Ethics

To be socially responsible or not to be socially responsible. This is the question that corporations in the globalised world face. The challenge lies in defining what is socially responsible. What actions are expected of corporations for them to called socially responsible Does it mean giving to charity, initiating philanthropy programmes, working alongside government and NGOs for a better world, or does it simply mean ensuring stockholders their return on investment The debate on what constitutes social responsibility for profit-oriented organizations has been doing on for decades. This paper analyzes three views on corporate social responsibility (CSR) the classical economic view, the broader, socio-economic view, and the broad maximal view. Moreover, this paper also relates all three views to the concept of the moral minimum advanced by Smith and his colleagues (1972) and to specific cases.

The classical economic view on CSR
The traditional view on ethics in management and administration has always meant the negative obligation of doing no harm and avoiding injury. Corporate executives are admonished to avoid using deception, waste, and abusive practice and use of power. This is considered the moral minimum of corporate responsibility. Doing harm to others is synonymous to injuring ones own managerial role. Simon et al. (1972) asserted that corporations are faced with two types of obligations to corporate social responsibility (CSR), the negative and affirmative duties.

In a sense, Simon et al. view CSR as a universal responsibility that must be fulfilled by corporations. More specifically, companies become obliged to perform affirmative duties when specific conditions become outstanding. These conditions are embodied in the so-called Kew Gardens perspective, which provides that corporations have a duty to act when four conditions exist 1) existence of clear need for assistance or aid 2) a companys proximity to a situation that calls for aid 3) a company has capability to provide aid without risking its interest 4) when aid becomes a last resort  (Lecture Notes 2010).

This is contradictory to the views of American economist Milton Friedman, who represents the narrow classical economic view on CSR. Friedman and like-minded economists have since argued that the concept of CSR does not belong in the world of business. Friedman argues that maximisation of returns takes precedence over moral or social responsibilities of a business. Hence, the responsibility of a corporate executive is to see to it that the shareholders interests are protected and not the interests of society in general. Adhering to the classical economic view, Friedman makes his case using three arguments. The first is the free society argument which regards free competition as the bastion of free society. Hence, restructuring priorities by incorporating concepts such as social equity or social justice into the equation violates the concept of free society. He even goes further to accuse CSR as a socialist concept that has no place in free-market enterprise. Friedman claims that socially responsible acts are best left to political entities such as the government and that corporations should detach themselves from social problems.  The second argument of the principal-agent suggests that  that executives are merely agents acting on behalf of shareholders, hence, sacrificing capital for purposes not mandatory such as CSR is a violation of trust, because the executive is employed by the owners as an agent serving the interests of the principal (Mulligan 1986, p. 265). Third, Friedmans taxation argument likes CSR as a practice which imposes taxes on shareholders without their express consent and is hence, violative of democratic principles. Friedman argues that expending for socially responsible actions reduce profits, reduce wages, and increase prices, which in the long run, affects everyone negatively. Mulligan sums up Friedmans theory of social responsibility to be like the story of Lone Ranger, who determines unilaterally what good acts he needs to do, when to do it, and how much is to be given away (Mulligan 1986). As a disciple of capitalism, Friedman says that managers cannot determine how to redistribute wealth through CSR and invokes Adam Smiths invisible hand to reconcile self-interest with the greater good of society (Lecture Notes 2010). However, critics have pointed out that the unrestrained pursuit of self-interest and profit alone creates harm and must be mitigated or regulated.
Simon and his colleagues propose meeting the moral minimum is to be expected from corporations, this being their negative duty. On the other hand, corporations also have affirmative duties that bind them to pursue social and moral good. They acknowledge that demonstrating affirmative duties may vary with type and intensity of good deeds or actions, but no one is to be exempt from the moral minimum of avoiding injury.

In the present situation, expecting corporations to uphold the moral minimum in running their businesses has never been more important. However, in terms of responsibilities of corporations particularly TNCs and MNCs in promoting poverty reduction in the countries where they do business, Simon et al. and Friedman would clash. MNCs all over the world are implementing poverty reduction programmes through scholarships, schools, and job opportunities to raise the standard of living in the countries they do business in. For instance, initiatives by famous Microsoft founder and philanthropist Bill Gates to address global health problems in underdeveloped nations have paved the way for breakthrough research in health (Stanford Report 2010). Viewed from the perspective of Simon and his colleagues, this is ethical conduct in action. From Friedmans perspective however, corporations involvement in poverty reduction is meaningless and misplaced because it is the responsibility of governments to implement strategies and mechanisms to reduce poverty.

