For a long time, there have been endless debates on whether businesses should give back to the society, especially the communities in the vicinity of businesses. It can be argued that any person who establishes a business does it with the purpose of gaining profits and furthering personal interests. However, civil society and other advocacy organizations have been pressurizing business entities to give back to the community as a way of paying them back for allowing them to operate in their environment (Hughes 2008). Due to this, most corporations have felt obligated to give charitable services to the society, such as promoting health and education by building institutions to offer such services.
Corporations also give back to the society though employing local personnel as well as improving infrastructural facilities, such as roads, building play grounds and places of worship. However, most corporations feel that by being socially responsible, their ultimate goal of making profits is compromised. The argument for this case is that, when a company focuses on making profits, in the end it will be socially responsible as all stakeholders will benefit from it. Therefore, corporations fulfill their social duties by pursuing profits and should not be pushed to forego this goal since by doing so the benefits that come with it will be lost.
Do Businesses Have Social Responsibilities?
As mentioned above, the social responsibility of corporations is to make profits since it is in such a pursuit that everyone benefits; shareholders gain profits from their investment whereas other stakeholders, such as customers get high quality products. For example, in the pursuit of profits, a company that deals with the processing of foods can focus on producing foods that are low fat and healthier so as to attract more customers. This will benefit the company in that more people will buy such foods hence increasing the company sales. On the other hand, customers will be healthy and avoid eating related diseases, such as obesity, diabetes, and blood pressure. According to McWilliams (2008), corporations end up improving social welfare by focusing on making profits.
A theory of corporate social responsibility by Friedman concurs with Adam Smith’s view that, when companies pursue the goal of making profits, the whole society benefits (Hood 1998). Friedman, in his classical view of social responsibility, argues that since the ultimate goal of any business corporation is to make profits, managers should never at any time use shareholders’ money to pursue social interests. Therefore, any money spent in any activity should proof to be worth it. Further, Friedman argues that businesses do not have any responsibilities and hence can not be held to be socially responsible, only their owners. As quoted in Hood (1998), Friedman holds the strong view that “any business has only one social duty of making use of its resources and being involved in activities aimed at increasing its profits as long as it operates under the set rules.” Moreover, in the pursuit of maximizing profits, companies end up delivering unique social benefits. In support of Friedman’s views, Hood (1998), states that “any private business fulfills its social responsibility only when it tries to make profits.”
Additionally, an argument by Visser (2007) is in support of Friedman’s view that companies should be left to pursue the goal of making profits. In this argument, Karnani holds the view that by forcing corporations to be socially responsible through doing some acts of charity, shareholders in turn lose their profits. Therefore, any manager who would not focus on making profits for the corporation is going against the stakeholders’ aim of maximizing profits. These stakeholders include the customers, shareholders, government, general public among others (Branco& Rodrigues, 2007). In some cases, such managers can face dismissal. As a result of the pressure to give back to the society, some companies claim to be socially responsible only though talking, but no action accompanies such words (Haynes 2010). Therefore, companies according to Kalind (2001) should be left free to maximize their profits since at the end social benefits will be realized.
Branco & Rodrigues (2007) maintains that businesses do not owe anything to the society as long as they conform to the set rules and regulations. However, Janda & Pitts` (2009) view differs with that of Friedman’s in that, it supports some degree of dishonesty when undertaking any business activity. Janda & Pitts (2009), in support of his “pure profit-making view” argues that dishonesty is part of the strategy for success in business since business people have lower moral standards as compare to the rest of the society. Moreover, Janda & Pitts (2009) holds the opinion that as long as a business operates under the legally set of laws, it has no moral obligation towards the society. On the other hand, Friedman’s view supports honesty in business, which according to Branco& Rodrigues (2007), can be referred to as the “constrained profit-making view.”
Another argument against corporate social responsibility is by the chief economist, David Henderson (Branco& Rodrigues 2007). In his 2005 publication, Henderson argues that corporate social responsibility affects a company’s resource allocation procedure (Branco& Rodrigues 2007). His argument is that, when companies engage in CSR activities, they lose focus of their ultimate goal of profit making. This will in turn end up misappropriating company finances which will lead to losses. The losses will then increase poverty, since it will make the shareholders poorer (Sun 2010). Moreover, Henderson holds the opinion that CSR regulations or laws that are formulated to support CSR lead to decreased business operations, which will translate into “ineffective markets, reduced wealth generation and increased social inequity and poverty” (Branco& Rodrigues 2007). Henderson’s views in general support that businesses have the ultimate goal of profit making and wealth creation and, therefore, are not obligated to serve the community in any other capacity.
