The primary responsibility of Businesses is to increase the profit of their shareholders - Essay Example

?Running head: BUSINESS, ETHICS AND SOCIETY Business Ethics Insert Insert Insert January 18, The primary responsibility of Businesses is to increase the profit of their shareholders The Primary Responsibility of Business The responsibility that a business play in the society in which it is carried out has been subject to various kinds of debates. While others believe that the primary responsibility of any business enterprise is to maximize the profits of the shareholders, others feel that a business should go far beyond just profit maximization. Zain (2008) gave a comparison of the divergent views of Milton Friedman and Archie Carroll concerning the responsibility of business in a society. Friedman believes that the main responsibility of a business is to maximize the profits of the shareholders and the interest of the shareholders should be the many area of concern in any business industry (Zain, 2008). Theorists like Friedman leave it at that and argues that a lot of emphasis need only to be put in serving the interest of the shareholders who will only enjoy a handsome return. Others like Carroll go ahead to incorporate other social responsibilities that, they believe, the businesses should perform. Friedman asserts that the management in any business organization should fight to remove all the obstacles that could impede the maximization of profits. The effect would be translated into overworking the employees of the organization or performing operations that would be hazardous to the environment and the entire community (Zain 2008). According to his reasoning, Friedman believes that provided the firms operate within the regulations that are provided for by the pre-defined legislation, and having taken into account the interest of the shareholders, all the other supposed roles will be automatically fulfilled. Friedman argues that if business organizations simply capitalize on profit maximization while operating under the established legal procedures, then the firm is assured continued life as there will be funds for inventory maintenance and expansion (Zain 2008). In his view, the management of a firm or business enterprise that engages itself in additional social responsibility may be faced with difficulties in executing its duties to be able to sustain the growth and development of the firm. Friedman points out that “open and free competition without deception or fraud is the only responsibility of firms,” thus, social responsibilities tend to divert firms from making enough profits as demanded by shareholders (Zain 2008). On the other hand, Archie Carroll has larger view of the supposed responsibility of business. Carroll considers the roles played by businesses as four-fold and extends beyond the maximization of shareholder’s profit. In his view, business plays economic roles, ethical roles, legal roles as well as other voluntary roles that helps shape the society in general (Zain 2008). The first responsibility in this model is in line with Friedman’s profit maximization. To be able to contribute to the macro-economic development, businesses need to emphasize on the maximization of their profits by capitalizing on their strength and market opportunities. Businesses need to embark on thorough market and marketing research so as to identify what types of products to deal in, how much to keep in inventory and when to do so. Secondly, the government has the role of providing certain regulations in relation to the business activities to be undertaken as well as the mode of operations. Abiding by these laws and regulations is also a responsibility of business. As Zain (2008) described, “legal responsibilities are those that are defined by the authorities and firms are required to abide by them in a strict and disciplined manner.” The other set of responsibility that Carroll considers fundamental in the operations of a business enterprise is ethical responsibility. He believes there should be some set of moral standards from which the management of an organization should draw its governing principles. In an attempt to maximize the profits of the shareholders, the employees of the organization may be forced to work extra hours. Ethical considerations will see the employees receiving remuneration that is proportional to the amount of extra work done. Business management needs to employ ethics in ensuring the employees work under conducive environment. They need to have that sense of humane in handling the employees (Zain 2008). Finally, the last set of a firm’s responsibility according to Carroll include carrying out other activities within or outside the firm, but under the firm’s directives, that has the main aim of improving the lives of the members of the society. Even though, the above views seem to diverge, they initially have one observation in common and which is of utmost importance in arguing out the major responsibility of a business enterprise. Both Carroll and Friedman seem to accept the opinion that a business’s main role is to maximize its values. They also go ahead to ‘advocate that such responsibility remain in line with legal standards and therefore firms are not to engage in illegal activities’ (Zain 2008). Similar view was provided by the International Organization of Employers (IOE) in 2005. IOE argues that the issue of Corporate Social Responsibility should be a fundamental role of any business both in the market and to the society. IOE (2005, p.5) reported that, “business has always recognized that it has an important role, alongside other actors, in the economic and social development of its communities.” Business ethics In a normal social setting, ethics refers to the acceptable chord of conduct upon which the behavior of an individual can be evaluated as acceptable or not acceptable, or as either right or wrong. The means of setting up a universally acceptable chord of conduct has however had controversies with different philosophers coming up with various theories to attempt to develop the standards. This has led to diverse views on what is ethical and what is not ethical among different communities or social groups. Philosophy and religion are the major ways of attempting to establish the generally acceptable principles in these settings. Business ethics, therefore, is a branch of ethics that attempts to harmonize the