2. The socioeconomic view on CSR
Evan and Freeman (1988, cited in Caroll 1999) represent the socioeconomic view of corporate social responsibility (CSR). Their stakeholder theory maintains that businesses do not exist as entities that are detached from society as a whole. It views that businesses actually need the approval of society to gain legitimacy and hence, a license to operate in an acceptable manner. Freeman is saying that gaining legitimacy by adhering to laws and regulations is not enough for businesses. They also have an obligation to operate and conduct business in a manner that is aligned with that societys values.

Contrary to the stockholder view that Friedman and his colleagues adopted, Freeman focused on the stakeholder and said that businesses do not possess an unquestioned right to operate. Therefore, executives must realise that the existence of their businesses depends on how society perceives them. They view business to be engaged in a social contract with society in general so that they mutually depend on one another to succeed (Garriga and Mele 2004).

In this respect, the socioeconomic view on CSR is reconcilable with Simon et al. (1972) and their assertion that companies has an obligation beyond the moral minimum. Hence, companies need to go further than fulfilling their negative obligations to avoid causing injury but also give something to society. In terms of providing the company a semblance of legitimacy, the socioeconomic view is suitable. Proponents of the socioeconomic perspective of CSR contend that the business is not merely answerable to stockholders it is also answerable to stakeholders. Both terms have to be distinguished. Stockholders are individuals who own share in the company. Stakeholders on the other hand, involve not just the owners of the company but the employees, suppliers, immediate community, customers, and even the managers (Wood 1991).

The socioeconomic view holds ethics and legal compliance to a prominent degree. Socially responsible acts should be performed by businesses because it is ethical. Not only does adherence to ethics provide the firm legitimacy and acceptability as far as stakeholders are concerned, social responsibility is also profitable in the long run. Firms that are compliant to laws and environmental standards, for instance, are more attractive to investors. Furthermore, commitment to ethics in companies boosts employee morale and motivation (Garriga and Mele 2004). However, the socioeconomic view also holds that ethical organizations go beyond the establishment or implementation of formal compliance or ethics programs (Trevino, Weaver, Gibson, and Toffler 1994). Management researchers have referred to the importance of creating a culture of ethics or a climate of ethics within the organization that transcends formal ethical structures. A forms ethical footprint could provide the work environment that enhances the firms image not only to external stakeholders but to employees. Therefore, from the socioeconomic viewpoint, it is a responsibility for executives and managers to demonstrate conviction and commitment to leading in conformity to ethical standards and providing consistent leadership toward a reshaping or renewal of organizational values (Trevino, Weaver, Gibson, and Toffler 1994).

What Simon et al. (1972) refers to the responsibility of corporations to meet the moral minimum is more clearly delineated in the socioeconomic view which provides that companies have a duty to prevent harm. Economist De George believes that corporations should be treated not as persons but as objects that impact persons. Hence, a corporation should be measured in terms of outcomes and not on motivation or intention. In this regard, De George is asserting that while corporations are not required to perform positive moral acts for the good of society, society must expect corporations not to violate moral law. If the latter occurs, corporations could be blamed (Wood and Logsdon 2002). This is especially true in the wake of globalisation where MNCs and TNCs have come under fire for failure to comply with safety standards. For instance, the Toyota recall issue has highlighted the need for companies to attend to the risks of doing extremely aggressive business and forgetting about its social obligation to ensure that the vehicles produced are safe and of top quality. Toyota has since recalled over 11 million of its cars because of defective gas pedals that have resulted to automobile accidents. Critics have opined that a companys goals of profit maximisation carries with it inevitable risks. The consequences for Toyota financially have been severe  a damaged reputation and heavy operational losses (Connor 2010).

