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MUNHUMUTAPA SCHOOL OF FACULTY OF COMMERCE

GRADUATE BUSINESS SCHOOL

BLOCK RELEASE

QUESTION 3: ARGUING AGAINST SOCIAL RESPONSIBILITY, MILTON

FRIEDMAN SAID THAT IT IS UNDEMOCRATIC AND TRUE DEVIATION FROM THE
CORE OBJECTIVE OF MAKING PROFITS FOR ORGANISATIONS TO BECOME
PHILANTHROPIC. BASING YOUR ANSWER ON THE ARGUMENT RAISED FOR AND
AGAINST CORPORATE SOCIAL RESPONSIBILITY, CRITIQUE THIS CLAIM.

SURNAME NAME REG. NUMBER

MUSHAMBI TINEYI JOSEPHINE M102169

MODULE : CORPORATE GOVERNANCE AND BUSINESS ETHICS

MODULE CODE : MBA 709

PROGRAMME : MASTER OF BUSINESS ADMINISTRATION

LEVEL : 1.2

LECTURER : MR JAMELA
Corporate social responsibility (CSR) refers to strategies that companies put into action as part
of corporate governance that are designed to ensure the company’s operations are ethical and
beneficial for society. Corporate Social Responsibility as defined by UNIDO (2021) is a
management concept whereby companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders. CSR is generally understood as
being the way through which a company achieves a balance of economic, environmental and
social imperatives, while at the same time addressing the expectations of shareholders and
stakeholders. In this sense it is important to draw a distinction between CSR, which can be a
strategic business management concept, and charity, sponsorships or philanthropy. Even
though the latter can also make a valuable contribution to poverty reduction, it will directly
enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes
beyond that, Lindgreen & Swaen (2010).

A properly implemented CSR concept can bring along a variety of competitive advantages,
such as enhanced access to capital and markets, increased sales and profits, operational cost
savings, improved productivity and quality, efficient human resource base, improved brand
image and reputation, enhanced customer loyalty, better decision making and risk management
processes. Although corporate social responsibility is a very broad concept that is understood
and implemented differently by each firm, the underlying idea of CSR is to operate in an
economically, socially, and environmentally sustainable manner.

Generally, corporate social responsibility initiatives are categorized as follows:

Environmental responsibility initiatives aim to reduce pollution and greenhouse gas

emissions and the sustainable use of natural resources. Every year, more companies are
prioritizing sustainable practices, pledging to consider their environmental impact at every
stage of business. This can mean reducing the company’s carbon footprint or greenhouse gas
emissions, opting for sustainable resources by avoiding single-use plastics and keeping
environmental aspects at the heart of all operations. However, this environmental responsibility
can extend past the company’s promise to sustainable development. If protecting the
environment is a part of your corporate mission, you can honour that by encouraging employees
to take action, Battol Butt and Niazi (2001). 
Battol et al (2001) say that human rights responsibility initiatives involve providing
fair labour practices like equal pay for equal work, fair trade practices, and disavowing child
labour. Ethical responsibility refers to a company’s commitment to operate their business in an
ethical manner that upholds human rights principles, such as fair treatment of all stakeholders,
fair trade practices and equal pay. To champion ethical responsibility, many businesses will
speak up in the name of human rights injustices such as child labour, racial or gender
discrimination and the fight for a higher minimum wage. Much like with responsibility to the
environment, there are ways to endorse ethics at your company by involving employees in the
process.

According to Battol et al (2001), philanthropic responsibility can include things such as

funding educational programs, supporting health initiatives, donating to causes, and supporting
community beautification projects, react positively to these types of claims, but others are wary
of corporate greenwashing. Philanthropic responsibility refers to a corporation’s aims, goals
and objectives for actively bettering society as a whole. One huge aspect of corporate
philanthropy is donating money from company earnings to worthy causes within the local
community, often in the form of a trust or foundation. These kinds of philanthropic efforts
speak volumes to your public image as a business leader, which is crucial in today’s world.
There are several ways in which businesses can incorporate CSR in the form of philanthropy
while engaging employees, including giving schemes with the potential for donation matching.

