LEARNING AND COMMUNICATION BEHAVIOR

Assessment task 4: Ethics essay

The final essay provides students the opportunity to put into practice the academic writing skills they have developed throughout the semester.

1000 – 1200 word essay in answer to the question posed.

Business ethics essay

Does business have a social responsibility? Are profits the only measure that should be applied to corporate success? Discuss using examples such as the banks’ responsibilities to more than just their shareholders; resistance to a global scheme to curtail carbon production; or CEO salary levels.

Note: For this essay you will need to integrate the ethical concepts discussed in the Learning Materials 10 to 12. There are readings provided in the last 3 Learning Materials links which are directly related to these three topics.

 SOLUTION

The purpose of this essay is to understand, the business obligations towards the society and the people. Is profits should be the only measure for a business to be successful? What roles the shareholders can play in order to make an organisation strong and the corporate responsibilities towards the society. The actions of the organisations have a significant impact on society, environment etc.

As per Milton Friedman who is an outspoken critic of Corporate Social Responsibility. In a New York Times article [Friedman, 1970] he states CSR advocates are “preaching pure and unadulterated socialism” [p.1]. Friedman claims only people, not organisations, can have social responsibilities, and as such, should accomplish philanthropic activity with their own time and money, and not by drawing resources from their enterprise or from the shareholder’s pocket [Friedman, 1970]. David Henderson and Roger Kerr [Henderson, 2001; Kerr, 2004], members of the NZ Business Round Table, believe the responsibility of organisations is to produce goods and services for consumers. The justification is in doing so, businesses create employment, generate returns on shares and investment. This increases the affluence of the economy as a whole, subsequently benefiting the welfare of society. This argument suggests social responsibility is not a sensible business strategy, as it causes the profit-maximisation goal to be financially compromised [Kerr, 2004].

Furthermore, there is the question of how to measure CSR. A survey of 539 executives in 40 countries investigated the level of communication regarding corporate citizenship from companies to their investors [Chestnut Hill, 2004]. The survey revealed a lack of reporting and measurable performance indicators that could be benchmarked .  Only 30 percent companies increased funding into corporate citizenship in the previous year. Not all organizations have the means (funds, time and staff) to support CSR initiatives [Henderson, 2001]. However, CSR programs may not be expensive or require extensive time commitment. Joining with other organisations to co-sponsor a community event can half costs, build positive reputation and allows the company to network with other firms [Holliday, et al. 2002].  Additionally, regular accountability reporting of a company’s CSR performance is becoming standard practice. Companies such as Hubbard’s Foods [2000-2001] and Vodafone [2004-2005] publish annual reports which concisely evaluate their expenditure.

Henderson believes the actions of CSR-driven corporations are not always in the public’s best interest [Henderson, 2001]. For example, CSR may prompt companies to pay workers beyond the opportunity cost of their labour. As a result companies may employ fewer people than they usually would, thus increasing unemployment rates [Freeman & Edward, 1991]. Similarly, CSR promoters might urge companies in developing countries not to employ children. However, what good is this if the alternatives for these children are prostitution or starvation? Friedman [1970] argues that although stakeholder needs cannot be ignored, one cannot maximise in more than one direction, and a firm is ultimately accountable to shareholders rather than stakeholders. For example, in the 1990’s CEO of Levi Strauss Bob Haas attempted to mould the company into a values-based organisation placing importance on all stakeholder needs while neglecting the profit-maximising focus [Sarkar 2005]. Haas was reluctant to use overseas labour, keeping costly American-based factories running whilst his competitors capitalised on cheaper resources found in the developing world. He donated millions to AIDS prevention and funded the development of the Haas Business School at Berkeley University, among many other charitable activities. However, due to the company’s excessive ‘socially responsible’ tactics, market value dived from US$14 billion to US$8 billion. 16,000 workers were laid off [Sarkar 2005], paradoxal to the ideal of social responsibility. This example supports Friedman’s argument [1970] that CSR neglects the rights of the shareholder and affects the economic welfare of society at large by diminishing the market value of enterprises.

In his commentary Kerr contests the notion of corporate philanthropy, unless sponsorship or donation to charity is a profitable marketing strategy. He defends this viewpoint by emphasising business responsibility to its shareholders and the obligation to act with integrity regarding the stewardship of their money. He considers activities of a purely benevolent nature cost-increasing and illegitimate, and in some cases embezzlement [Kerr, 2004]. Charitable organisations have little reason to limit their demand and can utilize a company’s benevolence to the point that shareholder value decreases. Costs of CSR include accountability reporting, CSR strategists and manager training and the opportunity cost of not using a firm’s resources to produce a directly profitable good or service [Wolf, 2004]. Henderson [2001] adds that a competitive company cannot afford expenses that are not also borne by its competitors, thus CSR approach to pursue expensive social objectives is not congruent with the advancement of competitive economy.