conflicting issues concerning the acceptable behaviors in a business environment. It is concerned with examining the various activities involved at different levels or channels of production and determines if they are morally or ethically upright or not. As De George (n.d) broadly puts it, “ethics in business is simply the application of everyday moral or ethical norms to business” (p1). George further points out that in considering business ethics in this sense, the Ten Commandments provide a perfect illustration of this aspect. The ethical values have been historically drawn from the religious and traditional practices, which encourage various virtues while strongly condemning vices like theft. Other religions also have their position on the acceptable conduct in business. In a business setting, ethics will be applied in determining the rights and privileges of the employees, their roles in ensuring business confidentiality, the roles of the top management in keeping business privacy, determination of labor prices and the prices of the commodities/ products that the organization deals in, as well as sales promotion through advertisement. It will also enable the management to curb vices like harassment at work, biased recruitment, and selection of new employees, poor price evaluation, as well as establishing poor marketing strategies. It helps the management in various conflict resolutions. Business ethics will also define the roles that politics and politicians can play in business development. The manner in which activities are formulated, scheduled, and executed must be in accordance with some kind of pre-established legislation. In studying business ethics, one can approach the subject from different angles or perspectives. One can speak of business ethics in relation to the employees in a business enterprise, the top management of the enterprise or the enterprise itself. It can also be considered in relation to the society with the analysis of the social, political, and economical impacts such behaviors have in the society. Considering the diversity that is often witnessed in these settings, there arise conflicts between the various organs that are fundamental in the smooth running of the enterprises. The interest of each of the different parties may not be fully satisfied in that attempting to satisfy one party may be equivalent to harming another party. An act or a decision by the management might suite the interest of the employees while it carries with it losses to the business. Various forms of conflict emerge in a business environment and failure to properly resolve them can lead to the organization’s/firm’s downfall (Ferrell, Fraedrich & Ferrell, 2009, p.59). The conflicts in a business environment could be external conflicts, management conflicts, strategic conflicts, interdepartmental conflicts, operational conflicts, or value conflicts (Moore 1994, p30). The social norms in a business environment may fail to apply globally and this is what results into value conflicts. Just as it is in the various social settings, in a business environment, it is the responsibility of both the employees and the top management to ensure that all the business activities are executed as planned. Laxity by any of the organs will lead to a downfall or failure of the organization. Moore (1994) observed that ‘when a person, family, or business fails to take a responsibility, the result is chaos. This chaos destroys families, communities, businesses, and churches (p31). Moore (1994) further observed that in order to manage the above situations, we need to acknowledge the fact that all the activities to be performed in our society can only succeed if everyone acts responsibly and ethically (p31). Views on Business ethics As has been stated, there have been various views on what is ethical and what is not ethical in relation to business and the market place. Some of the views are discussed below. Some [English] philosophers and political theorists like Herbert Spencer (mid-1800s) believed that when it comes to matters concerning business battle in a market place, then there should be no government’s involvement in putting any form of legislation (Howard & Pintozzi 2006, p108). They derive their argument from Charles Darwin’s theory of Natural selection and survival of the fittest. This theory put in a social context and termed Social Darwinism, postulates that business enterprises should be left to go it alone in a competitive local or global market. ‘Many business leaders were drawn to this philosophy and made it the basis of their belief in laissez-faire capitalism (Howard & Pintozzi 2006, p108). They suggest that the government should not be involved in making certain legislation governing business operations and that, businesses should be left to fight out for them in the market. These people believed that ‘the natural economic laws of demand and supply should dictate business practices without the “unnatural” disturbance of government interference’ (Howard & Pintozzi 2006, p108). Naturally, the firms with poor marketing strategies are eliminated from the race with the entire blame resting on the poor performance of the management. This belief was not accepted by all and later appeared to be self-centered as the rich continued to prosper, as the poor were being oppressed and unable to rise up. The end of the nineteenth century and the beginning of the twentieth century was characterized by a lot of poverty and corruption as compared to the few whose businesses excelled in the society (Howard & Pintozzi 2006, p109). In deed, according a 1997 report by the New York Times, “a misreading of capitalism has caused widespread misery in former communist countries, which are still learning that the free market works best when not completely free.” If there have been laws established to govern business operations, then abiding by the regulations is a key to the success of a business enterprise. However, in as much as it is ethical to conform to the legislations, the act only remains with the less powerful groups in a market set up. Many states also do not still believe in strict business regulation by the government ignoring the dangers posed by such decisions. In such countries, there is a significant amount of lawlessness and misuse of power by the administration under capitalism, much to the chagrin of the citizens (New York Times, 1997). It is a further role