Social responsibilities of corporations

Friedman in his analysis of the social responsibilities of a business acknowledges the fact that previous analysis have mostly been loose and lacked the vigor necessary to justify the theories put forth regarding social responsibility of corporate entities. The question of social responsibility of any entity leaves a lot to be discussed and solutions attained. In putting forth the question Does corporate entities have social responsibilities one is left with a whole lot of puzzles to solve. Social responsibility is basically corporate responsibility. While each corporate entities responsibility is making profit, it is vital to ask, whether there are any other responsibilities that are expected of corporations. This paper seeks to explore the social responsibilities of any firm and further look in to the two theories put forth stakeholder theory and the stockholder theory in order to develop a conclusion as to which of the two is a justifiable approach to decision making in firms. It will further highlight the failures of the stockholder theories that make the stakeholder theory as my preferred model of corporate decision making. The main questions this paper will be seeking to answer is Does corporate organizations have social responsibilities other than making profit.

Social responsibilities originate from basic to the most fundamental unit of a corporate executive. It originates from ones own conscience, family and eventually the country or even the globe as a whole. Ones social responsibility may be guided by the effects from his nucleus origin or even key global issues like the ozone depletion. When this person is a corporate executive, this decision may translate into a corporate executive decision that could positively or negatively affect the lives of the people. Friedman questions, within which premises will such a person can exercise social responsibility without going overboard and exercising roles assigned to various other entities within the society like legislation, jurisdiction and implementation. When he asks the moral basis of employing unskilled workers in order to reduce poverty or using stockholders resources to conserve the environment through managing pollution, he poses another question as to what limit can a corporate executive exercise social responsibility. In summary, Friedman describes social responsibility as a cloak of actions that are actually justified on grounds other than the reason for such actions. Two theories have been put forth in discussing social responsibility of firms. These are stakeholders theory and the stockholders theory.

The stakeholders theory was developed by Freeman.  The corporate management is put under an obligation to both stakeholders and stockholders. All the groups that are in one way or another affected by either one or a combination of a firms operation are taken into consideration. The theory in essence acknowledges that for the success of a firm, the interests of all the stakeholders need to be put into consideration. It creates a separation between management and ownership of the firm. Ethically, it expresses a moral sentiment as to the need to treat people as and end rather than a means to maximizing profit. By putting the interest of all the stakeholders at heart, the theory in deed builds the public image of the firm as all the stakeholders find some sort of contentment in the fact that their wishes have been put into consideration thus they tend to identify more with the firm. However some critics of this theory have long argued that the theory proposes that all the stakeholders be included in key decision making, this is not true. It would be fallacious to say that treating someone as an end rather than a means requires his active participation rather this will only require following of a set of ethical and legal values stipulated. A good example may be, following the terms of employment. The theory may in essence be summarily defended by the appeal to rights and dignity of all the stakeholders involved and secondly, the appeal for overall good of the society. In summary, stakeholders theory may be defined as an illustration of the corporate social responsibilities taking into regard the interests of the employees, customers and the society other than the main goal of profit making on behalf of the stockholders.

On the other hand, the stockholders theory put forth by Friedman puts the shareholders interest far above that of the customers, suppliers, employees as well as other key stakeholders of the firm. It focuses more on the language of hierarchy with the top most member of the hierarchy having hisher interest first. The managers who basically make key corporate decisions are arguably agents of the stockholders thus the theory proposes that the managers key responsibility is to the stockholders.The stockholder provides the capital as an investment and thus serves as the profiteer of the corporation. His prime and possible single interest is to maximize profit. It therefore follows that by putting his interest first, profit becomes the sole driving decision making parameter of the corporation. Friedman, in putting forth his theory, states that there exists only one social responsibility of a business which is using its resources in activities that increase its profits within the rules of the game. This includes engaging in a free competition, without deception or fraud of any form. This in essence puts the main focus on maximizing profit and hence satisfy stockholders who are the investors in the firm. The high profits ensure that capital is readily available. Ethically its proponents may argue that every owner of a property is liable to fully reap the benefits arising from it. In this case, the company belongs to the stockholders. Basically, the theory is defended by the appeal to property of shareholders and the appeal to contract of the business manager. The theory also referred to as the shareholder theory may be summarily said to be a proponent of the existence of only one social obligation of a firms cooperate management, which is maximizing profit for the shareholders.

In general I may say that the stakeholders theory is more appealing as compared to stockholders theory. It forms a heuristic for viewing corporations as comprising of all stakeholders including the shareholders, customers and employees. Though limited by the focus it puts on the human participants only, it is more appealing as it has plenty of ethical backing with it. While the critics have argued that it gives the managers some intractable philosophical difficulties when it comes to dealing with some non-human topics as natural environments, this is not true. Generally, any environmentalist will agree that environment and the community are interrelated. The environment is basically a cycle of activities that form the life of humans. It therefore would be false to make the claims mentioned above. Not a Single Corporation can claim to be considerate of the community without considering how its activities impact on the environment the same community live in.  Stakeholders theory therefore moves to capture all the fundamental areas that its critics may move in to cite as its failures.

