Tutorial 31.) “The only rule of business is the increase of profits.” Discuss. We are now discuss about the rule of business, is it just maximize profit without any moral responsibility? Or we need to make decisions that protect and benefit society?
According to the Dictionary of Finance and Investment Terms, social responsibility is the “principle that businesses should actively contribute to the welfare of society and not only maximize profits”. We don’t have “absolutely” in the world, but we still can argue that which one better or which view we would like to use in the society.
The rival views of corporate responsibility have narrow view and broad view. . These views consider issues based on mere “profit maximization” and “community service”. I am more inclined to endorse Broad view. In my view the statement ‘the social responsibility of business is to increase profit’ is true to an extent (broad view), however, I believe a corporation’s responsibilities extend beyond just maximizing profits (narrow view).
Milton Friedman is one of the economists who strongly support ‘narrow view’. He wrote, “In the end business has only two responsibilities- to obey the elementary canons of face-to-face civility (honesty, good faith and so on) and to seek material gain” here we see the freedom defined in contractual relationships that exist within the “rules of the game”. His opinion might be can look upon as realistic to an extent, however, I believe he doesn’t take into consider the negative side-effects that business activities can have on society.
Hence, I would find it appropriate that it would be inclined to act in a way of the interest of the corporation by increasing profits for workers and shareholders. However, a corporate executive with said “social responsibility” would be acting in some way that is not in the interest of employers, for example, refraining from increasing the price of products to prevent inflation, even though an increase in prices would be in the best interest of the corporation.
Such as the last case study “Ford Pinto”. Ford motor Company is use narrow view. They want to save the cost, so approve the problem vehicle to produce. That is a big decision mistake they make. They lose their reputation, credibility, our confidence and so on. We must understand that, crusading lawyers will convince at least a handful of preening business executives that working life isn’t about individuals expressing their freedom in a wide-open world; it’s about serving the general welfare. The notion of corporate social responsibility becomes a mainstream concern and wins wide public support.
Otherwise, we argue broad view. This broader view of corporate social responsibility maintains that a corporation has obligations, not just to its shareholders. The behavior of corporations has such great social and economic power in our society. With that power must comes social responsibility, business decisions do have social consequences.
Nowadays, lots of corporations now place a great emphasis on how their operations effect the environment. It’s an issue that doesn’t just impact the company, but society as a whole of which the company is part of. It the environment collapses and contributes to, for example. Declining population, then there will be less consumers for the company’s products and services, in turn leading to less profit.
Another reason Corporate Social Responsibility (CSR) is an area of growing concern for lots of companies, is that many stakeholders (employees, investors, suppliers and customers) in a corporation now look for it to act more responsibility in many areas the affect society in general. Profit is a motivating factor as with much advancement in the area of business, as those businesses that take on and address these new challenges put themselves at a competitive advantage against their competition, because they are addressing the concerns of more socially conscience consumers.
We can argue that a company’s sole motive should be profit. However this must be put into the context of today’s world. In the end, a business that does not change to address stakeholder and social concerns will see profits dry up, and cease to exist.
Eventually, if businesses are going to run narrow view, contaminate the environment or cause distress in people’s live, they should also be actively working to resolve the problems. Hence, there’s the strong argument thateven if the corporate purpose should be to make profits, social responsibility is an excellent way to achieve the goal.
REFFERENCEShaw, WH, Barry, V & Sansbury, G 2009, Moral Issues in Business: Asia Pacific Edition, 1st edn, Cengage Learning, South Melbourne.