Corporate Social Responsibility by the US Tobacco Companies - Case Study Example

CORPORATE SOCIAL RESPONSIBILITY (CSR) AND U.S TOBACCO INDUSTRY By Student Name Instructor Course Date of Submission CORPORATE SOCIAL RESPONSIBILITY (CSR) BY U.S TOBACCO COMPANIES In the modern age, business corporations operate continually in more open and dynamic systems as consumers become more and more enlightened on their rights. There is pressure from different societal forces to influence businesses actions as top executive and managerial decisions are being scrutinised for their impact on the greater society. In this essay, I will discuss three Corporate Social Responsibility (CSR) perspectives; the narrow classical view, the social-economic view and broad maximal view. I will apply the concepts in understanding the United States (US) government institutions and cigarette companies’ management decisions regarding tobacco products safety, social welfare and need for business productivity. I will also apply Kew Garden Principles (KGP) in the evaluation of the social economic and the broad maximal view of CSR. Corporate social responsibility (CSR) can be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time" (Carroll and Buchholtz 2003, p. 36). This implies that organizations have a vast array of heterogeneous obligations i.e. pursuing their shareholders’ profits motivations alongside the moral, ethical, and philanthropic responsibilities to the society (Schwartz, 2011; Simon, 1997, Wood, 1991 & Cochran, 1984). CSR upholds a process that integrates business strategies, social welfare, ethical human rights and consumer concerns into business operations. The core objective is to perpetrate positive impacts through goods and services that are beneficial to society and the enterprises leading to overall usability, satisfaction, and happiness (Schofield, 2006). Milton Friedman is the father of the narrow classical economic view. He argued that “managers” are employees primarily obliged to create optimal wealth for their employers (Friedman, 1970; Simon, 1997: 64). Classical view disapproves corporations’ obligations to the society. Milton argued that business investments are economic institutions with the aim of increasing financial returns and provision of goods and services. However, he stated that corporations have to act within the law and ethically approved standards (Robbins, Bergman, Stagg and Coulter, 2003: 136). According to classical view, management’s only social responsibility is to create optimal returns on their investment. (Robbins, S et al. 2006, p.161). The U.S cigarette companies adopt classical-economic ideologies to maximize profits for business growth and economic productivity. The companies are optimizing their profit margins with the belief that social issues should be addressed by other institutions (Friedman, 1970; Friedman, 1962; Simon, 1997). However, they engage in lawlessness and unethical business practices which is a violation of the classical view. According to Friedman’s agent-principal argument, the “managers” are agents of the owners of the corporations (Friedman, 1970; Friedman, 1962; Simon, 1997). Therefore, they should act in the best interests of their principals’ desires i.e. increasing revenues. From the case, the management does not use corporate recourses to pursue philanthropic social obligations because it is illegal and could be termed as stealing from their principles. Following Friedman’s tax argument, the management’s use of corporations’ profits for CSR obligations would be imposing costs on the shareholders without their consent. This would be engaging in unjustified form of taxation without fair representation and that is contrary to the principles of democratic governance. From free society argument, tobacco companies’ adoption of other CSR other than profits maximization would impose controls on stakeholders without their consent. The concept of free society is based on maximizing unanimity in the market and minimizing conformity. The tobacco companies’ adoption of CSR obligations would inhibit opportunities for market mechanisms to actualize the principles of unanimity. Suppressing the principle of unanimity and adopting conformity would violate the foundations of a free society. As a result, we see the managers pursuing optimal profits for the shareholders and boycotting many social responsibilities. The socioeconomic view argues that corporations’ responsibility goes beyond maximizing return on investment to involve protecting and improving society’s welfare (Arthaud-Day, 2005; Garriga, 2004). It is based on the perception that businesses are part of the larger society hence, they have other responsibilities alongside profits maximization such as obligation to the wider society (Robbins et al., 2003: 137). The social economic view strives to balance the interests of diverse stakeholders who are impacted by corporations’ actions. Corporations should have a standard of moral conduct to uphold in their operations. Moral minimum is the minimally expected degree of ethical standard of a business such as the compliance with the law (Carroll & Buchholtz, 2003. While businesses may go beyond moral minimum as they seek to balance profitability, legal compliance, and analyzing what constitutes morally accepted behaviour, they should always refrain from causing social harm and preventing it in the society (Schwartz, 2011). Social injury relate to the activities which deprive health, safety or other basic freedoms. The duty to avoid, prevent or correct social injury is well founded in any society. The Kew Gardens Principles (KGP) provides