Strategic Management: Formulation and Implementation

Corporate Social Responsibility

One of an organization's primary goals is its obligation to operate in a socially responsible manner. Therefore, the recognition that the vast power of the modern corporation carry with it an equally large responsibility to use that power responsibly is an important message for managers. This chapter examines corporate social responsibility and the related area of managerial ethics.

The Social Responsibilities Ideas

Corporate social responsibility has been a topic of academic study for several decades (Friedman Ackerman & Bauer, 1976: Carrol, 1979: Davis, 1973, Frederick, 1978: Freeman , 1984, Miles, 1987; Preston & Post, 1975; Wartick & Cochran, 1985, Anderson 1989).

Numerous studies have tried to arrive at consensus definition of social responsibility but have failed to do so. Although it difficult to present a precise definition of social responsibility, much of the research attempts to identify various kinds of socially responsive activities, present the list of these activities to the business manager, and then measure and tabulate the relative frequency of response to which the activities are practiced by those agencies or people being questioned. Moreove, the concept of social responsibility is a continually evolving concept and means different things to different people.

The first comprehensive approach to modern era social responsibility was ushered in 1953 with the publication of Howard R. Bowen's book Social Responsibility of the Businessman. Bowen felt that public responsibility, social obligations, and business morality were synonyms for social responsibility and described the term social responsibilities of businessmen as:

"It [social responsibility] refers to the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of objectives and values of our society."

Archie Carroll observed that

"the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time."

W.Frederick summed up the position as follows:

"The fundamental idea of corporate social responsibility is that business corporations have an obligation to work for social betterment."

The Classical View

Some observers, ranging from Adam Smith to Milton Friedman, have argued that social responsibility should not be part of management's decision making process. Milton Friedman has maintained that business functions best when it sticks to its primary mission - producing goods and services within society's legal restrictions. It sole responsibility is to attempt to maximize returns. Friedman states his theory about social responsibilities of business in the following passage from Capitalism and Freedom:

In such an economy, there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as its stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

Peter Drucker argues business have a role in society which is "to supply goods and services to customers and an economic surplus to society...rather than to supply jobs to workers and managers, or even dividends to shareholders". The latter, he argues, are means not ends. Drucker contends that it is mismanagement to forget that a hospital exists for its patients and a university for its student. This classical view holds that business should not assume any social responsibility, thus, the one and only obligation of business is to maximize its profits without deception or fraud.

The Contemporary View

The contemporary view is that business, as important and influential members of society, are responsible to help maintain and improve the society's overall welfare. Kenneth Dayton argues, that:

In maintain that business must change its priorities. We are not in business to make maximum profit four our shareholders. We are in business for only one reason - to serve society. Profit is our reward for doing it well. If business does not serve society, society will not tolerate our profits or even our existence.

A strong advocate of corporate social responsibility, Keith Davis offered a classic definition of corporate responsibility as

"the firm's consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm... (to) accomplish social benefits along with the traditional economic gains which the firm seeks."

He elaborates on this view in terms of the following five propositions:

* Proposition 1: Social responsibility arises from social power.

* Proposition 2: Business shall operate as a two-way open system with open receipt of inputs from society and open disclosure of its operation to the public.

* Proposition 3: Both the social costs and the social benefits of an activity, product, or service shall be thoroughly calculated and considered in order to decide whether or not to proceed with it.

* Proposition 4: Social costs related to each activity, product, or service shall be passed on to the consumer.

* Proposition 5: Business institutions, as citizens, have the responsibility to become involved in certain social problems that are outside of their normal areas of operation.

Comparison of the Two Views

The question of wether or not it is proper for a corporation to pursue social responsibilities objectives has long been a subject of controversy among researchers and managers.

Argument for Voluntary Actions by Corporations. According to Steiner and Steiner, there are three major ideas in the argument that business should assume social responsibilities:

- Society expects business to assume social responsibilities.
- The long-run self-interests of business are best served when business assumes responsibilities.
- The assumption of social responsibilities serves to reduce government regulation and public criticism.

Arguments against Voluntary Actions by Corporations. This view is founded on four related ideas:

- Profit maximizing is the only legitimate purpose of business.
- Social responsibility subverts the market system.
- The roles of government and business will be confused.
- The pursuit of social programs as well as economic goals could make corporations too powerful.

Managers today feel that a once clear separation between public and private sectors has broken down.

In order to respond effectively and efficiently to the major social issues and demands of the day, corporate social policy must be integrated into corporate strategy; at the same time many of these stakeholders feel that much of the business community has not and is not adequately dealing with many of these social problems of concern.