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Class 7 & 8

Chapter 3 discusses social responsibility in business, emphasizing that corporations have obligations beyond profit-making, including ethical and discretionary responsibilities. It contrasts Milton Friedman's view that profit maximization is the sole responsibility of businesses with Archie Carroll's framework, which includes economic, legal, ethical, and discretionary responsibilities. The chapter also highlights the importance of corporate stakeholders and the need for businesses to balance the interests of various groups in their strategic decisions.

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2 views

Class 7 & 8

Chapter 3 discusses social responsibility in business, emphasizing that corporations have obligations beyond profit-making, including ethical and discretionary responsibilities. It contrasts Milton Friedman's view that profit maximization is the sole responsibility of businesses with Archie Carroll's framework, which includes economic, legal, ethical, and discretionary responsibilities. The chapter also highlights the importance of corporate stakeholders and the need for businesses to balance the interests of various groups in their strategic decisions.

Uploaded by

lilywhite786
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 3

Social Responsibility

Concepts in Strategic
Management and
Business Policy
15th Edition
Wheelen, Hunger, Hoffman and
Bamford

Dr. Malkah Noor Kiani

Ch 3 -1
Content

• Introduction – Social Responsibility


• Friedman’s Traditional View of Business Responsibility
• Carroll’s Four Responsibilities of Business
• Corporate Stakeholder

Ch 3 -2
1. Introduction
• Social responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit

• Corporate social responsibility (CSR) is a self-regulating


business model that helps a company be socially accountable—
to itself, its stakeholders, and the public.

• By practicing corporate social responsibility, also


called corporate citizenship, companies can be conscious of the
kind of impact they are having on all aspects of society, including
economic, social, and environmental.

Ch 3 -3
2. Friedman’s Traditional View of
Business Responsibility
• Milton Friedman argued against the concept of social
responsibility as a function of business

• A business person who acts “responsibly” by cutting the price of


the firm’s product to aid the poor, or by making expenditures to
reduce pollution, or by hiring the hard-core unemployed,
according to Friedman, is spending the shareholder’s money for
a general social interest.

• Even if the businessperson has shareholder permission or even


encouragement to do so, he or she is still acting from motives
other than economic and may, in the long run, harm the very
society the firm is trying to help.

Ch 3 -4
2. Friedman’s Traditional View of
Business Responsibility
• By taking on the burden of these social costs, the business
becomes less efficient—either prices go up to pay for the
increased costs or investment in new activities and research is
postponed.
• These results negatively affect— perhaps fatally—the long-term
efficiency of a business
• Friedman thus referred to the social responsibility of business as
a “fundamentally subversive doctrine” and stated that:

There is one and only one social responsibility of business—to


use its resources and engage in activities designed to
increase its profits so long as it stays within the rules of the
game, which is to say, engages in open and free
competition without deception or fraud
Ch 3 -5
3. Carroll’s Four Responsibilities of
Business
• Friedman’s contention that the primary goal of business is profit
maximization is only one side of an ongoing debate regarding
corporate social responsibility (CSR).

• According to William J. Byron, Distinguished Professor of Ethics


at Georgetown University and past President of Catholic
University of America, profits are merely a means to an end, not
an end in itself. Just as a person needs food to survive and
grow, so does a business corporation need profits to survive and
grow. “Maximizing profits is like maximizing food.”

• Thus, contends Byron, maximization of profits cannot be the


primary obligation of business.

Ch 3 -6
3. Carroll’s Four Responsibilities of
Business
• Archie Carroll proposed that the managers of business
organizations have four responsibilities: economic, legal, ethical,
and discretionary.

1. Economic responsibilities of a business organization’s


management are to produce goods and services of value to
society so that the firm may repay its creditors and increase the
wealth of its shareholders.
2. Legal responsibilities are defined by governments in laws that
management is expected to obey. For example, business firms
are required to hire and promote people based on their
credentials rather than to discriminate on non-job-related
characteristics such as race, gender, or religion

Ch 3 -7
3. Carroll’s Four Responsibilities of
Business
3. Ethical responsibilities of an organization’s management are to
follow the generally held beliefs about behavior in a society. For
example, society generally expects firms to work with the employees
and the community in planning for layoffs, even though no law may
require this. The affected people can get very upset if an
organization’s management fails to act according to generally
prevailing ethical values.

4. Discretionary responsibilities are the purely voluntary obligations


a corporation assumes. Examples are philanthropic contributions,
training the hard-core unemployed, and providing day-care centers.
The difference between ethical and discretionary responsibilities is
that few people expect an organization to fulfill discretionary
responsibilities, whereas many expect an organization to fulfill
ethical ones.
Ch 3 -8
3. Carroll’s Four Responsibilities of
Business

Ch 3 -9
3. Carroll’s Four Responsibilities of
Business
• Carroll lists these four responsibilities in order of priority. A
business firm must first make a profit to satisfy its economic
responsibilities. To continue in existence, the firm must follow the
laws, thus fulfilling its legal responsibilities. There is evidence
that companies found guilty of violating laws have lower profits
and sales growth after conviction.

• On this point, Carroll and Friedman are in agreement. Carroll,


however, goes further by arguing that business managers have
responsibilities beyond economic and legal ones. Having
satisfied the two basic responsibilities, according to Carroll, a
firm should look to fulfilling its social responsibilities.

Ch 3 -10
3. Carroll’s Four Responsibilities of
Business
• Social responsibility, therefore, includes both ethical and
discretionary, but not economic and legal, responsibilities. A firm
can fulfill its ethical responsibilities by taking actions that society
tends to value but has not yet put into law.
• When ethical responsibilities are satisfied, a firm can focus on
discretionary responsibilities—purely voluntary actions that
society has not yet decided to expect

Ch 3 -11
4. Corporate Stakeholders

• A corporation’s task environment includes a large number of


groups with interest in a business organization’s activities. These
groups are referred to as stakeholders because they affect or
are affected by the achievement of the firm’s objectives.
• Should a corporation be responsible only to some of these
groups, or does business have an equal responsibility to all of
them? In any one strategic decision, the interests of one
stakeholder group can conflict with those of another
• In order to answer this question, the corporation may need to
craft an enterprise strategy —an overarching strategy that
explicitly articulates the firm’s ethical relationship with its
stakeholders.

Ch 3 -12

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