Social Responsibilities of Strategic Decision Makers

The concept of social responsibility proposes that a private corporation has responsibilities to
society that extend beyond making a profit. Strategic decisions often affect more than just the
corporation. A decision to retrench by closing some plants and discontinuing product lines, for
example, affects not only the firm’s workforce but also the communities where the plants are
located and the customers with no other source for the discontinued product.

Milton Friedman

Following Friedman’s reasoning, the management of General Mills was clearly guilty of
misusing corporate assets and negatively affecting shareholder wealth. The millions spent in
social services could have been invested in new product development or given back as dividends
to the shareholders. Instead of General Mills’ management acting on its own, shareholders could
have decided which charities to support.

Carroll’s Four Responsibilities of Business

Friedman’s contention that the primary goal of business is profit maximization is only one side
of an ongoing debate regarding corporate social responsibility (CSR)
Carroll lists these four responsibilities in order of priority. A business firm must first make
a profit to satisfy its economic responsibilities. To continue in existence, the firm must follow
the laws, thus fulfilling its legal responsibilities. There is evidence that companies found guilty
of violating laws have lower profits and sales growth after conviction. 6 To this point Carroll
and Friedman are in agreement. Carroll, however, goes further by arguing that business managers have
responsibilities beyond economic and legal ones.
Carroll suggests that to the extent that business corporations fail to acknowledge discretionary or ethical
responsibilities, society, through government, will act, making them legal responsibilities. Government
may do this, moreover, without regard to an organization’s economic
responsibilities. As a result, the organization may have greater difficulty in earning a profit than
it would have if it had voluntarily assumed some ethical and discretionary responsibilities.

CORPORATE STAKEHOLDERS
The concept that business must be socially responsible sounds appealing until we ask, “Responsible to
whom?” A corporation’s task environment includes a large number of groups with
interest in a business organization’s activities. These groups are referred to as stakeholders
because they affect or are affected by the achievement of the firm’s objectives. 26 Should a corporation be
responsible only to some of these groups, or does business have an equal responsibility to all of them.

Stakeholder Analysis
Stakeholder analysis is the identification and evaluation of corporate stakeholders. This can
be done in a three-step process.
The first step in stakeholder analysis is to identify primary stakeholders, those who have
a direct connection with the corporation and who have sufficient bargaining power to directly
affect corporate activities. Primary stakeholders are directly affected by the corporation and
usually include customers, employees, suppliers, shareholders, and creditors.
The second step in stakeholder analysis is to identify the secondary stakeholders—those
who have only an indirect stake in the corporation but who are also affected by corporate activities.
These usually include nongovernmental organizations (NGOs, such as Greenpeace), activists, local
communities, trade associations, competitors, and governments. Because the
corporation’s relationship with each of these stakeholders is usually not covered by any written
or verbal agreement, there is room for misunderstanding.
The third step in stakeholder analysis is to estimate the effect on each stakeholder group
from any particular strategic decision. Because the primary decision criteria are typically economic, this
is the point where secondary stakeholders may be ignored or discounted as unimportant. For a firm to
fulfill its ethical or discretionary responsibilities, it must seriously
consider the needs and wants of its secondary stakeholders in any strategic decision. For example, how
much will specific stakeholder groups lose or gain? What other alternatives do
they have to replace what may be lost?

Stakeholder Input
Once stakeholder impacts have been identified, managers should decide whether stakeholder input should
be invited into the discussion of the strategic alternatives. A group is
more likely to accept or even help implement a decision if it has some input into which alternative is
chosen and how it is to be implemented.
SOME REASONS FOR UNETHICAL BEHAVIOR
Why are many business people perceived to be acting unethically? It may be that the involved
people are not even aware that they are doing something questionable. There is no worldwide
standard of conduct for business people. This is especially important given the global nature
of business activities. Cultural norms and values vary between countries and even between different
geographic regions and ethnic groups within a country. For example, what is considered
in one country to be a bribe to expedite service is sometimes considered in another country to
be normal business practice.
Another possible reason for what is often perceived to be unethical behavior lies in differences in values
between business people and key stakeholders. Some businesspeople may believe profit maximization is
the key goal of their firm, whereas concerned interest groups may
have other priorities, such as the hiring of minorities and women or the safety of their neighborhoods.
Of the six values measured by the Allport-Vernon-Lindzey Study of Values test (aesthetic, economic,
political, religious, social, and theoretical), both U.S. and UK executives
consistently score highest on economic and political values and lowest on social and religious
ones. This is similar to the value profile of managers from Japan, Korea, India, and Australia,
as well as those of U.S. business school students. U.S. Protestant ministers, in contrast, score
highest on religious and social values and very low on economic values.
Enron’s accounting moved from creative to aggressive, to fraudulent, like the pot of water moving from
cool to lukewarm to boiling; those involved with the creative transactions soon found
themselves working on the aggressive transactions and were finally in the uncomfortable situation of
working on fraudulent deals.

Moral Relativism
Simply put, moral relativism claims that
morality is relative to some personal, social, or cultural standard and that there is no method
for deciding whether one decision is better than another.
At one time or another, most managers have probably used one of the four types of moral
relativism—naïve, role, social group, or cultural—to justify questionable behavior.