of the government to ensure that the businesses abide by the regulations that have been put in place even though it can be a nightmare (IOE, 2005, p.6). However, what seems to be the best approach is to leave the market to regulate itself. The management in such organizations needs to behave responsibly in order to ensure their businesses operate for a long time (New York Times 1997). Thus, in either case, ethics finds its way as fundamental player in the long-term survival of a business. Another important view that people have concerning business ethics is that good ethics means good business. The involvement of ethics in business is considered essential even to this date (De George, p.3). In deed, this is a view that is consistent with the above view concerning conformity to a kind of legislation. Desirable qualities in a business like business courtesy, honesty, office etiquette, and transparency all derive their roots from good ethics. However, the chords of conduct need to be practiced by all the parties involved in the business set-up. This has never been the case and the effect is a total lose on the side of the firms that maintain their morals. The few firms that abide by the set business rules often find their business progress slower than the other more powerful firms that do not follow the rules. Becker is on the view that although the law is important in coordinating business environment, it lacks the strength to assure protection of interests of all the stakeholders in the business (Becker, 2009, p.3). Thus, for a continued success in the business industry, legislation alone may not be sufficient. Instead, of more importance is a high standard of morals for all the stakeholders in the industry. Conventional morality is concerned with the moral standards in a given societal setting. Those with conventional moral reasoning consider what the society say or feel about their behaviors. Participants here accept the social norms as provided in the society and are bound to them regardless of their consequences. Such conventional moral reasoning has the weakness in establishing its strength or appropriateness and there may be difficulties in abiding by them. Conventional morality is also subject to frequent changes, what is conventionally moral in one society can be immoral in an adjacent society, and it is still subject to debate (Kelly et al, 2007, p.3). However, if all the business stakeholders in a given society were to act in the conventional manner, then the success of their businesses would not be threatened. It has been observed that ‘conventional rules are arbitrary, situation-dependent rules that facilitate social co-ordination and organization, they do not have an objective, prescriptive force, and they can be suspended or changed by an appropriate authoritative individual or institution’ (Kelly et al, 2007, p.3) A business that is to survive in the current market is one that advances with the global market advances. Conventional morality is confined within a society and it may not survive in the global market. A set of universally acceptable chords of conduct is thus essential if a business has to succeed globally. As Becker (2009, p.4) observed, “moral leaders represent values that are not confined to the secrecy of the boardrooms and centers of power but are universally recognized as the fundamental building blocks of a life worth living.” Conclusion In conclusion, it is first worth noting that in as much as any business enterprise is charged with various responsibilities, the major responsibility that it has is to maximize the profits of the shareholders. This will boost their spirits and the business will have funds to push on. Secondly, a business that hopes to survive in the current and future local and global market need not to rely only on some forms of government legislation. Instead, it needs to ensure high level of universal morality in its entire leadership. Reference List Becker, G. K., 2009. Moral Leadership in Business. A journal of International Business Ethics, Vol.2 No.1. (Online). Available from: http://www.americanscholarspress.com/content/BusEth_Abstract/v2n109-art1.pdf [Accessed January 18, 2011. De George, R. T., N.d. A History of Business Ethics. (Online). Available from: http://www.teid.org.tr/files/downloads/kutuphane/dunyadan/a%20history%20of%20business%20ethics.pdf [Accessed January 18, 2011] Ferrell, O.C., Fraedrich, John and Ferrell, Linda. 2009. Business Ethics: Ethical Decision Making and Cases. Cengage Learning. (Online). Available at: http://books.google.co.ke/books?id=GiQMr5w1N_kC&dq=business+ethics+subject:%22Business+%26+Economics+/+Business+Ethics%22&source=gbs_navlinks_s [Accessed January 18, 2011] Howard, K. and Pintozzi, D., 2006. American Book Company’s passing the South Carolina U.S. history and the constitution end of course test. Woodstock: American Book Company. International Organization of Employers. 2005. The role of Business within society: How companies and Business organization see the role of business within society. (Online). Available from: http://www.ioe-emp.org/fileadmin/user_upload/documents_pdf/papers/position_papers/english/pos_2005may_rolebusiness.pdf [Accessed January 18, 2011]. Kelly, D. et al. 2007. Harm, Affect, and the Moral/Conventional Distinction. (Online). Available from: http://www.sscnet.ucla.edu/anthro/faculty/fessler/pubs/KellyEtAlMoralConvent.pdf [Accessed January 18, 2011]. Moore, M. S., 1994. Reconciliation: A Study of Biblical Families in Conflict. College Press. (Online). Available from: http://books.google.co.ke/books?id=w-GxXJrCZLUC&pg=PA33&lpg=PA33&dq=Above+the+Bottom+Line:+An+Introduction+to+Business+Ethics+Rbert+C.+Solomon,+Harcourt+Brace+Jovanovich,+1983&source=bl&ots=lNkk1QFwnw&sig=Mm1VJNQyrtPrSZgcVhCnNP0JYCo&hl=en&ei=pgo0TYSsEIKGuQPsiIGgCw&sa=X&oi=book_result&ct=result&resnum=8&ved=0CE4Q6AEwBzgK#v=onepage&q=business%20ethics&f=true [Accessed January 18, 2011]. The New York Times. 1997. Opinion: Eastern Europe’s Wild Capitalism. The New York Times, February 18, 1997. (Online). Available from: http://www.nytimes.com/1997/02/18/opinion/eastern-europe-s-wild-capitalism.html [Accessed January 18, 2011]. Zain, M., 2008. Social Responsibility in Business: Friedman and Carroll’s Differing Views on Business Responsibility.(Online). Available from: http://www.suite101.com/content/social-responsibility-in-business-a46586 [Accessed January 18, 2011]. Read More