Stockholders theorys friendliness to stockholders ends up ignoring key factors that play a critical role in corporate development in the modern world. While initially, stockholder management theory formed the basis for business management, the 21st century has provided more challenges that it may be unable to handle. Its policies are unable to capture the global, multifaceted approach that businesses have had to take. In instances where it where it captures the same, its evident that it may be too late to take any appropriate action against it. Through lack of consideration of various stakeholders who play a key role or are affected by a firm, the corporations public image may be tainted beyond repair. Public image is known to play a fundamental role in development of corporations. The recent past has seen corporations adopt publicity campaigns which involves the community as a marketing strategy. This in essence though intent on making profit, puts into consideration the interests of the community and uses this to build its image as a stepping stone towards expounding its market. The growing needs of the market and competition have led firms to attempt to present themselves as socially responsible to all the stakeholders in a bid to win market shares.

Another fundamental shortcoming of the stockholders theory is its inconsistency with the law. Over time, legal procedures have evolved to put constraints concerning the required trade offs in the corporate world. Different countries have introduced legislations that ensure that all corporations are held socially responsible for their activities. Taking an example of the product liability law, the law upholds that all corporations must and will be held liable for effects resulting from its product. The civil rights act further imposes restrictions on firms to observe moral ethics through illegalizing discrimination of other groups like the disabled and the aged. The companies are compelled to exercise moral decisions that go beyond their obligation of profit making. In essence, it acknowledges that all corporations must put into consideration the claims made by its stakeholders including customers, suppliers, the local community and the employees.

Its inconsistency with the basic social ethics further renders it ineffective in the modern world. Previously, it had been argued that business decisions should be separated from ethical decisions. This is however impossible as both have to be integrated to enhance the success of a business. Freeman states that the pursuit of profit is in deed wicked and immoral if not curbed by other external forces. He also cites the need for integrating ethics as part of a complex stakeholder system rather than treating it as a side constraint to profit making. For the success of the business it is fundamental to incorporate both normative and applied ethics in running of the business. Ethics forms a ground for moral judgment of any corporation. The changing world has seen corporations relieving their corporate management executives, off their duty on the basis that their actions taints the image of the company publicly regardless of the fact that they have previously performed well in increasing of profits. Unlike stakeholders theory which forecasts the expectations that may result from today, stockholders theory puts more emphasis on ensuring that a company makes maximal profit in a given financial year.

The corporations that serve the interest of the stakeholders have emerged in the current world as the major profit making entities. Their engagement in operations that mutually benefit all the stakeholders have made them successful and prosperous compared to the others. When the employees for instance feel left out, their morale will definitely be low and this will impact negatively on production of these firms. On the other hand employees whose interests are considered, have high morale and thus production will be highly increased and ultimately increased profits will result into stockholder satisfaction while the interest of other stakeholders is also considered. Lack of value can therefore be a result of stockholders theory of corporate decision making. This would result from the low morale of other stakeholders who may offer advice, provide land for expansion and even increase productivity.

The stockholders theory also ignores the role of normative arguments instead focusing on making profits within the law. The law is its only constraint.  Management ignores the role of distinguishing between right and wrong in decision making and instead bases all decisions on profit making. This ends up hurting the very people who can contribute to development of the corporation needless to mention the resulting poor imaging and branding of the corporate organization. Its resistance to change leads to the ultimate negative impacts on the entity. Its failure to fulfill the needs of the different people ranging from local population, customers and employees leaves the corporation vulnerable for targeting by pressure groups, damages their image and brand, results to loss of large amount of sales, disgruntled customers and incurring of plenty of legal expenses.

In conclusion, it will be important to note the ignorance of the stockholders theory to social consequences hence the need for an adequate theory for corporate social responsibilities within corporate organizations. This is where corporate stakeholder responsibility comes in as a substitute. It caters for the weaknesses displayed by the other model. Unlike stockholders theory, it does not allow stockholders to abridge the rights of others. It further takes into consideration key business virtues of fairness, efficiency, integrity and keeping of commitments in addition to being in line with the pragmatists view of ensuring freedom and solidarity in everyday life (Tom L. Beauchamp 66). It is important that all stakeholders in any corporation are treated within the standard ethical guidelines of the society (Tom L. Beauchamp 70).  Through this, the business takes an economic approach in which all stakeholders are considered to possess economical assets which are traded off to obtain greater profit returns which is the ultimate aim of every corporation.


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