“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. ” Warren Edward Buffet, Entrepreneur. Social responsibility of business is a very contradicting topic and there clearly can be no perfect answer as to what extent corporations should employ it. Milton Friedman and Ivar Kolstad have contrasting opinions on the issue, and both of them listed weighty arguments for their positions. In this essay I would like to express my view on the problem presented in the articles.
The argument can in fact be called “shareholders vs. stakeholders”. Management is bound to be responsible to shareholders; otherwise there will be some other management who will be responsible to them. In this respect, management does not have a choice. But they do have a choice whether or not to be responsible to other stakeholders as well, that is, employ some general and non-legislative principles of doing business. Shareholders are central in Milton Friedman’s opinion. He believes that a company exists in order to satisfy the shareholders and give them the most possible out of it.
I cannot agree with this view and I think that it is quite narrow, because most companies are so much more than just profit-generators for stockholders. Of course companies need to make profit - otherwise they cannot survive, but owners should indeed feel the difference between fair profits, fair return on their money, and unlimited profits created at someone’s expense. Let’s look at managers’ choice between maximizing profits and caring for stakeholders from the perspective of different schools of normative ethics.
Don't use plagiarized sources. Get Your Custom Essay on
just from $13,9 / page
Kantian deontology states that there are actions that are always good and actions that are always bad, and humans should act according to their moral duties, not to selfish motives and wishes. In the world of capitalists, this theory is quite hard to apply, since businesses inherently pursue the goal of profit generation, which is selfish by its nature. However, an idea of universal law can be used to evaluate moral actions: if one manager chooses to deceive his customers, let’s assume that all managers choose to deceive their customers. What would the result be?
All customers would be deceived and would no longer trust the companies. So when making decisions, Kant suggests thinking in terms of universal laws. The opposing theory – consequentialism, suggests that the moral value of an action only depends on its consequences. However, let’s imagine that an employee of a nuclear power station decides to talk to his friend on the phone instead of controlling the process. If everything goes right and no catastrophe happens, can his action be considered ethically good? In this sense, the theory is not very useful.
However, if we are talking about managers’ decisions, they should always think about consequences that their actions can cause. Another theory is utilitarianism, which evaluates the moral value of an action in terms of the summed happiness of all members of society that resulted from it. Shareholders make themselves “happy” by maximizing profits at any expense, but a whole lot of stakeholders are left “unhappy”. Therefore, owners of the company minimize the good in society by maximizing profits. On the other hand, a company can make a lot of people deliriously happy by giving out its products for free, and soon go bankrupt.
So where does the thin line lie between maximizing customers’ value while staying financially sound and giving up profit opportunities for ethical motives, getting no or a very moderate return? It’s a very hard question, but in my opinion, companies should try to avoid doing harm to customers, employees and environment whenever they can. Another school is called classical school, and it states that the moral value of an action depends on its nature, motives and consequences. In my opinion, this theory is the most sensible one, because it comprises all other theories and does not look at actions from a narrow perspective.
As long as customers are concerned, CSR is integral when dealing with them. If customers are dissatisfied with the quality of a product or service they get, or a company somehow deceives them, thus maximizing its profits, it receives a bad reputation and as a result can lose all of its customers and the shareholders would not get any returns. However, all too often companies cut costs at the expense of their customers’ well-being: for example, feed chickens with hormones that can have adverse effect not only on an individual, but also on his genes; or use low-cost resins in the production of furniture that poison humans’ breathing system.
Frequently customers do not know about these hazards and assume that the product is of decent quality. I am not saying that companies should openly declare that their products are harmful, but rather that from the ethical point of view it would be right if the customer could have an overall image of the product that he is purchasing. It makes sense to also mention the billboards advertising make-up products where all women seem perfect and consumers subconsciously think that if they buy the product, they would be closer to the perfect image presented to them.
However, it appears that most of these photos are heavily photoshoped and there is no way a real woman can look like this. However, these images do affect the overall standards of beauty, and make many women depressed about their appearance and many men to admire not the real natural beauty, but a fake photo of a woman he might never notice in the real life. In this sense, Dove has made quite an ethical move and launched a “Campaign for Real Beauty” (although it may as well be that this so-called “responsible” campaign was nothing but a fresh marketing move).
However, it attracted attention to the topic and made more people aware of it. From Friedmanian point of view, can good quality goods be seen as a deviation from maximizing profits? Or should a company’s managers strive to cut costs, but so that it is not so evident to customers, in order to get more money? For example, a manager of a food company knows that he can substitute one ingredient for another, cheaper one, which may cause cancer if often consumed, and the customers most probably won’t realize it, because the appearance and the taste of the product will not change.