I conclude that a company’s sustainability and strength is very much dependant on the well-being of the society it operates in. Globalisation has shifted more power from governments to corporations, and as such they provide critical contributions to society, including productivity gains, innovations and research, employment and human-capital development. In light of this, I believe moral and ethical conduct of organisations is imperative. Furthermore, pushing business practice from ethical responsibility into the higher realm of discretionary responsibility is proven not only beneficial for society, but profitable for business as well. This is shown in the example of Timberland, Co.  Friedman’s motto “the business of business is business” can become counterproductive as it may cause managers to focus excessively on short-term performance, thus neglecting the broader issues and opportunities, such as societal trends, trust of customers, investments into innovation and other growth prospects that will solidify company success long-term.  However, I support the opposing notion that when CSR increases cost and reduces profit, it is not a viable business strategy. For Levi Strauss, the consequences of the excessive and costly actions of Bob Haas show the dangers of taking CSR too far.  Companies also have ethical obligation to be wise stewards of money invested by shareholders, and to be accountable for financial decisions. I agree with Friedman and Kerr that social goals which compromise a company’s profitability are indeed disadvantageous and detrimental to social welfare in the long run.

In conclusion, there are valid arguments supporting and opposing Corporate Social Responsibility. CSR can enhance a company’s reputation and brand name, promote transparency and integrity, evoke employee loyalty and expose market opportunities while simultaneously benefiting society. On the other hand, its disadvantages include increased costs, ethical issues regarding the use of shareholder capital, variation in the interests of the public in different contexts and the fact that environmental and social contribution is difficult to measure and account for. The concerns of critics such as Milton Freidman and Roger Kerr can be partnered with those contrasting ideas of advocates such as Dick Hubbard to create a Corporate Social Responsibility Strategy that is sensible and justifiable. I believe businesses should balance their principle objectives with the broader interests of the societies of which they are a part. I support the sensible and careful execution of CSR whereby accountability and wise stewardship are an integral part. Incorporating these values make CSR a sensible corporate strategy, beneficial for both business and society.

REFERENCES

Articles:

Bowie, N., (1987 February 01). Corporate Management: Doing Good and Doing Well. Hastings Center Report, p. 17-18.

Carroll A., (1979). A Three-Dimensional Conceptual Model of Corporate Performance. Academy of Management Review (4) 4. p. 497-505

Davis, I., (2005, May 26). The Business of Doing Business. The McKinsey Quarterly, Issue 3 p. 105 – 113

Freeman, R., & Edward, L., (1991, July 01). Corporate Social Responsibility: A Critical Approach. Business Horizons, Vol. 34, Issue 4

Friedman, M., (1970, September 13). The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine, p. 122-126

Lecky, A., (2004, August 29). McDonald’s has Healthier Profit Menu [Electronic Version].  Chicago Tribune News, p. 57

Sarkar, P., (2005, July 24). Haas to keep hand on Levi’s: Last of family to Run Jeansmaker to Stay Active in S.F. Firm [Electronic Version]. San Francisco Chronicle, p. E1.

Swanson, D., (1995). Addressing a Theoretical Problem by Reorienting the Corporate Social Performance Model. Academy of Management Review.  20 (1), 43-64.

Vachani, S. (2004, September 01). Socially Responsible Pricing: Lessons From the Pricing of AIDS Drugs in Developing Countries. California Management Review, Vol. 47, p. 117. California. Berkley Ltd

Books:

Daft, R., & Samson, D. (2003). Management. (2nd. Ed.). Melbourne, VIC, Australia: Thompson. Nelson Australia Pty Ltd

Henderson, D. (2001). Misguided Virtue: False Notions of Corporate Social Responsibility. Westminster, London: Institute of Economic Affairs

Holliday, C,. Schmidheiny, S., & Watts, P. (2002). Walking the Talk: The Business Case for Sustainable Development. Sheffield, United Kingdom: Greenleaf Publishing Ltd

.Wolf, M. (2004). Corporate Social Responsibility. Wellington, NZ: New Zealand Business Round Table

Reports:

Hubbard Foods., (2000-2001). Hubbards Triple Bottom Line Report. Retrieved May 17, 2012, from http://www.hubbards.co.nz/TBL01.pdf

Sustainable Development Reporting Case Study: Hubbard Foods (2001). Retrieved May 17, 2012, from http://www.nzbcsd.org.nz/_attachments/Hubbards.doc

The state of corporate citizenship in the U.S.: A view from inside. (2004) Chestnut Hill: The Centre for Corporate Citizenship at Boston College.

Vodafone., (2004 – 2005). Vodafone Corporate Responsibility Report. Retrieved May 17, 2012, from http://www.vodafone.co.nz/aboutus/vodafone_responsibility_2004_05.pdf

Speeches:

Hubbard, D., (1996). The Business of Business is not just Business. Retrieved May 16, 2012, from University of Auckland, Cecil Website: http://cecil.auckland.ac.nz/Cecil

Kerr, R., (1996). Making Sense of Corporate Citizenship. Retrieved May 17, 2012, from http://www.nzbr.org.nz/documents/speeches/speeches-004/brightstar_cfo_summit.pdf

Websites:

Baker, M., (2001, April 2). Arguments Against Corporate Social Responsibility. Retrieved May 17, 2012, from http://www.mallenbaker.net.csr/CSRfiles/against.html

Fortune, (2006). Fortune 100: Best Companies to Work For. Retrieved May 17, 2012, from http://money.cnn.com/magazines/fortune/bestcompanies

Lockwood, N., (2004, December 01). Corporate Social Responsibility: HR’s Leadership Role. Society for Human Resource Management. Retrieved May 17, 2012, from http://www.shrm.org/research/quarterly/1204RQuart_essay.asp

Tunzelmann, A., (1997, January 24). Social Responsibility a Matter of Corporate Strategic Management. Retrieved May 17, 2012, from http://www.mdl.co.nz/reading room/csr/socresp.html

 LC40

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