Social Responsibility of Business

Victor Wong
Introduction
What is the social responsibility of a business? Is it to increase its profits
as Milton Friedman affirms? Before starting any debate about this topic, first lets
see what its definition is. ccording to the Business !ictionary, social
responsibility is an "obligation of an organi#ation$s management towards the
welfare and interests of the society which pro%ides it the en%ironment and
resources to sur%i%e and flourish, and which is affected by the organi#ation$s
actions and policies.
&
' Furthermore, according to the !ictionary of Finance and
In%estment (erms, social responsibility is the "principle that businesses should
acti%ely contribute to the welfare of society and not only ma)imi#e profits.
*
'
(hese two definitions are in total opposition to Friedmans statement.
+e%ertheless, I do thin, that any corporation can be social responsible in terms
of these opposing points of %iew at the same time.
In this essay, I will first present a summary of the article of Milton
Friedman- then I will e)press my personal reflection on the topic and tell why a
corporation can comply with both positions simultaneously.
Text Summary
1
http.//www.businessdictionary.com/definition/social0responsibility.html
2
http.//www.allbusiness.com/glossaries/social0responsibility/12342510&.html
Milton Friedman in his article The Social Responsibility of Business is to
Increase its Profits states that only people can ha%e responsibilities, and that
there is not such a thing li,e social responsibility of business. corporation,
according to Friedman, is an artificial person and, therefore, may ha%e artificial
responsibilities.
(he indi%iduals who are responsible of the corporation are businessmen,
which are indi%idual proprietors or corporate e)ecuti%es. corporate e)ecuti%e is
employed by the owners of the business. nd its responsibility is to conduct the
business in a way that ma)imi#es the profits while conforming to the basic rules
of the society.
corporate e)ecuti%e, as any other person, may ha%e many other
responsibilities that he recogni#es or assumes %oluntarily, which can be referred
as "social responsibilities.' (hese social responsibilities correspond to
indi%iduals, not to businesses.
(he main ob6ecti%e of corporate e)ecuti%es is to ma)imi#e the profits of all
stoc,holders- therefore, they are to act in a way that is in the interest of those
owners of the business. In this sense, a corporate e)ecuti%e shall not engage in
social acti%ities, unless they are done from an indi%idualistic point of %iew instead
of from a business point of %iew because, in the last case, he or she would be
spending somebody elses money, and not ser%ing the interests of the
employers.
7n the other hand, the situation of the indi%idual proprietor differs
because, if he reduces the returns of his company for "social responsibility', he
is, in fact, using his own money, not others money.
Friedman concludes that, in a free society, "there is one and only one
social responsibility of business 8 to use its resources and engage in acti%ities
designed to increase its profits so long as it stays within the rules of the game,
9:;, engages in open and free competition without deception or fraud.'
Personal Reflection
<ompanies are created to ma,e money and to be profitable o%er the time.
+obody enters a business to lose the in%ested money. (he difference between
the companies that are newly created, in terms of profitability, is how fast the
in%estment is returned to its in%estors. (he ideal %enture would be a business
re=uiring low initial in%estment which returns high profits in a short period of time.
>owe%er, things are easier stated than done. In real life, new enterprises
face the opposition of many factors that determine their future performance in the
business world. For instance, I can mention the e)isting and new competitors,
the consumers, the go%ernment, etc. (his is real life- the business en%ironment is
%ery tough. company must remain competiti%e by focusing on its strengths,
eliminating or reducing the effects of its wea,nesses, continually loo,ing for new
opportunities to ma,e a difference among the competitors, and being aware of
the potential threats.
?imilarly, in%estors are willing to ris, their money in a %enture only if the
outcome is positi%e and if they find the business opportunity profitable enough.
Being ma)imi#ation of the profits their main ob6ecti%e when allocating their
in%estments, while at the same time, as Friedman stated, conforming to the rules
of society, both embodied in law and those embodied in ethical custom, they
e)pect the corporation to fully comply with their desire.