The broad maximal view on CSR
Proponents of the broad maximal view on corporate social responsibility up the ante by justifying the moral initiative of businesses. Its main proponents critique the minimalist view of the role of businesses in society and propose that the responsibilities of business go beyond what is legal and what is ethical (Mulligan 1986). The maximal view promotes corporate citizenship and corporate social responsiveness which simply put, render solving social problems as the corporations main obligations (Wood 1991).

The broad maximal view expresses that CSR occurs when a company takes the cudgels of assuming responsibilities that go beyond economic interests or legal obligations of businesses  (Carroll 1999).

Donna Wood defines social responsibility as the identification and evaluation of business outcomes not exclusive of financial profitability or a companys well-being but by principles such as ethics and social desirability. Companies that exercise social responsibility then are performing two-fold tasks achieving profit to a satisfactory degree and at the same time, achieving worthwhile non-economic ends  (Wood 1991).

Using Carolls (1999) continuum of social responsibility, the broad maximal view occupies the farthest end of the spectrum. This area is occupied by businesses and executives that hold social responsibility to involve the performance of objectives that are not demanded legally or ethically. Companies that believe in the maximal view do socially responsible acts to fulfill societys expectations.

Considering the massive wealth gap among rich and poor nations today, and the concentration of income to the biggest corporations of the world (some equivalent to the entire GDP of a third-world economy), companies face social pressures that need their response. This is what Friedman feared as encroachment of private businesses on the responsibility of political representatives. However, the demand for legitimacy and social acceptability of businesses has influenced the notion of public responsibility among business firms. CSR taken at the maximal view puts business down to earth and in consonance with society toward the greater good.

The underlying principle is that with economic power, businesses have a responsibility to preserve or enhance certain aspects of society. For instance, firms belonging to the extractive sector should be responsible for rehabilitating the earth and reforesting lands that had been previously mined . Another example is that carmakers should be concerned with air pollution levels and must either adjust corporate goals and objectives toward societys expectations of environmental protection or implement programmes that make the company involved in specific areas such as driver education or education  (Wood 1991).

In relation to Smith et al. and their principle of the moral minimum, there are certain conditions that would warrant the involvement of corporations in the resolution of social problems, even those considered systemic, such as global poverty. Although Smith et al. do not regard companies as having a moral imperative to do good, companies may be called to demonstrate socially responsible acts when there is need for instance, great calamities always merit humanitarian action from companies and donations to the International Red Cross and other international NGOs. They can also address social issues that are incumbent upon them because of proximity. For instance, being involved in human rights education and advocacy amidst violations of human rights in a specific country where one does business meets the moral minimum. In more ways than one, the moral justification provided in the maximal view is not contradictory to the moral minimum. The main difference is that the maximal view says that companies are morally bound to do their part in the development of a better world  (Shaw 1988).

This view does not necessarily run contrary or even antithetical to the goals of profit maximisation. For instance, companies that have strong philanthropy programmes have greater social desirability and acceptance because it creates an environment that is conducive to profit. One very good example would be Bill Gates and Microsoft. Moreover, acts of goodwill by companies create legitimacy within the immediate community (Wood  Logsdon 2002). Neglecting the public interest, for instance, as in the case of Toyota, would cause problems on the companys image and desirability and would lead to losses (Connor 2010). In this regard, proponents of the maximal view of CSR contend that the moral propositions made my Mulligan, Wood, and others are supportive, rather than, violative of the goals of the market economy.

Conclusion
The demands of the globalised world have refueled the CSR debate particular on the definition of social responsibility. The classical view places the corporation outside of the realm of social responsibility define responsibility of business firms solely on their goals of profit maximisation. The broader socio-economic view promotes the moral minimum and asserts that the social responsibility of businesses is to ensure that ethical conduct and compliance to legal and environmental standards must be met. The broad maximal view supports the active involvement of corporations in the resolution of social ills such as poverty, HIVAIDS, human rights, and other global problems. These views on CSR clash in terms of delineating what ethical responsibilities corporations must shoulder and how. However, a deeper look at these perspectives would suggest that they have been defined as a response to societys evolving expectations and bounded by corporations financial capabilities. History and experience has shown that promoting corporate responsibility, corporate ethics, and profit are not mutually exclusive.