Arguments Over Corporate Social Responsibility Argumentative Essays Example
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The classical origin of the concept of corporate social responsibility (CSR) came from the principle that the purpose of the corporation is to make profits for the stockholders. This view of Milton Friedman came to be referred to later as the classical theory of CSR (Bowie, 1991). Tom Donaldson argued that this theory derived from the concept of the social contract between the corporation and the society where it operates. This perspective, however, faced criticism over its inherently opportunistic and exploitative viewpoint (Mulligan, 1986). A corporate vision aimed only at upholding the shareholder’s right to profit for their investments logically will have no qualm of exploiting stakeholders to serve the end game of profit. It will have no qualms at paying its employees low and providing them no other remunerations as otherwise expenditure cuts on the corporate profitability. The same policy will not think twice at cutting down suppliers and customers to increase the profit margins, which had direct effect in the bottom line. Moreover, purely profit-oriented principle will not care if manufacturing byproducts pollute the nearby lake or fields as long as no added cost are charged to the revenues for proper waste disposal.
Looking at this obvious conceptual deficiency, neoclassical theorists proposed an improvement through the concept of “no harm” (Bowie, 1991). Thus, the neoclassical position should be that of corporations making profit without inflicting harm. It has two central implications: (a) honoring of the moral minimum; (b) respecting human rights and justice. The Stakeholder Theory of Ed Freeman (1984) moved forward the neoclassical thought through the proactive concept of “protection and promotion of rights,” incorporating the basic neoclassical theory with the managerial task of protecting and promoting the rights of various stakeholders. Thus, began the long and still unfinished debate over the concept of CSR, which will be discussed and argued in this essay.
Freeman (1984) defined stakeholder as any group, or any member thereof, whose existence necessarily results to the survival of the corporation. Thus, stakeholders include such groups as stockholders, employees, customers, suppliers, the local community, and the managers. In effect, the theory expanded the focus of benefits toward one stakeholder (the shareholder) into other stakeholders inside (e.g. employees and managers) and outside (e.g. customers, suppliers, and local community) the corporate premises. The Stakeholder Theory proposed that protecting and promoting the interests of all stakeholders will provide the corporations long-term profitability at the expense of the short-term gain (Bowie, 1991). Wal-Mart should establish a “no-question-asked” return policy for its customers. CEMEX should pay for the cleanup of the surface waters near its cement manufacturing plant in the Philippines.
However, the classical theorist cannot find the logic and moral responsibility of cutting down profits that should have been due to the investors as their basic legal right as owners of the corporation and managers should not disregard in their own brand of socio-ecological causes. The managers, hired to bring profits to the shareholders, have no right to decide among themselves to spend corporate money to expenses that has nothing to do with the company’s operations. The disagreement between the classicists and the neoclassicists over the sole right of the shareholders to the business profits put to the fore a valid question of ethics and law, which the neoclassicists failed to anticipate.
That is exactly the point that Friedman (1962) brought up in his book Capitalism and Freedom: the managers has “one and only one” responsibility to fulfill; that is, to “use (corporate) resources” and “engage in activities” that directly “increase (business) profits” as long as they engage in “open and free competition,” and “without deception or fraud” (Bowie, 1991; Garriga & Mele, 2004). Would not a management decision to spend on social activities tantamount to deceiving and defrauding the shareholders? (Shaw, 1988) To the classicists, the only valid social contract or moral minimum involves the corporate duty not to cause harm to the people and adhere to the accepted canons of justice (McAleer, 2003).
Beside this ethical question though, the classists and the neoclassicists in three points: (1) that the purpose of business is, if not doing good is not possible, at least not to do harm; (2) that the general welfare (of society, of ecology, and of community) is the responsibility of government, not of the business (Levitt, 1958); and (3) that a business is not a charitable organization (as managers are legally responsible to their shareholders to bring in the maximum profit the business can generate in its operations. And, the corporate board, the topmost managers of the corporation, is collectively a legal agent of the stockholders and their acts should be designed to maximize shareholder profits, not cut from it. Unless the shareholders authorize any and all social and charitable activities and expenditures, the corporate managers “have no right” to spend away the shareholders’ money, including the profit share of its revenues. Doing so would violate their fiduciary duties to the shareholders and subject them to legal action (Shaw, 1988; Simon, Powers, & Gunnemann, 1972).
Inadvertently, the neoclassicists took on the classicist argument with renewed pragmatism when it declared that corporations have no resources to solve social problems. In a manner of speaking, the resources of corporations are not meant to address social problems but to generate profits for the shareholders. Thus, the government is in the best position to address social problems, not the corporations. Moreover, social problems are as open-ended as the obligations that can effectively address them. Being that way, the society cannot expect the corporations to undertake it without risking the very reason the corporations were organized for existence. Logically, corporations that solve social problems betray their own constitutions and bylaws by becoming charitable institutions, by becoming nonprofit-driven organizations. The actions may be good (doing good to the society); but to the expense of doing bad (betraying their fiduciary duty with the shareholders). It is one of those ethical dilemmas that Carroll (2000) considered solvable through a close attention to theory and methodology, and in this case, broad-based openness to the arguments of the corporations.
Add to that the competitive pressures that demand the use of corporate resources, the business risk in doing social good inappropriately increases. Simple mathematics would show that Company A, which spends millions of dollars in social agenda, will have less resources available to compete with Company B who had no social involvement whatsoever.
