the other hand many low level employees lost their jobs while the CEO’s got an increase in their compensation. Based on the findings of this particular research, an argument can be raised to question whether CSR activities of such organizations are actually for the good of the society or just for the executives of the organization. CSR actions also provide greater benefit to the organization than they do to society and other stakeholders, based on the fact that as argued by Friedman, it is only when a business is fulfilling its economic obligations that they can be argued to be socially responsible. This particular assertion is not just theoretical but rather practical. A case in point is demonstrated by the early 1970’s when Ford company was experiencing intense competition from Japanese and German small compact car exports. In order to counter this particular competition, Ford had to come up with a competing model design, known as Pinto that was aimed as capturing the market. While the company was in the process of coming up with the new design, design flaws occurred. The company discovered that the fuel tank of the Pinto could rapture, fuel could leak and ignite and thus leading to an explosion. In order to make changes to the design it would cost Ford $11 per vehicle, in addition 12.5 million vehicles had to be recalled. As a result the total cost that Ford would incur would be $137.5 million in order to fix the Pinto design. Ford also predicted that the defect would result to the death of about 180 people. In addition, 180 people would also suffer from injury as a result of the explosion and approximately 2,100 vehicles would be destroyed by fire (Schwartz and Saila, 2012, p15). In despite of this knowledge, Ford did not actually recall the cars it had sold to the market. Schwartz and Saila,(2012,p16) highlights that Ford actually did nothing for seven years until the year 1978 when intense pressure from the government , legal battles and the media forced the company to recall 1.5 Million Pintos. What is evident from the above case is that in a scenario, is that in the context an organization is bound to incur losses as a result of implementing CSR, then undertaking CSR becomes difficult as demonstrated by the Ford Company in the 1970s. Ford was obligated to protect the lives of the people in society by recalling the Pinto model of cars; nevertheless, the company was reluctant to do so as a result of the losses it would incur. This aspect therefore leads us to believing that CSR actions are mainly geared towards providing greater benefit to the organization than they do to society and other stakeholders. On the other hand, it can be argued that CSR actions are mainly not geared towards providing greater benefit to the organization than they do to society and other stakeholders. Cosans (2009,p392) highlights that if all businesses in the world followed the principles propagated by Milton Friedman that social responsibility is all about maximizing the interests of the shareholders by making profits. Then it can be stated that the society would have experienced greater harm as indicated by the context of company’s such as Enron, SUV and Wall Mart who gave an indication of the negative implications of how executives can infringe the rights of people in society. For instance; in the context of Enron, the retirement plans of many people were disrupted as a result of the collapse of Enron stock in 2000. When evaluating the CSR activities of many organizations apart from those that have been involved in corporate scandals, it can be argued that CSR activities have actually been for the good of the society and the world at large. For instance; a study conducted by Bejou (2011, p4) on compassion as a new business philosophy discloses case studies of organizations that have actually changed society as a result of corporate social responsibility. One such company is PepsiCo. Bejou (2011, p4) highlights that; PepsiCo has been a compassionate organization to various stakeholders such as people across the globe, employees, investors, employees. To all the people across globe, the company has been working towards ensuring that its produces products that are healthy and of good quality. PepsiCo has also been committed towards ensuring environmental safety through protection of water use, carbon footprint, packaging and natural resources. Towards its employees the organization works towards encouraging a culture of empowerment, ethical and safe working environment, and respect of diversity and employment growth opportunities. Bejou (2011, p4) further reveals that the most commendable corporate social responsibility activity adopted by the company has been the organizations compassion towards the needy. PepsiCo has offered more that $16 million to assist victims of the earthquake in Chile, the flooding in Asia , the wildfires in Australian and the earthquake in Haiti, just to name bust a few. Through the case a compassionate company such as PepsiCo and many others across the globe , it can actually be argued that CSR actions are mainly not geared towards providing greater benefit to the organization than they do to society and other stakeholders. But rather CSR activities are actually of an equal measure beneficial to society as it is for the organization. Corporate social responsibility actions can also be argued to not only be beneficial to the organization but also to the society and other stakeholders. Baker (p14) explores Levinas view of CSR which propagates that responsibility is a ‘’maternity’’ and such kind of responsibility suffers both from and with other. According to Levinas the demanding view of ‘’responsibility for my neighbors’’ is also a crucial aspect that has been adopted by organizations in order to enhance their profitability. Consequently, managers are usually torn between the obligation of making profits for the business and also ensuring that the stakeholders and the society at large also benefit. In his study Baker and Roberts (2011, p14) undertook a case analysis of packaging company known as Packco. Baker and Roberts (2011, p14) reveals that Packco adopted many strategic corporate responsibility activities which have further resulted to increased profitability for the organization while at the same time ensuring that the society also benefits. Some of the CSR strategies adopted by the business include waste reduction and recycling services which were offered to the customers. Baker and Roberts (2011, p9) highlight that; this particular sustainable CSR practices greatly contributed to the attainment of the company’s financial performance. Roberts (2003,p255) highlights that the nature of the business environment has influenced organizations to undertake CSR not only as an approach to advanced their profitability but