Social Responsibility and Business

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Social Responsibility and Business
St. Francis Xavier University

• Featuring Milton Friedman

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Introduction

• On her deathbed, Gertrude Stein is purported to
  have asked her lifelong companion Alice B.
  Toklas, What is the answer? When Alice could
  not bring herself to speak, Gertrude asked, In
  that case, what is the question?

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The purpose of this class

• To introduce the concepts of business ethics and
  social responsibility
• To address the questions
• What do we mean by social responsibility?
• Does a firm have a social responsibility?
• What is this responsibility?
• To explore the ideas of Milton Friedman

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Definitions

• Ethics
• Individual standards, moral values or beliefs
  about what is right and wrong or good and bad
  (58),
• Managerial Ethics
• standards of behaviour that guide individual
  managers in their work (61)

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Social Responsibility

• Social Responsibility
• A businesss collective code of ethical
  behaviour toward the environment, its customers,
  its employees and its investors (64)
• The obligation to maximize its positive impact
  and minimize its negative impact on society

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Does a firm have a social responsibility?

• What does Milton Friedman think?
• It depends
• What type of business?
• Proprietor
• No division of legal entity
• Revenues/profits are personal income
• Proprietor can spend freely
• Corporation
• Separate legal entity owned by investors,
  administered by a board of directors, managed by
  executives
• Revenues/profits/assets belong to ownership
  (investors)
• Thus, Friedman distinguishes between the type of
  business and focuses his discussion on
  corporations

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Does a firm have a social responsibility?

• No a corporation is an artificial entity only
  people have a social responsibility
• What is the purpose of corporations / business?
• Market mechanisms are the appropriate way to
  allocate scarce resources, not political
  mechanisms (Key Principle)

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Concept Test

• The form of ownership is central to Friedmans
  position about corporate social responsibility
  because
• Corporations, with access to more resources, have
  a greater responsibility
• Executives owe it to their investors to act
  socially responsibly
• Executives should conduct business in accordance
  with the desires of stockholders
• Corporations are in a good position to understand
  the needs of society based on their interaction
  with customers

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Does a firm have a social responsibility?

• What is the role of executives who work for
  corporations?
• Corporate executives act as the agent to
  ownerships wishes (maximize profits). Their
  responsibility is to conduct the business in
  accordance with their desires
• How can executives decide to be socially
  responsible with other peoples money?
• To do so takes time, money and resources away
  from that which ownership has hired them to do.
• If executives want to act responsibly, do so
  with their personal income
• Individual shareholders are the only ones who
  know best how to be socially responsible
• Are corporate executives the appropriate
  executors of social programs? (Key Consequence)
• Interview with Milton Friedman
  http//www.youtube.com/watch?vivLIA25FQYY

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Concept Test

• According to Friedman, the use of corporate funds
  that promote the firm while giving back to
  society (e.g. supporting local childrens sports)
  are
• Important, because Corporations, with access to
  more resources, have a greater responsibility
• Necessary because Executives owe it to their
  investors to act socially responsibly
• Relevant because Corporations are in a good
  position to understand the needs of society based
  on their interaction with customers
• Potentially fraudulent, because they advance the
  interests of the business under the guise of
  charity

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Does a firm have a social responsibility?

• What about activities that contribute to society
  while generating profits? E.g.Ronald McDonald
  house or Timbit hockey / soccer
• The doctrine of social responsibility is
  frequently a cloak for actions that are justified
  on other grounds rather than a reason for those
  actions
• The firms positive impact (i.e. social
  responsibility) is also effective promotion
  (awareness-raising which leads to sales) and
  profitable (reduces taxes).
• Is this social responsibility or business acumen?
• Friedman suggests these are tactics as
  approaching fraud

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Does a firm have a social responsibility?

• and threaten the principles of free markets
• The use of the cloak of social
  responsibilitydoes clearly harm the foundations
  of a free societyit helps to strengthen the
  already too prevalent view that the pursuit of
  profits is wicked and immoral and must be curbed
  and controlled by external forces. Once this
  view is adopted, the external forces that curb
  the market will not be the social consciences,
  however highly developed, of the pontificating
  executives it will be the iron fist of
  Government bureaucrats
• In an ideal free market resting on private
  property, no individual can coerce any other, all
  cooperation is voluntary, all parties to such
  cooperation benefit or they need not participate.

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What is the firms social responsibility?

• According to Friedman, the responsibility of
  corporations is to make a profit
• They must do so while conforming to the basic
  rules of society, both those embodied in law and
  those embodied in ethical custom.
• Video http//www.youtube.com/watch?vW3Seg0JE1PM
  

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What is the firms social responsibility?

• Caveat
• Friedman writes that I share Adam Smiths
  skepticism about the benefits that can be
  expected from those who affected to trade for
  the public good
• The political principle that underlies the
  political mechanism is conformity. The
  individual must serve a more general social
  interestthe individual may have a vote and a say
  in what is to be done, but if he is overruled, he
  must conform. It is appropriate for some to
  require others to contribute to a general social
  purpose whether they wish to or not.
  Unfortunately, unanimity is not always feasible.
  There are some respects in which conformity
  appears unavoidable, so I do not see how one can
  avoid the use of the political mechanism
  altogether.

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Misconceptions of Friedman

• Friedman advocates greed
• Friedman advocates a free market system through
  which individuals and companies in society aim to
  achieve prosperity and efficient use of scarce
  resources based on a vested self-interest
• Freedom of choice is central to Friedmans view
• Friedman advocates amorality
• Individuals and companies must uphold the legal
  and moral norms of society
• Individuals should practice morality (i.e. as the
  principal)
• A business is a separate legal entity, subject to
  the laws that society creates, but not a moral
  entity like a person
• Friedmans value-contribution is that he
  challenges us to critically examine our
  assumptions about an increasingly popular
  ideology

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Critique

• Does the existence of illegal corporate activity
  (e.g. pp 57-58 re Enron and World Com) refute
  Friedmans views?
• Investor demand for socially responsible firms
  had led to new investment opportunities that are
  market and CSR driven
• The advent of advanced forms of communication
  technology enables active exchange among
  shareholders and management

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Admin

• Monday
• A discussion of corporate social responsibility
  featuring The Corporation
• Wednesday
• Chapter 3
• Quiz
• Friedman reading
• Chapter 3
• Overview of Presentations
• Friday Nov 21 Reports Due

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