Ethics and Governance. Corporate Social Responsibility

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits”

The integrated concept of ‘profit’ making refers to the fact that our economy is treated as an ingredient of the social system and when integrated in society, it encompasses the economy to be as one of its constituents. Only then, such an economic agent is assumed to be a complex social actor, and profit-making is a multiplex social action, the ends and motivations of which are diverse in that they are both rational and non-rational (Zafirovski, 1999).

When we talk about social responsibility of a business, we mean that side of economics which is concerned with the production and distribution of goods and services for market exchange, thereby increasing the profit motive and contributing to social betterment.

Using business resources (capital or labour) for other purposes lessens the amount available for the business’s economic mission and is thus an act of irresponsibility to society. However the point of conflict in social responsibility is the ethical and discretionary categories which represents the opposition to discretionary social responsibility on the right but is joined by opponents on the left who make the same argument for different reasons.

For example Friedman (1971) believed that the credit for general rise in the quality of living standards in the West goes to the then capitalists who have been allowed relative freedom to pursue profit maximisation. Many other economists and theorists believe that the common good is best served by business people focusing on the financial return on capital investment. In other words, the only responsibility of any business towards a society is to utilise its resources in order to maximise profit margin. It is only when they channel business resources, including their time and expertise, into non business, discretionary social responsibility areas; they fail to fulfil their primary responsibility to society.

The concept of ‘doing good by doing well’, or progressing from ‘doing good to doing better’, in the area of social responsibility simply means that social responsibility is and should be handled as a corporate investment that will result in a long-run corporate profit and not a corporate expense. Most businesses would probably like to achieve this goal, but for many businesses this may be easier said than done.

Before the ‘doing good to doing better’ concept can work it must have the complete blessing and support of top management and be inculcated and totally supported all the way down the organisational ladder. Studies have shown that this may take several years to accomplish as it is a long-term educational process. If everyone in the company does not support the concept, it is subject to failure anywhere along the line. If outside stakeholders are not properly educated and do not understand the concept and processes involved and if they do not agree with it then the entire program can falter and even fail.

Keeping the company in business in order to keep people employed and still generating a reasonable profit for its stockholders are also primary concerns and top priorities of the company. Large companies, with large planning, policy, and strategy staffs, may be in a better position to make the ‘doing good to doing better’ concept work. On the other hand, medium-sized and smaller companies with limited resources may have serious problems in applying this concept of social responsibility for they have limited resources to utilise.

Today it is a common notion to accept that business firms have social responsibilities that extend well beyond what in the past was commonly referred to simply as the ‘business economic function’ (Angelidis & Ibrahim, 1993). However in earlier times managers, in most cases, had only to concern themselves with the economic results of their decisions. Today managers are bound to consider and weigh the legal, ethical, moral, and social impact and repercussions of each of their decisions in the name of socially responsible (Anderson, 1989, p. 15). Most of the organisations do not consider this area of social responsibility as a major or separate functional area for the reason that usually it is believed that businesses actions’ in this area are limited to be considered vested in an individual or small staff.

When evaluating these conflicting demands and their impact upon the revenue and profitability of the company, management must maintain a degree of detachment. Professional decisions must be relatively free of hypocrisy or self-deception. This is no easy task because a company believes to be engaged in philanthropy because others need money, as though a corporation were a well-heeled uncle who should spread his good fortune around the family. For the most part, corporations give because it serves their own interests or appears to.

Most companies find it no simple matter to formulate and implement socially responsible actions and programs. However, all companies must become concerned and involved in this area where every one must understand and play her part in contributing towards social responsibility. To operate without major disruptions, a company must at all times be in compliance with legal requirements international, federal, state, and local. It must develop, establish, implement, and police a code of ethical and moral conduct for all members of its organisation (Maignan & Ralston, 2002).

In the area of philanthropic activity, where there is considerably more latitude of operations in how, when, where, and even if the company or division wants to contribute money or other resources to ‘worthy causes’, the firm must deliberate about and resolve many questions prior to establishing fair and workable guidelines. Unlike past which was governed by ‘public be damned’ attitudes, today there is more awareness in consumers and general public, therefore such attitude is of no relevance.

With a more active government and populace, company social responsibility has continued to gain greater concern and prominence over the past several decades. Social responsibility will continue to take more time, money, consideration, and concern in all future management decisions and actions (Anderson, 1989, p. 16). Diverse managerial skills, ranging from simple to highly complex, are required in all of these areas of social responsibility.

Social responsibility of a business in actual is upon those business managers who, in addition to their irresponsibility to society, are neglecting their duty to the business owners. In effect, managers who contribute business resources to social causes are taxing the business owners without their consent or to put it more bluntly, they are stealing from owners. Therefore managers are bound by an implicit contract to use business resources for profit maximisation purposes only. Beyond economic responsibilities, managers must obey the law and do business by the rules of the free enterprise system, e.g. free competition and fair pricing (Besser, 2002, p. 36).

On the national level, economic rewards for discretionary social responsibility are favourable treatment by social investors. People who consider themselves social investors base their investment choices on the social responsibility of companies, thus partially countering the impact of short-term investors whose only concern in making investment decisions is quarterly profit statements (Besser, 2002, p. 36).