Branco& Rodrigues (2007) is in support of the view that a business’s sole purpose is profit maximization. These authors argue that managers find it difficult to carry out their duties as well as to make decisions in cases, where the company has multiple objectives. Therefore, it is vital that businesses hold the shareholder’s interests of profit maximization close at heart so as to create wealth, which in the end will lead to more benefits to the society at large.
This is a theory that supports the involvement of companies in CSR activities. The theory holds the view that apart from shareholders, there are other groups that are interested in the actions of any business. These groups are generally referred to as stakeholders and are in one way or another affected by the actions of a business entity. Stakeholders range from customers, employees, suppliers as well as the communities around the business entity. This theory holds the view that a company should not only focus on profit maximization and wealth generation but should also strive to improve the welfare of its stakeholders (Roper 2007). Therefore, despite businesses being established solely as profit making entities, they have some responsibilities to the general public (McWilliams 2008).
Other strong supporters of the stakeholder view are Janda & Pitts (2009), who argue that, corporations are owned by interrelated groups of people who are affected by the actions of the corporations in different ways, either positively or negatively (Branco& Rodrigues 2007). Corporations should, therefore, embrace CSR so as to be sustainable and to brig forth benefits for all stakeholders. According to Cohen (2005), businesses should embrace moral values, since economics is deeply infused with ethics. Any business activity being undertaken should always strive to protect the interests of all stakeholders. For example, a cement manufacturing company has the responsibility of ensuring that all its employees always wear protective gear so as to protect them from work related disease, injuries among other dangers that may arise in the work place. This company also has the responsibility of ensuring that proper pollution control measures are put in place so as to ensure that the communities around them are not affected negatively. In addition, such a company has a responsibility to protect the environment from pollution as well as to ensure that it harvests natural resources in a sustainable way. This example shows that the shareholders will achieve their interests of profit making, whereas the community and the environment who are stakeholders will be protected from harm (Hart 2011).
Another supporter of the stakeholder view is Sacconi (2004), who, in his “three- dimensional conceptual model” argues that, any company has several social responsibilities. This model describes CSR as having four categories that include legal, social, ethical, and philanthropic (Friedman 1970). Economically, any company is expected to produce high quality products that are good for customers, whereas legally it has the responsibility of conforming to the set rules and regulations. On the other hand, ethical responsibilities of a company include undertaking of business activities in a way that respect societal values, norms, and standards. The philanthropic category entails a company’s responsibility to voluntarily support the society with the intention of improving its welfare. For example, an automobile manufacture industry has the economic responsibility of manufacturing vehicles that meet the consumers’ needs, while at the same time conforming to the government’s regulations. Such a company can also build an engineering institution for the community around so as to support science and technology in that community.
In summary, the stakeholder view holds that corporations should undertake their activities with the aim of fulfilling the interests of all stakeholders. A strong argument in this theory is that, a corporation should establish good relations with all stakeholders so as to grow and be successful. Any business should not only focus on wealth creation and profit making, but also on improving social interests (McWilliams 2008).
Businesses have been for a long time been pressurized to be socially responsible to enhance their short and long-term sustainability. However, this has been met by opposition from various economists who argue that the sole purpose of any business is profit maximization and wealth creation. Therefore, any deviation from this objective will lead to great losses for shareholders. The classical view has been supported by such authors like Friedman and Carr who argue that businesses should strive to make profits, while conforming to the set rules and regulations. This view holds that businesses are obligated to serve the shareholders’ interests only and hence are not obligated to serve the interests of the society. On the other hand, the stakeholder view supported by authors, such as Freeman and Carroll, calls organizations to be socially responsible. Generally, companies are urged to embrace CSR at all levels of their operations. By doing this, they are able to attract and retain customers, investors among other key stakeholders, who ensure short and long-term growth of the business. In addition, the companies are required to fulfill ethical, economic, philanthropic, as well as legal obligations so as to be successful (McWilliams 2008).