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Chapter 4

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Chapter 4

Uploaded by

moattarfatima2019
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 4

Social Responsibilities & Ethics

Classical view: Managers primary view is to maximize profits for the shareholders or owners
of the business, within the boundaries of the law.
Key point this view holds are:

 Profit Maximization: The primary duty of managers is to focus on increasing profits, as


profits benefit the owners/shareholders. Social responsibilities beyond this are
considered unnecessary distractions.
 Economic Efficiency: According to the classical view, businesses should focus on their
core economic activities—producing goods or services efficiently—rather than taking on
social responsibilities that are seen as outside their expertise.
 Ethical Constraints: While profit maximization is the main goal, businesses are still
expected to follow ethical norms and legal requirements. Managers should avoid
engaging in fraud, corruption, or harmful activities.
 Social Responsibilities to Individuals: Classical theory suggests that individuals, not
corporations, are responsible for addressing social issues. Managers are seen as agents
of the owners and shareholders, and using corporate resources for social purposes
beyond profit-making is viewed as misusing shareholder funds.

Socio-Economic view: Managements social responsibility is beyond maximizing profits and


includes perfecting and improving society’s welfare. This perspective suggests that
organizations have a responsibility not only to their shareholders but also to various
stakeholders, such as employees, customers, suppliers, communities, and the environment. Key
points of the socio-economic view include:

 Broader Stakeholder Responsibility: This view emphasizes that managers should


consider the impact of their decisions on all stakeholders, not just shareholders.
Businesses are seen as part of a larger social system, and their actions affect various
groups.
 Corporate Social Responsibility (CSR): Businesses should actively contribute to solving
social problems, such as poverty, environmental degradation, and inequality. CSR
initiatives could include charitable donations, sustainable business practices, and
community development efforts.
 Long-term Profitability and Social Impact: The socio-economic view argues that socially
responsible behavior can lead to long-term profitability. For example, ethical practices
can enhance a company's reputation, customer loyalty, and employee satisfaction,
which can benefit the business in the long run.
 Sustainability and Environmental Stewardship: Companies should adopt sustainable
practices that protect the environment and ensure the availability of resources for
future generations. This involves reducing carbon footprints, waste management, and
conservation of resources.
 Ethical Responsibilities: Managers are expected to make decisions that align with
ethical norms and moral values, even when these decisions do not immediately increase
profits. This includes treating employees fairly, ensuring product safety, and avoiding
harm to society.
 Balancing Profit with Social Good: While making profits remains important, businesses
are encouraged to balance financial objectives with social goals. The socio-economic
view recognizes that businesses operate within society, and their actions should reflect
a commitment to improving the quality of life for all.

Social Responsiveness: A firm’s engagement in social actions in response to come popular


social need. Social responsiveness refers to a company's proactive behavior in addressing social
issues and needs that are important to society.

Key points:

 Proactive Approach: Unlike social obligation, which is about simply complying with laws,
social responsiveness involves taking initiative to address societal needs even before
they become critical issues or regulatory requirements.

 Responding to Social Needs: This could involve addressing environmental concerns,


health and safety issues, poverty, or education. Companies may create programs or
partnerships that directly contribute to solving these problems.

 Adapting to Social Expectations: As social values and expectations change, businesses


must be flexible and responsive, aligning their operations and policies with what society
deems important, like sustainability, equality, or corporate transparency.

 Long-term Benefits: Engaging in socially responsive actions can build goodwill, improve
a company’s reputation, and create trust with customers, employees, and communities,
which can result in long-term success

Social Obligation: A firm’s engagement in social actions because of its obligations to meet
certain economic and legal obligations/ responsibilities.

Key points about social obligation:


 Legal Compliance: Companies must follow the laws and regulations set by the
government, such as labor laws, environmental regulations, and safety standards.
 Ethical Standards: Businesses are expected to behave ethically, meaning they should act
in ways that are considered fair and right by society, even if not required by law.
 No Extra Effort: Social obligation only requires that businesses do what is necessary to
meet these legal and ethical standards. There’s no expectation for businesses to go
beyond this or contribute more to social causes unless they choose to.

Social Responsibility

A business’s invention beyond its legal and economical obligations to do the right things and act
in ways that are good for society, communities and other people. It's about being a good
corporate citizen, not just focusing on profits.

Examples of social responsibility include:

1. Meeting local pollution control standards: Ensuring that the company reduces harmful
emissions and follows environmental regulations to protect the air, water, and land.
2. Adhering to laws regarding hiring and firing: Following fair employment practices by
hiring and firing employees according to the law, ensuring equal opportunities and fair
treatment.
3. Providing on-site child care facilities: Offering employees convenient child care at the
workplace to help working parents balance their professional and personal
responsibilities.
4. Recycling items/papers: Implementing recycling programs to reduce waste, conserve
resources, and promote environmental sustainability.
5. Charity and donations: Contributing to charitable causes by donating money, time, or
resources to help those in need and support community welfare.

Socially Responsible Investing (SRI)

Socially Responsible Investing refers to an investment strategy that incorporates ethical, social,
and environmental considerations into the investment decision-making process. Investors who
practice SRI seek to align their investments with their values and promote positive social
change while still aiming for financial returns.

Some examples of industries typically excluded from socially responsible investments:

1. Fraudulent Activities: Companies involved in fraudulent practices, scams, or unethical


behavior that exploit consumers or investors are avoided. This includes firms engaged in
deceptive marketing, accounting fraud, or Ponzi schemes.
2. Liquor Industry: Investments in companies that produce or sell alcoholic beverages are
often excluded due to the potential social issues associated with alcohol consumption,
such as addiction and health problems.
3. Gambling Industry: Businesses involved in gambling or gaming are typically avoided
because of the social consequences related to addiction, financial distress for individuals
and families, and the potential for unethical practices.
4. Weapons Manufacturing: Companies that produce or sell weapons, including firearms,
military equipment, or munitions, are generally excluded due to the ethical concerns
surrounding violence, conflict, and human rights violations.
5. Tobacco Industry: Businesses that manufacture or sell tobacco products are often
excluded from socially responsible investment portfolios because of the well-
documented health risks associated with tobacco use.
6. Fossil Fuels: Some socially responsible investors choose to avoid companies involved in
fossil fuel extraction and production due to the environmental impact of climate change
and pollution.

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