Should he maximize profits in this case? According to Friedman’s view, if a manager knows about the possibility but decides not to use it, he taxes the shareholders who would not get this additional profit. In the end it all comes down to the agent-principal theory, which states that managers have skills and knowledge that the shareholders do not themselves possess, therefore owners often cannot estimate, whether or not the management is doing a good job, so they need to trust the management.
It follows that the management indeed has a choice, because shareholders do not really know to what extent management acts in owners’ interests. And again, shareholders most often can go away, sell their shares and have nothing more to do with the company, so they are likely to involve with strategies that damage other stakeholders. If we talk about employees, would it be fair to use child labor or underpaid labor in some third world?
Kolstad says that companies have bigger responsibility in poor countries than in rich countries because poor countries’ governments cannot guarantee their citizens’ rights. I agree with him and I believe that there should be some sort of a moral code for companies, which defines that a company cannot exploit these unethical means of getting profits and involve in such “dirty” operations. Also, if we talk about layoffs, would it be fair to dismiss employees who have worked in a company for many years and who actually created its image and reputation?
Shareholders are sort of blank in this sense – they are not involved in the development and production and often they do not put anything personal into the company, nor are they loyal – if the company does not promise good returns, they simply invest their money somewhere else. It is rather an ethical question whether these people need to be a priority for the management. Sure, their expectations need to be met, otherwise management will be dismissed, but a company is not its shareholders – in fact, they can be anyone.
I believe that the main principle a company can adopt in relation to its employees is guaranteeing that everyone involved in the process gets a fair return. This means that there should be no miniscule salaries, regardless of where a company does business. However, if we talk about countries’ differences, surely a salary of a worker in China would be lower than that of the same worker in Finland. The point is that a company should not aim to just exploit the labor force of the country it chooses for its production, but rather think about how to make life for the workers better as well.
If workers in a China are prepared to work for 100$ a month, but in this case it only gives them a chance to get by and not die, it would be very ethical from a company’s point of view to pay them 140$ a month. It would still be many times cheaper than hiring the same worker in Finland, but at least a company would give Chinese workers a chance to live decently. So all in all I believe that a company should not aim at employing people at the lowest possible salary in order to cut costs, but instead respect employees and ensure they get a fair return on their work. Another dimension of corporate responsibility is environment.
It is special because the environment cannot cry for help, and if not enough attention is paid to it by the state or people, and a company does not treat it healthily, it becomes absolutely insecure. European and American companies that have factories in the third-world countries have no pragmatic interest in caring for the environment. Governments of these countries have to make a difficult choice between food and goods for its citizens and pollution caused by First World companies that choose Third World because environmental laws are much less strict there than in developed countries.
So how should a company behave in regard to the environment? I believe that it is integral that a company does not just exploit it and leave the state and the population of the country dealing with the negative consequences. For example, managers are frequently tempted to cut costs by not installing waste filters and pouring unfiltered dump into rivers, lakes and soil. They can foresee that the consequences of this negligence can be disastrous, but they just do not care because they can always move their factories to another poor country with loose environmental legislation.
This behavior is morally ill from the point of view of classic school of normative ethics. The nature of an act in obviously damaging – they pollute the environment. Their intention is to cut costs by involving in this negligence, and is by no means noble. The circumstances are bad and the managers actually could foresee it, but they are either too happy themselves with the stream of money or shareholders make the decisions for managers and make them behave in an environmentally harmful way.
In this case managers become “Dams” and the organization can be considered ethically ill. However, who could directly punish companies for such actions? Their customers in the First World may have some idea of this irresponsibility, but they like the cheap product and most of them still are not so environmentally conscious. Home government does not really care what the company does in some Third World country. So in the end it all falls down on the Third World country, its government and especially people.
It also has to be said that all environmentally irresponsible decisions are relatively short-term from the whole mankind’s point of view, because for now we have only one planet with the fixed amount of non-renewable resources. However, the safety and sustainability of nature is always dependent on numerous individuals who face trade-offs between clean environment and their own advantage, and people are generally prone to choose what is best for them. In conclusion, it has to be said that there are no perfect companies – each business inevitably pursues its own selfish aims.
However, in modern globalized world, where corporations have a lot more influence and power than ever before, they also have a lot more responsibilities to the society. Unfortunately, managers all too often forget that they are the ones who can make all the difference to a company that is avoiding its responsibilities. “It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities” Josiah Charles Stamp, English Economist and President of the Bank of England
Remember. This is just a sample.
You can get your custom paper from our expert writers