Classical, Social-Economic, and Maximal Social View of Corporate Social Responsibility - Literature review Example

Unit name  Management Ethics (PG) Unit number  6255 Name of lecturer/tutor  Dr. Lorraine Carey Assignment topic Drug Company Monopolies and Ethics Due date     According to Friedman (1970), businesses have an obligation to maximize the shareholders’ wealth. In addition, he emphasizes that organizations need not engage in activities that will serve to increase their costs. Moreover, he viewed any social cost as a tax, and according to him, businesses are obliged to pay taxes to the government, and therefore, such social responsibilities should be left to the authorities (Blowfield & Murray, 2008). A neo-classical proponent, Milton Friedman argued that profitability, when achieved through ethical means and in the obedience of the law is sufficient to express corporate social responsibility (CSR). According to Werhane (2000), the classical narrow view stresses that the management sole responsibility is to maximize business profits. This view was equally shared by Friedman (1970) who claimed that the primary objective of the company’s directors and managers was to operate in the best interest of shareholders who are the owners’ of the business. According to Sharp (2003) corporate expenditure on social related programs is a major violation of management responsibility to the shareholders. As echoed by Wilson (1989), the sole social responsibility of the business involves the efficient use of resources to finance activities that increase profitability while observing the law. Further, he echoed proponents of the classical narrow view that manager's responsibility is to operate with a view of maximizing the organization’s financial returns for the interest of the shareholders. In respect of social responsive initiatives, Friedman argues that if such actions add up to the cost of the business, they will serve to reduce the returns which will go contrary to the interest of shareholders, reducing employees pay, and for the worst, increasing products cost as such costs will ultimately be factored into product costs. Friedman’s view is echoed by Carrol (1979) who argued that those who are opposed to CSR activities fear that such activities could dilute the business economic activity and such activities do not generate returns to cover their costs. Most proponents of classical narrow view argue that CSR programs are extremely dangerous as they distract the business from its primary objective of maximizing shareholders’ wealth (Nunan, 1988). In this vein, such individuals argue that when a business get concerned with the employees for instance building them hospitals and schools for their children, the business serves to portray itself as “fashionable” or a great innovator (Garriga & Mele, 2004). From the case study, the drug companies prove to be profit minded for their lack of concern to human life. In addition, they take advantage of their drug monopoly to impose prohibitive prices on their products making them available only to the rich. Regrettably, these companies cause social injury since their actions are not in the best interest of all. To the contrary, Shaw (1988) defies Friedman argument by establishing a positive relationship between company profitability and CSR efforts. Shaw (1988) sharply differs with proponents of narrow classical view who argued that CSR activities amount to extra taxes on business. He argued that even though, the company does not engage in CSR activities for any direct financial gain, the long term effect of such activities serve to enhance business profitability. This is because, those businesses that undertake social programs endear themselves to the society by creating a good image, and therefore, many people would prefer to consume their products. Nonetheless, as the issue of CSR remain a significant challenge to the proponents of the pure classical approach, the social economic approach views the management responsibility beyond that of ensuring business profitability. Interestingly, social-economists argue that businesses have an obligation to protect the society within which it exists. This view is echoed by Mulligan (1993) who suggested that businesses can further be classified based on the approach taken towards CSR. In this respect, Mulligan (1993) categorized businesses into two main classifications, namely; those that engage in relational responsibility and those that engage in social activism. Relational responsibility refers to the adoption of social-economic measures to protect welfare groups including customers and employees who are mostly affected by business operations. On the other hand, social activism occurs when businesses adopt social economic approaches with a view of protecting the society as a whole. In this regard, many businesses engage in CSR activities irrespective of whether their operations have or have no negative impacts to the society. Similarly, Mulligan (1986) criticizes the Friedman argument that CSR programs are not worth and that the management should avoid activities that distract the core business of any enterprise. He further argues that, considering the long term benefits that accrue to the organizations practicing CSR, the management should integrate and balance CSR initiatives with the main core of maximizing shareholders welfare. However, the author considers the