Theoretical Foundations: What Is the Social Responsibility of Business?

MGT 6509

Legal and Ethical Considerations Journal

 18th Jan 2017: Theoretical Foundations: What is the Social Responsibility of Business?

According to Milton Friedman, it is the duty of the responsibility of the individual or a person in charge to act according to the desires of his or her employers, as long as what he is doing conforms to the laws and they are ethical.

As an individual, we can follow our social responsibilities. This is the social responsibility of me as an individual not a social responsibility of the business I work for.

As a corporate executive, if I were to follow the social responsibility of business then I would be spending someone else’s money. Even if he were to spend this money, does he know how to spend the money? He may be an expert in running the company, but nothing about his selection makes him an expert in the social cause he is trying to contribute.

According to shareholder theory, since shareholders advance capital to a company’s managers, they are supposed to spend corporate funds only in ways that have been authorized by the shareholders. As such, managers are rewarded for producing exceptional returns, and when the business does not perform as expected, these same managers are not asked to compensate for the losses. This scheme of things rewards high risk taking, but does not punish for losses.

So, according to stakeholder theory, by taking into consideration the interests of various stakeholders, we can promote ethical behavior while mitigating high risk-taking. It is a manager’s duty is to balance the shareholders’ financial interests against the interests of other stakeholders such as employees, customers and the local community, even if it reduces shareholder returns. They have a duty to both the corporation’s shareholders and individuals and constituencies that contribute to the company either voluntarily or involuntarily.

According to me, most corporate decisions have some ethical content and most ethical decisions have some business content. The important thing to consider is how to put ethics and business together.

For instance, in the case “Pricing Blood”, if there was any some kind of publicity generated by selling the blood at a low cost, then it would be beneficial to both the corporation as well as the society. But this is not always the case. I believe that there will be situations where we will be forced to take hard decisions which will have a negative impact on either the business or the society.

The decision that I would take in this case is to offer the blood at a low cost in order to save everyone. I would request the employees to contribute as much as they can for this good cause and contribute the rest from my earnings.

I’m more pursued by the views of Milton Friedman. I agree with him that I as a manager hired by my employer have a fiduciary duty towards business. I would not be qualified to spend others money on a social cause. But, as I am compelled to follow the social responsibility, I would spend my own earnings towards the cause.