Using your knowledge of ethics and social responsibility, critically analyse the following statement: “The obligation of organisations to make a profit is incompatible with a socially responsible approach to business. Consequently, profit-driven organisations are unethical.”
“The reasons for the newly elevated place of ethics in business thinking are many. Managers have seen the high costs that corporate scandals have exacted: heavy fines, disruption of the normal routine, low employee morale, increased turnover, difficulty in recruiting, internal fraud, and loss of public confidence in the reputation of the firm” (Clark & Johnson 1995, p. 26). Therefore, why should an organisation intentionally act socially irresponsible or even unethically when managers seek to attain their goal of profit making as long as they are aware of these consequences?
The purpose of this essay is to acknowledge a socially responsible approach to business. It aims to analyse the relationship between profit making on the one hand and both social responsibility and ethical behaviour on the other hand. It will also reveal that profit-driven organisations are not automatically unethical in nature.
Corporate social responsibility
Thinking about social responsibility means considering an organisation’s social background which is made up of its stakeholders: the corporate social responsibility is seen as “… obligation of the organisation to act in ways that serve both its own interests and the interests of its many external stakeholders” (Schermerhorn et al. 2004, p. 158) which is to benefit society. Being socially responsible requires everyone being involved in the business process to act carefully.
Managers are forced to do the splits if they want to attain this objective: an organisation’s obligation is increasing its profits whilst there are various other interests of multiple corporate stakeholders. “… top managers increasingly come to believe that they and their companies must be socially responsible to their stakeholders. Surveys show that as many as 80 per cent of top-level managers believe that it is unethical to focus just on shareholders” (Williams 2002, p. 88), so they have changed from a narrow classical view to the socioeconomic view which both are explained in the next part.
Thus, profit-driven organisations will always try to do their best in behaving socially responsible because they are dependent on their stakeholders: they need employees’ cooperation, customers’ demands for products, suppliers’ goods for input in production, government’s goodwill for any assistance and financial institutions’ money for expansion. Business is mutual.
Social responsibility is to make profits
It appears that organisations tend to be compromised whenever managers find themselves in a decision making process. The definition of social responsibility can be seen as meeting everyone’s interests. Furthermore, is it not everyone’s interest to gain from the organisation’s success? “The Social Responsibility of Business Is to Increase Its Profits” is a title of an article by Milton Friedman, and the classical view on social responsibility – also called ‘shareholder model’ - which he holds also supports this: “… management’s only responsibility in running a business is to maximise profits” (Schermerhorn et al. 2004, p. 159).
The more an organisation can increase profit, the more taxes it can pay to the government, the more wages it can raise for the employees, the it can lower prices for the customers, the more money it can spend on alternative energy and avoidance of air pollution and contamination of the environment, the more it can increase dividends for the stockholders. Hence, increasing profits is beneficial to all of the organisation’s stakeholders.
On the one hand, a profit-driven organisation is socially responsible, on the other hand, being socially responsible is crucial to be able to make any profits. “There is no inherent relationship between social responsibility and economic performance” (Williams 2002, p. 91) and this might be the reason why discussions arise; when attaining the goal of being socially responsible, an organisation has to implement certain standards, rules, and regulations and the consequences are costs considering the short-term run. If managers do a good job in decision making, being socially responsible can turn out as a competitive advantage which pays the organisation through a good reputation, but “… while socially responsible behaviour may be “the right thing to do”, it does not guarantee profitability” (Williams 2002, p. 93).
Organisations are dependent on their various stakeholders who help them to attain their goal of making profit. Therefore, seeking to meet everyone’s different interests creates the opportunity of maximising profits, because everyone being satisfied is willing to support the organisation in its business process. “A social responsibility problem exists whenever company actions do not meet stakeholder expectations” (Williams 2002, p. 90).