classical proponents view that CSR related costs serve to reduce shareholder wealth, employees pay and rise in products cost as myopic. Even though this could be true to some extent, it does not result to such extensive impact on the entire organization since it only reduces earnings to the shareholders. Moreover, in the long term, the net benefits go to the same shareholders since as the revenue increases due to better image portrayed by socially responsible organizations, the end benefit accrues to the owners. In this vein, drug manufacturing companies should engage in such communal activities in order to negate the injuries caused to the society. Answering the proponents of the narrow classical view, Simon, Powers and Gunnermann embrace the moral minimum that requires inflicting no harm and rather taking preventive measures. The author's view goes in line with human rights law that advocates for the solution to all negative injections and the affirmative role of preventing harm. Social injury, as well as methods of correction vary. Basically, social injury refers to those activities that a business engages in and leads to violation of laws protecting basic human rights. Nonetheless, the current legal framework requires all businesses to operate within the Kew Garden Principles (KGP) Maitland (2002). Further, the authors argue that in their bid to maximize shareholder wealth, organizations need to minimize social injuries and carry out their affirmative duty of preventing and or correcting social injuries if present. For instance, the drugs manufactured and sold for communal use may cause adverse effects rather than solving the intended health problems. In this case, the drug companies should take up the challenge by withdrawing every other drug sold in the market and compensate the affected users. This could help in preventing escalation of such incidences to other consumers while at the same time portraying the organization as one that is caring for the society. In this regard, Pfizer agreed to withdraw Bextra, a drug that was prescribed to treat menstrual pain and arthritis after Food and Drug Authority (FDA) issued a warning that consumers of Bextra had reported potentially fatal and serious skin reactions. As a sign of social concern, Pfizer immediately recalled all the drugs that had been sold in the market and launched a further test which indicated that consumers risked suffering from stroke and heart attacks. In respect of maximum social view, McAleer (2003) advocates that businesses should interlink corporate philanthropy and community relations to the overall goal of maximizing the shareholder wealth. Similarly, Mulligan (1986) viewed business social activities as a way of adding profits to the business. Kotler & Lee (2005), one of the proponents of CSR programs advocated for the conversion of business social responsibilities into opportunities. Vogel (2005) argues that the other continuum surrounding corporate social responsibility is the affirmative duty of contributing to society. He further argued that business as a way of expressing gratitude to the society within which they operate should exercise a duty of care. In this regard, the author observed that business should develop a habit of proper maintenance of the environment while putting the scarce resources into the effectiveness and effective use. Therefore, the pharmaceutical companies should not only concentrate on maximizing profits, but should also wary the interest of other stakeholders. Presently, businesses are increasingly advised to take more responsibilities to address societal challenges and promote the public welfare. According to Prahalad & Porter (2003), the business CSR perception depends on the emotional reaction of the corporation itself. In line with this and besides profit maximization, businesses should extend their care to the society be ensuring compliance with the legal framework, moral and social responsibilities to the benefit of the entire society. For instance, in the year 2008, Pfizer launched a program to improved health care accessibility for unemployed Americans. In this same spirit, Pfizer is also introducing programs that could also help poor people in developing countries access their products. Further, the drug's manufacturer also participates in various programs that address tobacco, cancer, malaria and HIV/ AIDS. More importantly, the company employees are known to participate in global health initiatives that partners with community organizations to implement different health related programs. In this case, Pfizer has succeeded in maintaining a positive image within the society in which it operates (Beauchamp, Bowie & Arnold, 2008). According to the case study it is so disappointing to learn that the pharmaceutical companies mark up their prescription drugs by as high as 5000- 500,000 percent over the cost of the ingredients. Further, most of them claim that a significant amount of profits made is used to finance further research, which goes contrary to the available data. Basically, 14% of the total revenue is utilized to fund further research, 17% paid out as dividends while about 31% is utilized for administrative and advertisement expenses. Pfizer, which is one of the world biggest drug manufacturing companies, has contributed immensely in the pharmaceutical industry. Notably, in line with the narrow classical view, Pfizer was rated as