>owe%er, sta,eholders perhaps may not ha%e e)plicitly declared their
wish that the company has to in%est its profits in social acti%ities for the welfare of
the society. @ersonally, I thin, Friedman was referring to this idea when he said
that the social responsibilities belonged to indi%iduals, not to businesses. If
sta,eholders were to decide that part of the companys profits are to be spent in
social acti%ities, then they are using their own money as they would recei%e a
lower return for their in%estment.
<ontrary to Friedmans point of %iew, I personally do thin, a business can
be socially responsible and ma)imi#e its stoc,owners profits simultaneously.
(here are many ways to contribute to the society without the need to use
somebody elses money in the process. (he simplest e)amples I can find in, lets
say, a business day0to0day are. printing documents only when they are really
needed- writing or printing in both sides of the paper- turning off the lights of the
rooms when nobody is there- turning off the computers and any other electronic
de%ice when they are not in use- using separate trash cans for papers, plastics,
metals, glasses, organic waste, etc. (hese actions are both easy to accomplish
and meaningful for societys welfare. (he benefits include a huge sa%ing in
monthly e)penses since fewer resources and energy are used. dditionally, a
culture of e)cellence is being created among all the employees. (he main idea is
to eliminate the inefficient use of the companys resources, while increasing
dramatically its profits. In this way, a company is acting socially responsible
because it is not only contributing to the society be being an en%ironment0friendly
organi#ation, but also ma)imi#ing the stoc,holders profits by reducing the
companys e)penses.
7f course, in some cases, the acti%ities listed pre%iously are not enough.
Many companies may need to in%est hea%ily to reformulate their ways to do
business to remain competiti%e and sur%i%e. (hese needs may include impro%ing
the =uality of the products, optimi#ing the internal processes, reducing
operational costs, optimi#ing the allocation and use of the a%ailable resources,
etc. (hese actions may result in an increase of the shareholders profits.
Moreo%er, I do belie%e that the re=uired actions to implement these
impro%ements can also be socially responsible with the society and its welfare.
For instance, a great contribution to the ecosystem is the elimination of the
emission of to)ic waste with impro%ements in the production process that
re=uires the use of some harmful chemical substances. +onetheless, the
company needs to in%est in order to go ahead with these implementations. (he
re=uired money belongs to the stoc,holders, whom are the owners of the
business. In this case, I personally do not thin, the owners would complain about
these actions- on the contrary, I thin, they would all agree to go ahead with the
plan.
Furthermore, enterprises can in%est in technologies that are both good for
the society and for the shareholders. clear e)ample is B@, a company that
transformed itself from being a local oil company to become a global energy
group. (oday, this company is committed to the en%ironment and the society by
researching in alternati%e sources of energy that emits little or no carbon, and
in%esting in green technologies, such as biofuels, solar power, wind power,
hydrogen power, and gas0fired power
4
. It is true that B@ is using the owners
money to be socially responsible with the society- howe%er, it is also true that,
with these actions, B@ wants to ma)imi#e the owners profits. By doing so, we
can appreciate that a company can comply with the two different approaches to
define social responsibility of a business mentioned in the introduction of this
essay.
(o conclude, from the point of %iew of a corporation, I belie%e it could be
meaningful for all the sta,eholders being able to collaborate in some way to the
welfare of the society, independently whether or not they ma,e a profit out of it. If
they are willing to do it reducing their profits, they would be more willing to do it if
they ,now they will ma,e a profit out of it. Furthermore, if I was an in%estor, I
would lo%e to put my money in something that I ,now it will be beneficial to both
the society and my ban, account. I do not find an in%estment being ethically
correct if an in%estor is ma,ing money out of damaging and destroying the world,
3
http.//www.bp.com
and ruining human li%es with things li,e chemical weapons. But I do find an
in%estment being ethically correct if an in%estor is putting his or her money in
%entures which intentions are to sa%e li%es or impro%e the =uality of life of the
humanity. I do not consider somebody that thin,s the way I thin, as being
greedy. I belie%e that this can be a strong moti%ator for those people who do
thin, that there can be a better world. (his is because they may see that their
efforts and intentions result in good conse=uences, and this, in my opinion, is a
way to moti%ate them and encourage them to continue belie%ing.
Contact Information:
VActor Wong
http.//lasa%enturasde%itinho.blogspot.com
,blit#54Bgmail.com
(witter. B,blit#54