The Social Responsibility of a Business

What is the Social Responsibility of a Business?

In order to answer that question, defining social responsibility and business must be answered first. Corporate social responsibility refers to the organization’s actions that benefit both internal and external stakeholders. Business, on the other hand, is a type of an organization that exhibits the following characteristics: (1) made up of management, shareholders, and employees, (2) pursued common goal to generate profit, and (3) linked to the environment.

 According to Milton Friedman, he stated that “business as a whole” cannot have responsibilities and that “only people can have responsibilities” (1970). His main concern is directed to corporation’s social responsibility. In legal sense, a corporation is a person with similar rights and responsibilities to that of an individual. Its only social responsibility is to maximize profits while complying with the law, engaging actions ethically in trade norms, and carrying out business “without deception or fraud” (Friedman, 1970).

As Friedman suggests, engaging in socially responsible activities may lead agency problems, misallocation of resources, and a cover-up of self-interests. First, the purpose of selecting a corporate executive is to be the agent of the shareholders; therefore, managers must pursue profitable activities to align with shareholder’s objectives. Second, “CSR involves using the firm’s resources to advance societal interests” (Waldman, 2008, pg. 118). Application of CSR imposes costs to different stakeholders. Any social activity results in spending other people’s money. For example, increasing product price will result in customer’s expense. Stakeholders can decide what to do with their money, for instance, they can give it to a charity. Finally, corporations may act socially responsible to cover its real-intent of benefiting their self-interest. Thus, a manager’s social responsibility is to boost company earnings. (Friedman, 1970)