Social Responsibility of Business
Introduction
The belief advanced by Milton Friedman connotes that the directors of a business must engage in business actions that bring only profits to the given business shareholders. In reference to notions of business ethics, the executive management of a business corporation must earn profits for the business owners within the rules of the game. Further, about corporate social responsibility, the business management mandate is to conduct business activities in such a way that they do not commit business resources to social responsibility activities, like charity, that have the potential of reducing business profits (Watson and Prevos, 2009).
Business Ethics
Business ethics refers to rules, standards, and principles that define the universally acceptable business behavior. Business ethics is subject to the laid down legal rules, moral persuasion of its employees and social customs in a given business environment. Most businesses have a code of conduct that defines how business employees must conduct themselves in the event of any given business transaction (Watson and Prevos, 2009).
According to Friedman, the management of a given business must ensure that the business makes a profit for the shareholders within the rules of the game that is adhering to business ethics. This argument means that the management cannot act in an unethical way to gain business profits (Watson and Prevos, 2009). Business ethics takes many forms that keep on evolving. Some of these forms include truthfulness in advertising, adhering to the religious beliefs of potential customers, and lastly, how company directors treat other employees.
In addition, it is the responsibility of every business to provide true information when advertising its products and services. Any false information is given leads to potential business losses. For instance, McDonalds’ parted within $700000 in 2013 as a settlement of a lawsuit filed against it in the Unites States. McDonalds’ had sold non-halal food products from two of its restaurants, which it advertised as halal. The given restaurant management intended for the advertisement to appeal to Muslim customers and thus increase company profits. According to Friedman, the management did not adhere to business ethics, as it should have to achieve business profits. McDonalds’ management eventually removed the affected food products from its menu as reported by Alhouti and Musgrove (2015, pp. 75-93).
BBC published a report in late 2014 where it showed that Apple Inc. had not safeguarded the safety of its Chinese factory workers. These examples show unethical behavior in achieving company profits against which Friedman campaigned.
On a positive note, McDonald's has achieved business success in Saudi Arabia, an Islamic kingdom, and other Muslim majority nations. The management of the business ensures business success by adhering to the local customs there like closing five times a day and serving halal food to its customers as reported by Vignali (2001, pp. 97-111)
Social Responsibility
The social responsibility of a business refers to corporate social responsibility. It entails a business firm contributing towards realizing societal goals and solving pertinent social problems as any responsible person is obliged to. Corporate social responsibility, as a business approach advocates for a sustainable use of resources especially natural resources in achieving business objectives, majorly profit maximization. Additionally, it takes into account the social, environmental, and economic needs of all business stakeholders (Matten & Moon, 2005).
Milton`s idea of corporate social responsibility differs with the widely held belief. He advocated for a kind of social responsibility that prefers the needs of the stockholders to those of the stakeholders. However, the commonly held belief is that business managers must hold in equal regard the needs of both the stakeholders and those of the stockholders as far as the corporate social responsibility of a given business is concerned (Watson & Prevos, 2009).
His idea is that it is plausible for business management to spearhead business actions that bring profit to the stockholders of the business at the expense of a potential negative consequential societal outcome. For instance, a food restaurant that declines to offer free food to a hungry person who eventually dies of hunger for the mere reason that the manager sees offering food free will reduce company profits.
Concerned individuals presented to Friedman an example of a lighting company that disconnects electricity to a customer for defaulting to pay electricity bills that eventually dies because of such disconnection. He argued that lighting company managers were morally right to effect such a disconnection. He argued that the managers were right since they have an ethical obligation to ensure the business survival of the utility company. In other words, a company will eventually run out of business if it does not obtain payment from consumers for the services and products it offers (Watson & Prevos, 2009).
Friedman`s argument borrows from social Darwinism, that is survival of the fittest in the marketplace. According to him, the fittest business is that which the management operates to bring the highest profit to the shareholders (Watson & Prevos, 2009).
In essence, there is always a tradeoff between sacrificing company profits at the expense of corporate social responsibility. There has been research that has shown a positive correlation between business social responsibility and business profits. A study conducted by the Bank of Finland found that the stock price of a company dropped by three percentage points when removed from a list of socially responsible companies and appreciated by two percentage points when added back to the list (deveximpact, 2013).
Analysis
Milton`s idea of adherence to business ethics to achieve business efforts is plausible. As indicated earlier, business ethics entails a business operating within the rules of the game. Reference to the earlier given example of McDonald's shows the both sides of adhering to business ethics explicitly. It parted with close to one million dollars to compensate for its unethical behavior; alternatively, the business has thrived in Muslim-majority countries like Egypt by adhering to the local customs of those nations.
On the other hand, his idea that business managers should prefer stockholders needs to those of the business stakeholders is misleading in modern day business reality. There is research that shows that consumers will prefer products from businesses that have evidently engaged in social responsibility to products from those businesses that have not (Watson & Prevos, 2009). Increased business sales translate to increased profits as opposed to little or no sales at all. Therefore, it makes business prudence to business directors to understand the tradeoff between stockholders and stakeholder needs of a given business.
In conclusion, it is evident that business managers are not at total liberty to maximize business profits but have to do so within the confines of business ethics defined by legally acceptable standards and social customs of a given region and people. Additionally, business ethics dictates that a business engages in socially responsible activities.
Reference List
Alhouti, S., Musgrove, C.C.F., Butler, T.D. and D’Souza, G., 2015. Consumer Reactions to Retailer’s Religious Affiliation: Roles of Belief Congruence, Religiosity, and Cue Strength. Journal of Marketing Theory and Practice, 23(1), pp.75-93.
Bilton, R., 2014. Apple ‘failing to protect Chinese factory workers’. BBC News.
Matten, D. and Moon, J., 2005. Corporate social responsibility. Journal of business Ethics, 54(4), pp.323-337.
Vignali, C., 2001. McDonald’s:“think global, act local”–the marketing mix. British Food Journal, 103(2), pp.97-111.
Watson, I. and Prevos, P., 2009. Milton Friedman on Social Corporate Responsibility.