also to benefit the society. According to Roberts (2003, p255) based on what is commonly viewed as the intensification of performance pressures and competitiveness, in the contemporary business environment. Organizations are forced to develop an ethical outlook in order for them to be much more competitive. Roberts (2003, p255) further argues that if a business in todays competitive business environment would adopt the 1970s views of Milton Friedman, of working towards the profitability of the organization. Then it would be difficult for them to survive in the current competitive business environment. Adapting a CSR approach that can work towards benefiting the organization and also other stakeholders is therefore crucial in the current business environment. Also organizations today are under extreme pressure to rebuild trust in the global economy. Dima,(2007, p1)highlights that the recent business scandals such as Enron ,the Madoff Scandals and many other have shaken the confidence of the public in the operations of organizations essentially private organizations. Consequently, although CSR may be termed as costly for organizations, adopting CSR activities has been termed as necessary in order to maintain or rebuild the trust of the public. Dima,(2007, p1) highlights that many businesses in the contemporary world are now striving to deliver value to the shareholder, while at the same time they also endeavor to ensure that they promote social value. It can therefore be argued that as a result of the need to ensure or maintain trust, organizations have been involved in CSR activities not with the objective of just benefiting the organizations in terms of making profits but rather in order to also benefit the society. The application of ethics in business is also a fundamental aspect that overrides the view that corporate social responsibility activities are adopted in order to benefit the organization more as opposed to the society and other stakeholders. The existence of ethical codes in business influences the manner in which business undertake their CSR activities, this therefore prevents organizations from exploiting the society and other stakeholders at the expense of making profitable gains. Kleinberg (1995 ,p83) highlights that many organizations essentially big companies have formulated ethics programs, federal regulations and established offices that work towards ensuring that ethics is maintained. Apart from the ethics programs within the organization, there are also federal sentences whereby in case a company breaches ethical codes, fines are to be imposed on the organization. The existence of ethical codes in the practice of CSR has therefore been significant in protecting the society against harm or negative implications that may arise from the activities of organizations. A case in point is recent report by the Wall Street Journal that discloses that due to the existence of strict ethical regulations CSR activities in hospitals in the US, many hospitals were forced to terminate the delivery of discharge parks for maternity which mother usually mistook as a gift from the hospital. The basic reason for the termination was because it was unlikely to encourage breast feeding amongst mothers (Kleinberg, 1995, p84). Although corporate social responsibility may be costly as argued by Friedman based on the fact that a company incurs costs in terms of resources in order to implement various social initiatives, these particular costs are not imposed on the stakeholders as stated by Friedman. Mulligan, (1986, p267) argues that it is possible for organizations to be involved in CSR without having to pass the costs to the stakeholders. According to Mulligan, (1986, p268) the doctrine of social responsibility can actually be linked to the ideology of socialism. This is because both the society and the organization come together to assist each other in solving the challenges that face society. Based on this particular view, it can be argued that to CSR is not only geared towards benefiting the organization but rather through collaborative working, the society also benefits. Conclusion From the above discussion, an imminent factor is that notion of whether CSR actions provide greater benefit to the organization than they do to society and other stakeholders, is quite controversial. The paper has presented views to support the perceptive that CSR actions can be geared towards providing greater benefit to the organization than they do to society and other stakeholders. The arguments include: Milton Friedman view that the only social responsibility of a business is to maximize the wealth of the stakeholders. Another perspective is that organizations sometimes use CSR as a strategy of making more profits. Also the use of the win-win situation when undertaking CSR and the aspect of organizations getting involves in CSR only when it is fulfilling its economic obligations. The paper also raises arguments to contend the notion that CSR actions provide greater benefit to the organization than they do to society and other stakeholders. Some of the arguments raised include; the competiveness of the business environment, the manner in which CSR has transformed the society, the existence of ethical codes in organizations, the fact that the costs of CSR are not imposed on the stakeholders and the pressure to rebuild trust. In conclusion this paper proposes that further research should be undertaken on the subject. References Bejou, D,2011, Compassion as a new philosophy of business, Journal of relationship marketing,10: p1-6. Baker, M and Roberts, J, 2011, All in the Mind? Ethical Identity and the Allure of Corporate Responsibility, Journal of Business Ethics, 101:p5–15. Cosans, C, 2009,Does Milton Friedman Support a vigorous Business Ethics, Journal of Business Ethics , 87:391-399. Dima, J, 2007, The Case for Strategic Corporate Social Responsibility in Developing Countries, Business and Society Review, 112:1, p1–27. Friedman, M, 1970, The social Responsibility of business is to increase its profits’’ New York Times Magazine, Sep 13, pp33, 122-125. Kleinberg, M,N, 1995,The selling of ethics, The ethics of business meets the business of ethics, Accountability Journal, 8:p81-96. Mulligan,T, 1986, A critique of Milton Friedman’s Essay ‘’ The social responsibility of business to increase its profits’’ Journal of Business Ethics ,5(1986),p 265-269. Schwartz, M and Saila, D, 2012, Should Firms Go Beyond profits ‘’? Milton Friedman Versus Broad CSR, Business and Society Review , 117:1, p8-15. Subhabrata, B, B,2008, Corporate social Responsibility : The Good , the bad and the Ugly, Critical Sociology, 34(1), p52. Roberts,J,2003, The Manufacture of Corporate Social Responsibility: Constructing Corporate Sensibility, University of Cambridge, UK. Read More