Social Responsibility of a Business - Literature review Example

RUNNING HEAD: THE SOCIAL RESPONSIBILITY OF A BUSINESS (Statement by Milton Friedman) Name Institution Subject Introduction It is logical that without people in the society there is now business. This means that business and people are strongly linked together in one way or another. Most of the businessmen believe that business is not merely connected with profit alone but with promoting the desired social ends. This means that business has a social conscience and it takes its obligations by providing employment, preventing pollution and eliminating pollution. Apparently, these are social concern in which the business takes care of (The New York Times Magazine, 1970). The suggestion of Milton Friedman that the social responsibility of the business is to maximize profits was worth it. This is because in order to maximize profit, an entity, be it an institution/organization or an individual has to link with the society and to give benefit to the society at large. Social responsibility is an obligation whereby an organization or an individual has to do in order to balance between the ecosystem and the economy (……………). A trade of normally exists the two aspects in the material sense. Now, sustaining the balance between the welfare of the society and the ecosystem means the business is responsible socially. Many people perhaps may not understand the social responsibility of business in maximizing profits. Meckey says if one takes a business from the private point of view, the outlook is profit maximization. However, on the other side if one view from the social perspective, it is a means. Therefore, when people in the society engage in economic activities without any differences between them, it ensures that the resources in the society are efficiently used. First step towards clarity What does the social responsibility of business implies for whom? Apparently, people who are to be responsible in are normally the businessmen (Pava, 2008). In this case the businessmen refer to any individual proprietor or executives in different organizations/institutions. Corporate executives usually interact with a large number of individuals compared to individual proprietors. Therefore, discussing social responsibility of a business using an organization gives a wide understanding. When it comes to free businesses, a corporate executive is normally is given some rights to be the owner of an enterprise. The executive is responsible to his/her employers. The responsibility that he/she is given is to run the enterprise in accordance with the business desires (making profit) while being compliant to the principles in the society, ethical custom principles. However, different employers have varied objectives in their respective institutions (Pava, 2008). For example, the objectives of a school are not the same as the objectives of a restaurant, which is to make profit. In either case, the main point here is to understand that as a corporate executive in an organization, a leader/manager is an agent of people who own the organization and the main responsibility is to them. Focusing on the business sector, a corporate executive uses someone else’s finance for the general interest of society. For instance, when the accounting figures states that stakeholders’ return reduced, he reduces, when the accounting figures require raise in price to customers, then he raises and when accounting figures require lowering of wages then he has that responsibility. Generally, it is clear that many activities designed by businesses are meant to increase profit (Milton, 2013). Friedman (1970) stated that social responsibility involves the recognition of the socialist perception that normally the political aspects, not actually market mechanisms are the suitable way to define scarce resource allocation to alternative uses in the ecosystem and business environment. There are a lot to ask about the consequences of the corporate executive in an institution. However, he is presumably an knowledgeable in managing the accounting records of the company. The Rules of the Game The rules of the game that business must follow are: Obeying the law, Following the ethical custom in the society (no fraud or deception). It is important to note that the law and ethical custom in both the ecosystem and the economy need not to be the same in order to bring the aspect of social responsibility. This is because many immoral aspects sometimes are legal and on the other hand laws can be immoral. In the society perspective, most of the people would not want all immoral doings to be illegal. Now, if an enterprise was to act such that it beliefs compliance to law was just enough then significant laws would have been in the course particularly in the ecosystem. On the other side, ethical custom is more limited to ordinary perception such that in incorporates three major aspects that a business should only play with: a) A business must engage in open and free competition (out of coercion) b) A business must be without deception and of fraud, and c) A business should be positively good. For example being charitable, being sympathetic to an extent of not harming even if the law requires and going an extent of sacrificing personal self-interest for the help of others in need. Rules of the Game from the Accounting Perspective This will be discussed using the idea behind “Triple Bottom Line” (3BL) accounting. According to Birt et al (2012), enterprises’ eventual success should be measured not only using the traditional financial bottom line, but also evaluating ethical and environmental performance. The reason for integrating the two aspects (ethics and environmental performance) is that most of the corporations in the contemporary world have various obligations to customers/stakeholders to act responsively. It is a perception that has led to a belief that a firm cannot succeed in the end if it disregard the welfares/interests of the key customers. Triple Bottom Line accounting idea accounts for the complete success of obligations to all stakeholders (members of the community, workers in the firms, customers and suppliers). All these four aspects should be accounted for by calculating auditing and reporting (Willard, 2002). Willard (2002) states that the believe ethical business practices and social responsibility are essential functions of corporate management has led to the development of accounting tools that measure managers’ stakeholders’ and shareholders’ activities in regard to the performance of the firm. 3BL (Triple Bottom Line) elaborates the two rules of the game that if the people in the society are not good corporate citizens-this take into account social and ecological responsibilities plus the financial ones-then eventually, the stork price, profits as well as the business will suffer (Brit et al, 2002). As mentioned above, 3BL ensures that there is calculation, analysis and reporting of every component in the ecosystem and business. Then 3BL