Ethics

The burning question that corporations face today is with respect to their responsibility towards the society. Many stakeholders believe that the modern corporations have become large institutions that are stronger than most societies they serve in. Hence they rationalize that the modern corporations owe to the society and must play an active role in community development. Taking an orthodox economic perspective and going back to the basic purpose of an organization, however, I believe organizations should focus on their core objective which is profit maximization.

In business schools one is taught that a corporation in fact is purely an artificial person. Just like any individual person has got some responsibilities. A corporation, as it is an artificial person it also has some artificial responsibilities. Thus, the corporation is also accountable for any actions it takes. Henceforth, a corporation has a separate legal entity than it owners. And it is to be regulated by the government. The corporation is actually voluntarily run by a group of people who have similar views, goals and purposes. These people are running the corporation for their own mutual benefit and interest. These are the people who indeed are responsible for making decisions on behalf of the corporation. Hence, one can assume that in reality a corporation is indeed a expression of freedom by those who own it. It is not dependent on the society for its existence and its only obligation towards society is to respect the peoples natural rights.

The corporation thus has a management and that management is in real an employee of the owners of the business. The management is thus accountable to its employers. And it is the duty of the management that the carry out the activities of the business as per the desires and expectations of the owners. And the desires of the owners of the business usually are to maximize the return on the investment they have made. Hence, the owners want to enjoy substantial profits while at the same time they want the business activities to be conducted by the management in an ethical manner.

However there are instances when the objective of the owners of a business is not to make money. Instead the common purpose of such a corporation is some societal goal e.g. a not-for-profit organization like a school or a hospital. Here, obviously the management of that businesss aim shall be to provide the best possible services to the society. Likewise, any management that is either running a profit or non-profit business has got one principle responsibility to act as an agent of the owners of the corporation. Here, this makes the management have a fiduciary responsibility towards the owners. The management is obliged to use the owners or the shareholders money. But only for purposes or activities that are authorized to them by the owners. But if the management makes use of the owners money without taking any permissions or approvals then they are liable for spending that money.

Here, management has violated the obligations by which they are bounded and have failed to meet their contractual terms. Further, it is the social responsibility of the corporation through its management to respect the space and autonomy of the individuals. The management here should not only honor the contracts made with corporation but also avoid engaging in any fraudulent, deceptive, coercive, misinterpretation or forceful activity. So another important point over here is that in reality the corporations do not physically exist. In fact a corporation is has implications that are beyond tangibles. A corporation is not just limited to assets like land, building, plant, machinery or inventory. In fact a corporation also comprises of many intangible assets. A companys value is judged by its stock they buying, holding and selling of the stock. And intangibles like goodwill, management style, employee morale, ability to identify and capture opportunities, consumers confidence, organizations knowledge systems and similar things determine the future value of a corporations stock.

But it can also be presumed that corporations are actually run by a management to serve some public interest and for the benefit of the society. This presumption comes from those business analysts who propose that the corporation should be made socially responsible as they are existing in the society because the society has allowed them so. And they should have a moral obligation to pay back to the society the benefits they derive by utilizing the societys resources. So all in all, there are critics who think that corporations are supposed to be a public property rather than some ones private property.

Milton Friedman raised a point that those who chanter that the corporations have a social responsibility are in fact being deceptive. Such people are fooling around as the managements own interests are not more important than those of the owners. Because, if the management is actually being socially responsible then it indeed giving away the rightful money of the owners to places where it does not belong.

The social responsibility however, is done by management with some hidden agenda in mind. It is used to formulate and foster relationships with stakeholders who are influential in affecting the business environment. Or else the influential stakeholders are able to bring in some positive inflow to the company in form of hiring talented employees, helping avert risk, enhancing brand equity or improving ties with the customers. There is hence, always a benefit involve that is more of being in favor of the corporation rather than the society.

So when one is saying that the management has to be socially responsible in running the business it can have multiple inferences. The management must act in ways that are not detrimental for the business of the owners.They must not take step against employee interests like increasing the product price that eventually leads to a decrease in sales and in market share. Even though such price hikes may enable the corporation to combat against inflation. Same way, a management must avoid spending too much amount on reducing the pollution controls set by the government to minimize cost for the corporation and not just maximize the social responsibility towards the environment.