a leader in drug development and product cost control. The company continues with research and development which have seen the company produce more drugs in response to market needs. This together with investing in different markets across the globe has seen the company profits continue to rise hence maximizing the shareholders' needs. In light of the social-economic view and when compared to other industry players, Pfizer continues to impact positively on people’s lives across the world. In line with KGP principles that require a moral minimum and the affirmative duty of protection against any harm, the company social responsibility strategy aims at mobilizing resources towards expanding drugs production and strengthening health care delivery for protection and healthier life for all. Essentially, discovery and development of new medicines help in both protection and resolving people health challenges. Besides invention and development of new drugs, the company also hires highly experienced health care professionals to educate people on better and healthier living standards, hence protecting them from probable diseases that can be avoided. Finally, based on the maximal social view, the company gives contributions and several grants to community based projects through working closely with health care professionals who identify various community projects that require Funding. The Company ensures that its values remain a top priority. This is because such values not only help in advancing the company’s mission to improve people’s health, but also in creating value to different stakeholders. To achieve this objective, the company not only focuses on what they do, but also emphasizes on how best to do it. Therefore, the company continually updates and reviews its management policies to reflect the dynamic forces in both science and technology and also stakeholder’s expectations (Bowie, 1991). Pfizer’s stakeholders include; physicians, patients, customers, industry regulators, investors, business partners and more importantly the community within which the organization exists. These are the people that the company shares its overarching goal of good health for everyone. As a socially responsible organization, Pfizer continues to be engaged in different initiatives of corporate reputation, philanthropy, image building and public awareness. For instance, in the wake of the ongoing public anti-smoking campaign, Pfizer continues to participate by raising awareness of the dangers posed by smoking habits. This is part of the company’s vision to work for a healthier community. This campaign is aimed at helping not only the current cigarette smokers, but also the future generations by encouraging them to avoid the dangers of cigarette smoking. Pfizer has a unique educational program that recognizes excellence particularly for students with a desire to pursue medicine. In this program, the identified top performers are awarded scholarships to prestigious medical institutions. This initiative is anchored on the idea of having top brains as medical practitioners in order to address the community health needs. On philanthropic front, the company is not left behind as it has made contributions particularly on the occurrence of natural catastrophes. For instance, in Pakistan, the company made a substantial donation to victims of one of the world’s devastating earthquakes that hit the northern part of the country in the year 2005. According to Black (2006), the company has integrated corporate citizenship into its daily activities in order to fulfill social obligations of the community better. Moreover, the company’s commitment to exemplary corporate citizenship is well depicted through its extensive efforts to improve access to health care services. In conclusion, all the three viewpoints of CSR; classical view, social-economic view and maximal social view indicate that the key goal of every business is to pursue profits. However, in present times, the organizations are required to do more than just maximizing shareholder wealth. Therefore, it is the duty of the organization to give back to the society in which it exists and also promote environmental conservation. Basically, this is what corporate social responsibilities entail. Nevertheless, from previous literatures, it is evident that CSR initiatives are in one way or the other interlinked to the organization’s performance. This is because many customers prefer dealing with those companies that actively participate in CSR programs. References Beauchamp, T. L., Bowie, N. E. & Arnold, D. G. (2008), Ethical Theory and Business, 8th ed, Pearson Education Inc, New Jersey. Black, L.D., (2006). Corporate Social Responsibility as Capability, Journal of Corporate Citizenship, 23, 25-38. Blowfield, M. & Murray, A. (2008). Corporate Responsibility, Oxford, Oxford, UK. Bowie, N.E., (1991). New Direction in Corporate Social Responsibility. Foundation for the School of Business at Indiana University, 56-65 Carrol, A.B. (1979). A three-dimensional Conceptual Model of Corporate performance. Academy of Management Review, 4.4, 497-505 Friedman, M(1970), “The social responsibility od business is to increase its profit”, New York Times Magazine, September 13 Garriga, E. & Mele, D. (2004). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 53, 51-71. Kotler, P. & Lee, N. (2005). 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