a powerful framework for analysing the obligation of tobacco companies and government to respond to issues of major concern in the U.S market. The principles include; need proximity, capability, and last resort (Carroll & Kareem 2010). The principle of need call for duty to avoid, prevent or correct perceived social harm. The degree of responsibility increases with the increase in need. The government perceives its duty to protect the rights of the citizens by setting up institutions like the U.S Department of Justice (DOJ), courts and legislations such as Racketeer-Influenced and Corrupt Organizations Act (RICO). The proximity KGP refers to the being close to a situation of need or the function of being in knowing of a situation of need that creates critical harm. Proximity principle calls for reasonable action to remedy a situation perceived to be harmful. The awareness of wrongdoing or a social injury situation leads to automatic obligations that were not present in the state of ignorance. The tobacco companies are blameworthy since they conspire to hide the truth about tobacco health risks. The government as the supreme body in charge of citizens’ affairs and executes its obligation to find out issues of concern causing social problems in the society and finding ways to mitigate them. The DOJ researches on the effects of tobacco products and pursues tobacco companies to obey the law. According to the capability KGP, a person or institution would be held responsible or blameworthy to a situation of need they have proximity if there is reasonable action they are expected to do to avoid, prevent or correct it (Carroll & Kareem 2010). For instance, the tobacco companies are blameworthy as they break the rule of law. They have resources to engage in finding long-term solutions to cigarette smoking health risks. The companies have the capability to comply with product safety regulations and provide consumers with the right information about their products. On the other hand, government through its various institutions is constitutionally mandated to safeguard the rule of law and human rights including consumer rights. The last resort principle implies that individuals or corporations are dutifully responsible to act on situations causing harm if there are no others who pursue to correct such problems (Carroll & Kareem 2010). An organization should act as a measure of last resort in solving a social problem when others do not pursue to mitigate the problem. In the U.S case, the DOJ researches interventions on the effects of tobacco products leading to disclosure of key violations made by cigarette companies. The DOJ ruling that tobacco companies should disgorge their profits to the government does not seem to stop or prevent social harm. As a measure of last resort, Judge Gladys Kessler of the U.S District Court intervenes to end a tyranny of social injury through cigarette products. She rules that tobacco companies will be prevented from committing future RICO violations. The broader maximal view of CSR is another widely adopted concept influencing businesses’ obligations to the society (Carroll, 2010; Hawkins, 2006 & Mallin, 2009). Key to the broad maximal view is the perception that the society and business are interwoven, the need to balance power and responsibility and refraining from depleting society resources for selfish interests. Also, it seeks to balance between the interests of all stakeholders and ensuring justice and respect of their rights. Corporations utilize a portion of their revenues in solving social problems as they create a more stable investment environment for long-term productivity (Cochran & Wood, 1984; Hawkins, 2006). According to KGP, the tobacco companies’ awareness that there is market demand for tobacco products calls for the duty to fulfil that need. The companies produce cigarette products therefore contributing to the betterment of the society. With financial and technical capabilities, they are required to contribute to the social welfare by solving health problems related to tobacco products. As a result, they setup a research institution to establish health effects of cigarette products. Even though the U.S DOJ pinpoints Tobacco Industry research Committee (TIRC) aim as to promote interests of the cigarette companies, the committee’s findings are in line with other independent research organizations. Therefore, the companies contribute to social welfare by seeking to find out the impact of their products to the society. On the other hand, advertising of tobacco products makes the customers aware of the products and their features. This denotes a broad maximal approach in the corporations’ operations. The U.S DOJ observes key violation of the RICO act. Its ruling to have tobacco companies’ turn over all the profits to the government is to use such financial resources for the best interests of the society in solving social problems created by cigarette companies. In conclusion, it is the obligation of corporations to establish their CSR strategies and determine their implications in the society. However, socially responsive corporate actions appear to have rewarding economic implications in the long run. If corporations primarily pursue profit maximization without engaging in improving social welfare, they risk more government regulation and control which may hamper productivity. (Word count = 1654) References Arthaud-Day, M.L., 2005, "Transnational Corporate Social Responsibility: A Tri-Dimensional Approach to International CSR Research." Business Ethics Quarterly 15 (2005): 12. 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