Economic responsibility initiatives involve improving the firm’s business operation while
participating in sustainable practices, for example, using a new manufacturing process to
minimize wastage. Economic responsibility refers to the practice of making financial decisions
based on a commitment to doing good. Some common examples of economic responsibility
include investing in alternative energy sources, putting more money into education programs
and funding local charities as a way of bolstering their mission. To uphold economic
responsibility, business leaders are challenged to think past operational cost savings and instead
put their obligation to corporate citizenship at the heart of all financial decisions. Regardless
of the type of CSR, consider how one will measure program’s performance and impact, Battol
et al (2001).

According to Windsor (2001), Friedman argued that only people, and not businesses which are
artificial persons, have responsibilities. In his view, even though corporations consist of
individuals, the corporations themselves are not individual persons and as result do not have
social responsibilities. However, Friedman clearly missed the point that a corporation, once
duly registered/incorporated, becomes a legal person and gains civil rights like individuals. As
Mertz rightly puts it “with the history of civil rights gained by corporations, they are no longer
artificial persons. Just as individuals have a social responsibility, corporations must now as
well”. In the light of these considerations, Friedman’s view that corporations cannot have
responsibilities is not true today. Corporations, like individuals, now have a responsibility to
contribute to the development of society in order to be considered as good, responsible and
ethical corporate citizens. The doctrine has been criticized for not considering the responsibility
a company has to its employees, the communities it operates in and the environment, The
Atlantic (2020). In 2019 the Business roundtable, a group that represents CEOs of big
corporations including Apple, JP Morgan, General Motors and more, declared that it had
changed its mind about the purpose of a corporation. That purpose is no longer to maximize
profits for shareholders, but to benefit other “stakeholders” as well, including employees,
customers, and citizens.

Friedman (1970) argued that a corporate manager is the agent of the individuals who own the
corporation and that, whilst acting in that capacity, his primary responsibility is to his
employers, the shareholders. He also notes that the corporate manager as “a person in his own
right” can engage in social welfare activities outside of his job, by spending his own resources
(money, time and energy) and that social responsibility in this context is of the individual
manager and not the business. Although Friedman acknowledges that there could be
circumstances in which a business manager, as an agent of the corporation, would engage in
activities that increase social welfare, he asserts that the corporate manager’s only motivation
for such engagement must always remain long-term increase in shareholder earnings. It was in
this regard that he concluded that the only social responsibility of business is to increase its
profits for the benefit of shareholders. But this argument cannot be sustained today, especially
in view of the argument on the first point above. As corporate persons with civil rights,
corporations have corresponding responsibilities and these include engaging in social welfare
activities the same way individual citizens do. Interestingly, the one concession that Friedman
made in his essay is his argument that corporations operating in small cities or communities
could give charitably by providing amenities to that community or to improving its government
and then reduce the amount they would have paid as corporate taxes. If this argument were to
be accepted as representing the proper approach, it means that it is acceptable for corporations
to be socially responsible only in small communities but not elsewhere. It is submitted that this
cannot be the right approach. Today, many corporations appreciate the good business behind
being a good corporate citizen and would rather adjust their corporate governance strategies in
such a way that enables them to add value to society, beyond merely increasing their profits,
whether they operate in small or large communities. (Riera and Ibbora 2017)

Friedman probably could not imagine that fifty years later the United States would have a
president who is more interested in creating needs for social responsibility than for working
toward solutions. The record of the Administration from 2017-2020 in Washington is abysmal
on issues of the environment, climate change, income disparity, and racial injustice, to name
only a few. What government does during the next four years remains to be seen. Now, perhaps
more than ever before, businesses must step up to create socially and environmentally
responsible investments, reduce their carbon footprints, improve corporate policies regarding
worker safety and income equality, stand up against discrimination, and increase volunteer
opportunities and charitable contributions. Corporate social responsibility is good for the
environment, for social justice and equity, for employees and shareholders, and for the brand
and profitability. It is a win-win across the board.

In a way, corporate social responsibility can be seen as a public relations effort. However, it
goes beyond that, as corporate social responsibility can also boost a firm’s competitiveness.
Critics consider the doctrine as defective from many fronts, including legally, morally,
economically, socially, and financially. Most critics hold that the doctrine gives shareholders
an upper hand while neglecting the society surrounding the entity. In as much as the
shareholders are the financial engine for the business, the entity also needs the community for
it to be successful. The business sells its products and services to the community. Its success
depends on the goodwill from the community to purchase the products and services. Therefore,
both parties have a mutual relationship, and the business has a responsibility towards the
community. Thus, Friedman was somewhat short sighted since he failed to recognise the
benefits that can be brought to the business by doing corporate social responsibility.