defines the firm’s vital worth particularly in financial, social and ecological terms. This reporting will thus response to customers’ demands that the firm participates in, be accountable for and substantiate its membership in the society. Avoidance of deception is still a rule of the game in the business. Triple Bottom Line accounting idea acts also a management tool in the firm. It acts as an early warning system whereby it detects a change in stakeholders’ behavior and later incorporates effective changes in the strategy to avoid the issue hitting the bottom line. In this case, therefore, as much as 3BL focuses on accounting aspects of the firm, it also places emphasis on social and ecological aspects as well as economic aspects that normally appear as corporate executives’ agendas (Willard, 2002). This leads to the focus on additional bottom line. Having an additional Bottom Line 1. Measurement claim: Social impact is normally measured relatively to the basis of standard indicators. For example data from social performance report is audited and reported. 2. Aggregation claim: This is an analogous to a net social profit/loss. Data from these indicators can be used during calculation. Measurement of additional bottom line is important because; a) When a firm measure, calculate and report social performance, then the response will be to improve social performance which will in turn become profitable to the firm in the long run- Convergence Claim. b) Corporations are able to maximize the measurements of the social bottom line and improve the net positive impact. Apparently, this is the firms’ obligation. c) Transparency claim: The firm will be in a position to disclose the information that relates to its performance with stakeholders. At some point, this explains the aspect of openness and free competition. The Relevancy of Friedman statement in the contemporary business environment about the sole social responsibility of the business in the society Indeed, the contemporary firms exist in confrontational relationship to the society and therefore their interest is contrary to those of the society. In the current environment there is limited restrictions to the activities in which the business exists and therefore there is high possibilities of firms freeing themselves from constrain of regulations (The Rule of the Game). Most of the firms currently when they fail at production they seek success through exploitation of other social aspects (Brit et al, 2002). Apparently, there is a chance for the corporate executives to hunt for well-deserved regulated environment in order to uphold Friedman’s 1970 statement. Friedman’s idea on macro-economic stability perhaps may not be accepted in the current business environment. Friedman (1970) stated that macro-economic suffering of the firms was normally caused by the state/government not by the private market or the ‘rules of the game’ that binds the d\vusiness especially during production. Friedman’s arguments claimed that the government caused a great depression. However, in the current environment, the government always acts as a protection in the market by producing a quick recovery. The government for instance, ensures that there is enough cash in the circulation in order to ‘liquidity’ the economy (Economic Times, 2013). From Friedman’s statement, sufficient egalitarian income distribution in the economy comes because of absence of abandoned state laws. In the current business environment this definitely will not work. The current environment has employers with great minds of profit-seeking structures. For instance, they promote talents through training and development. Apparently, this is a way of bringing together attainable attributes in the market (high profits) by ensuring that the produces associate free and share ideas of production (employees’, suppliers’ & shareholders’ report 2013). Friedman narrowly brought the business to play within the ‘rules of the game’ and this means success to him in terms of social responsibility. However, the current environment needs to demand a lot more ‘rules of the game’ that are not coded into law. Apart for the ’rules rules of the game’ that Friedman stated in 1970, there are other rules that an enterprise should play within in the contemporary environment in order for it to survive. For example, the rule of demand and supply in the market. For a business to make a lot of profit in the current market, it must have a high supply to the needs of customers in the market. High profit therefore is achieved when the firm supplies the right product to the right stakeholders at the right time. This rule must apply in the current market for a business to survive. Now, the premise underlying Friedman statement in 1970 may not apply since; Although Friedman refused to accept that firms are capable of having social responsibilities, the current organizations have an extensive social responsibility apart from only making profits. In order for companies to make profit, they must follow the rules of the game even beyond those codified into law. Conclusion A stable business in the market is the one that maximizes profits. This is should be done in a way that the needs of the stakeholders are met without being compromised and they will remain viable always in the market. Sometimes when these needs modify, the business has the responsibility to bring in the right measures for continuous survival. Actually, Friedman missed this piece while he was making his statement. The rules of the game perhaps have varied in the contemporary environment whereby people expect more than only profit maximization. On the other side, stakeholders are more concerned on quality, safety and value relative to the price they asked to pay for the product. Reference Birt, J. Chalmers, K. Byrne, S. Brooks, A. & Oliver, J. (2012). Accounting: business reporting for decision making (4th ed.). Qld, Australia: Wiley. Employees, suppliers & shareholders. (n.d.). John Friedman: Milton Friedman Was Wrong About Corporate Social Responsibility. Breaking News and Opinion on The Huffington Post. Retrieved August 11, 2013, from http://www.huffingtonpost.com/john-friedman/milton-friedman-was-wrong_b_3417866.html Milton. (n.d.). The Social Responsibility of Business is to Increase its Profits, by Milton Friedman. University of Colorado Boulder. Retrieved August 11, 2013, from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html Pava, M. L. (2008). Why Corporations Should Not Abandon Social Responsibility. Journal of Business Ethics, 83(4), 805-812. Recapturing the Friedmans: Macroeconomic stability for minimal government intervention is a wrong idea - Economic Times. (n.d.). Featured Articles From The Economic Times. Retrieved August 11, 2013, from http://articles.economictimes.indiatimes.com/2012-05-14/news/31701174_1_claim-macroeconomic-stability-libertarianism Willard, B. (2002). The Sustainability Advantage: Seven Business Case Benefi ts of a Triple Bottom Line, Gabriola: New Society Publishers. Read More