Any one in the management however can assume their own interest but not by acting as an employee of their owners. The management has full right and it is at their free will to spend their own time, money and any other resources for the causes they believe they should invest in. But this is all strictly done by the management when they are not assuming the role of the corporate functions in which they are working. As no one in the management is authorized to diverge any of the owners capital or resources to purposes they personally like to invest in. Doing so may result in some legal action to be taken against such individuals by the owners as it is an unlawful deed. The owners in such circumstances are allowed to suspend, remove or file a legal suit against such law breakers.

But this does not at all mean that any management person does not have his free will left any longer. The person is not just part of the management but also happens to be part of the social circle from which he originates. The manager may have responsibilities and duties towards his family, friends, community, religious groups, clubs, and certain charitable causes and even towards his conscience.

All these different responsibilities are likely to make the individual feel compelled to act in favor of them. Hence, the least a person could do is devote some time from their routine to that cause or contribute financially towards it. In some extreme scenarios, the person may find it difficult to fulfill his responsibilities for corporation and his life both and he might choose to leave the corporation and head towards his passions.

But in all these situations the individual is indeed acting out of his own free will but like a principal and not an agent. The individual involved here is not acting on behalf of the management or the corporation. He is devoting his personal resources to his social responsibilities and thus these social responsibilities are his and not that of the corporation.

So managing social responsibilities is not the job of the corporations. The corporation if is having some extra money to spend then it would do it on expanding its business. For when corporation start spending towards social responsibility they are reducing their profits and increasing their costs.

And even if some corporations do try to spend some money on social responsibility then it is only for those who have got a lot to spend. The companies for who even survival in the market are tedious for them it is a completely different scenario. These companies cannot spend their precious bills on actions that are unnecessary expenditures. And even worse if a company is faced with a scenario where it has to lay off employees. Then it is encountering low and disgruntled employee morale. Any such social working by the company now would make the employees feel even bitter and harsh about the corporations business operations. They would feel unimportant to the business.

So any corporation should not take off its mind off the core competencies of the business. Social responsibility is never a core competency for a for-profit corporation. Social responsibility is effective when the owners and employees all are getting their desired results. Then they have a high moral and in such cases a well executed social responsibility effort will help the organization enhance its brand reputation and foster relationship with key stakeholders.

But primarily, to take care of any social responsibilities is not the job of the corporations at all.  It is the duty of the state. The government is the one who is responsible for formulating any policies and legal frameworks. It is thus, there job to look after the interests of the public and see what actions are to be taken for the good of the society and the environment. The government should focus on establishing such infrastructure and systems which provide solutions to the needs of the public. How the corporations can play their role here is just by obeying the laws which the state sets for them and by paying taxes which can be utilized by the state in order to spend on the societal causes. Besides this, the corporations should just focus on what their owners expect of them.

Thus, the management of any corporation has its obligations to the owners and also the workers. The management which is the decision making authority in a corporation is the one who is responsible for the integrity of company and any decisions pertinent to it. Hence, what is more important for an organization than social responsibility is to be corporately responsible. The corporation should ensure that owners interests are being fulfilled. Further, the corporation should be doing the things in the right way like the companys products and business activities are being carried out in the best interests of the owners and as well the public. When said in best interests of public it means that the services being offered are of good quality and are of not any harm to those to whom it is being offered. The corporations must here by control any temptations to solely maximize their profits by fooling or sacrificing the consumers. Just like individuals practice some morals and laws similarly corporations being artificial person should practice some morals and laws.

Henceforth, a corporation is supposed to act in a somewhat single minded way  like the owners agent. The management of the corporation must not offer their sympathies to any cause unless the shareholders agree with them. The management must care only about the owners and should not consider the effects of the actions which they undertake. The management should understand that it is not even accountable to the government except for adhering to the rules being set by the state. Its only responsibility and accountability lies towards its shareholders. This is the major source of agency conflict between owners and managers. It should be left upon the shareholders to make the decision whether they want to engage in a charitable act or not. They can do it from their personal wealth and can have the personal freedom to provide donations to any cause they personally believe in. Hence they do not need managers to make that decision for them.