In some cases, however, it may be costly to engage in activities that can raise profits at an adjacent stage. Economies of scale, for example, may deter the replication of retail premises and production facilities. Another consideration is that the established firms may enjoy goodwill with their customers or suppliers. The simple redistribution of profit from adjacent stages cannot be the motivation for integration in this case, however, for the monopoly earnings of the incumbent firms will be capitalised in their acquisition price. The motivation is rather that bluffing not only redistributes profit but distorts the coordination of output too.

For example, when each party is dishonestly claiming adverse conditions, output may be set at a level below that which would maximise the joint profits of all the parties involved. With integration into a single enterprise, prices no longer redistribute profits, and a strategic advantage to bluffing no longer exists. Information does not have to be encoded in offer prices any more; it can be supplied directly as factual information to the headquarters of the firm (Casson, 2001, p. 18).

Social responsibility also follows some ethical grounds. If the corporate objective is purely to maximise the owner’s profit, however, then it is difficult to see why they should subscribe to it on ethical grounds. But if the maximisation of profit is represented as something instrumental to the pursuit of a morally higher goal then individual self-interest may well be suppressed. More precisely, when self-interest is construed more broadly in terms of the satisfaction of helping to achieve this higher goal, material self-interest carries much smaller weight.

An important policy implication regarding social responsibility is that social institutions are of enormous economic significance as they affect both the absolute level of performance and the comparative performance of different sectors. Since these institutions have moral rather than profit objectives, the strength of the moral commitment of their founders is probably more important to the national economy than their conventional entrepreneurial skills.

An economy needs to encourage social leadership in order to build and maintain social institutions that engineer trust. A society that emphasises the pursuit of profit to the exclusion of other objectives is therefore likely to suffer in the long run as it will damage these institutions and so be unable to exploit contractual arrangements that require high levels of trust (Casson, 2001, p. 145). Profitable business does not therefore require an exclusive emphasis on the pursuit of profit but rather a balanced moral system in which profit considerations guide the choice of efficient means by its firms and business networks, but which is ultimately driven by the not-for-profit ends of its social institutions.

Thinking along the lines of simple cause-and-effect in business, this would appear to be quite straightforward as social responsibility is simply a matter of minimising use of resources and maximising the amount of value created. Put briefly, a maximum productivity level should be the aim in every situation but it’s not quite as simple as that. Quantity is not always the same as quality, be it a question of sugar in your coffee, drugs to treat illness, or profit in business (Hansen & Christensen, 1995, p. 51).

With social responsibility of a business comes defining feature of economic globalisation which is the evolution of new footloose transnational corporations possessing superior management mechanisms of control and coordination.

According to the economic globalisation paradigm, MNCs (multinational corporations) truly compose of global citizens that do not identify with any nation. Hirst and Thompson (1999) use data from the annual reports of the world’s largest corporations to ascertain whether they are truly devoid of economic bias toward their mother country. The researchers note the difficulties of cross-cultural comparisons as companies report the same activities differently within the same country, and legal reporting procedures can vary considerably from country to country.

Nevertheless, analyses of the location of assets, sales, and profit generation leads them to conclude, that Multinational corporations still rely on their home base as the centre for their economic activities, despite all the speculation about globalisation. In other words, although these companies operate in international markets, they remain oriented toward their mother country in terms of sales, assets, and as the locus of innovation and leadership.

A company can consider variable capital as the source of surplus value for a perfectly sensible reason. The employer possesses a right to command the worker at the point of production, ensuring that materials are used in an economical way, to earn a profit. Often a company while purchasing an intermediate good, thinks of helping an employer extract surplus value from the labor this way employed at the job site, but the intermediate good, in itself, does not produce surplus value (Perelman, 2000, p. 66).

Management’s emphasis on profit improvement mean that internal competition for the same funds slated for social responsibility investment will become more intense among the internal managers. Keeping internal company priorities straight and yet having a sense of social responsibility thus becomes a difficult balancing act. The ideal point on the social responsiveness grid would be the upper right hand quadrant, where both social concern and economic and profit concern would be maximised.

References

Anderson W. Jerry, (1989) Corporate Social Responsibility: Guidelines for Top Management: Quorum Books: New York.

Angelidis P. John & Ibrahim A. Nabil, (1993) “Social Demand and Corporate Supply: A Corporate Social Responsibility Model” In: Review of Business. Volume: 15. Issue: 1.

Besser L. Terry, (2002) The Conscience of Capitalism: Business Social Responsibility to Communities: Praeger: Westport, CT.

Casson Mark, (2001) Information and Organisation: A New Perspective on the Theory of the Firm: Oxford University Press: Oxford, England.

Hansen Jon Lund & Christensen Per. A, (1995) Invisible Patterns: Ecology and Wisdom in Business and Profit: Quorum Books: Westport, CT.

Maignan Isabelle & Ralston A. David, (2002) “Corporate Social Responsibility in Europe and the U.S.: Insights from Businesses’ Self-Presentations” In: Journal of International Business Studies. Volume: 33. Issue: 3.

Perelman Michael, (2000) The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation: Duke University Press: Durham, NC.

Zafirovski Milan, (1999) “Profit-Making as Social Action: An Alternative Social-Economic Perspective” In: Review of Social Economy. Volume: 57. Issue: 1.