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 let’s see what its definition is. According to the Business Dictionary, social responsibility is an “obligation of an organization's management towards the welfare and interests of the society which provides it the environment and resources to survive and flourish, and which is affected by the organization's actions and policies.1” Furthermore, according to the Dictionary of Finance and Investment Terms, social responsibility is the “principle that businesses should actively contribute to the welfare of society and not only maximize profits.2” These two definitions are in total opposition to Friedman’s statement. Nevertheless, I do think that any corporation can be social responsible in terms of these opposing points of view at the same time. In this essay, I will first present a summary of the article of Milton Friedman; then I will express my personal reflection on the topic and tell why a corporation can comply with both positions simultaneously. Text Summary
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http://www.businessdictionary.com/definition/social-responsibility.html http://www.allbusiness.com/glossaries/social-responsibility/4953984-1.html

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Milton Friedman in his article “The Social Responsibility of Business is to Increase its Profits” states that only people can have responsibilities, and that there is not such a thing like social responsibility of business. A corporation, according to Friedman, is an artificial person and, therefore, may have artificial responsibilities. The individuals who are responsible of the corporation are businessmen, which are individual proprietors or corporate executives. A corporate executive is employed by the owners of the business. And its responsibility is to conduct the business in a way that maximizes the profits while conforming to the basic rules of the society. A corporate executive, as any other person, may have many other responsibilities that he recognizes or assumes voluntarily, which can be referred as “social responsibilities.” These social responsibilities correspond to

individuals, not to businesses. The main objective of corporate executives is to maximize the profits of all stockholders; therefore, they are to act in a way that is in the interest of those owners of the business. In this sense, a corporate executive shall not engage in social activities, unless they are done from an individualistic point of view instead of from a business point of view because, in the last case, he or she would be spending somebody else’s money, and not serving the interests of the employers.

On the other hand, the situation of the individual 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 – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, […], engages in open and free competition without deception or fraud.” Personal Reflection Companies are created to make money and to be profitable over the time. Nobody enters a business to lose the invested money. The difference between the companies that are newly created, in terms of profitability, is how fast the investment is returned to its investors. The ideal venture would be a business requiring low initial investment which returns high profits in a short period of time. However, 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 existing and new competitors, the consumers, the government, etc. This is real life; the business environment is very tough. A company must remain competitive by focusing on its strengths, eliminating or reducing the effects of its weaknesses, continually looking for new opportunities to make a difference among the competitors, and being aware of the potential threats.

Similarly, investors are willing to risk their money in a venture only if the outcome is positive and if they find the business opportunity profitable enough. Being maximization of the profits their main objective when allocating their investments, 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 expect the corporation to fully comply with their desire. However, stakeholders perhaps may not have explicitly declared their wish that the company has to invest its profits in social activities for the welfare of the society. Personally, I think Friedman was referring to this idea when he said that the social responsibilities belonged to individuals, not to businesses. If stakeholders were to decide that part of the company’s profits are to be spent in social activities, then they are using their own money as they would receive a lower return for their investment. Contrary to Friedman’s point of view, I personally do think a business can be socially responsible and maximize its stockowners profits simultaneously. There are many ways to contribute to the society without the need to use somebody else’s money in the process. The simplest examples I can find in, let’s say, a business day-to-day 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 device when they are not in use; using separate trash cans for papers, plastics, metals, glasses, organic waste, etc. These actions are both easy to accomplish

and meaningful for society’s welfare. The benefits include a huge saving in monthly expenses since fewer resources and energy are used. Additionally, a culture of excellence is being created among all the employees. The main idea is to eliminate the inefficient use of the company’s 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 environment-friendly organization, but also maximizing the stockholders profits by reducing the company’s expenses. Of course, in some cases, the activities listed previously are not enough. Many companies may need to invest heavily to reformulate their ways to do business to remain competitive and survive. These needs may include improving the quality of the products, optimizing the internal processes, reducing operational costs, optimizing the allocation and use of the available resources, etc. These actions may result in an increase of the shareholders’ profits. Moreover, I do believe that the required actions to implement these improvements 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 toxic waste with improvements in the production process that requires the use of some harmful chemical substances. Nonetheless, the company needs to invest in order to go ahead with these implementations. The required money belongs to the stockholders, whom are the owners of the business. In this case, I personally do not think the owners would complain about

these actions; on the contrary, I think they would all agree to go ahead with the plan. Furthermore, enterprises can invest in technologies that are both good for the society and for the shareholders. A clear example is BP, a company that transformed itself from being a local oil company to become a global energy group. Today, this company is committed to the environment and the society by researching in alternative sources of energy that emits little or no carbon, and investing in green technologies, such as biofuels, solar power, wind power, hydrogen power, and gas-fired power3. It is true that BP is using the owners’ money to be socially responsible with the society; however, it is also true that, with these actions, BP wants to maximize 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. To conclude, from the point of view of a corporation, I believe it could be meaningful for all the stakeholders being able to collaborate in some way to the welfare of the society, independently whether or not they make 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 know they will make a profit out of it. Furthermore, if I was an investor, I would love to put my money in something that I know it will be beneficial to both the society and my bank account. I do not find an investment being ethically correct if an investor is making money out of damaging and destroying the world,
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http://www.bp.com

and ruining human lives with things like chemical weapons. But I do find an investment being ethically correct if an investor is putting his or her money in ventures which intentions are to save lives or improve the quality of life of the humanity. I do not consider somebody that thinks the way I think as being greedy. I believe that this can be a strong motivator for those people who do think that there can be a better world. This is because they may see that their efforts and intentions result in good consequences, and this, in my opinion, is a way to motivate them and encourage them to continue believing.

Contact Information: Víctor Wong http://lasaventurasdevitinho.blogspot.com kblitz83@gmail.com Twitter: @kblitz83

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