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3.1 Social Responsibilities of Strategic Decision Makers
Should strategic decision makers be responsible only to shareholders, or do they have broader responsibilities? The concept of social responsibility proposes that a private corporation has responsibilities to society that extend beyond making a profit. Strategic decisions often affect more than just the corporation. A decision to retrench by closing some plants and discontinuing product lines, for example, affects not only the firm’s workforce but also the communities where the plants are located and the customers with no other source for the discontinued product.
Such situations raise questions of the appropriateness of certain missions, objectives, and strategies of business corporations. Managers must be able to deal with these conflicting interests in an ethical manner to formulate a viable strategic plan.
RESPONSIBILITIES OF A BUSINESS FIRM
What are the responsibilities of a business firm and how many of them must be fulfilled?
Milton Friedman and Archie Carroll offer two contrasting views of the responsibilities of business firms to society.
Friedman’s Traditional View of Business Responsibility
Urging a return to a laissez-faire worldwide economy with a minimum of government regulation,
Milton Friedman argues against the concept of social responsibility. A business person who acts “responsibly” by cutting the price of the firm’s product to prevent inflation, or by making expenditures to reduce pollution, or by hiring the hard-core unemployed, according to Friedman, is spending the shareholder’s money for a general social interest. Even if the businessperson has shareholder permission or encouragement to do so, he or she is still acting from motives other than economic and may, in the long run, harm the very society the firm is trying to help. By taking on the burden of these social costs, the business becomes less efficient— either prices go up to pay for the increased costs or investment in new activities and research is postponed. These results negatively affect—perhaps fatally—the long-term efficiency of a business. Friedman thus referred to the social responsibility of business as a “fundamentally subversive doctrine” and stated that:
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 it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.2
Following Friedman’s reasoning, the management of General Mills was clearly guilty of misusing corporate assets and negatively affecting shareholder wealth. The millions spent in social services could have been invested in new product development or given back as dividends to the shareholders. Instead of General Mills’ management acting on its own, shareholders could have decided which charities to support.
Carroll’s Four Responsibilities of Business
Friedman’s contention that the primary goal of business is profit maximization is only one side of an ongoing debate regarding corporate social responsibility (CSR). According to William J.
Byron, Distinguished Professor of Ethics at Georgetown University and past-President of
Catholic University of America, profits are merely a means to an end, not an end in itself. Just as a person needs food to survive and grow, so does a business corporation need profits to survive and grow. “Maximizing profits is like maximizing food.” Thus, contends Byron, maximization of profits cannot be the primary obligation of business.
Question: Provide arguments both
(a) in support of and
(b) against this statement;
(c) what is your position on the issue?