It was Keith Davis who named the exact stakeholder who can make the crucial decision to support the solutions for social problems: the stockholders (Carroll, 1999). He proposed the term social responsibility, defining it as decisions and actions of “businessmen” taken for goals beyond the company’s “direct economic or technical interest” (Davis, 1960). He proposed that business power is translatable into social power. And social power, being so, demands expression in social responsibility. He argued that avoidance of social responsibility will eventually result to the “gradual erosion” of the social power. From the perspective of business, his proposal insisted that the profitability resulting from business power had strong influence from the social power exerted by the corporations. In short, it is that social power that enables corporations to achieve profitability. As such, corporations have logical obligations to society for the social power that society granted the corporations, which enabled it to make profits for the shareholders. Thus, as a sign of gratitude, corporations should obligate themselves to help society solve its varied problems; perhaps, not all for practical reasons, but at least a problem that the corporations can address effectively and sustainably (Patzelt & Shepherd, 2011).
As an extension to the corporations, by virtue of its power of ownership, the stockholders should obligate themselves, in turn, to help society solve its problems as a token of gratitude for the social power that society granted the corporations and instrumental to the profits received by shareholders through corporate business operations. In effect, it proposes that attention to social welfare increases when all firms increase their own market profitability (Patari, Jantunen, Kylaheiko, et al., 2011). However, this depends upon the assumption that the management behaves in an opportunistic manner and whose discretion should be strictly curtailed (Vilanova, 2007). Moreover, William C. Frederick (1960) who proposed that businessmen should be constantly conscious, while operating the corporate economic system, of fulfilling also the expectations of the public. The mechanisms of production and distribution needs to be aligned effectively in order to enhance “total socio-economic welfare.” It means that cement producers, like CEMEX, needs to be aware on the ecological and environmental impact of their manufacturing processes and should take actions in preventing adverse effects to the community if possible, and if not, to take measures in repairing the ecological damage brought about by business operations. At its most fundamental basis, the foundations of CSR remained consistent with the principle of “no harm” that Friedman originated.
The contribution of Joseph McGuire (1963) to the discourse added the element of “obligation” that cannot fully address the ethical question that neoclassicists proposed. The idea of an obligation destroys, through legalistic demand, the openness to altruistic motives from shareholders in their companies’ social agenda that were available in Davis’ and Frederick’s perspectives. The corporate participation the CSR agenda is voluntary, and can only be voluntary, until legislation demands that corporations spend money on these initiatives, which would be legally tenuous without the tacit generosity of the stockholders towards society. Demands have no place in the discourse of CSR. The economic and legal demand in the McGuire proposition is negativistic and should be sidelined in the decent discourses of CSR. His demand that corporations should take an interest in politics, for instance, simple went beyond the tolerable. At the end of the day, the shareholders have no legal obligations to part with their profits under the law, including international laws. Shareholders should be allowed to exercise good intentions in helping out whether through developmental programs or straight philanthropic money-giving. It is inherently wrong to steal that from them through legalistic arrogance or bullying (Mulligan, 1993).
The quadruple bottom line (QBL) theory is one of the more recent developments in the social responsibility theory. It proposes that CSR, as corporations discharge it, should honor the quadruple bottom line objectives of Profits, People, Planet, and Philanthropy. Consequently, corporate actions should be aimed at resolving environment issues (i.e., ecosystems, climate change, degradation, deforestation, agricultural practices, freshwater supply, and biodiversity) in addition to the goals of profit, the developmental interests of people, and perhaps through the agency of philanthropy (Cohen & Winn, 2007; Dean & McMullen, 2007). Patari, Jantunen, Kylaheiko, and colleague (2011) insisted that new sources of competitive advantage had been increasingly available in knowledge and intellectual capital, intangible resources, and the ability to learn and adapt at a fast rate. The QBL theory had its roots from the triple bottom line (TBL) theory that supports three pillars of CSR initiatives: the economy, the society, and the ecology (Wesley, Brueckner, Pforr, & McCallum, 2011; Schmidpeter, 2011). It is the more basic concept in the expanded focus of CSR for corporate agenda.
The concept of corporate social responsibility continues to enjoy the contribution of Friedman’s classic theory of the firm, particularly the concept of doing no harm. This primordial ideation helps propel the discourse on social responsibility and provided the basic thread connecting classicism to the modern theories of CSR. The contributions of neoclassicists such as Bowen, Davis and Frederick cannot be overstated in the beneficial shaping of the CSR concept into what it is today. The CSR constitutes a beneficial development in the field of philanthropy and social activism. The participation and cooperation of shareholders provide the most significant effect in these endeavors, not to mention the growing favor that CSR experiences through the years as more local and multinational corporations make it a point to change their core values in order to incorporate the goals and principles of CSR (Van den Ven, 2001). CEMEX, for instance, had consistently committed itself to its corporate sustainability agenda, a more recent conceptual development of the CSR philosophy (Lawler & Conger, 2015). Its involvement had been pervasive, covering initiatives that significantly cut down on their carbon footprint, increased use of eco-friendly cementitious alternative raw materials, a growing use of renewable sources of energy for its manufacturing plants to cut carbon impacts, its support to communities in need of their own homes, and activities that preserve ecological balance in marine areas nearby (Patzelt & Shepherd, 2011). Indeed, CSR possesses strategic implications (McWilliams, Siegel & Wright, 2006; Morris & Bartkus, 2015).
The debate and discourses over concepts in CSR or corporate sustainability should continue in order to preserve and enhance what good achievements there are and increase the chances of improve from the good of today into better conceptualizations in the future (Wood, 1991, 2002). There should be no end to the scholarly debate in the same way that there is no end to the woes of society and environment.
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