In addition, social responsibility programs that are a clear part of a company’s culture can also
improve employee morale and lead to greater productivity (Aperian Global 2020). The ‘me
too’ movement has prompted companies to take strong stands against discrimination and
workplace harassment. Employees are demanding a workplace environment that is comfortable
and open to everyone. Companies standing for socially responsible change now recognize that
embracing socially responsible principles can attract new customers and retain old customers.
Some customers are willing to pay a higher price when they know part of the profits will
support causes that they believe in (Nielsen Global Survey on Corporate Social Responsibility
2020). With his work on producing electric-powered automobiles and a host of green auto
products, Elon Musk, CEO of Tesla, has brought significant numbers of consumers who are
concerned about the environment to his brand. Google’s CEO, Sundar Pichai, speaks out on
social issues and stood up to Donald Trump when he made anti-Muslim statements. Pichai
strongly denounced Trump and his plan to stop Muslim immigration into the United
States. (Fortune, 2015) asserts that, Google has also supported a number of renewable energy
projects around the world. The focus on the environment and renewable energy have bolstered
the brand images of these companies.

In as much as Friedman was critiqued for ignoring the fact that businesses should give back to
the societies they are operating in, he was somehow correct in his assertions because the
concept of CSR has some disadvantages to the business itself. The main disadvantage of CSR
is that its costs fall disproportionally on small businesses and can be difficult and costly to
implement. Major corporations can afford to allocate a budget to CSR reporting, but this is not
always open to smaller businesses with a smaller number of employees. A small business can
use social media to communicate its CSR policy to customers and the local community. But it
takes time to monitor exchanges and could involve hiring extra personnel that the business may
not be able to afford it. This however, substantiate Friedman’s claim that the only responsibility
of businesses is to make profit.

The cost of CSR can be an obstacle. Some critics believe that corporate social responsibility
can be an exercise in futility. A company's management has a fiduciary duty to its shareholders,
and CSR directly opposes this, since the responsibility of executives to shareholders is to
maximize profits. A manager who forsakes profits in favour of some benefits to society may
expect to lose his job and be replaced by someone for whom profits are a priority. This view is
in line with Friedman’s notion that the responsibility of business organizations is to make profit
and he further says that the core objective is that business decisions should always be made
with the financial interests of shareholders in mind first and foremost. So, if funds are being
used on social initiatives, the company is in effect spending somebody else’s money for their
own purposes, unless there is shareholder approval.
Greenwashing is term used to describe corporate practices that appear to be environmentally
responsible without actually representing a change in how a company conducts its business.
For example, a product may be labelled as "All Natural", even though it is being manufactured
just as it always has. Some dry-cleaning services label their operations as "Organic" which
sounds similar to "organic food" but really carries no specific meaning. Some customers may
find this as misleading and the purpose of CSR seems defeated.

Conclusion

The reflections in this paper point out many things. With specific reference to the central theme
of the paper, it has been noted from the available literature that Milton Friedman’s proposition
that the only social responsibility of corporates is to increase their profits for the benefit of
shareholders does not appear to represent the modern attitude of businesses on the issue of
social responsibility. Clearly, times have changed since Friedman’s 1970 article and in
response the attitude of businessmen towards the society has changed such that businesses now
understand that social responsibility is an integral part of business. As a result, companies are
consistently finetuning their corporate governance models and business strategies today in
order to become more socially responsible while they also remain profitable.
Reference

Batool, S., Butt, A., & Niazi, B. (2016). Types of corporate social responsibility practices
across the industry in Pakistan and their effectiveness. In Corporate Responsibility and
Stakeholding (Vol. 10, pp. 225-246). Emerald Group Publishing Limited.

Lindgreen, A., & Swaen, V. (2010). Corporate Social Responsibility. International Journal Of
Management Reviews, 12(1), 1-7.

Riera, M. and Iborra, M (2017). ‘Corporate Social Irresponsibility: Review And Conceptual
Boundaries’. European Journal Of Management And Business Economics 146-162 45

Windsor, D. (2001). The Future Of Corporate Social Responsibility. The International Journal
Of Organizational Analysis, 9(3), 225-256.

Nielsen Global Responsibility Report Powered By Change. Focused On The Future, (2020).