Ethics and Social Responsibility of Business

Ethics and Social Responsibility

Ethics is concerned with the code of values and principles that enables a person to choose between right and wrong. Ethics is about norms, values, rights and responsibilities, sharing, fairness, obligation and exchange.

The subject of business ethics, however, looks at more than the issue of behaving in a socially responsible manner. Business ethics focuses on a wide range of conduct by managers and employees. Moreover, the focus is on both the results and the means to achieve this result. For example, most people would feel that bribing a foreign official to obtain a contract is unethical.

It is important to differentiate between the concepts of legal and social responsibility. Legal responsibility deals with specific laws and regulations that dictate what an organization may and may not do. An organization that obeys all these laws and regulations is behaving in a legally responsible way, but it is not necessarily being socially responsible.

Social responsibility, in contrast to legal responsibility, involves a degree of voluntary response from the organization. This response is above and beyond what is specified by a law or regulatory agency.

The Purpose of Business

There is a close relationship between the philosophy of business and business ethics. Philosophers specializing in business ethics are primarily interested in how business people ought to conduct themselves in the marketplace and in society. There is no common viewpoint about it. Most would argue that the main purpose of a business is to maximize profits for its owners, or in the case of a publicly-traded company, its stockholders. The late economist Milton Friedman was a proponent of this view, i.e. the stockholder model.

An alternative view to the stockholder model is the stakeholder model. Stakeholder theorists believe that people who have legitimate interests in a business also ought to have voice in how the business operates. But a business organization has responsibilities to everyone with a stake in, or an interest in, or a claim on the firm, including employees, suppliers, customers and the local community. According to this view, a company has to balance the interests of its owners with those of the other groups of people concerned by its existence. However, stakeholder theorists take contract theory a step further, maintaining that people outside of the business enterprise ought to have a say in how the business operates. Thus, for example, consumers, even community members who could be affected by what the business does, for example, by the pollutants of a factory, ought to have some control over the business.

Peter Drucker, the best known modern philosopher of business, defined the very purpose of business as creating a satisfied customer. This definition is also useful in evaluating to what extent a business is succeeding in fulfilling its stated purpose.

Other philosophers of business, for example, Geoffrey Klempner, are principally interested in examining how business is even possible, which is to say, how an enterprise саn function in society as a whole. Klempner states that theories of ethics and business are often at odds.

Social Responsibility Strategies

Whatever conclusions we could reach on the social responsibility arguments, it is clear that organizations are increasingly committing themselves to act responsibly. We can classify these actions into four types.

An organization following an obstructive strategy will tend to deny responsibility for its actions and resist change that it can only see as disadvantageous. The policy is also known as stonewalling or a reactive policy.

Using a defensive strategy, a company proceeds not by denial but by manoeuvring to justify its position and avoid being saddled with extra responsibility. The stance is to do everything that is legally required and no more. The strategy uses legal actions and public relations campaigns to prove compliance.

Under an adaptive social responsibility strategy, the company accepts that it is accountable for its actions, although this acceptance is often the result of pressure brought by external groups.

The company following the proactive strategy takes the lead. It looks carefully at the relationships between its activities and the interests of its stakeholders. Then it responds to these interests without any pressure.

The four responsibility strategies, represent organizations whose attitude varies from “the business of business is business” to “we are responsible for all the consequences of our actions”.

Concept check

1. Do you agree with the statements? Give your reasons.

1. Ethics is understanding of regulations and how to use them in life.

2. Organization members make decisions based on rules existing there.

3. Business ethics considers behaviour of managers and employees.

4. The purpose of organizations is not a disputable question.

5. The organization that doesn’t violate laws is not always socially responsible.

6. Social responsibility implies the idea of voluntary actions on the part of the organization.

7. Social responsibility covers the area of minority-hiring practices.

8. The only purpose of business is to maximize profit.

9. P. Drucker and J. Klempner supported the same view on the purpose of business.

10. The company’s employees are its only stakeholders.

11. According to the stakeholder model people outside the business ought to have some influence on the company’s performance.

2. Speak about the four types of social responsibility strategies. Why do companies choose one or other, or even a mix of these strategies?

READING II